Salisbury
Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS (unaudited)
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
1
The number of authorized, issued and outstanding shares has been adjusted to reflect the two-for-one forward stock split effective
on June 30, 2022.
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
1 Per share amounts
for all periods have been adjusted to reflect the two-for-one forward stock split effective on June 30, 2022.
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
INCOME (unaudited)
1 Reclassification
adjustments include realized security gains and losses. The gains and losses have been reclassified out of accumulated other comprehensive
(loss) income and have affected certain lines in the consolidated statements of income as follows: The pre-tax amount is reflected as
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. The net tax effect for the three months ending June 30, 2022 and 2021 are $9 thousand and $2 thousand, respectively.
The net tax effect for the six-month periods ending June 30, 2022 and 2021 are ($35) thousand and $2 thousand, respectively.
Salisbury
Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (unaudited)
The accompanying notes are an
integral part of these unaudited consolidated financial statements.
1
The number of shares for all periods have been adjusted to reflect the two-for-one forward stock split effective on June 30, 2022.
The accompanying notes are an
integral part of these unaudited consolidated financial statements.
1 The number
of shares for all periods have been adjusted to reflect the two-for-one forward stock split effective on June 30, 2022.
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH
FLOWS (unaudited)
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
The accompanying
notes are an integral part of these unaudited consolidated financial statements.
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 and unrealized gains and losses related to available-for-sale securities.
Salisbury increased
the number of issued and authorized common shares and effected a two-for-one forward stock split of the Company’s common stock on
June 30, 2022. The par value of common stock was not adjusted as a result of the forward stock split. All share and per share amounts
in the financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this forward
stock split.
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
June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The accompanying
condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2021
Annual Report on Form 10-K for the year ended December 31, 2021.
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. 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.
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 removes all recognition thresholds and requires 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 clarifies 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 clarifies 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 clarifies or addresses specific issues about certain aspects of the amendments in ASU 2016-13. The amendments
in ASU 2019-11 clarify the following: (1) The allowance for credit losses (ACL) 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. In March 2022, the FASB issued
ASU 2022-02, which clarifies the treatment of accrued interest when measuring credit losses. The amendments in this Update eliminate
the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other
loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing
disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing
financial difficulty. For public business entities, the amendments in this Update require that an entity disclose current-period gross
write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.
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.
The Bank is working towards the completion
of its ACL methodology. To estimate the ACL for loans and off-balance sheet credit exposures, such as unfunded loan commitments, Salisbury
will utilize a discounted cash flow model that contains additional assumptions to calculate credit losses over the estimated life of
financial assets and off-balance sheet credit exposures and will include the impact of forecasted economic conditions. The estimate is
expected to include a one-year reasonable and supportable forecast period and thereafter a one-year reversion period to the historical
mean of its macroeconomic assumption. The estimate will also include qualitative factors that may not be reflected in quantitatively
derived results to ensure that the ACL reflects a reasonable estimate of current expected credit losses.
The Bank is currently refining various
ACL assumptions and running parallel calculations on a monthly basis. Salisbury estimates that under the CECL framework, the ACL would
be $13.6 million compared with the allowance for loan losses of $13.7 million reported on the consolidated balance sheet at June 30,
2022. In addition, Salisbury estimates that the ACL for unfunded commitments would be approximately $1.2 million compared with the allowance
of $0.2 million recorded on its consolidated balance sheet as of June 30, 2022. Salisbury will continue to refine its ACL methodology
prior to implementation of CECL on January 1, 2023. In addition, the estimated ACL and allowance for unfunded commitments under both
the Incurred Loss method and CECL will be affected by various factors, which include but are not limited to, changes in the composition
and balance of Salisbury’s loan portfolio and unfunded commitments, changes to internal risk ratings of borrowers, changes to the
risk-profile of the loan portfolio, changes in various macro-economic indicators, the impact of COVID-19 and geo-political events on
the business environment, and other factors.
Based on the credit quality of Salisbury’s
existing available for sale debt securities portfolio, which primarily consists of obligations of U.S. government agency and U.S. government-sponsored
enterprise securities, including mortgage-backed securities, Salisbury does not expect the adoption of ASU 2016-13, as it relates to
debt securities, to be significant. For available for sale debt securities with unrealized losses, credit losses will be recognized as
an allowance rather than a reduction in the amortized cost of the securities. As a result, improvements to estimated credit losses will
be recognized immediately in earnings rather than as interest income over time.
In January 2021, the FASB issued ASU
2021-01, “Reference Rate Reform (Topic 848).” In response to the risk of cessation of the London Interbank Offered Rate (LIBOR)
as a reference rate, this ASU clarifies the scope of Topic 848 so that derivatives affected by this transition are explicitly eligible
for certain optional expedients and exceptions in Topic 848. An entity may elect to apply the amendments in this ASU on a full retrospective
basis as of any date from the beginning interim period that includes or is subsequent to March 12, 2020 or on a prospective basis to
new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update,
up to the date that the financial statements are available to be issued. The transition from LIBOR is not expected to have a material
impact on Salisbury’s Consolidated Financial Statements.
In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging
(Topic 815) Fair Value Hedging – Portfolio Layer Method.” The amendments in this update clarified the following: (1) The
current last-of-layer method that permits only one hedged layer has been expanded to allow multiple hedged layers of a single closed
portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method; (2) The scope of the portfolio
layer method has been expanded to include non-pre-payable financial assets; (3) Eligible hedging instruments in a single-layer hedge
may include spot-starting or forward-starting constant-notional swaps, or spot-or forward-starting amortizing-notional swaps and that
the number of hedged layers (that is, single or multiple) corresponds with the number of hedges designated; (4) Additional guidance is
provided on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method whether a
single hedged layer or multiple hedged layers are designated; and (5) How hedge basis adjustments should be considered when determining
credit losses for the assets included in the closed portfolio. The amendments in this ASU are effective for fiscal years beginning after
December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted for any entity that has adopted the amendments
in ASU 2017-12 for the corresponding period. Salisbury does not expect the implementation of ASU 2022-01 to have a material impact on
its consolidated financial statements.
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 | |
| June 30, 2022 | |
| | | |
| | | |
| | | |
| | |
| Available-for-sale | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury | |
$ | 19,250 | | |
$ | — | | |
$ | 1,578 | | |
$ | 17,672 | |
| U.S. Government Agency notes | |
| 31,301 | | |
| 128 | | |
| 1,711 | | |
| 29,718 | |
| Municipal bonds | |
| 55,339 | | |
| 2 | | |
| 7,074 | | |
| 48,267 | |
| Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies and U.S. Government - sponsored
enterprises | |
| 77,339 | | |
| 52 | | |
| 5,924 | | |
| 71,467 | |
| Collateralized mortgage obligations: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies | |
| 24,531 | | |
| — | | |
| 1,979 | | |
| 22,552 | |
| Corporate
bonds | |
| 13,750 | | |
| 10 | | |
| 326 | | |
| 13,434 | |
| Total
securities available-for-sale | |
$ | 221,510 | | |
$ | 192 | | |
$ | 18,592 | | |
$ | 203,110 | |
| Mutual fund | |
| | | |
| | | |
| | | |
$ | 1,672 | |
| Non-marketable securities | |
| | | |
| | | |
| | | |
| | |
| Federal
Home Loan Bank of Boston stock | |
$ | 945 | | |
$ | — | | |
$ | — | | |
$ | 945 | |
| (in
thousands) | |
| Amortized
cost basis | | |
| Gross
un-realized gains | | |
| Gross
un-realized losses | | |
| Fair
value | |
| December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
| Available-for-sale | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury | |
$ | 15,301 | | |
$ | 12 | | |
$ | 182 | | |
$ | 15,131 | |
| U.S. Government Agency notes | |
| 31,623 | | |
| 237 | | |
| 256 | | |
| 31,604 | |
| Municipal bonds | |
| 46,469 | | |
| 1,557 | | |
| 204 | | |
| 47,822 | |
| Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies and U.S. Government- sponsored
enterprises | |
| 74,703 | | |
| 643 | | |
| 805 | | |
| 74,541 | |
| Collateralized mortgage obligations: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies | |
| 20,948 | | |
| 135 | | |
| 185 | | |
| 20,898 | |
| Corporate
bonds | |
| 12,250 | | |
| 158 | | |
| 8 | | |
| 12,400 | |
| Total
securities available-for-sale | |
$ | 201,294 | | |
$ | 2,742 | | |
$ | 1,640 | | |
$ | 202,396 | |
| Mutual fund | |
| | | |
| | | |
| | | |
$ | 901 | |
| Non-marketable securities | |
| | | |
| | | |
| | | |
| | |
| Federal
Home Loan Bank of Boston stock | |
$ | 1,397 | | |
$ | — | | |
$ | — | | |
$ | 1,397 | |
Salisbury sold
$22.0 million of available-for-sale securities during the six-month period ended June 30, 2022 realizing gains of $458 thousand and losses
of $293 thousand resulting in a net gain of $165 thousand and related tax expense of $35 thousand. Salisbury sold $4.0 million of available-for-sale
securities during the three-month period ended June 30, 2022 realizing gains of $3 thousand and losses of $48 thousand resulting in a
net loss of $45 thousand and related tax benefit of $9 thousand. Salisbury sold $3.3 million of available-for-sale securities during the
three and six-month periods ended June 30, 2021 realizing a pre-tax loss of $9 thousand and a related tax benefit of $2 thousand.
The following
table summarizes the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position
as of the date presented:
| | |
| |
| |
| |
| |
| |
|
| | |
Less
than 12 Months | |
12
Months or Longer | |
Total |
| June 30, 2022 (in
thousands) | |
Fair value | |
Unrealized losses | |
Fair value | |
Unrealized losses | |
Fair value | |
Unrealized losses |
| Available-for-sale | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury | |
$ | 17,672 | | |
$ | 1,578 | | |
$ | — | | |
$ | — | | |
$ | 17,672 | | |
$ | 1,578 | |
| U.S. Government Agency notes | |
| 14,998 | | |
| 1,367 | | |
| 9,267 | | |
| 344 | | |
| 24,265 | | |
| 1,711 | |
| Municipal bonds | |
| 45,603 | | |
| 6,717 | | |
| 1,518 | | |
| 357 | | |
| 47,121 | | |
| 7,074 | |
| Mortgage- backed securities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies and U.S. Government-
sponsored enterprises | |
| 50,249 | | |
| 4,679 | | |
| 14,709 | | |
| 1,245 | | |
| 64,958 | | |
| 5,924 | |
| Collateralized mortgage obligations: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies | |
| 22,552 | | |
| 1,979 | | |
| — | | |
| — | | |
| 22,552 | | |
| 1,979 | |
| Corporate
bonds | |
| 7,424 | | |
| 326 | | |
| — | | |
| — | | |
| 7,424 | | |
| 326 | |
| Total
temporarily impaired securities | |
$ | 158,498 | | |
$ | 16,646 | | |
$ | 25,494 | | |
$ | 1,946 | | |
$ | 183,992 | | |
$ | 18,592 | |
| | |
| |
| |
| |
| |
| |
|
| | |
Less
than 12 Months | |
12
Months or Longer | |
Total |
| December 31, 2021
(in thousands) | |
Fair value | |
Unrealized losses | |
Fair value | |
Unrealized losses | |
Fair value | |
Unrealized losses |
| Available-for-sale | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury | |
$ | 12,155 | | |
$ | 182 | | |
$ | — | | |
$ | — | | |
$ | 12,155 | | |
$ | 182 | |
| U.S. Government Agency notes | |
| 22,137 | | |
| 235 | | |
| 2,019 | | |
| 21 | | |
| 24,156 | | |
| 256 | |
| Municipal bonds | |
| 12,496 | | |
| 204 | | |
| 552 | | |
| — | | |
| 13,048 | | |
| 204 | |
| Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies and U.S. Government-
sponsored enterprises | |
| 52,619 | | |
| 740 | | |
| 3,195 | | |
| 65 | | |
| 55,814 | | |
| 805 | |
| Collateralized mortgage obligations | |
| 11,554 | | |
| 185 | | |
| — | | |
| — | | |
| 11,554 | | |
| 185 | |
| Corporate
bonds | |
| 1,742 | | |
| 8 | | |
| — | | |
| — | | |
| 1,742 | | |
| 8 | |
| Total
temporarily impaired securities | |
$ | 112,703 | | |
$ | 1,554 | | |
$ | 5,766 | | |
$ | 86 | | |
$ | 118,469 | | |
$ | 1,640 | |
The table
below presents the amortized cost, fair value and tax equivalent yield of securities, by maturity. Debt securities issued by U.S. Government
agencies (SBA securities), MBS, and CMOS are disclosed separately in the table below as these securities may prepay prior to the scheduled
contractual maturity dates.
| June 30,
2022 (in thousands) | |
Maturity | |
Amortized
cost | |
|
Fair
value |
| |
|
Yield(1) |
|
| U.S. Treasury | |
After 1 year but within 5 years | |
$ | 7,859 | | |
$ | 7,444 | | |
| 1.32 | % |
| | |
After
5 year but within 10 years | |
| 11,391 | | |
| 10,228 | | |
| 1.18 | |
| | |
Total | |
| 19,250 | | |
| 17,672 | | |
| 1.24 | |
| U.S. Government Agency notes | |
After 1 year but within 5 years | |
| 3,990 | | |
| 3,666 | | |
| 0.92 | |
| | |
After
5 year but within 10 years | |
| 11,923 | | |
| 10,721 | | |
| 1.34 | |
| | |
Total | |
| 15,913 | | |
| 14,387 | | |
| 1.23 | |
| Municipal bonds | |
After 1 year but within 5 years | |
| 512 | | |
| 478 | | |
| 1.74 | |
| | |
After 5 year but within 10 years | |
| 12,792 | | |
| 11,179 | | |
| 2.38 | |
| | |
After 10 years but within 15 years | |
| 12,971 | | |
| 11,282 | | |
| 2.36 | |
| | |
After
15 years | |
| 29,064 | | |
| 25,328 | | |
| 2.84 | |
| | |
Total | |
| 55,339 | | |
| 48,267 | | |
| 2.61 | |
| Mortgage-backed securities and
Collateralized mortgage obligations | |
Securities
not due at a single maturity date | |
| 117,258 | | |
| 109,350 | | |
| 2.00 | |
| | |
Total | |
| 117,258 | | |
| 109,350 | | |
| 2.00 | |
| Corporate bonds | |
After 5 years but within 10 years | |
| 13,750 | | |
| 13,434 | | |
| 4.35 | |
| | |
Total | |
| 13,750 | | |
| 13,434 | | |
| 4.35 | |
| Securities
available-for-sale | |
| |
$ | 221,510 | | |
$ | 203,110 | | |
| 2.27 | % |
(1)
Yield is based on amortized cost.
Salisbury evaluates
debt securities for OTTI where the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of
this process, Salisbury considers whether it has the intent to sell each debt security and whether it is more likely than not that it
will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI
charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance
sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are
at risk for OTTI.
The following
summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at June 30, 2022.
U.S. Treasury notes: The
contractual cash flows are guaranteed by the U.S. government. Ten securities had unrealized losses at June 30, 2022, which approximated
8.20% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and
not changes in credit quality since time of purchase. Management expects to recover the entire amortized cost basis of these securities.
Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not
more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity,
and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that
the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily
impaired at June 30, 2022.
U.S. Government Agency notes:
The contractual cash flows are guaranteed by the U.S. government. Twenty-three securities had unrealized losses at June 30, 2022, which
approximated 6.59% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements
and not changes in credit quality since time of purchase. Management expects to recover the entire amortized cost basis of these securities.
Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not
more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity,
and does not intend to sell these securities. Management evaluated the impairment status of these debt securities and concluded that the
gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily
impaired at June 30, 2022.
Municipal bonds: Salisbury
performed a detailed analysis of the municipal bond portfolio. Sixty-five securities had unrealized losses at June 30, 2022, which approximated
13.05% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and spread movements
and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury
evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not
that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend
to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized
losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at June
30, 2022.
U.S. Government agency and
U.S. Government-sponsored mortgage-backed securities and collateralized mortgage obligations: The contractual cash flows are guaranteed
by U.S. government agencies and U.S. government-sponsored enterprises. Ninety securities had unrealized losses at June 30, 2022, which
approximated 8.28% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements
and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury
evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not
that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend
to sell these securities. Therefore, management does not consider these investments to be other-than-temporarily impaired at June 30,
2022.
Corporate bonds: Salisbury
regularly monitors and analyzes its corporate bond portfolio for credit quality. Ten securities had unrealized losses at June 30, 2022,
which approximated 4.20% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and
spread movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.
Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not
more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity,
and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that
the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily
impaired at June 30, 2022.
The Federal
Home Loan Bank of Boston (FHLBB) is a cooperative that provides services, including funding in the form of advances, to its member banking
institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily
on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB
stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by
the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has
no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions
imposed by the FHLBB. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment
related to the carrying amount of the Bank’s FHLBB stock as of June 30, 2022. Deterioration of the FHLBB’s capital levels
may require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the
FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment
in FHLBB stock.
NOTE 3 –
LOANS
The composition
of loans receivable and loans held-for-sale is as follows:
| (In thousands) | |
|
June
30, 2022 |
| |
|
December
31, 2021 |
|
| Residential 1-4 family | |
$ | 398,556 | | |
$ | 373,131 | |
| Residential 5+ multifamily | |
| 69,272 | | |
| 52,325 | |
| Construction of residential 1-4 family | |
| 22,379 | | |
| 19,738 | |
| Home
equity lines of credit | |
| 23,763 | | |
| 23,270 | |
| Residential
real estate | |
| 513,970 | | |
| 468,464 | |
| Commercial | |
| 338,091 | | |
| 310,923 | |
| Construction of
commercial | |
| 49,696 | | |
| 58,838 | |
| Commercial
real estate | |
| 387,787 | | |
| 369,761 | |
| Farm land | |
| 3,668 | | |
| 2,807 | |
| Vacant
land | |
| 15,397 | | |
| 14,182 | |
| Real estate secured | |
| 920,822 | | |
| 855,214 | |
| Commercial and industrial ex PPP Loans | |
| 189,086 | | |
| 169,543 | |
| PPP
Loans | |
| 2,894 | | |
| 25,589 | |
| Total Commercial and industrial | |
| 191,980 | | |
| 195,132 | |
| Municipal | |
| 17,486 | | |
| 16,534 | |
| Consumer | |
| 18,155 | | |
| 12,547 | |
| Loans receivable, gross | |
| 1,148,443 | | |
| 1,079,427 | |
| Deferred loan origination costs, net | |
| 1,018 | | |
| 285 | |
| Allowance
for loan losses | |
| (13,703 | ) | |
| (12,962 | ) |
| Loans
receivable, net | |
$ | 1,135,758 | | |
$ | 1,066,750 | |
| Loans held-for-sale | |
| | | |
| | |
| Residential
1-4 family | |
$ | — | | |
$ | 2,684 | |
Salisbury has entered into loan participation agreements
with other banks and transferred a portion of its originated loans to the participating banks. Transferred amounts are accounted for
as sales and excluded from Salisbury’s loans receivable. Salisbury and its participating lenders share ratably in any gains or
losses that may result from a borrower’s lack of compliance with contractual terms of the loan. Salisbury services the loans on
behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees)
to participating lenders and disburses required escrow funds to relevant parties.
Salisbury
also has entered into loan participation agreements with other banks and purchased a portion of the other banks’ originated loans.
Purchased amounts are accounted for as loans without recourse to the originating bank. Salisbury and its originating lenders share
ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The
originating banks service the loans on behalf of the participating lenders and, as such, collect cash payments from the borrowers, remit
payments (net of servicing fees) to participating lenders and disburse required escrow funds to relevant parties.
At June 30,
2022 and December 31, 2021, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $83.4 million
and $77.5 million, respectively.
Concentrations
of Credit Risk
Salisbury's loans consist primarily of residential
and commercial real estate loans located principally in Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New York;
and Berkshire County, Massachusetts, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities
to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital
loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, installment loans and collateral loans.
All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family
residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity
within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent
on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.
Salisbury’s
commercial loan portfolio is comprised of loans to diverse industries, several of which are subject to operating challenges due to the
COVID-19 virus pandemic (“virus”). Approximately 40% of the Bank’s commercial loan portfolio are to entities who operate
rental properties, which include commercial strip malls, smaller rental units as well as multi-unit dwellings. Approximately 10% of the
Bank’s commercial loans are to entities in the hospitality industry, which includes hotels, bed & breakfast inns and restaurants.
Approximately 9% of the Bank’s commercial loans are to educational institutions and approximately 5% of Salisbury’s commercial
loans are to entertainment and recreation related businesses, which include camps and amusement parks. Salisbury’s commercial real
estate exposure as a percentage of the Bank’s total risk-based capital, which represents Tier 1 plus Tier 2 capital, was approximately
187% as of June 30, 2022 and 179% at December 31, 2021 compared to the regulatory monitoring guideline of 300%.
Salisbury’s
commercial loan exposure is mitigated by a variety of factors including the personal liquidity of the borrower, real estate and/or non-real
estate collateral, U.S. Department of Agriculture or Small Business Administration (“SBA”) guarantees, loan payment deferrals
and economic stimulus loans from the U.S. government as a result of the virus, and other factors. Due to the COVID-19 pandemic, the Bank
may experience higher loan payment delinquencies and higher loan charge-offs, which could warrant increased provisions for loan losses.
At June 30,
2022 Salisbury had gross PPP loan balances of $3 million on its consolidated balance sheet compared with approximately $26 million at
December 31, 2021. The PPP loans are reported on Salisbury’s balance sheet at their outstanding principal balance, net of
unamortized deferred loan origination fees and costs on originated loans. Interest income is accrued on the unpaid principal balance.
Deferred loan origination fees and costs on the loans are amortized as an adjustment to yield over the lives of the related loans, which
is predominately five years. For the three months ended June 30, 2022, Salisbury recorded interest
income and net origination fees of $22 thousand and $236 thousand, respectively, on PPP loans compared with $204 thousand and $582 thousand,
respectively, for the three months ended June 30, 2021. For the six months ended June 30, 2022, Salisbury recorded interest income and
net origination fees of $68 thousand and $671 thousand, respectively, on PPP loans compared with $436 thousand and $1.6 million, respectively,
for the comparable period ended June 30, 2021.
Credit Quality
Salisbury uses
credit risk ratings as part of its determination of the allowance for loan losses. Credit risk ratings categorize loans by common financial
and structural characteristics that measure the credit strength of a borrower. The rating model has eight risk rating grades, with each
grade corresponding to a progressively greater risk of default. Grades 1 through 4 are considered not criticized and are aggregated as
pass rated, and 5 through 8 are criticized as defined by the regulatory agencies. Risk ratings are assigned to differentiate risk within
the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position
and outlook, risk profiles and the related collateral and structural positions. Salisbury sold approximately $3.7 million of non-performing
and under-performing loans during the six-month period ended June 30, 2022 to further manage the Bank’s credit risk proactively.
Loans
rated as "special mention" (5) possess credit deficiencies or potential weaknesses deserving management’s close attention
that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.
Loans
rated as "substandard" (6) are loans where the Bank’s position is clearly not protected adequately by borrower current
net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses
to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished,
and the Bank must rely on sale of collateral or other secondary sources of collection.
Loans
rated "doubtful" (7) have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection
or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due
to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated
loss is deferred until its exact status can be determined.
Loans
classified as "loss" (8) are considered uncollectible and of such little value that continuance as Bank assets is unwarranted.
This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable
to defer writing off this loan even though partial recovery may be made in the future.
Management
actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate
its assignment of credit risk ratings. In addition, the Bank’s loan portfolio is examined periodically by its regulatory agencies,
the FDIC and the CTDOB.
The
composition of loans receivable by risk rating grade is presented in the table below. The decrease in substandard loans from year end
2021 primarily reflected management’s upgrade of the internal risk rating on approximately $17 million of loans that were mostly
related to the hospitality and entertainment and recreation industries. These loans were previously downgraded due to concerns over COVID-19
but the businesses have since demonstrated a return to pre-pandemic levels of activity and liquidity.
| (in
thousands) | |
Pass | |
Special
mention | |
Substandard | |
Doubtful | |
Loss | |
Total |
| June 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential 1-4 family | |
$ | 393,642 | | |
$ | 3,093 | | |
$ | 1,821 | | |
$ | — | | |
$ | — | | |
$ | 398,556 | |
| Residential 5+ multifamily | |
| 69,117 | | |
| 75 | | |
| 80 | | |
| — | | |
| — | | |
| 69,272 | |
| Construction of residential 1-4 family | |
| 20,279 | | |
| — | | |
| 2,100 | | |
| — | | |
| — | | |
| 22,379 | |
| Home
equity lines of credit | |
| 23,592 | | |
| 171 | | |
| — | | |
| — | | |
| — | | |
| 23,763 | |
| Residential
real estate | |
| 506,630 | | |
| 3,339 | | |
| 4,001 | | |
| — | | |
| — | | |
| 513,970 | |
| Commercial | |
| 312,206 | | |
| 20,455 | | |
| 5,430 | | |
| — | | |
| — | | |
| 338,091 | |
| Construction
of commercial | |
| 49,696 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 49,696 | |
| Commercial
real estate | |
| 361,902 | | |
| 20,455 | | |
| 5,430 | | |
| — | | |
| — | | |
| 387,787 | |
| Farm land | |
| 1,963 | | |
| 1,296 | | |
| 409 | | |
| — | | |
| — | | |
| 3,668 | |
| Vacant
land | |
| 15,362 | | |
| 35 | | |
| — | | |
| — | | |
| — | | |
| 15,397 | |
| Real estate secured | |
| 885,857 | | |
| 25,125 | | |
| 9,840 | | |
| — | | |
| — | | |
| 920,822 | |
| Commercial and industrial | |
| 189,228 | | |
| 920 | | |
| 1,832 | | |
| — | | |
| — | | |
| 191,980 | |
| Municipal | |
| 17,486 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 17,486 | |
| Consumer | |
| 18,155 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 18,155 | |
| Loans
receivable, gross | |
$ | 1,110,726 | | |
$ | 26,045 | | |
$ | 11,672 | | |
$ | — | | |
$ | — | | |
$ | 1,148,443 | |
| (in thousands) | |
Pass | |
Special mention | |
Substandard | |
Doubtful | |
Loss | |
Total |
| December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential 1-4 family | |
$ | 367,225 | | |
$ | 3,543 | | |
$ | 2,363 | | |
$ | — | | |
$ | — | | |
$ | 373,131 | |
| Residential 5+ multifamily | |
| 50,588 | | |
| 79 | | |
| 1,658 | | |
| — | | |
| — | | |
| 52,325 | |
| Construction of residential 1-4 family | |
| 19,738 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 19,738 | |
| Home
equity lines of credit | |
| 23,037 | | |
| 212 | | |
| 21 | | |
| — | | |
| — | | |
| 23,270 | |
| Residential
real estate | |
| 460,588 | | |
| 3,834 | | |
| 4,042 | | |
| — | | |
| — | | |
| 468,464 | |
| Commercial | |
| 271,821 | | |
| 16,034 | | |
| 23,068 | | |
| — | | |
| — | | |
| 310,923 | |
| Construction of
commercial | |
| 58,838 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 58,838 | |
| Commercial
real estate | |
| 330,659 | | |
| 16,034 | | |
| 23,068 | | |
| — | | |
| — | | |
| 369,761 | |
| Farm land | |
| 1,162 | | |
| 1,214 | | |
| 431 | | |
| — | | |
| — | | |
| 2,807 | |
| Vacant
land | |
| 14,143 | | |
| 39 | | |
| — | | |
| — | | |
| — | | |
| 14,182 | |
| Real estate secured | |
| 806,552 | | |
| 21,121 | | |
| 27,541 | | |
| — | | |
| — | | |
| 855,214 | |
| Commercial and industrial | |
| 191,857 | | |
| 688 | | |
| 2,587 | | |
| — | | |
| — | | |
| 195,132 | |
| Municipal | |
| 16,534 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 16,534 | |
| Consumer | |
| 12,547 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 12,547 | |
| Loans
receivable, gross | |
$ | 1,027,490 | | |
$ | 21,809 | | |
$ | 30,128 | | |
$ | — | | |
$ | — | | |
$ | 1,079,427 | |
The composition of loans receivable
by delinquency status is as follows:
| | |
| |
| |
| |
| |
| |
| |
| |
|
| | |
| |
Past
due | |
|
| | |
| |
| |
| |
| |
| |
| |
| |
|
| | |
| |
| |
| |
| |
180 | |
30 | |
Accruing | |
|
| (in
thousands) | |
| |
| |
| |
| |
days | |
days | |
90
days | |
| | |
| |
30-59 | |
60-89 | |
90-179 | |
and | |
and | |
and | |
Non- |
| | |
Current | |
days | |
days | |
days | |
over | |
over | |
over | |
accrual |
| June 30, 2022 | |
| |
| |
| |
| |
| |
| |
| |
|
| Residential 1-4 family | |
$ | 398,234 | | |
$ | 152 | | |
$ | 155 | | |
$ | — | | |
$ | 15 | | |
$ | 322 | | |
$ | — | | |
$ | 350 | |
| Residential 5+ multifamily | |
| 69,272 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Construction of residential 1-4 family | |
| 22,310 | | |
| — | | |
| — | | |
| 69 | | |
| — | | |
| 69 | | |
| 69 | | |
| 2,100 | |
| Home equity lines of credit | |
| 23,437 | | |
| 326 | | |
| — | | |
| — | | |
| — | | |
| 326 | | |
| — | | |
| — | |
| Residential real estate | |
| 513,253 | | |
| 478 | | |
| 155 | | |
| 69 | | |
| 15 | | |
| 717 | | |
| 69 | | |
| 2,450 | |
| Commercial | |
| 338,006 | | |
| — | | |
| 85 | | |
| — | | |
| — | | |
| 85 | | |
| — | | |
| 1,228 | |
| Construction of commercial | |
| 49,696 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Commercial real estate | |
| 387,702 | | |
| — | | |
| 85 | | |
| — | | |
| — | | |
| 85 | | |
| — | | |
| 1,228 | |
| Farm land | |
| 3,668 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 409 | |
| Vacant land | |
| 15,397 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Real estate secured | |
| 920,020 | | |
| 478 | | |
| 240 | | |
| 69 | | |
| 15 | | |
| 802 | | |
| 69 | | |
| 4,087 | |
| Commercial and industrial | |
| 191,780 | | |
| 189 | | |
| — | | |
| — | | |
| 11 | | |
| 200 | | |
| 11 | | |
| 62 | |
| Municipal | |
| 17,486 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Consumer | |
| 18,061 | | |
| 87 | | |
| 7 | | |
| — | | |
| — | | |
| 94 | | |
| — | | |
| — | |
| Loans receivable, gross | |
$ | 1,147,347 | | |
$ | 754 | | |
$ | 247 | | |
$ | 69 | | |
$ | 26 | | |
$ | 1,096 | | |
$ | 80 | | |
$ | 4,149 | |
| | |
| |
| |
| |
| |
| |
| |
| |
|
| | |
| |
Past
due | |
|
| | |
| |
| |
| |
| |
| |
| |
| |
|
| | |
| |
| |
| |
| |
180 | |
30 | |
Accruing | |
|
| (in
thousands) | |
| |
| |
| |
| |
days | |
days | |
90
days | |
| | |
| |
30-59 | |
60-89 | |
90-179 | |
and | |
and | |
and | |
Non- |
| | |
Current | |
days | |
days | |
days | |
over | |
over | |
over | |
accrual |
| December 31, 2021 | |
| |
| |
| |
| |
| |
| |
| |
|
| Residential 1-4 family | |
$ | 372,620 | | |
$ | 223 | | |
$ | 135 | | |
$ | 63 | | |
$ | 90 | | |
$ | 511 | | |
$ | — | | |
$ | 750 | |
| Residential 5+ multifamily | |
| 51,464 | | |
| — | | |
| — | | |
| — | | |
| 861 | | |
| 861 | | |
| — | | |
| 861 | |
| Construction of residential 1-4 family | |
| 19,668 | | |
| — | | |
| 70 | | |
| — | | |
| — | | |
| 70 | | |
| — | | |
| — | |
| Home equity lines of credit | |
| 23,000 | | |
| 165 | | |
| 98 | | |
| — | | |
| 7 | | |
| 270 | | |
| — | | |
| 21 | |
| Residential real estate | |
| 466,752 | | |
| 388 | | |
| 303 | | |
| 63 | | |
| 958 | | |
| 1,712 | | |
| — | | |
| 1,632 | |
| Commercial | |
| 310,331 | | |
| 87 | | |
| 251 | | |
| — | | |
| 254 | | |
| 592 | | |
| — | | |
| 1,924 | |
| Construction of commercial | |
| 58,838 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Commercial real estate | |
| 369,169 | | |
| 87 | | |
| 251 | | |
| — | | |
| 254 | | |
| 592 | | |
| — | | |
| 1,924 | |
| Farm land | |
| 2,807 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 432 | |
| Vacant land | |
| 14,182 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Real estate secured | |
| 852,910 | | |
| 475 | | |
| 554 | | |
| 63 | | |
| 1,212 | | |
| 2,304 | | |
| — | | |
| 3,988 | |
| Commercial and industrial | |
| 194,838 | | |
| 250 | | |
| 32 | | |
| 1 | | |
| 11 | | |
| 294 | | |
| 11 | | |
| 200 | |
| Municipal | |
| 16,534 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Consumer | |
| 12,503 | | |
| 40 | | |
| 4 | | |
| — | | |
| — | | |
| 44 | | |
| — | | |
| — | |
| Loans receivable, gross | |
$ | 1,076,785 | | |
$ | 765 | | |
$ | 590 | | |
$ | 64 | | |
$ | 1,223 | | |
$ | 2,642 | | |
$ | 11 | | |
$ | 4,188 | |
Troubled Debt Restructurings (TDRs)
There were no troubled debt restructurings
during the second quarter of 2022 or second quarter of 2021 or for the six months ended June 30, 2022 and June 30, 2021, respectively.
Allowance for Loan
Losses
Changes in the allowance for loan
losses are as follows:
| | |
| Three
months ended June 30, 2022 | | |
| Three
months ended June 30, 2021 | |
| | |
| Beginning
balance | | |
| Provision
(Benefit) | | |
| Charge-
offs | | |
| Reco-
veries | | |
| Ending
balance | | |
| Beginning
balance | | |
| Provision
(Benefit) | | |
| Charge-
offs | | |
| Reco-
veries | | |
| Ending
balance | |
| Residential 1-4 family | |
$ | 3,063 | | |
$ | 232 | | |
$ | (9 | ) | |
$ | — | | |
$ | 3,286 | | |
$ | 2,430 | | |
$ | (55 | ) | |
$ | (1 | ) | |
$ | 3 | | |
$ | 2,377 | |
| Residential 5+ multifamily | |
| 820 | | |
| 337 | | |
| — | | |
| — | | |
| 1,157 | | |
| 622 | | |
| (77 | ) | |
| — | | |
| — | | |
| 545 | |
| Construction of residential 1-4 family | |
| 195 | | |
| 138 | | |
| — | | |
| — | | |
| 333 | | |
| 77 | | |
| 18 | | |
| — | | |
| — | | |
| 95 | |
| Home equity lines of credit | |
| 198 | | |
| 16 | | |
| (9 | ) | |
| — | | |
| 205 | | |
| 195 | | |
| (5 | ) | |
| — | | |
| — | | |
| 190 | |
| Residential real estate | |
| 4,276 | | |
| 723 | | |
| (18 | ) | |
| — | | |
| 4,981 | | |
| 3,324 | | |
| (119 | ) | |
| (1 | ) | |
| 3 | | |
| 3,207 | |
| Commercial | |
| 5,196 | | |
| 241 | | |
| (269 | ) | |
| 1 | | |
| 5,169 | | |
| 7,080 | | |
| (875 | ) | |
| — | | |
| 7 | | |
| 6,212 | |
| Construction of commercial | |
| 1,139 | | |
| (267 | ) | |
| — | | |
| — | | |
| 872 | | |
| 584 | | |
| 102 | | |
| (18 | ) | |
| — | | |
| 668 | |
| Commercial real estate | |
| 6,335 | | |
| (26 | ) | |
| (269 | ) | |
| 1 | | |
| 6,041 | | |
| 7,664 | | |
| (773 | ) | |
| (18 | ) | |
| 7 | | |
| 6,880 | |
| Farm land | |
| 19 | | |
| 8 | | |
| — | | |
| — | | |
| 27 | | |
| 50 | | |
| (18 | ) | |
| — | | |
| — | | |
| 32 | |
| Vacant land | |
| 110 | | |
| (2 | ) | |
| — | | |
| — | | |
| 108 | | |
| 109 | | |
| (22 | ) | |
| — | | |
| — | | |
| 87 | |
| Real estate secured | |
| 10,740 | | |
| 703 | | |
| (287 | ) | |
| 1 | | |
| 11,157 | | |
| 11,147 | | |
| (932 | ) | |
| (19 | ) | |
| 10 | | |
| 10,206 | |
| Commercial and industrial | |
| 1,176 | | |
| 304 | | |
| — | | |
| — | | |
| 1,480 | | |
| 1,369 | | |
| (27 | ) | |
| (131 | ) | |
| 45 | | |
| 1,256 | |
| Municipal | |
| 27 | | |
| 8 | | |
| — | | |
| — | | |
| 35 | | |
| 43 | | |
| (11 | ) | |
| — | | |
| — | | |
| 32 | |
| Consumer | |
| 105 | | |
| 51 | | |
| (30 | ) | |
| 4 | | |
| 130 | | |
| 52 | | |
| 22 | | |
| (11 | ) | |
| 3 | | |
| 66 | |
| Unallocated | |
| 867 | | |
| 34 | | |
| — | | |
| — | | |
| 901 | | |
| 1,275 | | |
| (127 | ) | |
| — | | |
| — | | |
| 1,148 | |
| Totals | |
$ | 12,915 | | |
$ | 1,100 | | |
$ | (317 | ) | |
$ | 5 | | |
$ | 13,703 | | |
$ | 13,886 | | |
$ | (1,075 | ) | |
$ | (161 | ) | |
$ | 58 | | |
$ | 12,708 | |
| | |
| Six
months ended June 30, 2022 | | |
| Six
months ended June 30, 2021 | |
| | |
| Beginning
balance | | |
| Provision
(Benefit) | | |
| Charge-
offs | | |
| Reco-
veries | | |
| Ending
balance | | |
| Beginning
balance | | |
| Provision
(Benefit) | | |
| Charge-
offs | | |
| Reco-
veries | | |
| Ending
balance | |
| Residential 1-4 family | |
$ | 2,846 | | |
$ | 468 | | |
$ | (28 | ) | |
$ | — | | |
$ | 3,286 | | |
$ | 2,646 | | |
$ | (264 | ) | |
$ | (10 | ) | |
$ | 5 | | |
$ | 2,377 | |
| Residential 5+ multifamily | |
| 817 | | |
| 571 | | |
| (231 | ) | |
| — | | |
| 1,157 | | |
| 686 | | |
| (141 | ) | |
| — | | |
| — | | |
| 545 | |
| Construction of residential 1-4 family | |
| 186 | | |
| 147 | | |
| — | | |
| — | | |
| 333 | | |
| 65 | | |
| 30 | | |
| — | | |
| — | | |
| 95 | |
| Home
equity lines of credit | |
| 198 | | |
| 18 | | |
| (11 | ) | |
| — | | |
| 205 | | |
| 252 | | |
| (62 | ) | |
| — | | |
| — | | |
| 190 | |
| Residential
real estate | |
| 4,047 | | |
| 1,204 | | |
| (270 | ) | |
| — | | |
| 4,981 | | |
| 3,649 | | |
| (437 | ) | |
| (10 | ) | |
| 5 | | |
| 3,207 | |
| Commercial | |
| 5,416 | | |
| 125 | | |
| (373 | ) | |
| 1 | | |
| 5,169 | | |
| 6,546 | | |
| (345 | ) | |
| (6 | ) | |
| 17 | | |
| 6,212 | |
| Construction of
commercial | |
| 1,025 | | |
| (153 | ) | |
| — | | |
| — | | |
| 872 | | |
| 596 | | |
| 90 | | |
| (18 | ) | |
| — | | |
| 668 | |
| Commercial real estate | |
| 6,441 | | |
| (28 | ) | |
| (373 | ) | |
| 1 | | |
| 6,041 | | |
| 7,142 | | |
| (255 | ) | |
| (24 | ) | |
| 17 | | |
| 6,880 | |
| Farm land | |
| 21 | | |
| 6 | | |
| — | | |
| — | | |
| 27 | | |
| 59 | | |
| (27 | ) | |
| — | | |
| — | | |
| 32 | |
| Vacant
land | |
| 95 | | |
| 13 | | |
| — | | |
| — | | |
| 108 | | |
| 180 | | |
| (93 | ) | |
| — | | |
| — | | |
| 87 | |
| Real estate secured | |
| 10,604 | | |
| 1,195 | | |
| (643 | ) | |
| 1 | | |
| 11,157 | | |
| 11,030 | | |
| (812 | ) | |
| (34 | ) | |
| 22 | | |
| 10,206 | |
| Commercial and industrial | |
| 1,364 | | |
| 161 | | |
| (46 | ) | |
| 1 | | |
| 1,480 | | |
| 1,397 | | |
| (55 | ) | |
| (131 | ) | |
| 45 | | |
| 1,256 | |
| Municipal | |
| 31 | | |
| 4 | | |
| — | | |
| — | | |
| 35 | | |
| 43 | | |
| (11 | ) | |
| — | | |
| — | | |
| 32 | |
| Consumer | |
| 82 | | |
| 83 | | |
| (45 | ) | |
| 10 | | |
| 130 | | |
| 77 | | |
| 20 | | |
| (15 | ) | |
| (16 | ) | |
| 66 | |
| Unallocated | |
| 881 | | |
| 20 | | |
| — | | |
| — | | |
| 901 | | |
| 1,207 | | |
| (59 | ) | |
| — | | |
| — | | |
| 1,148 | |
| Totals | |
$ | 12,962 | | |
$ | 1,463 | | |
$ | (734 | ) | |
$ | 12 | | |
$ | 13,703 | | |
$ | 13,754 | | |
$ | (917 | ) | |
$ | (180 | ) | |
$ | 51 | | |
$ | 12,708 | |
The composition of loans receivable
and the allowance for loan losses is as follows:
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (in
thousands) | |
Collectively
evaluated | |
Individually
evaluated | |
Total
portfolio |
| | |
| Loans | | |
| Allowance | | |
| Loans | | |
| Allowance | | |
| Loans | | |
| Allowance | |
| June 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential 1-4 family | |
$ | 396,703 | | |
$ | 3,286 | | |
$ | 1,853 | | |
$ | — | | |
$ | 398,556 | | |
$ | 3,286 | |
| Residential 5+ multifamily | |
| 69,192 | | |
| 1,157 | | |
| 80 | | |
| — | | |
| 69,272 | | |
| 1,157 | |
| Construction of residential 1-4 family | |
| 20,279 | | |
| 192 | | |
| 2,100 | | |
| 141 | | |
| 22,379 | | |
| 333 | |
| Home equity lines of credit | |
| 23,763 | | |
| 205 | | |
| — | | |
| — | | |
| 23,763 | | |
| 205 | |
| Residential real estate | |
| 509,937 | | |
| 4,840 | | |
| 4,033 | | |
| 141 | | |
| 513,970 | | |
| 4,981 | |
| Commercial | |
| 335,508 | | |
| 5,145 | | |
| 2,583 | | |
| 24 | | |
| 338,091 | | |
| 5,169 | |
| Construction of commercial | |
| 49,696 | | |
| 872 | | |
| — | | |
| — | | |
| 49,696 | | |
| 872 | |
| Commercial real estate | |
| 385,204 | | |
| 6,017 | | |
| 2,583 | | |
| 24 | | |
| 387,787 | | |
| 6,041 | |
| Farm land | |
| 3,259 | | |
| 27 | | |
| 409 | | |
| — | | |
| 3,668 | | |
| 27 | |
| Vacant land | |
| 15,397 | | |
| 108 | | |
| — | | |
| — | | |
| 15,397 | | |
| 108 | |
| Real estate secured | |
| 913,797 | | |
| 10,992 | | |
| 7,025 | | |
| 165 | | |
| 920,822 | | |
| 11,157 | |
| Commercial and industrial | |
| 191,844 | | |
| 1,478 | | |
| 136 | | |
| 2 | | |
| 191,980 | | |
| 1,480 | |
| Municipal | |
| 17,486 | | |
| 35 | | |
| — | | |
| — | | |
| 17,486 | | |
| 35 | |
| Consumer | |
| 18,155 | | |
| 130 | | |
| — | | |
| — | | |
| 18,155 | | |
| 130 | |
| Unallocated allowance | |
| — | | |
| 901 | | |
| — | | |
| — | | |
| — | | |
| 901 | |
| Totals | |
$ | 1,141,282 | | |
$ | 13,536 | | |
$ | 7,161 | | |
$ | 167 | | |
$ | 1,148,443 | | |
$ | 13,703 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (in
thousands) | |
Collectively
evaluated | |
Individually
evaluated | |
Total
portfolio |
| | |
| Loans | | |
| Allowance | | |
| Loans | | |
| Allowance | | |
| Loans | | |
| Allowance | |
| December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Residential 1-4 family | |
$ | 370,558 | | |
$ | 2,845 | | |
$ | 2,573 | | |
$ | 1 | | |
$ | 373,131 | | |
$ | 2,846 | |
| Residential 5+ multifamily | |
| 51,376 | | |
| 817 | | |
| 949 | | |
| — | | |
| 52,325 | | |
| 817 | |
| Construction of residential 1-4 family | |
| 19,738 | | |
| 186 | | |
| — | | |
| — | | |
| 19,738 | | |
| 186 | |
| Home equity lines of credit | |
| 23,249 | | |
| 198 | | |
| 21 | | |
| — | | |
| 23,270 | | |
| 198 | |
| Residential real estate | |
| 464,921 | | |
| 4,046 | | |
| 3,543 | | |
| 1 | | |
| 468,464 | | |
| 4,047 | |
| Commercial | |
| 307,377 | | |
| 5,388 | | |
| 3,546 | | |
| 28 | | |
| 310,923 | | |
| 5,416 | |
| Construction of commercial | |
| 58,838 | | |
| 1,025 | | |
| — | | |
| — | | |
| 58,838 | | |
| 1,025 | |
| Commercial real estate | |
| 366,215 | | |
| 6,413 | | |
| 3,546 | | |
| 28 | | |
| 369,761 | | |
| 6,441 | |
| Farm land | |
| 2,375 | | |
| 21 | | |
| 432 | | |
| — | | |
| 2,807 | | |
| 21 | |
| Vacant land | |
| 14,182 | | |
| 95 | | |
| — | | |
| — | | |
| 14,182 | | |
| 95 | |
| Real estate secured | |
| 847,694 | | |
| 10,575 | | |
| 7,520 | | |
| 29 | | |
| 855,214 | | |
| 10,604 | |
| Commercial and industrial | |
| 194,856 | | |
| 1,297 | | |
| 276 | | |
| 67 | | |
| 195,132 | | |
| 1,364 | |
| Municipal | |
| 16,534 | | |
| 31 | | |
| — | | |
| — | | |
| 16,534 | | |
| 31 | |
| Consumer | |
| 12,547 | | |
| 82 | | |
| — | | |
| — | | |
| 12,547 | | |
| 82 | |
| Unallocated allowance | |
| — | | |
| 881 | | |
| — | | |
| — | | |
| — | | |
| 881 | |
| Totals | |
$ | 1,071,630 | | |
$ | 12,866 | | |
$ | 7,797 | | |
$ | 96 | | |
$ | 1,079,427 | | |
$ | 12,962 | |
The credit quality segments of loans
receivable and the allowance for loan losses are as follows:
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| June 30, 2022
(in thousands) |
Collectively
evaluated | |
Individually
evaluated | |
Total
portfolio |
| | |
| Loans | | |
| Allowance | | |
| Loans | | |
| Allowance | | |
| Loans | | |
Allowance | |
| Performing loans | |
$ | 1,134,514 | | |
$ | 12,228 | | |
$ | — | | |
$ | — | | |
$ | 1,134,514 | | |
$ | 12,228 | |
| Potential problem loans 1 | |
| 6,768 | | |
| 407 | | |
| — | | |
| — | | |
| 6,768 | | |
| 407 | |
| Impaired loans | |
| — | | |
| — | | |
| 7,161 | | |
| 167 | | |
| 7,161 | | |
| 167 | |
| Unallocated allowance | |
| — | | |
| 901 | | |
| — | | |
| — | | |
| — | | |
| 901 | |
| Totals | |
$ | 1,141,282 | | |
$ | 13,536 | | |
$ | 7,161 | | |
$ | 167 | | |
$ | 1,148,443 | | |
$ | 13,703 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| December
31, 2021 (in thousands) |
Collectively
evaluated | |
Individually
evaluated | |
Total
portfolio |
| | |
| Loans | | |
| Allowance | | |
| Loans | | |
| Allowance | | |
| Loans | | |
Allowance | |
| Performing loans | |
$ | 1,046,614 | | |
$ | 10,456 | | |
$ | — | | |
$ | — | | |
$ | 1,046,614 | | |
$ | 10,456 | |
| Potential problem loans 1 | |
| 25,016 | | |
| 1,529 | | |
| — | | |
| — | | |
| 25,016 | | |
| 1,529 | |
| Impaired loans | |
| — | | |
| — | | |
| 7,797 | | |
| 96 | | |
| 7,797 | | |
| 96 | |
| Unallocated allowance | |
| — | | |
| 881 | | |
| — | | |
| — | | |
| — | | |
| 881 | |
| Totals | |
$ | 1,071,630 | | |
$ | 12,866 | | |
$ | 7,797 | | |
$ | 96 | | |
$ | 1,079,427 | | |
$ | 12,962 | |
1 Potential
problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired.
A specific valuation allowance is
established for the impairment amount of each impaired loan, calculated using the present value of expected cash flows or fair value of
collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment
is as follows:
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Impaired
loans with specific allowance | | |
Impaired
loans with no specific allowance |
| (in thousands) | |
Loan
balance | | |
| Specific | | |
| Income | | |
Loan
balance | | |
| Income | |
| | |
| Recorded
Investment | | |
| Note | | |
| Average | | |
| allowance | | |
| recognized | | |
| Recorded
Investment | | |
| Note | | |
| Average | | |
| recognized | |
| June 30, 2022 | |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Residential | |
$ | 2,100 | | |
$ | 2,106 | | |
$ | 568 | | |
$ | 141 | | |
$ | 24 | | |
$ | 1,933 | | |
$ | 2,056 | | |
$ | 2,531 | | |
$ | 29 | |
| Home equity lines of credit | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 15 | | |
| — | |
| Residential real estate | |
| 2,100 | | |
| 2,106 | | |
| 568 | | |
| 141 | | |
| 24 | | |
| 1,933 | | |
| 2,056 | | |
| 2,546 | | |
| 29 | |
| Commercial | |
| 584 | | |
| 584 | | |
| 633 | | |
| 24 | | |
| 15 | | |
| 1,999 | | |
| 2,494 | | |
| 2,579 | | |
| 21 | |
| Construction of commercial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Farm land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 409 | | |
| 447 | | |
| 420 | | |
| — | |
| Vacant land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Real estate secured | |
| 2,684 | | |
| 2,690 | | |
| 1,201 | | |
| 165 | | |
| 39 | | |
| 4,341 | | |
| 4,997 | | |
| 5,545 | | |
| 50 | |
| Commercial and industrial | |
| 73 | | |
| 73 | | |
| 115 | | |
| 2 | | |
| 2 | | |
| 63 | | |
| 60 | | |
| 62 | | |
| 1 | |
| Consumer | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Totals | |
$ | 2,757 | | |
$ | 2,763 | | |
$ | 1,316 | | |
$ | 167 | | |
$ | 41 | | |
$ | 4,404 | | |
$ | 5,057 | | |
$ | 5,607 | | |
$ | 51 | |
Note: The income recognized is for the six-month
period ended June 30, 2022.
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Impaired
loans with specific allowance | | |
Impaired
loans with no specific allowance |
| (in thousands) | |
Loan
balance | | |
| Specific | | |
| Income | | |
Loan
balance | | |
| Income | |
| | |
| Recorded
Investment | | |
| Note | | |
| Average | | |
| allowance | | |
| recognized | | |
| Recorded
Investment | | |
| Note | | |
| Average | | |
| recognized | |
| June 30, 2021 | |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Residential | |
$ | 47 | | |
$ | 49 | | |
$ | 1,580 | | |
$ | 3 | | |
$ | 1 | | |
$ | 4,326 | | |
$ | 4,776 | | |
$ | 3,401 | | |
$ | 40 | |
| Home equity lines of credit | |
| — | | |
| — | | |
| 32 | | |
| — | | |
| — | | |
| 147 | | |
| 188 | | |
| 168 | | |
| — | |
| Residential real estate | |
| 47 | | |
| 49 | | |
| 1,612 | | |
| 3 | | |
| 1 | | |
| 4,473 | | |
| 4,964 | | |
| 3,569 | | |
| 40 | |
| Commercial | |
| 1,140 | | |
| 1,164 | | |
| 2,294 | | |
| 45 | | |
| 25 | | |
| 3,341 | | |
| 3,984 | | |
| 3,024 | | |
| 44 | |
| Construction of commercial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Farm land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 594 | | |
| 764 | | |
| 344 | | |
| — | |
| Vacant land | |
| — | | |
| — | | |
| 104 | | |
| — | | |
| — | | |
| 160 | | |
| 178 | | |
| 60 | | |
| 4 | |
| Real estate secured | |
| 1,187 | | |
| 1,213 | | |
| 4,010 | | |
| 48 | | |
| 26 | | |
| 8,568 | | |
| 9,890 | | |
| 6,997 | | |
| 88 | |
| Commercial and industrial | |
| 364 | | |
| 377 | | |
| 365 | | |
| 115 | | |
| 2 | | |
| 86 | | |
| 243 | | |
| 92 | | |
| 1 | |
| Consumer | |
| — | | |
| — | | |
| 11 | | |
| — | | |
| — | | |
| 21 | | |
| 21 | | |
| 13 | | |
| 1 | |
| Totals | |
$ | 1,551 | | |
$ | 1,590 | | |
$ | 4,386 | | |
$ | 163 | | |
$ | 28 | | |
$ | 8,675 | | |
$ | 10,154 | | |
$ | 7,102 | | |
$ | 90 | |
Note: The income recognized is for the six-month
period ended June 30, 2021.
Certain data
with respect to loans individually evaluated for impairment is as follows as of and for the year ended December 31, 2021:
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
Impaired
loans with specific allowance | | |
Impaired
loans with no specific allowance |
| (in thousands) | |
Loan
balance | | |
| Specific | | |
| Income | | |
Loan
balance | | |
| Income | |
| | |
| Recorded
Investment | | |
| Note | | |
| Average | | |
| allowance | | |
| recognized | | |
| Recorded
Investment | | |
| Note | | |
| Average | | |
| recognized | |
| December 31, 2021 | |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Residential | |
$ | 43 | | |
$ | 44 | | |
$ | 872 | | |
$ | 1 | | |
$ | 3 | | |
$ | 3,480 | | |
$ | 3,817 | | |
$ | 3,689 | | |
$ | 75 | |
| Home equity lines of credit | |
| — | | |
| — | | |
| 17 | | |
| — | | |
| — | | |
| 21 | | |
| 23 | | |
| 131 | | |
| — | |
| Residential real estate | |
| 43 | | |
| 44 | | |
| 889 | | |
| 1 | | |
| 3 | | |
| 3,501 | | |
| 3,840 | | |
| 3,820 | | |
| 75 | |
| Commercial | |
| 608 | | |
| 608 | | |
| 1,678 | | |
| 28 | | |
| 32 | | |
| 2,938 | | |
| 3,493 | | |
| 2,974 | | |
| 62 | |
| Construction of commercial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Farm land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 431 | | |
| 447 | | |
| 440 | | |
| — | |
| Vacant land | |
| — | | |
| — | | |
| 56 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 45 | | |
| — | |
| Real estate secured | |
| 651 | | |
| 652 | | |
| 2,623 | | |
| 29 | | |
| 35 | | |
| 6,870 | | |
| 7,780 | | |
| 7,279 | | |
| 137 | |
| Commercial and industrial | |
| 216 | | |
| 224 | | |
| 309 | | |
| 67 | | |
| 3 | | |
| 60 | | |
| 72 | | |
| 90 | | |
| — | |
| Consumer | |
| — | | |
| — | | |
| 6 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 13 | | |
| — | |
| Totals | |
$ | 867 | | |
$ | 876 | | |
$ | 2,938 | | |
$ | 96 | | |
$ | 38 | | |
$ | 6,930 | | |
$ | 7,852 | | |
$ | 7,382 | | |
$ | 137 | |
NOTE 4 – LEASES
The Bank leases facilities and equipment with
various expiration dates. The facilities leases have varying renewal options, generally require fixed annual rent, and provide that real
estate taxes, insurance, and maintenance expenses are to be paid by Salisbury. The following table provides the assets and liabilities
as of June 30, 2022 and December 31, 2021, as well as the costs of operating and financial leases, which are included in the Bank’s
consolidated income statement for the six months ended June 30, 2022 and 2021.
| ($
in thousands, except lease term and discount rate) |
|
Classification | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Assets | |
| |
| | | |
| | |
| Operating | |
Other assets | |
$ | 910 | | |
$ | 1,021 | |
| Finance | |
Bank
premises and equipment 1 | |
| 3,968 | | |
| 3,791 | |
| Total Leased Assets | |
| |
$ | 4,878 | | |
$ | 4,812 | |
| Liabilities | |
| |
| | | |
| | |
| Operating | |
Other liabilities | |
$ | 910 | | |
$ | 1,021 | |
| Finance | |
Finance lease | |
| 4,330 | | |
| 4,107 | |
| Total lease liabilities | |
| |
$ | 5,240 | | |
$ | 5,128 | |
| 1 Net
of accumulated depreciation of $608 thousand and $496 thousand, respectively. |
| | |
| |
| | | |
| | |
| Lease cost | |
Classification | |
| Six
months ended | | |
| Three
months ended | |
| | |
| |
| June
30, 2022 | | |
| June
30, 2022 | |
| Operating leases | |
Premises and equipment | |
$ | 147 | | |
$ | 73 | |
| Finance leases: | |
| |
| | | |
| | |
| Amortization of leased assets | |
Premises and equipment | |
| 112 | | |
| 77 | |
| Interest on finance
leases | |
Interest expense | |
| 82 | | |
| 41 | |
| Total lease cost | |
| |
$ | 341 | | |
$ | 191 | |
| | |
| |
| | | |
| | |
| Lease cost | |
Classification | |
| Six
months ended | | |
| Three
months ended | |
| | |
| |
| June
30, 2021 | | |
| June
30, 2021 | |
| Operating leases | |
Premises and equipment | |
$ | 147 | | |
$ | 68 | |
| Finance leases: | |
| |
| | | |
| | |
| Amortization of leased assets | |
Premises and equipment | |
| 51 | | |
| 25 | |
| Interest on finance
leases | |
Interest expense | |
| 69 | | |
| 36 | |
| Total lease cost | |
| |
$ | 267 | | |
$ | 129 | |
| | |
| |
| | | |
| | |
| Weighted Average Remaining
Lease Term | |
| June
30, 2022 | | |
| December
31, 2021 | |
| Operating leases | |
| |
| 6.8 years | | |
| 6.9 years | |
| Financing leases | |
| |
| 22.0 years | | |
| 23.5 years | |
| Weighted Average Discount Rate 1 | |
| |
| | | |
| | |
| Operating leases | |
| |
| 3.7 | % | |
| 3.60 | % |
| Financing leases | |
| |
| 3.40 | % | |
| 5.00 | % |
| 1 Salisbury
uses the FHLBB five-year Advance rate as the discount rate, as its leases do not provide an implicit rate. |
The following is a schedule by years of the present
value of the net minimum lease payments as of June 30, 2022.
| |
Future
minimum lease payments (in thousands) | |
|
Operating
Leases |
| |
|
Finance Leases |
|
| | 2022 | | |
$ | 99 | | |
$ | 149 | |
| | 2023 | | |
| 167 | | |
| 304 | |
| | 2024 | | |
| 129 | | |
| 314 | |
| | 2025 | | |
| 137 | | |
| 324 | |
| | 2026 | | |
| 137 | | |
| 324 | |
| | Thereafter | | |
| 379 | | |
| 4,978 | |
| | Total
future minimum lease payments | | |
| 1,048 | | |
| 6,393 | |
| | Less
amount representing interest | | |
| (138 | ) | |
| (2,064 | ) |
| | Total
present value of net future minimum lease payments | | |
$ | 910 | | |
$ | 4,329 | |
NOTE 5 - MORTGAGE SERVICING RIGHTS
| (in
thousands) | |
|
June 30, 2022 |
| |
|
December
31, 2021 |
|
| Residential mortgage loans serviced for others | |
$ | 140,344 | | |
$ | 140,623 | |
| Fair value of mortgage servicing rights | |
| 1,338 | | |
| 1,043 | |
Changes in mortgage servicing rights are as follows:
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| | |
|
Three
months ended |
| |
|
Six months
ended |
|
| Periods ended June
30, (in thousands) | |
|
2022 |
| |
|
2021 |
| |
|
2022 |
| |
|
2021 |
|
| Mortgage Servicing Rights | |
| | | |
| | | |
| | | |
| | |
| Balance, beginning of period | |
$ | 716 | | |
$ | 739 | | |
$ | 700 | | |
$ | 621 | |
| Originated | |
| 17 | | |
| 64 | | |
| 72 | | |
| 258 | |
| Amortization
(1) | |
| (39 | ) | |
| (55 | ) | |
| (78 | ) | |
| (131 | ) |
| Balance,
end of period | |
$ | 694 | | |
$ | 748 | | |
$ | 694 | | |
$ | 748 | |
| Valuation Allowance | |
| | | |
| | | |
| | | |
| | |
| Balance, beginning of period | |
| — | | |
| — | | |
| — | | |
| (9 | ) |
| Decrease
in impairment reserve (1) | |
| — | | |
| — | | |
| — | | |
| 9 | |
| Balance, end of period | |
| — | | |
| — | | |
| — | | |
| — | |
| Mortgage
servicing rights, net | |
$ | 694 | | |
$ | 748 | | |
$ | 694 | | |
$ | 748 | |
| (1) | Amortization expense and changes in the impairment reserve
are recorded in mortgage banking activities, net. |
NOTE 6 - PLEDGED ASSETS
The following securities and loans were pledged to secure public and
trust deposits, securities sold under agreements to repurchase, FHLBB advances and credit facilities available.
| (in
thousands) | |
|
June 30, 2022 |
| |
|
December
31, 2021 |
|
| Securities available-for-sale (at fair value) | |
$ | 79,241 | | |
$ | 75,737 | |
| Loans receivable (at book value) | |
| 369,717 | | |
| 378,845 | |
| Total pledged assets | |
$ | 448,958 | | |
$ | 454,582 | |
At June 30, 2022, securities were pledged as follows: $62.65 million
to secure public deposits, $16.57 million to secure repurchase agreements and $0.02 million to secure FHLBB advances. Additionally, loans
receivable were pledged to secure FHLBB advances and credit facilities.
NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
Salisbury is exposed to certain risk arising from both
its business operations and economic conditions. The Bank principally manages its exposures to a wide variety of business and operational
risks through management of its core business activities. The Bank manages economic risks, including interest rate, liquidity, and credit
risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.
Specifically, the Bank enters into derivative financial instruments to manage exposures that arise from business activities that result
in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Bank uses
derivative financial instruments to manage differences in the amount, timing, and duration of the Bank’s known or expected cash
receipts and its known or expected cash payments principally related to its portfolio of loans to first-time home buyers.
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value
of certain pools of its pre-payable fixed-rate assets due to changes in benchmark interest rates. Salisbury uses interest rate swaps
to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate,
Federal Funds. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange
for Salisbury receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.
For derivatives designated and that qualify as fair
value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged
risk are recognized in interest income.
As of June 30, 2022 and December 30, 2021, the following amounts were recorded on the balance
sheet related to cumulative basis adjustment for fair value hedges:
| |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| Line Item in the Statement of Financial
Position in Which the Hedged Item is Included | |
Carrying Amount of the
Hedged
Assets/(Liabilities) | |
Cumulative Amount of Fair Value
Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities) |
| (in thousands) | |
June 30, 2022 | |
December 31, 2021 | |
June 30, 2022 | |
December 31, 2021 |
| Loans
receivable(1) | |
$ | 9,955 | | |
$ | 9,982 | | |
$ | (45 | ) | |
$ | (18 | ) |
| Total | |
$ | 9,955 | | |
$ | 9,982 | | |
$ | (45 | ) | |
$ | (18 | ) |
| (1) | These amounts include the amortized
cost basis of closed portfolios used in designated hedging relationships in which the hedged item is the last layer expected to be remaining
at the end of the hedging relationship. At June 30, 2022, the amortized cost basis of the closed portfolios used in these hedging relationships
was $35.6 million; the cumulative basis adjustment associated with these hedging relationships was $45 thousand; and the amount of the
designated hedged item was $10.0 million. |
The table below presents the fair value of Salisbury’s
derivative financial instrument and its classification on the Balance Sheet as of June 30, 2022 and December 31, 2021.
| |
| |
| |
| |
| |
|
| | |
As of June 30, 2022 | |
As of December 31, 2021 |
| (in thousands) | |
Notional
Amount | |
Balance Sheet Location | |
Fair Value | |
Balance Sheet Location | |
Fair Value |
| Derivatives designated as hedge instruments | |
| |
| |
| |
| |
|
| Interest
Rate Products | |
$ | 10,000 | | |
Other
assets | |
$ | 49 | | |
Other
Assets | |
$ | 18 | |
| Total Derivatives
designated as hedge instruments | |
| | | |
| |
$ | 49 | | |
| |
$ | 18 | |
The table below presents the effect of the Company’s
derivative financial instruments on the Income Statement for the three and six months ended June 30, 2022 and June 30, 2021.
| |
| |
| |
| |
|
| | |
| Three
months ended
June 30, 2022 | | |
| Six
months ended
June 30, 2022 | |
| (in
thousands) | |
| Interest
Income | | |
| Interest
Expense | | |
| Interest
Income | | |
| Interest
Expense | |
| Total amounts of interest
income and expense line items presented in the income statement in which the effects of fair value or cash flow hedges are recorded | |
$ | 18 | | |
$ | — | | |
$ | 19 | | |
$ | — | |
| | |
| | | |
| | | |
| | | |
| | |
| Gain or (loss) on fair value hedging
relationships in Subtopic 815-20 | |
| | | |
| | | |
| | | |
| | |
| Interest contracts | |
| | | |
| | | |
| | | |
| | |
| Hedged items | |
| 2 | | |
| — | | |
| (27 | ) | |
| — | |
| Derivatives
designated as hedging instruments | |
$ | 16 | | |
$ | — | | |
$ | 46 | | |
$ | — | |
| |
| |
| |
| |
|
| | |
| Three
months ended
June 30, 2021 | | |
| Six
months ended
June 30, 2021 | |
| (in
thousands) | |
| Interest
Income | | |
| Interest
Expense | | |
| Interest
Income | | |
| Interest
Expense | |
| Total amounts of interest
income and expense line items presented in the income statement in which the effects of fair value or cash flow hedges are recorded | |
$ | — | | |
$ | — | | |
$ | 1 | | |
$ | — | |
| | |
| | | |
| | | |
| | | |
| | |
| Gain or (loss) on fair value hedging
relationships in Subtopic 815-20 | |
| | | |
| | | |
| | | |
| | |
| Interest contracts | |
| | | |
| | | |
| | | |
| | |
| Hedged items | |
| (2 | ) | |
| — | | |
| (4 | ) | |
| — | |
| Derivatives
designated as hedging instruments | |
$ | 2 | | |
$ | — | | |
$ | 5 | | |
$ | — | |
Credit-Risk Related Contingent Features
Salisbury has an agreement with its derivative counterparty that contains
a provision that provides that if the Bank defaults on any of its indebtedness, including default where repayment of the indebtedness
has not been accelerated by the lender, then the Bank could also be declared in default on its derivative obligations.
The agreement
also contains a provision where if the Bank fails to maintain its status as a well / adequate capitalized institution, then Salisbury
could be required to post cash or certain marketable securities issued by the U.S. Treasury or U.S. Government-sponsored enterprises
as collateral. The minimum amount that Salisbury would have to post as collateral is $250 thousand.
As of June 30, 2022, the fair value of the
derivative was $49 thousand in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance
risk, related to these agreements. As of June 30, 2022, Salisbury has not posted any collateral related to these agreements.
NOTE 8 – EARNINGS PER SHARE
Salisbury defines unvested share-based payment awards
that contain non-forfeitable rights to dividends as participating securities that are included in computing earnings per share (EPS) using
the two-class method.
The two-class method is an earnings allocation formula
that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation
rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating
securities based on their respective rights to receive dividends. Basic EPS excludes dilution and is computed by dividing income allocated
to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the entity.
The following table sets forth the computation of earnings per share
(basic and diluted) for the periods indicated. All per share data has been adjusted to reflect the two-for-one forward common share split,
which was effective on June 30, 2022.
| | |
|
|
| |
|
|
| |
|
|
| |
|
|
|
| | |
|
Three
months ended |
| |
|
Six months
ended |
|
| Periods ended June
30, (in thousands, except per share data) | |
|
2022 |
| |
|
2021 |
| |
|
2022 |
| |
|
2021 |
|
| Net income | |
$ | 3,845 | | |
$ | 4,353 | | |
$ | 7,414 | | |
$ | 8,879 | |
| Less: Undistributed earnings allocated to participating securities | |
| (73 | ) | |
| (66 | ) | |
| (134 | ) | |
| (130 | ) |
| Net income allocated to common stock | |
$ | 3,772 | | |
$ | 4,287 | | |
$ | 7,280 | | |
$ | 8,749 | |
| Weighted-average common shares issued | |
| 5,776 | | |
| 5,704 | | |
| 5,755 | | |
| 5,698 | |
| Less: Unvested restricted stock awards | |
| (110 | ) | |
| (86 | ) | |
| (104 | ) | |
| (84 | ) |
| Weighted average common shares outstanding used to calculate basic earnings per common share | |
| 5,666 | | |
| 5,620 | | |
| 5,651 | | |
| 5,614 | |
| Add: Dilutive effect of stock options | |
| 33 | | |
| 38 | | |
| 48 | | |
| 36 | |
| Weighted-average common shares outstanding used to calculate diluted earnings per common share | |
| 5,699 | | |
| 5,658 | | |
| 5,699 | | |
| 5,650 | |
| Earnings per common share (basic) | |
$ | 0.67 | | |
$ | 0.76 | | |
$ | 1.29 | | |
$ | 1.56 | |
| Earnings per common share (diluted) | |
$ | 0.66 | | |
$ | 0.76 | | |
$ | 1.28 | | |
$ | 1.55 | |
NOTE 9 – SHAREHOLDERS’ EQUITY
Capital Requirements
The Company and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect
on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
The Bank became subject to capital regulations
adopted by the Board of Governors of the Federal Reserve System (FRB) and the FDIC, which implemented the Basel III regulatory capital
reforms and the changes required by the Dodd-Frank Act. The required minimum regulatory capital ratios to which the Bank is subject, and
the minimum ratios required for the Bank to be categorized as “well capitalized” under the prompt corrective action framework
are noted in the table below. In addition, the regulations established a capital conservation buffer of 2.5% effective January 1, 2019.
Failure to maintain the capital conservation buffer will limit the ability of the Company and the Bank to pay discretionary bonuses and
dividends. At June 30, 2022, the Bank exceeded the minimum requirement for the capital conservation buffer. As of June 30, 2022, the most
recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since that notification that management believes have changed that categorization.
On March 31, 2021, Salisbury issued $25 million
of subordinated debt that matures in 2031. During the first five years, the debt is non-callable, and the coupon is fixed at 3.50%. After
year five, the coupon will float at the then three-month Secured Overnight Financing Rate plus 280 basis points. At March 31, 2021, $15
million of the net proceeds was retained at the holding company level and the remainder was allocated to the Bank. On May 28, 2021, Salisbury
redeemed in full the $10 million of subordinated debt that was issued in 2015 and retained at the holding company.
As of June 30, 2022, Salisbury had not repurchased
any of its common shares pursuant to the Common Stock Repurchase Plan approved by the Board of Directors in March 2022.
The Bank’s risk-weighted assets at June 30, 2022 and December
31, 2021 were $1,204.7 million and $1,085.4 million, respectively. Actual regulatory capital position and minimum capital requirements
as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes"
for the Bank are as follows:
| |
| |
| |
| |
| |
| |
| |
| |
|
| | |
Actual | |
Minimum
Capital Required For Capital Adequacy | |
Minimum
Capital Required For Capital Adequacy Plus Required Capital Conservation Buffer | |
Minimum
To Be Well Capitalized Under Prompt Corrective Action Provisions |
| (dollars
in thousands) | |
Amount | |
Ratio | |
Amount | |
Ratio | |
Amount | |
Ratio | |
Amount | |
Ratio |
June
30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total Capital (to risk-weighted assets) | |
$ | 160,002 | | |
| 13.28 | % | |
$ | 96,377 | | |
| 8.0 | % | |
$ | 126,495 | | |
| 10.5 | % | |
$ | 120,471 | | |
| 10.0 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Tier 1 Capital (to risk-weighted assets) | |
| 146,112 | | |
| 12.13 | | |
| 72,283 | | |
| 6.0 | | |
| 102,401 | | |
| 8.5 | | |
| 96,377 | | |
| 8.0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common Equity Tier 1 Capital (to risk-weighted assets) | |
| 146,112 | | |
| 12.13 | | |
| 54,212 | | |
| 4.5 | | |
| 84,330 | | |
| 7.0 | | |
| 78,306 | | |
| 6.5 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Tier
1 Capital (to average assets) | |
$ | 146,112 | | |
| 10.04 | | |
$ | 58,231 | | |
| 4.0 | | |
$ | 58,231 | | |
| 4.0 | | |
$ | 72,788 | | |
| 5.0 | |
December
31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total Capital (to risk-weighted assets) | |
$ | 152,789 | | |
| 14.08 | % | |
$ | 86,832 | | |
| 8.0 | % | |
$ | 113,968 | | |
| 10.5 | % | |
$ | 108,541 | | |
| 10.0 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Tier 1 Capital (to risk-weighted assets) | |
| 139,681 | | |
| 12.87 | | |
| 65,124 | | |
| 6.0 | | |
| 92,259 | | |
| 8.5 | | |
| 86,832 | | |
| 8.0 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common Equity Tier 1 Capital (to risk-weighted assets) | |
| 139,681 | | |
| 12.87 | | |
| 48,843 | | |
| 4.5 | | |
| 75,978 | | |
| 7.0 | | |
| 70,551 | | |
| 6.5 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Tier
1 Capital (to average assets) | |
$ | 139,681 | | |
| 9.42 | | |
$ | 59,285 | | |
| 4.0 | | |
$ | 59,285 | | |
| 4.0 | | |
$ | 74,106 | | |
| 5.0 | |
Restrictions on Cash Dividends to Common Shareholders
Salisbury's
ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions
on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend
except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by
the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits
of that year combined with its retained net profits of the preceding two years.
FRB Supervisory
Letter SR 09-4, February 24, 2009, revised July 24, 2020, notes that, as a general matter, the Board of Directors of a Bank Holding Company
(“BHC”) should inform the Federal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net income
available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully
fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective
financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover,
a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g.,
quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.
NOTE 10 – BENEFITS
401(k)
Salisbury’s 401(k) Plan expense was $257 thousand
and $308 thousand, respectively, for the three-month periods ended June 30, 2022 and 2021, and $551 thousand and $594 thousand, respectively,
for the six-month periods ended June 30, 2022 and 2021.
ESOP
Salisbury offers
an ESOP to eligible employees. Under the Plan, Salisbury may make discretionary contributions to the Plan. Discretionary contributions
vest in full upon six years and reflect the following schedule of qualified service: 20% after the second year, 20% per year
thereafter, vesting at 100% after six full years of service. Salisbury’s ESOP expense was $49 thousand and $73 thousand, respectively,
for the three-month periods ended June 30, 2022 and 2021, and $84 thousand and $129 thousand, respectively, for the six-month periods
ended June 30, 2022 and 2021.
Other Retirement Plans
Salisbury
adopted ASC 715-60, “Compensation - Retirement Benefits - Defined Benefit Plans - Other Postretirement" and recognized a liability
for Salisbury’s future postretirement benefit obligations under endorsement split-dollar life insurance arrangements. The total
liability for the arrangements included in other liabilities was $771 thousand and $779 thousand at June 30, 2022, and December 31, 2021,
respectively. The Bank did not record an expense for the three months ended June 30, 2022 and recorded an expense of $86 thousand for
the three months ended June 30, 2021. The Bank realized a credit of $8 thousand for the six months ended June 30, 2022 and an expense
of $173 thousand for the six months ended June 30, 2021.
A
Non-Qualified Deferred Compensation Plan (the "Plan") was adopted effective January 1, 2013. This Plan was adopted by the Bank
for the benefit of certain key employees ("Executive" or "Executives") who have been selected and approved by the Bank
to participate in this Plan and who have evidenced their participation by execution of a Non-Qualified Deferred Compensation Plan Participation
Agreement ("Participation Agreement") in a form provided by the Bank. This Plan is intended to comply with Internal Revenue Code
("Code") Section 409A and any regulatory or other guidance issued under such Section. In 2021 and 2020, the Bank awarded seven
(7) Executives with discretionary contributions to the plan.
On December 27, 2021, the Board of Directors
of Salisbury Bank and Trust Company executed the Salisbury Bank and Trust Company Amended and Restated Non-Qualified Deferred Compensation
Plan (the “Plan”), effective as of January 1, 2022. The Plan permits the Board to select certain key employees of the Bank
to participate in the Plan, provided that such employees also evidence their participation by execution of a Participation Agreement.
Before amendment and restatement, the Plan provided solely for discretionary bank contributions to selected participant’s accounts.
The participation agreement sets forth the vesting terms of the discretionary contributions and the “benefit age” at which
a participant could retire with a fully vested benefit. The participation agreement also sets forth how a participant’s benefit
would be distributed (i.e., in a lump sum or in annual installments over a period of up to 10 years, as selected by the participant).
Until distribution, a participant’s account would earn interest as of the last day of the plan year at the highest certificate of
deposit rate for that year, compounded annually. The participant’s benefits under the Plan are subject to the vesting schedule set
forth in the participant’s participation agreement. Notwithstanding the vesting schedule, the participant’s account
balance will become automatically 100% vested upon involuntary termination without cause, death, disability or a change in control.
The amended and restated Plan allows
participant deferrals and provides greater flexibility in participant elections and investment options. The amended and restated
Plan also provides additional distribution options, including distributions in the event of an unforeseeable emergency and on the
occurrence of a specified date before separation from service, and allows a participant to elect for each year’s contributions
the manner in which such distributions will be paid. Installment distributions can be made in monthly, quarterly or annual
installments. Payment of benefits under the Plan, other than benefits payable as a result of base salary deferrals, are conditioned
on the participant’s covenant to comply with non-compete, non-solicitation and non-disclosure provisions for a period of one
year following the participant’s separation from service. The Bank has established a grantor trust to hold the assets of the
Plan. Until distributed, the assets of the Plan are not legally owned by the participants. In second quarter 2022, Salisbury
contributed $100 thousand to the amended and restated Plan for Mr. Cantele, President and Chief Executive Officer. Salisbury’s
expense for this plan was $47 thousand and $29 thousand, respectively, for the three-month periods ended June 30, 2022 and 2021, and
$94 thousand and $57 thousand, respectively, for the six-month periods ended June 30, 2022 and 2021.
Management Agreements: Salisbury or the Bank
has entered into various management agreements with its named executive officers (“NEOs”), including a severance agreement
with Mr. Cantele, President and Chief Executive Officer, a change in control agreement with Mr. Albero, Executive Vice President and Chief
Financial Officer, and a severance agreement with Mr. Davies, President of the New York Region and Chief Lending Officer. In addition
to these agreements, Salisbury has change in control agreements or a severance agreement, with change in control provisions, with ten
other executives with payouts ranging from 0.5 to 1.0 times base salary, annual cash bonus and other benefits. Such agreements, and their
subsequent amendments, are designed to allow Salisbury to retain the services of the designated executives while reducing, to the extent
possible, unnecessary disruptions to Salisbury’s operations.
NOTE 11 – LONG TERM INCENTIVE PLANS
Restricted stock
Restricted stock expense was $243 thousand and $168
thousand, respectively; for the three-month periods ended June 30, 2022 and 2021, and $431 thousand and $300 thousand, respectively, for
the six-month periods ended June 30, 2022 and 2021. The second quarter of 2022 and 2021 included an expense of $17 thousand and $32 thousand,
respectively for the accelerated vesting of restricted stock awards previously granted to certain Directors, who retired from Salisbury’s
Board of Directors during the quarter. The tax benefit from restricted stock expense was $44 thousand and $30 thousand, respectively,
for the three-month periods ended June 30, 2022 and 2021, and $78 thousand and $54 thousand, respectively; for the six-month periods ended
June 30, 2022 and 2021.
In second quarter 2022, Salisbury granted a total
of 18,340 shares of restricted stock to certain employees and Directors pursuant to its 2017 Long Term Incentive Plan. The fair value
of the stock at grant date was approximately $1.0 million dollars. The restricted stock will vest three years from the grant date.
Unrecognized compensation cost relating to the awards as of June 30, 2022 and 2021 totaled $1.5 million and $1.2 million, respectively.
There were no forfeitures in the second quarter or year to date for 2022 and 2021.
Performance-based restricted stock units
On March 29, 2019, the Compensation Committee granted
performance-based restricted stock units (RSU) pursuant to the 2017 Long-Term Incentive Plan to further align compensation with the Bank’s
performance. This RSU plan replaced the Bank’s Phantom Stock Appreciation Units plan (Phantom). Salisbury paid out the final tranche
of these awards in January 2021. The performance goal for awards granted under the RSU plan in 2019 was based on the increase in the Bank’s
tangible book value by $3.50 per share over the performance period for threshold performance. The vesting ranged from 75% of target for
achieving threshold performance, to 100% of target for achieving target payout performance ($5.00 increase in tangible book value per
share) to 150% of target for achieving in excess of target payout performance This tranche of awards vested in second quarter 2022 at
150% for achieving tangible book value per share growth in excess of target payout performance. The vesting of these awards occurred prior
to June 30, 2022 and was not affected by the two-for-one forward stock split.
On July 29, 2020, the Compensation Committee granted
an additional 14,500 units under the RSU plan. The performance goal for this tranche is based on the relative increase in the Bank’s
tangible book value compared with a pre-determined group of peer banks over the performance period for threshold performance. Vesting
will range from 50% of target for achieving threshold performance, to 100% of target for achieving tangible book value growth of at least
50% but less than 55% of the peer group, to 150% of target for achieving in excess of target payout performance and, if the performance
goal is achieved, vesting will occur no later than March 15, 2023. The number of units awarded for this tranche has been adjusted to reflect
the two-for-one forward stock split, which was effective on June 30, 2022.
On June 23, 2021, the Compensation Committee granted
an additional 14,800 units under the RSU plan. The performance goal for this tranche is based on the increase in the Bank’s tangible
book value by $3.50 per share over the performance period for threshold performance. Vesting will range from 75% of target for achieving
threshold performance, to 100% of target for achieving target payout performance ($4.50 increase in tangible book value per share) to
150% of target for achieving in excess of target payout performance and, if the performance goals are achieved, vesting will occur no
later than March 15, 2024. The number of units awarded and the performance goals for this tranche have been adjusted to reflect the two-for-one
forward stock split, which was effective on June 30, 2022.
On February 28, 2022, the Compensation Committee
granted an additional 13,900 units under the RSU plan. The performance goal for this tranche is based on the increase in the Bank’s
tangible book value by $3.50 per share over the performance period for threshold performance. Vesting will range from 75% of target for
achieving threshold performance, to 100% of target for achieving target payout performance ($4.50 increase in tangible book value per
share) to 150% of target for achieving in excess of target payout performance and, if the performance goals are achieved, vesting will
occur no later than March 15, 2025. The number of units awarded and the performance goals for this tranche have been adjusted to reflect
the two-for-one forward stock split, which was effective on June 30, 2022.
The fair value of the awards granted under the
RSU plan at the grant date was $394 thousand and $354 thousand, respectively, for those grants awarded in 2022 and 2021. Compensation
expense of $96 thousand and $103 thousand was recorded with respect to these RSUs for the three months ended June 2022 and 2021, and
$193 thousand and $174 thousand for the six months ended June 30, 2022 and 2021, respectively. No performance-based restricted stock
units were awarded prior to 2019. The shares noted above are contingently issuable only upon attainment of the minimum performance goal.
Short Term Incentive Plan (STIP)
Salisbury
offers a short-term discretionary compensation plan to eligible employees on an annual basis. Under this incentive plan, Salisbury
may reward employees with cash compensation if certain pre-determined Bank and individual performance goals have been achieved. The STIP
expense, which is included in compensation expenses, totaled $271 thousand and $310 thousand for the three months ended June 30, 2022
and 2021, and year to date expenses of $538 thousand and $548 thousand for 2022 and 2021, respectively.
Options
Salisbury issued stock options in conjunction with
its acquisition of Riverside Bank in 2014. In second quarter 2022, a former Riverside employee exercised 4,050 stock options at $8.52
per share and in the second quarter 2021, no stock options were exercised. A former Riverside Bank executive exercised 7,020 and 3,510
stock options at $8.52 per share in second quarter 2022 and 2021, respectively.
NOTE 12 – FAIR VALUE OF ASSETS AND LIABILITIES
Salisbury
uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Securities available-for-sale and the CRA mutual fund are recorded at fair value on a recurring basis. Additionally, from time to time,
other assets are recorded at fair value on a nonrecurring basis, such as loans held for sale, collateral dependent impaired loans, property
acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve
the application of lower-of-cost-or-market accounting or write-downs of individual assets.
Salisbury
adopted ASC 820-10, “Fair Value Measurement - Overall,” which provides a framework for measuring fair value under generally
accepted accounting principles. This guidance permitted Salisbury the irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a contract-by-contract basis. Salisbury did not elect fair value treatment
for any financial assets or liabilities upon adoption.
In accordance
with ASC 820-10, Salisbury groups its financial assets and financial liabilities measured at fair value in three levels based on the markets
in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
GAAP specifies
a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Salisbury’s market assumptions.
These two types of inputs have created the following fair value hierarchy:
| • | Level
1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such
as the New York Stock Exchange Valuations are obtained from readily available pricing sources for market transactions involving identical
assets or liabilities. |
| • | Level
2. Significant other observable inputs. Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations
are obtained from third party pricing services for identical or comparable assets or liabilities. |
| • | Level
3. Significant unobservable inputs. Valuations for assets and liabilities that are derived from other methodologies, including option
pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions.
Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.
|
The following
is a description of valuation methodologies for assets recorded at fair value, including the general classification of such assets and
liabilities pursuant to the valuation hierarchy.
| • | Securities
available-for-sale and the CRA mutual fund. Securities available-for-sale and the CRA mutual fund are recorded at fair value on a recurring
basis. Level 1 securities include exchange-traded equity securities. Level 2 securities include debt securities with quoted prices, which
are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable
in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations
of the U.S. Treasury and U.S. government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, municipal
bonds, SBA bonds, corporate bonds and certain preferred equities. Level 3 is for positions that are not traded in active markets or are
subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are
generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to
inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments,
completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization
and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash
flows. |
| • | Derivative
financial instruments. The fair value of the interest rate swap is determined using the market standard methodology of netting the discounted
future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments
(or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
|
| • | Collateral
dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such
collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to
reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal
valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level
3. |
| • | Other
real estate owned acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans.
Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent
market prices or appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or
apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is
categorized as Level 3. |
Assets measured at fair value are as follows:
| | |
| |
| |
| |
|
| | |
Fair
Value Measurements Using | |
Assets
at |
| (in
thousands) | |
Level
1 | |
Level
2 | |
Level
3 | |
fair
value |
| June 30, 2022 | |
| | | |
| | | |
| | | |
| | |
| Assets at fair value on a recurring basis | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury | |
$ | — | | |
$ | 17,672 | | |
$ | — | | |
$ | 17,672 | |
| U.S. Government Agency notes | |
| — | | |
| 29,718 | | |
| — | | |
| 29,718 | |
| Municipal bonds | |
| — | | |
| 48,267 | | |
| — | | |
| 48,267 | |
| Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies and U.S. Government-sponsored
enterprises | |
| — | | |
| 71,467 | | |
| — | | |
| 71,467 | |
| Collateralized mortgage obligations: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies | |
| — | | |
| 22,552 | | |
| — | | |
| 22,552 | |
| Corporate
bonds | |
| — | | |
| 13,434 | | |
| — | | |
| 13,434 | |
| Securities available-for-sale | |
$ | — | | |
$ | 203,110 | | |
$ | — | | |
$ | 203,110 | |
| Mutual funds | |
| 1,672 | | |
| — | | |
| — | | |
| 1,672 | |
| Derivative
financial instruments | |
| — | | |
| 49 | | |
| — | | |
| 49 | |
| | |
| | | |
| | | |
| | | |
| | |
| December 31, 2021 | |
| | | |
| | | |
| | | |
| | |
| Assets at fair value on a recurring
basis | |
| | | |
| | | |
| | | |
| | |
| U.S. Treasury | |
$ | — | | |
$ | 15,131 | | |
$ | — | | |
$ | 15,131 | |
| U.S. Government Agency notes | |
| — | | |
| 31,604 | | |
| — | | |
| 31,604 | |
| Municipal bonds | |
| — | | |
| 47,822 | | |
| — | | |
| 47,822 | |
| Mortgage-backed securities: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies and U.S. Government-sponsored
enterprises | |
| — | | |
| 74,541 | | |
| — | | |
| 74,541 | |
| Collateralized mortgage obligations: | |
| | | |
| | | |
| | | |
| | |
| U.S. Government agencies | |
| — | | |
| 20,898 | | |
| — | | |
| 20,898 | |
| Corporate
bonds | |
| — | | |
| 12,400 | | |
| — | | |
| 12,400 | |
| Securities available-for-sale | |
$ | — | | |
$ | 202,396 | | |
$ | — | | |
$ | 202,396 | |
| Mutual fund | |
| 901 | | |
| — | | |
| — | | |
| 901 | |
| Derivative financial instruments | |
| — | | |
| 18 | | |
| — | | |
| 18 | |
| Assets at fair value on a non-recurring basis | |
| | | |
| | | |
| | | |
| | |
| Assets
held for sale 1 | |
$ | 700 | | |
$ | — | | |
$ | — | | |
$ | 700 | |
1 Prior to December 31, 2021, the
Bank entered into an agreement with a third party to sell the building that housed its Poughkeepsie, New York retail branch and relocate
the branch to leased space nearby. This sale was completed in January 2022. At June 30, 2022, Salisbury did not have any assets measured
at fair value on a non-recurring basis.
Carrying values and estimated fair values of financial instruments are
as follows:
| | |
| |
| |
| |
| |
|
| (in
thousands) | |
Carrying | |
Estimated | |
Fair
value measurements using |
| | |
value | |
fair
value | |
Level
1 | |
Level
2 | |
Level
3 |
| June 30, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Financial Assets | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 71,467 | | |
$ | 71,467 | | |
$ | 71,467 | | |
$ | — | | |
$ | — | |
| Interest bearing time deposits with financial institutions | |
| 750 | | |
| 750 | | |
| 750 | | |
| — | | |
| — | |
| Securities available-for-sale, net | |
| 203,110 | | |
| 203,110 | | |
| — | | |
| 203,110 | | |
| — | |
| Mutual funds | |
| 1,672 | | |
| 1,672 | | |
| 1,672 | | |
| — | | |
| — | |
| Federal Home Loan Bank of Boston stock | |
| 945 | | |
| 945 | | |
| — | | |
| 945 | | |
| — | |
| Loans held-for-sale | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Loans receivable, net | |
| 1,135,758 | | |
| 1,112,258 | | |
| — | | |
| — | | |
| 1,112,258 | |
| Accrued interest receivable | |
| 6,123 | | |
| 6,123 | | |
| — | | |
| 6,123 | | |
| — | |
| Cash surrender value of life insurance policies | |
| 28,063 | | |
| 28,063 | | |
| — | | |
| 28,063 | | |
| — | |
| Derivative financial instruments | |
| 49 | | |
| 49 | | |
| — | | |
| 49 | | |
| — | |
| Financial Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
| Demand (non-interest-bearing) | |
$ | 383,674 | | |
$ | 383,674 | | |
$ | — | | |
$ | 383,674 | | |
$ | — | |
| Demand (interest-bearing) | |
| 233,947 | | |
| 233,947 | | |
| — | | |
| 233,947 | | |
| — | |
| Money market | |
| 314,244 | | |
| 314,244 | | |
| — | | |
| 314,244 | | |
| — | |
| Savings and other | |
| 231,322 | | |
| 231,322 | | |
| — | | |
| 231,322 | | |
| — | |
| Certificates of
deposit | |
| 153,352 | | |
| 153,321 | | |
| — | | |
| 153,321 | | |
| — | |
| Deposits | |
| 1,316,539 | | |
| 1,316,508 | | |
| — | | |
| 1,316,508 | | |
| — | |
| Repurchase agreements | |
| 16,574 | | |
| 16,574 | | |
| — | | |
| 16,574 | | |
| — | |
| FHLBB advances | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
| Subordinated debt | |
| 24,502 | | |
| 22,428 | | |
| — | | |
| 22,428 | | |
| — | |
| Note payable | |
| 149 | | |
| 151 | | |
| — | | |
| 151 | | |
| — | |
| Finance lease obligation | |
| 4,329 | | |
| 4,267 | | |
| — | | |
| — | | |
| 4,267 | |
| Accrued
interest payable | |
| 44 | | |
| 44 | | |
| — | | |
| 44 | | |
| — | |
| | |
| |
| |
| |
| |
|
| December 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Financial Assets | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 175,335 | | |
$ | 175,335 | | |
$ | 175,335 | | |
$ | — | | |
$ | — | |
| Interest bearing time deposits with financial institutions | |
| 750 | | |
| 750 | | |
| 750 | | |
| — | | |
| — | |
| Securities available-for-sale | |
| 202,396 | | |
| 202,396 | | |
| — | | |
| 202,396 | | |
| — | |
| Mutual funds | |
| 901 | | |
| 901 | | |
| 901 | | |
| — | | |
| — | |
| Federal Home Loan Bank of Boston stock | |
| 1,397 | | |
| 1,397 | | |
| — | | |
| 1,397 | | |
| — | |
| Loans held-for-sale | |
| 2,684 | | |
| 2,721 | | |
| — | | |
| — | | |
| 2,721 | |
| Loans receivable, net | |
| 1,066,750 | | |
| 1,066,733 | | |
| — | | |
| — | | |
| 1,066,733 | |
| Accrued interest receivable | |
| 6,260 | | |
| 6,260 | | |
| — | | |
| 6,260 | | |
| — | |
| Cash surrender value of life insurance policies | |
| 27,738 | | |
| 27,738 | | |
| — | | |
| 27,738 | | |
| — | |
| Derivative financial instruments | |
| 18 | | |
| 18 | | |
| — | | |
| 18 | | |
| — | |
| Financial Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
| Demand (non-interest-bearing) | |
$ | 416,073 | | |
$ | 416,073 | | |
$ | — | | |
$ | 416,073 | | |
$ | — | |
| Demand (interest-bearing) | |
| 233,600 | | |
| 233,600 | | |
| — | | |
| 233,600 | | |
| — | |
| Money market | |
| 330,436 | | |
| 330,436 | | |
| — | | |
| 330,436 | | |
| — | |
| Savings and other | |
| 237,075 | | |
| 237,075 | | |
| — | | |
| 237,075 | | |
| — | |
| Certificates
of deposit | |
| 119,009 | | |
| 119,716 | | |
| — | | |
| 119,716 | | |
| — | |
| Deposits | |
| 1,336,193 | | |
| 1,336,900 | | |
| — | | |
| 1,336,900 | | |
| — | |
| Repurchase agreements | |
| 11,430 | | |
| 11,430 | | |
| — | | |
| 11,430 | | |
| — | |
| FHLBB advances | |
| 7,656 | | |
| 7,714 | | |
| — | | |
| 7,714 | | |
| — | |
| Subordinated debt | |
| 24,474 | | |
| 24,409 | | |
| — | | |
| 24,409 | | |
| — | |
| Note payable | |
| 170 | | |
| 171 | | |
| — | | |
| 171 | | |
| — | |
| Finance lease liability | |
| 4,107 | | |
| 4,223 | | |
| — | | |
| — | | |
| 4,223 | |
| Accrued
interest payable | |
| 49 | | |
| 49 | | |
| — | | |
| 49 | | |
| — | |
The carrying amounts of financial instruments shown
in the above table are included in the consolidated balance sheets under the indicated captions or are included in accrued interest and
other liabilities.
NOTE 13 – SUBSEQUENT EVENTS
On July 20, 2022 the Board of Directors of Salisbury
approved a quarterly cash dividend of $0.16 per common share is payable on August 26, 2022 to shareholders of record as of August 12,
2022.
In July 2022, Salisbury management discovered
that the Bank’s trust department terminated a trust account in May 2020 and distributed approximately $1.0 million that should
have been retained in continuance of the trust account. Salisbury is currently evaluating the Company’s potential financial exposure.
At this time, management believes that Salisbury’s exposure is not yet known or knowable and could potentially range from zero
to approximately $1.0 million depending upon the facts and circumstances and the scope of Salisbury’s insurance coverage.
Salisbury has engaged legal counsel to advise the Company with respect to the proper actions to be taken to address this matter.
| Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Management's
Discussion and Analysis of Financial Condition and Results of Operations of Salisbury Bancorp, Inc. (“Salisbury” or the “Company”)
and its subsidiary should be read in conjunction with Salisbury's Annual Report on Form 10-K for the year ended December 31, 2021. Readers
should also review other disclosures Salisbury files from time to time with the Securities and Exchange Commission (the “SEC”).
BUSINESS
Salisbury Bancorp,
Inc., a Connecticut corporation, formed in 1998, is the bank holding company for Salisbury Bank and Trust Company (the "Bank"),
a Connecticut-chartered and Federal Deposit Insurance Corporation (the "FDIC") insured commercial bank headquartered in Lakeville,
Connecticut. Salisbury’s common stock is traded on the NASDAQ Capital Market under the symbol “SAL.” Salisbury's principal
business consists of its operation and control of the business of the Bank.
The Bank, formed
in 1848, currently provides commercial banking, consumer financing, retail banking and trust and wealth advisory services through a network
of fourteen banking offices and ten ATMs located in: Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New York; and
Berkshire County, Massachusetts and through its internet website (salisburybank.com).
Critical
Accounting Policies and Estimates
Salisbury’s
consolidated financial statements follow GAAP as applied to the banking industry in which it operates. Application of these principles
requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. These estimates,
assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information
changes, the financial statements could reflect different estimates, assumptions and judgments and as such have a greater possibility
of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when
assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried at fair value warrants
an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a
future event.
Salisbury’s
significant accounting policies are presented in Note 1 of Notes to Consolidated Financial Statements, which, along with this Management’s
Discussion and Analysis, provide information on how significant assets are valued in the financial statements and how those values are
determined. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating
Salisbury’s reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting
from the need to make estimates about the effect of matters that are inherently uncertain.
Allowance
for Loan Losses
The allowance
for loan losses represents management’s estimate of credit losses inherent in the loan portfolio. Determining the amount of the
allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates
related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based
on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant
change. The loan portfolio also represents the largest asset type on the balance sheet. A discussion of the factors driving changes in
the amount of the allowance for loan losses is included in the “Provision and Allowance for Loan Losses” section of Management’s
Discussion and Analysis.
FINANCIAL CONDITION
Securities and Short-Term Funds
The fair market
value of Salisbury’s investment portfolio increased $1.0 million from year end 2021 to $205.7 million at June 30, 2022. The fair
market value included net unrealized pre-tax losses of $18.4 million at June 30, 2022 compared with net unrealized pre-tax gains of $1.0
million at December 31, 2021. The net unrealized losses reflected the sharp increase in market interest rates that has occurred in the
last six months. Cash and cash equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds
sold) decreased $103.9 million, or 59.2%, to $71.5 million at June 30, 2022. This decrease was driven by record loan growth and normal
customer activity during the six-month period ended June 30, 2022.
Salisbury evaluates
securities for OTTI when the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this
process, Salisbury considers its 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. Salisbury
evaluates securities for strategic fit and may reduce its position in securities, although it is not more likely than not that Salisbury
will be required to sell securities before recovery of their cost basis, which may be maturity. Management does not consider any of its
securities to be OTTI at June 30, 2022.
Loans
Net loans
receivable increased $69.0 million, or 6.5%, to $1.14 billion at June 30, 2022, compared with $1.07 billion at December 31, 2021.
PPP loan balances declined from $25.6 million at December 31, 2021 to $2.9 million at June 30, 2022 due to the forgiveness of such
loans by the SBA. Excluding PPP loans, net loans receivable increased by a record $91.7 million, or 8.8%, compared with December 31,
2021. The increase in net loans receivable was broad-based and reflected growth in residential, consumer, commercial and commercial
& industrial loans. Commercial and industrial loan growth for second quarter 2022 included the purchase of two syndicated loans,
which aggregated $6.8 million. The allowance for loan losses increased by $0.7 million from December 2021 primarily due to
significant loan growth, management’s current assessment of certain qualitative and environmental factors and charge-off
activity during the six-month period ending June 30, 2022.
Asset Quality
During
the first six months of 2022, overall asset quality continued to improve. Non-performing assets of $4.2 million, or 0.37% of gross loans
receivable were essentially unchanged from year end 2021 and total impaired and potential problem loans declined $18.9 million from $32.8
million, or 3.04% of gross loans receivable to $13.9 million, or 1.2% of gross loans receivable at June 30, 2022. The decrease in the
balance from year end 2021 primarily reflected management’s upgrade of the internal risk rating on loans to businesses in the hospitality
and entertainment and recreation industries, which were previously downgraded due to concerns over COVID-19. Such businesses have demonstrated
a return to pre-pandemic levels of activity and liquidity. As of June 30, 2022, Salisbury
did not have any outstanding loan payment deferrals and the Bank had approximately $3 million of PPP loans on its balance sheet compared
with approximately $26 million at December 31, 2021.
Salisbury
has cooperative relationships with the vast majority of its non-performing loan customers. Substantially all non-performing loans are
collateralized with real estate and the repayment of such loans is largely dependent on the return of such loans to performing status
or the liquidation of the underlying real estate collateral. Salisbury pursues the resolution of all non-performing loans through collections,
restructures, voluntary liquidation of collateral by the borrower and, where necessary, legal action. When attempts to work with a customer
to return a loan to performing status, including restructuring the loan, are unsuccessful, Salisbury will initiate appropriate legal action
seeking to acquire property by deed in lieu of foreclosure or through foreclosure, or to liquidate business assets.
Past Due Loans
Loans past
due 30 days or more decreased $1.5 million for the six months ended June 30, 2022 to $1.1 million, or 0.10% of gross loans receivable
compared with $2.6 million, or 0.24% of gross loans receivable at December 31, 2021. The decline in past due loans from year end 2021
primarily reflected the sale and or charge-off of non-performing loans during the six-month period ending June 30, 2022.
The components of loans past due
30 days or greater are as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Past due 30-59 days | |
$ | 754 | | |
$ | 751 | |
| Past due 60-89 days | |
| 247 | | |
| 590 | |
| Past due 90-179 days | |
| 69 | | |
| 1 | |
| Past
due 180 days and over | |
| 11 | | |
| 10 | |
| Accruing
loans | |
| 1,081 | | |
| 1,352 | |
| Past due 30-59 days | |
| — | | |
| 14 | |
| Past due 60-89 days | |
| — | | |
| — | |
| Past due 90-179 days | |
| — | | |
| 63 | |
| Past
due 180 days and over | |
| 15 | | |
| 1,213 | |
| Non-accrual
loans | |
| 15 | | |
| 1,290 | |
| Total
loans past due 30 days or greater | |
$ | 1,096 | | |
$ | 2,642 | |
Credit Risk
Ratings
Salisbury
assigns credit risk ratings to loans receivable in order to manage credit risk and to determine the allowance for loan losses.
Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a
borrower. Salisbury’s rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk
of default. Grades 1 through 4 are pass ratings and 5 through 8 are ratings (special mention, substandard, doubtful, and loss)
defined by the bank's regulatory agencies, the FDIC and CTDOB. Risk ratings are assigned to differentiate risk within the
portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial
position and outlook, risk profiles and the related collateral and structural positions.
| · | Loans
risk rated as "special mention" (5) possess credit deficiencies or potential weaknesses deserving management’s close attention
that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date. |
| · | Loans
risk rated as "substandard" (6) are loans where the Bank’s position is clearly not protected adequately by borrower current
net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses
to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished
and the Bank must rely on sale of collateral or other secondary sources of collection. |
| · | Loans
risk rated as "doubtful" (7) have the same weaknesses as substandard loans with the added characteristic that the weakness makes
collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high,
but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an
estimated loss is deferred until its exact status can be determined. |
| · | Loans
risk rated as "loss" (8) are considered uncollectible and of such little value that continuance as Bank assets is unwarranted.
This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable
to defer writing off this loan even though partial recovery may be made in the future. |
Management
actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate
its assignment of credit risk ratings. In addition, the Bank’s loan portfolio and risk ratings are examined annually on a rotating
basis by its two primary regulatory agencies, the FDIC and CTDOB.
Credit Quality
Segments
Salisbury categorizes
loans receivable into the following credit quality segments:
| · | Impaired
loans consist of all non-accrual loans and troubled debt restructured loans, and represent loans for which it is probable that Salisbury
will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreements. |
| · | Non-accrual
loans, a sub-set of impaired loans, are loans for which the accrual of interest has been discontinued because, in the opinion of management,
full collection of principal or interest is unlikely. |
| · | Non-performing
loans consist of non-accrual loans, and accruing loans past due 90 days and over that are well collateralized, in the process of collection
and where full collection of principal and interest is reasonably assured. Non-performing assets consist of non-performing loans plus
real estate acquired in settlement of loans. |
| · | Troubled
debt restructured loans are loans for which concessions such as reduction of interest rates, other than normal market rate adjustments,
or deferral of principal or interest payments, extension of maturity dates, or reduction of principal balance or accrued interest, have
been granted due to a borrower’s financial condition. Loan restructuring is employed when management believes the granting of a
concession will increase the probability of the full or partial collection of principal and interest. |
| · | Potential
problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired. |
Impaired
Loans
Impaired loans include all modified
loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components of impaired loans are as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Non-accrual loans, excluding troubled debt restructured loans | |
$ | 4,080 | | |
$ | 2,838 | |
| Non-accrual troubled debt restructured loans | |
| 69 | | |
| 1,350 | |
| Accruing troubled debt restructured loans | |
| 3,012 | | |
| 3,609 | |
| Total impaired loans | |
$ | 7,161 | | |
$ | 7,797 | |
Non-Performing Assets
Non-performing
assets of $4.2 million, or 0.28% of total assets at June 30, 2022, were essentially unchanged from December 31, 2021, and decreased $1.3
million from $5.5 million, or 0.39% of total assets, at June 30, 2021. Non-performing assets at June 30, 2022 included a residential real
estate loan of approximately $1.5 million on a property that was sold in July 2022. The components of non-performing assets are
as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Residential 1-4 family | |
$ | 2,450 | | |
$ | 750 | |
| Residential 5+ multifamily | |
| — | | |
| 861 | |
| Home equity lines of credit | |
| — | | |
| 21 | |
| Commercial | |
| 1,228 | | |
| 1,924 | |
| Farm land | |
| 409 | | |
| 432 | |
| Vacant land | |
| — | | |
| — | |
| Real estate secured | |
| 4,087 | | |
| 3,988 | |
| Commercial and industrial | |
| 62 | | |
| 200 | |
| Consumer | |
| — | | |
| — | |
| Non-accrual loans | |
| 4,149 | | |
| 4,188 | |
| Accruing loans past due 90 days and over | |
| 80 | | |
| 11 | |
| Non-performing loans | |
| 4,229 | | |
| 4,199 | |
| Foreclosed assets | |
| — | | |
| — | |
| Non-performing assets | |
$ | 4,229 | | |
$ | 4,199 | |
The past due status of non-performing
loans is as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Current | |
$ | 4,134 | | |
$ | 2,898 | |
| Past due 30-59 days | |
| — | | |
| 14 | |
| Past due 60-89 days | |
| — | | |
| — | |
| Past due 90-179 days | |
| 69 | | |
| 64 | |
| Past due 180 days and over | |
| 26 | | |
| 1,223 | |
| Total non-performing loans | |
$ | 4,229 | | |
$ | 4,199 | |
At June 30, 2022, 97.75% of non-performing
loans were current with respect to loan payments, compared with 69.02% at December 31, 2021.
Troubled Debt Restructured
Loans
Troubled debt
restructured loans declined during the first six months of 2022 to $3.1 million, or 0.27% of gross loans receivable at June 30, 2022,
compared to $5.0 million, or 0.46% of gross loans receivable at December 31, 2021. The decline in the balance of troubled debt restructured
loans since year end 2021 primarily reflected the sale or charge-off of $1.6 million of certain residential and commercial loans, an internal
risk rating upgrade of a $0.2 million residential loan and $0.1 million of amortization.
The components of troubled debt
restructured loans are as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Residential 1-4 family | |
$ | 1,504 | | |
$ | 1,824 | |
| Residential 5+ multifamily | |
| 80 | | |
| 87 | |
| Commercial | |
| 1,355 | | |
| 1,622 | |
| Real estate secured | |
| 2,939 | | |
| 3,533 | |
| Commercial and industrial | |
| 73 | | |
| 76 | |
| Accruing troubled debt restructured loans | |
| 3,012 | | |
| 3,609 | |
| Residential 1-4 family | |
| 69 | | |
| 256 | |
| Residential 5+ multifamily | |
| — | | |
| 861 | |
| Commercial | |
| — | | |
| 233 | |
| Real estate secured | |
$ | 69 | | |
$ | 1,350 | |
| Non-accrual troubled debt restructured loans | |
| 69 | | |
| 1,350 | |
| Troubled debt restructured loans | |
$ | 3,081 | | |
$ | 4,959 | |
The past due status of troubled
debt restructured loans is as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Current | |
$ | 2,976 | | |
$ | 3,540 | |
| Past due 30-59 days | |
| 36 | | |
| 37 | |
| Past
due 60-89 days | |
| — | | |
| 32 | |
| Accruing
troubled debt restructured loans | |
| 3,012 | | |
| 3,609 | |
| Current | |
| 69 | | |
| 414 | |
| Past
due 180 days and over | |
| — | | |
| 936 | |
| Non-accrual
troubled debt restructured loans | |
| 69 | | |
| 1,350 | |
| Total
troubled debt restructured loans | |
$ | 3,081 | | |
$ | 4,959 | |
At June 30, 2022, 98.83% of troubled
debt restructured loans were current with respect to loan payments, as compared with 79.73% at December 31, 2021.
Potential Problem Loans
Potential problem
loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired. Potential
problem loans decreased $18.2 million to $6.8 million, or 0.59% of gross loans receivable at June 30, 2022, compared with $25.0 million,
or 2.32% of gross loans receivable at December 31, 2021. The decrease in potential problem loans from year end 2021 primarily reflected
management’s upgrade of the internal risk rating on approximately $17 million of loans that were mostly related to the hospitality
and entertainment and recreation industries. These loans were previously downgraded due to concerns over COVID-19 but the businesses have
since demonstrated a return to pre-pandemic levels of activity and liquidity.
The components of potential problem
loans are as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Residential 1-4 family | |
$ | 869 | | |
$ | 999 | |
| Residential 5+ multifamily | |
| — | | |
| 709 | |
| Home equity lines of credit | |
| — | | |
| — | |
| Residential real estate | |
| 869 | | |
| 1,708 | |
| Commercial | |
| 4,203 | | |
| 20,998 | |
| Construction of commercial | |
| — | | |
| — | |
| Commercial real estate | |
| 4,203 | | |
| 20,998 | |
| Farm land | |
| — | | |
| — | |
| Real estate secured | |
| 5,072 | | |
| 22,706 | |
| Commercial and industrial | |
| 1,696 | | |
| 2,310 | |
| Consumer | |
| — | | |
| — | |
| Total potential problem loans | |
$ | 6,768 | | |
$ | 25,016 | |
The past due status of potential
problem loans is as follows:
| (in
thousands) | |
|
June 30,
2022 |
| |
|
December
31, 2021 |
|
| Current | |
$ | 6,746 | | |
$ | 24,977 | |
| Past due 30-59 days | |
| — | | |
| 23 | |
| Past due 60-89 days | |
| 22 | | |
| 16 | |
| Past due 90-179 days | |
| — | | |
| — | |
| Total potential problem loans | |
$ | 6,768 | | |
$ | 25,016 | |
At June 30,
2022, 99.67% of potential problem loans were current with respect to loan payments, as compared with 99.84% at December 31, 2021. Management
cannot predict the extent to which economic or other factors may impact such borrowers’ future payment capacity, and there can be
no assurance that such loans will not be placed on nonaccrual status, restructured, or require increased provisions for loan losses.
Deposits and Borrowings
Deposits
decreased $19.7 million, or 1.5%, during the first six months of 2022 to $1.32 billion at June 30, 2022, compared with $1.34 billion at
December 31, 2021. The decrease primarily reflected normal business activity. Deposit balances at second quarter 2022 included $15.0 million
which Salisbury received on June 29, 2022 from a wholesale source to fund loan growth during the quarter. These funds were included in
a money market account at June 30, 2022. Retail repurchase agreements increased $5.1 million during 2022 to $16.6 million at June 30,
2022, compared with $11.4 million at December 31, 2021.
The distribution of average total
deposits by account type is as follows:
| | |
June 30, 2022 | |
December
31, 2021 |
| (in thousands) | |
Average Balance | |
Percent | |
Weighted
Average
Interest Rate | |
Average Balance | |
Percent | |
Weighted
Average
Interest Rate |
| Demand deposits | |
$ | 381,796 | | |
| 29.71 | % | |
| 0.00 | % | |
$ | 366,953 | | |
| 29.28 | % | |
| 0.00 | % |
| Interest-bearing checking accounts | |
| 229,625 | | |
| 17.87 | | |
| 0.19 | | |
| 224,763 | | |
| 17.93 | | |
| 0.19 | |
| Money market savings | |
| 299,870 | | |
| 23.34 | | |
| 0.21 | | |
| 315,469 | | |
| 25.17 | | |
| 0.17 | |
| Regular savings accounts | |
| 236,728 | | |
| 18.42 | | |
| 0.16 | | |
| 215,300 | | |
| 17.18 | | |
| 0.11 | |
| Certificates of deposit (CD’s)1 | |
| 137,034 | | |
| 10.66 | | |
| 0.63 | | |
| 130,879 | | |
| 10.44 | | |
| 0.72 | |
| Total deposits | |
$ | 1,285,053 | | |
| 100.00 | % | |
| 0.18 | % | |
$ | 1,253,364 | | |
| 100.00 | % | |
| 0.17 | % |
1CD’s included brokered certificates of deposit
of $35.0 million at June 30, 2022 and $7.9 million at December 31, 2021.
The classification of certificates
of deposit by interest rates is as follows:
| Interest
rates | |
|
June 30, 2022 |
| |
|
December
31, 2021 |
|
| Less than 1.00% | |
$ | 128,848 | | |
$ | 97,099 | |
| 1.00% to 1.99% | |
| 15,964 | | |
| 14,919 | |
| 2.00% to 2.99% | |
| 8,540 | | |
| 6,493 | |
| 3.00% to 3.99% | |
| — | | |
| 498 | |
| Total | |
$ | 153,352 | | |
$ | 119,009 | |
The distribution of certificates
of deposit by interest rate and maturity is as follows:
| | |
At June 30, 2022 |
| Interest rates | |
Less Than or Equal
to One Year | |
More Than One to Two
Years | |
More Than Two to Three
Years | |
More Than Three Years | |
Total | |
Percent of Total |
| Less than 1.00% | |
$ | 105,194 | | |
$ | 13,184 | | |
$ | 4,591 | | |
$ | 5,879 | | |
$ | 128,848 | | |
| 84.02 | % |
| 1.00% to 1.99% | |
| 9,306 | | |
| 3,552 | | |
| 3,106 | | |
| — | | |
| 15,964 | | |
| 10.41 | % |
| 2.00% to 2.99% | |
| 168 | | |
| 5,875 | | |
| 2,497 | | |
| — | | |
| 8,540 | | |
| 5.57 | % |
| 3.00% to 3.99% | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 0.00 | % |
| Total | |
$ | 114,668 | | |
$ | 22,611 | | |
$ | 10,194 | | |
$ | 5,879 | | |
$ | 153,352 | | |
| 100.00 | % |
Scheduled maturities of time certificates
of deposit in denominations of $100,000 or more are as follows:
| June 30, 2022
(in thousands) | |
Within
3 months | |
3-6
months | |
6-12
months | |
Over
1 year | |
Total |
| Certificates of deposit $100,000 and over | |
$ | 56,090 | | |
$ | 19,533 | | |
$ | 11,064 | | |
$ | 22,591 | | |
$ | 109,278 | |
Salisbury did
not have any outstanding FHLBB advances at June 30, 2022 compared with an outstanding balance of $7.7 million at December 31, 2021. Salisbury
has an Irrevocable Letter of Credit Reimbursement Agreements with the FHLBB, whereby upon the Bank’s request an irrevocable letter
of credit is issued to secure municipal and certain other transactional deposit accounts. These letters of credit are secured primarily
by residential mortgage loans. The amount of funds available from the FHLBB to the Bank is reduced by any letters of credit outstanding.
At June 30, 2022, $20.0 million of letters of credit were outstanding.
Liquidity
Salisbury
manages its liquidity position to ensure that there is sufficient funding availability at all times to meet both anticipated and unanticipated
deposit withdrawals, loan originations and advances, securities purchases and other operating cash outflows. Salisbury's primary sources
of liquidity are principal payments and maturities of securities and loans, short-term borrowings through repurchase agreements and FHLBB
advances, net deposit growth and funds provided by operations. Liquidity can also be provided through sales of loans and available-for-sale
securities. At June 30, 2022, Salisbury’s excess borrowing capacity at FHLBB was approximately $253.0 million. Salisbury maintains
access to multiple sources of liquidity, including wholesale funding. An increase in funding costs could have an adverse impact on Salisbury’s
net interest margin. If a deterioration in economic conditions or other factors cause depositors to withdraw their funds, Salisbury could
become more dependent on more expensive sources of funding.
Operating activities
for the six-month period ended June 30, 2022 provided net cash of $15.4 million. Investing activities utilized net cash of $95.1 million
principally from $52.2 million of purchases of available-for-sale securities and mutual funds, $73.4 million of net loan originations
and principal collections, and $0.6 million of capital expenditures, partly offset by proceeds of $9.4 million from calls and maturities
of available-for-sale securities and proceeds of $22.0 million from the sale of available-for-sale-securities. Financing activities utilized
net cash of $24.2 million principally due to a decrease of deposit transaction accounts of $54.0 million, the repayment of FHLBB term
advances of $6.0 million, the repayment of FHLBB amortizing term advances of $1.7 million and the payment of common stock dividends of
$1.8 million, partially offset by an increase in time deposits of $34.3 million and a $5.1 million increase in repurchase agreements
At June 30,
2022, Salisbury had outstanding commitments to fund new loan originations of $63.0 million and unused lines of credit of $246.6 million.
Salisbury believes that these commitments can be met in the normal course of business. Salisbury believes that its liquidity sources will
continue to provide funding sufficient to support operating activities, loan originations and commitments, and deposit withdrawals.
RESULTS OF OPERATIONS
For the three-month periods ended June 30, 2022 and 2021
OVERVIEW
On June 30, 2022, Salisbury effected a two-for-one
forward stock split of its outstanding shares. As a result, all share and per share metrics included herein have been adjusted to reflect
this event. Net income allocated to common shareholders was $3.8 million, or $0.67 per basic earnings per common share, for the second
quarter ended June 30, 2022 (second quarter 2022), compared with $4.3 million, or $0.76 per basic common share, for the second quarter
ended June 30, 2021 (second quarter 2021), and $3.5 million, or $0.62 per basic common share, for the first quarter ended March 31, 2022
(first quarter 2022).
Net Interest
Income
Tax equivalent net interest income for the second
quarter 2022 increased $1.3 million, or 1.4%, versus second quarter 2021. Average earning assets increased $20.3 million, or 1.5%, versus
second quarter 2021. Average total interest bearing deposits increased slightly compared with second quarter 2021. Average loan balances
for second quarter 2022 included an average PPP loan balance of $8.8 million compared with $80.4 million for second quarter 2021. The
net interest margin for the second quarter 2022 was 3.15% compared with 2.82% for the second quarter 2021. Excluding
PPP loans, the net interest margin for the second quarter 2022 was approximately 3.10% compared with 2.76% for second quarter 2021. The
increase in net interest margin in second quarter 2022 primarily reflected a $59.7 million, or 5.7%, increase in average loan balances
earning an average yield of 3.81% and a reduction in short term fund balances of $126.2 million, or 69.8%, earning an average yield of
0.73%, and a decrease in subordinated debt interest expense compared to 2021, which included approximately $180 thousand for interest
expense as amortized costs on subordinated debt that Salisbury had issued in 2015 and fully redeemed in May of 2021.
The following
table sets forth the components of Salisbury's fully tax-equivalent (“FTE”) net interest income and yields on average interest-earning
assets and interest-bearing liabilities.
| Three
months ended June 30, | |
Average
Balance | |
Income
/ Expense | |
Average
Yield / Rate |
| (dollars
in thousands) | |
|
2022 |
| |
|
2021 |
| |
|
2022 |
| |
|
2021 |
| |
|
2022 |
| |
|
2021 |
|
| Loans (a)(d) | |
$ | 1,112,120 | | |
$ | 1,052,381 | | |
$ | 10,693 | | |
$ | 10,015 | | |
| 3.81 | % | |
| 3.78 | % |
| Securities (c)(d) | |
| 225,458 | | |
| 138,164 | | |
| 1,117 | | |
| 720 | | |
| 1.98 | | |
| 2.08 | |
| FHLBB stock | |
| 1,221 | | |
| 1,830 | | |
| 10 | | |
| 11 | | |
| 3.20 | | |
| 2.41 | |
| Short
term funds (b) | |
| 54,553 | | |
| 180,716 | | |
| 98 | | |
| 50 | | |
| 0.73 | | |
| 0.11 | |
| Total interest-earning assets | |
| 1,393,352 | | |
| 1,373,091 | | |
| 11,918 | | |
| 10,796 | | |
| 3.40 | | |
| 3.13 | |
| Other
assets | |
| 61,790 | | |
| 70,447 | | |
| | | |
| | | |
| | | |
| | |
| Total
assets | |
$ | 1,455,142 | | |
$ | 1,443,538 | | |
| | | |
| | | |
| | | |
| | |
| Interest-bearing demand deposits | |
$ | 229,625 | | |
$ | 227,623 | | |
| 108 | | |
| 117 | | |
| 0.19 | | |
| 0.21 | |
| Money market accounts | |
| 299,870 | | |
| 315,665 | | |
| 156 | | |
| 138 | | |
| 0.21 | | |
| 0.18 | |
| Savings and other | |
| 236,728 | | |
| 212,253 | | |
| 97 | | |
| 59 | | |
| 0.16 | | |
| 0.11 | |
| Certificates
of deposit | |
| 137,034 | | |
| 147,103 | | |
| 216 | | |
| 252 | | |
| 0.63 | | |
| 0.69 | |
| Total interest-bearing deposits | |
| 903,257 | | |
| 902,644 | | |
| 577 | | |
| 566 | | |
| 0.26 | | |
| 0.25 | |
| Repurchase agreements | |
| 10,216 | | |
| 12,010 | | |
| 4 | | |
| 4 | | |
| 0.15 | | |
| 0.15 | |
| Finance lease | |
| 5,283 | | |
| 2,751 | | |
| 41 | | |
| 36 | | |
| 3.09 | | |
| 5.26 | |
| Note payable | |
| 153 | | |
| 192 | | |
| 2 | | |
| 3 | | |
| 6.13 | | |
| 6.09 | |
| Subordinated Debt (net of issuance costs) | |
| 24,494 | | |
| 30,789 | | |
| 233 | | |
| 415 | | |
| 3.80 | | |
| 5.39 | |
| FHLBB
advances | |
| — | | |
| 10,576 | | |
| — | | |
| 33 | | |
| — | | |
| 1.21 | |
| Total interest-bearing liabilities | |
| 943,403 | | |
| 958,962 | | |
| 857 | | |
| 1,057 | | |
| 0.36 | | |
| 0.44 | |
| Demand deposits | |
| 376,694 | | |
| 348,561 | | |
| | | |
| | | |
| | | |
| | |
| Other liabilities | |
| 6,258 | | |
| 6,786 | | |
| | | |
| | | |
| | | |
| | |
| Shareholders’
equity | |
| 128,787 | | |
| 129,229 | | |
| | | |
| | | |
| | | |
| | |
| Total
liabilities & shareholders’ equity | |
$ | 1,455,142 | | |
$ | 1,443,538 | | |
| | | |
| | | |
| | | |
| | |
| Net interest income (d) | |
| | | |
| | | |
$ | 11,061 | | |
$ | 9,739 | | |
| | | |
| | |
| Spread on interest-bearing funds | |
| | | |
| | | |
| | | |
| | | |
| 3.03 | | |
| 2.69 | |
| Net
interest margin (e) | |
| | | |
| | | |
| | | |
| | | |
| 3.15 | | |
| 2.82 | |
| (a) | Includes non-accrual loans. |
| (b) | Includes interest-bearing deposits in other
banks and federal funds sold. |
| (c) | Average balances of securities are based on
cost. |
| (d) | Includes tax exempt income benefit
of $187,000 and $174,000, respectively, for 2022 and 2021 on tax-exempt securities and loans whose
income and yields are calculated on a tax-equivalent basis. The income benefit reflected the U.S. federal statutory tax rate of 21.0%
for 2022 and 2021. |
| (e) | Net interest income divided by average interest-earning assets. |
The following
table sets forth the changes in FTE interest due to volume and rate.
| Three
months ended June 30, (in thousands) |
2022
versus 2021 |
| Change
in interest due to | |
| Volume | | |
| Rate | | |
| Net | |
| Loans | |
$ | 608 | | |
$ | 70 | | |
$ | 678 | |
| Securities | |
| 442 | | |
| (45 | ) | |
| 397 | |
| FHLBB stock | |
| (4 | ) | |
| 3 | | |
| (1 | ) |
| Short term funds | |
| (134 | ) | |
| 182 | | |
| 48 | |
| Interest-earning assets | |
| 912 | | |
| 210 | | |
| 1,122 | |
| Deposits | |
| (1 | ) | |
| 12 | | |
| 11 | |
| Repurchase agreements | |
| — | | |
| — | | |
| — | |
| Finance lease | |
| 27 | | |
| (22 | ) | |
| 5 | |
| Note payable | |
| (1 | ) | |
| — | | |
| (1 | ) |
| Subordinated Debt | |
| (72 | ) | |
| (110 | ) | |
| (182 | ) |
| FHLBB advances | |
| (17 | ) | |
| (16 | ) | |
| (33 | ) |
| Interest-bearing liabilities | |
| (64 | ) | |
| (136 | ) | |
| (200 | ) |
| Net change in net interest income | |
$ | 976 | | |
$ | 346 | | |
$ | 1,322 | |
Interest Income
Tax equivalent interest income increased $1.1 million,
or 10.4%, to $11.9 million for second quarter 2022 as compared with $10.8 million in second quarter 2021. Loan income as compared to second
quarter 2021 increased $678 thousand, or 6.8%, primarily due to a $59.7 million, or 5.67%, increase in average loan balances and a 3 basis
point increase in the average loan yield. Tax equivalent securities income increased $397 thousand, or 55.1%, for second quarter 2022
as compared with second quarter 2021, primarily due to a $87.2 million, or 63.1%, increase in average volume, partly offset by a 10 basis
point decrease in average yield. Income on short-term funds as compared to second quarter 2021 increased $48 thousand, or 96.0%, primarily
due to a 62 basis point increase in the average short-term funds yield, partly offset by a $126.2 million, or 69.8%, decrease in average
balance.
Interest Expense
Interest expense decreased $200 thousand, or 18.9%,
to $0.9 million for second quarter 2022 as compared with $1.1 million in second quarter 2021. Interest on deposit accounts increased slightly
from second quarter 2021. Interest expense on subordinated debt decreased $182 thousand, or 43.9%, as the second quarter 2021 included
approximately $180 thousand for interest and the amortization of issuance costs on subordinated debt, which Salisbury issued in 2015 and
fully redeemed in May 2021.
Provision
and Allowance for Loan Losses
The allowance for loan losses was $13.7 million
at June 30, 2022 compared with $13.0 million at December 31, 2021. The provision for loan loss expense for second quarter 2022 was $1.1
million compared with a provision of $363 thousand for first quarter 2022 and a provision release of $1.1 million for second quarter 2021.
The provision expense for second quarter 2022 reflected record quarterly loan growth and adjustments to qualitative factors due to the
uncertain macro-economic environment. The provision expense for second quarter 2022 also reflected a release of credit reserves of $0.6
million due to management’s upgrade of the internal risk rating on certain loans related to the hospitality industry. Net loan charge-offs
(recoveries) were $312 thousand for the second quarter 2022, $410 thousand for first quarter 2022 and $103 thousand for the second quarter
2021. Charge-offs for second quarter 2022 primarily related to a discrete commercial loan.
As a result of these factors, reserve coverage,
as measured by the ratio of the allowance for loan losses to gross loans excluding PPP loans, was 1.20% for the second quarter 2022, versus
1.21% for first quarter 2022 and 1.29% for the second quarter 2021. Similarly, reserve coverage, as measured by the ratio of the allowance
for loan losses to non-performing loans was 324% for the second quarter of 2022, versus 467% for the first quarter of 2022 and 229% for
the second quarter of 2021.
The following
table details the principal categories of credit quality ratios:
| Three
months ended June 30, | |
|
2022 |
| |
|
2021 |
|
| Net charge-offs (recoveries) to average loans receivable, gross | |
| 0.03 | % | |
| 0.01 | % |
| Non-performing loans to loans receivable, gross | |
| 0.37 | | |
| 0.53 | |
| Accruing loans past due 30-89 days to loans receivable, gross | |
| 0.09 | | |
| 0.13 | |
| Allowance for loan losses to loans receivable, gross | |
| 1.19 | | |
| 1.22 | |
| Allowance for loan losses to non-performing loans | |
| 324.03 | | |
| 229.42 | |
| Non-performing assets to total assets | |
| 0.28 | | |
| 0.39 | |
Non-performing
loans (non-accrual loans plus accruing loans past-due 90 days or more) were $4.2 million or 0.37% of gross loans receivable at June 30,
2022 as compared to $5.5 million, or 0.53%, at June 30, 2021. Accruing loans past due 30-89 days decreased $0.4 million to $1.0 million,
or 0.09% of gross loans receivable at June 30, 2022 from $1.4 million, or 0.13% of gross loans receivable, at June 30, 2021. See “Financial
Condition – Loan Credit Quality” above for further discussion and analysis.
The allowance
for loan losses represents management’s estimate of the probable credit losses inherent in the loan portfolio as of the reporting
date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced
by loan charge-offs. Loan charge-offs are recognized when management determines a loan, or portion of a loan, to be uncollectible. The
allowance for loan losses is computed by segregating the portfolio into three components: (1) loans collectively evaluated for impairment:
general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as
loan product, collateral type and loan-to-value, loan risk rating, historical loss experience, delinquency factors and other similar
economic indicators, (2) loans individually evaluated for impairment: individual loss allocations for loans deemed to be impaired based
on discounted cash flows or collateral value, and (3) unallocated: general loss allocations for other environmental factors.
Impaired loans
and certain potential problem loans, when warranted, are individually evaluated for impairment. Impairment is measured for each individual
loan, or for a borrower’s aggregate loan exposure, using either the fair value of the collateral, less estimated costs to sell
if the loan is collateral dependent, or the present value of expected future cash flows discounted at the loan’s effective interest
rate. A specific allowance is generally established when the collateral value or discounted cash flows of the loan is lower than the
carrying value of that loan.
The component of the allowance for loan losses for loans collectively evaluated for impairment is
estimated by stratifying loans into segments and credit risk ratings and then applying management's general loss allocation factors.
The general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative
factors, including levels or trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting
standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff;
and national and local economic trends and conditions. The qualitative factors are determined based on the various risk characteristics
of each loan segment and are risk-weighted such that higher risk loans generally have a higher reserve percentage.
The unallocated
component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses. It reflects
the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves
in the portfolio. Additionally, reserves are established for off balance sheet exposures.
Determining
the adequacy of the allowance and reserves at any given period is difficult, particularly during deteriorating or uncertain economic periods,
and management must make estimates using assumptions and information that are often subjective and changing rapidly. The review of credit
exposure related to loans is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment.
Should the economic climate deteriorate, borrowers could experience difficulty and the level of non-performing loans, charge-offs and
delinquencies could rise, requiring increased provisions and reserves. In management's judgment, Salisbury remains adequately reserved
both against total loans and non-performing loans at June 30, 2022.
Management’s
loan risk rating assignments, loss percentages and specific reserves are subjected annually to an independent credit review by an external
firm. In addition, the Bank is examined annually on a rotational basis by one of its two primary regulatory agencies, the FDIC and CTDOB.
As an integral part of their examination process, the FDIC and CTDOB review the adequacy and methodology of the Bank's credit risk ratings
and allowance for loan losses.
Non-Interest
Income
The following
table details the principal categories of non-interest income.
| Three
months ended June 30, (dollars in thousands) |
2022 |
| |
|
2021 |
| |
|
2022
vs. 2021 |
|
| Trust and wealth advisory | |
$ | 1,293 | | |
$ | 1,254 | | |
$ | 39 | | |
| 3.1 | % |
| Service charges and fees | |
| 1,723 | | |
| 1,374 | | |
| 349 | | |
| 25.4 | |
| Mortgage banking activities, net | |
| 77 | | |
| 196 | | |
| (119 | ) | |
| (60.7 | ) |
| (Losses) gains on mutual fund | |
| (30 | ) | |
| 3 | | |
| (33 | ) | |
| N/A | |
| (Losses) gains on available-for-sale securities, net | |
| (45 | ) | |
| (9 | ) | |
| (36 | ) | |
| 400.0 | |
| BOLI income and gains | |
| 252 | | |
| 125 | | |
| 127 | | |
| 101.6 | |
| Other | |
| 27 | | |
| 28 | | |
| (1 | ) | |
| (3.6 | ) |
| Total non-interest income | |
$ | 3,297 | | |
$ | 2,971 | | |
$ | 326 | | |
| 11.0 | % |
Non-interest income increased $326 thousand, or
11.0% in the second quarter 2022 versus second quarter 2021. Trust and wealth advisory revenues increased $39 thousand versus second quarter
2021. Assets under administration were $1.3 billion at June 30, 2022 compared with $1.0 billion at
March 31, 2022 and $970.3 million at June 30, 2021. Discretionary assets under administration of $546.5 million at June 30, 2022 decreased
from $625.3 million at March 31, 2022 and $614.3 million at June 30, 2021. Non-discretionary assets under administration of $714.7 million
increased from $423.9 million at first quarter 2022 and increased from $356.0 million in second quarter 2021. The increase in non-discretionary
assets from the comparative quarters primarily reflected a higher valuation of certain partnership assets for an existing client relationship.
The trust and wealth business records only a nominal annual fee on this relationship.
Service charges and fees increased $349 thousand
versus second quarter 2021 primarily due to non-recurring loan prepayment fees of $425 thousand as
well as higher interchange and deposit fees. Second quarter 2022 income from mortgage sales and servicing decreased $119 thousand due
to lower sales volume. Mortgage sales to FHLB Boston in second quarter 2022 were $2.0 million compared with $7.1 million for second quarter
2021. Mortgage banking activities, net for first quarter 2022 also included a pre-tax gain of $239 thousand on the sale of $3.4 million
of non-performing and under-performing commercial and residential loans.
Non-interest income for second quarter 2022
included a pre-tax loss of $45 thousand on the sale of available-for-sale securities (“AFS”) compared with $9 thousand in
second quarter 2021. BOLI income for second quarter 2022 included a non-recurring non-taxable
gain of $89 thousand related to proceeds receivable due to the death of a former covered employee.
Non-Interest
Expense
The following
table details the principal categories of non-interest expense.
| Three
months ended June 30, (dollars in thousands) |
2022 |
| |
|
2021 |
| |
|
2022
vs. 2021 |
|
| Salaries | |
$ | 3,657 | | |
$ | 3,403 | | |
$ | 254 | | |
| 7.5 | % |
| Employee benefits | |
| 1,288 | | |
| 1,356 | | |
| (68 | ) | |
| (5.0 | ) |
| Premises and equipment | |
| 973 | | |
| 1,019 | | |
| (46 | ) | |
| (4.5 | ) |
| Information processing and services | |
| 702 | | |
| 628 | | |
| 74 | | |
| 11.8 | |
| Professional fees | |
| 821 | | |
| 644 | | |
| 177 | | |
| 27.5 | |
| Collections, OREO, and loan related | |
| 116 | | |
| 113 | | |
| 3 | | |
| 2.7 | |
| FDIC insurance | |
| 122 | | |
| 80 | | |
| 42 | | |
| 52.5 | |
| Marketing and community support | |
| 262 | | |
| 214 | | |
| 48 | | |
| 22.4 | |
| Amortization of intangibles | |
| 50 | | |
| 65 | | |
| (15 | ) | |
| (23.1 | ) |
| Other | |
| 541 | | |
| 564 | | |
| (23 | ) | |
| (4.1 | ) |
| Total non-interest expense | |
$ | 8,532 | | |
$ | 8,086 | | |
$ | 446 | | |
| 5.5 | % |
Non-interest
expense for second quarter 2022 increased $446 thousand versus second quarter 2021. Total compensation expense increased $186 thousand
versus the second quarter 2021. The increase from the comparative quarters primarily reflected higher salary expense, partially offset
by lower benefits expense. Deferred loan origination expenses in second quarter 2022 declined $57 thousand versus second quarter 2021.
Premises and equipment expense decreased $46 thousand versus second quarter 2021 primarily due to decreased depreciation expense and software
maintenance. Information processing and services expense increased $74 thousand versus second
quarter 2021 primarily due to higher ATM network processing fees, core data processing and website expenses. Professional fees increased
$177 thousand versus second quarter 2021 primarily due to higher consulting, legal expenses and investment management fees. Marketing
and community support expense increased $48 thousand versus second quarter 2021 primarily due to timing of current marketing campaigns
and contributions. The decrease in other expenses of $23 thousand primarily reflected fraud insurance recovery. During second quarter
2022, Salisbury recovered approximately $50 thousand related to fraud losses recorded in first quarter 2022.
Income Taxes
The
effective income tax rates for second quarter 2022 and second quarter 2021 were 15.3% and 21.2%, respectively. Generally, fluctuations
in the effective tax rate result from changes in the mix of taxable and tax-exempt income. The tax provision for second quarter 2022 included
a non-recurring credit of $63 thousand to adjust for an over statement of the Bank’s 2021 tax liability to New York state. The lower
tax rate in second quarter 2022 also reflected a higher mix of tax-exempt income from municipal bonds and tax advantaged loans as well
as the BOLI proceeds receivable noted above. Additionally, Salisbury’s effective tax rate is generally less than the federal statutory
rate due to holdings of tax-exempt municipal bonds and loans as well as bank owned life insurance.
Salisbury did
not incur Connecticut income tax in 2022 (to date) or 2021, other than minimum state income tax, as a result of a Connecticut law that
permits banks to shelter certain mortgage income from the Connecticut corporation business tax through the use of a special purpose entity
called a Passive Investment Company or PIC. In 2004, Salisbury availed itself of this benefit by forming a PIC, SBT Mortgage Service Corporation.
Salisbury's income tax provision reflects the full impact of the Connecticut legislation. Salisbury does not expect to pay other than
minimum state income tax in the foreseeable future unless there is a change in Connecticut tax law.
For the six-month periods ended June 30, 2022 and 2021
Overview
Net income allocated to common shareholders was
$7.3 million, or $1.29 basic earnings per common share, for the six-month period ended June 30, 2022 (six-month period 2022), compared
with $8.7 million, or $1.56 basic earnings per common share, for the six-month period ended June 30, 2021 (six month period 2021). The
reduction in net income allocated to common shareholders for the six-month period in 2022 primarily reflected a higher provision for loan
losses and higher non-interest expenses, which were partially offset by higher net interest and non-interest income.
Net Interest
Income
Tax equivalent
net interest income for the six-month period 2022 of $21.5 million increased $1.3 million, or 6.3%, versus the six-month period 2021.
Average earning assets of $1.4 billion at June 30, 2022 increased $87.0 million, or 6.6%, versus the six-month period 2021. Average total
interest bearing deposits of $0.9 million increased $41.8 million, or 4.8%, versus the six-month period 2021. The net interest margin
of 3.05% decreased 1 basis point compared with the six-month period 2021. Excluding PPP loans, the net interest margin for the six-month
period ended June 30, 2022 was approximately 2.98% compared with 2.94% for the same period in 2021.
The following table sets forth the
components of Salisbury's fully tax-equivalent (“FTE”) net interest and dividend income and yields on average interest-earning
assets and interest-bearing liabilities.
| Six
months ended June 30, | |
Average
Balance | |
Income
/ Expense | |
Average
Yield / Rate |
| (dollars
in thousands) | |
|
2022 |
| |
|
2021 |
| |
|
2022 |
| |
|
2021 |
| |
|
2022 |
| |
|
2021 |
|
| Loans (a)(d) | |
$ | 1,095,955 | | |
$ | 1,052,020 | | |
$ | 20,971 | | |
$ | 20,605 | | |
| 3.80 | % | |
| 3.90 | % |
| Securities (c)(d) | |
| 216,847 | | |
| 120,710 | | |
| 2,079 | | |
| 1,360 | | |
| 1.92 | | |
| 2.25 | |
| FHLBB stock | |
| 1,327 | | |
| 1,889 | | |
| 17 | | |
| 20 | | |
| 2.58 | | |
| 2.13 | |
| Short
term funds (b) | |
| 88,813 | | |
| 141,278 | | |
| 146 | | |
| 76 | | |
| 0.33 | | |
| 0.11 | |
| Total earning assets | |
| 1,402,942 | | |
| 1,315,897 | | |
| 23,213 | | |
| 22,061 | | |
| 3.29 | | |
| 3.34 | |
| Other
assets | |
| 68,256 | | |
| 70,848 | | |
| | | |
| | | |
| | | |
| | |
| Total
assets | |
$ | 1,471,198 | | |
$ | 1,386,745 | | |
| | | |
| | | |
| | | |
| | |
| Interest-bearing demand deposits | |
$ | 231,037 | | |
$ | 223,049 | | |
| 207 | | |
| 223 | | |
| 0.18 | | |
| 0.20 | |
| Money market accounts | |
| 310,475 | | |
| 302,290 | | |
| 283 | | |
| 267 | | |
| 0.18 | | |
| 0.18 | |
| Savings and other | |
| 234,920 | | |
| 204,930 | | |
| 160 | | |
| 115 | | |
| 0.14 | | |
| 0.11 | |
| Certificates
of deposit | |
| 134,063 | | |
| 138,402 | | |
| 405 | | |
| 516 | | |
| 0.61 | | |
| 0.75 | |
| Total interest-bearing deposits | |
| 910,495 | | |
| 868,671 | | |
| 1,055 | | |
| 1,121 | | |
| 0.23 | | |
| 0.26 | |
| Repurchase agreements | |
| 8,689 | | |
| 10,241 | | |
| 6 | | |
| 8 | | |
| 0.15 | | |
| 0.15 | |
| Finance lease | |
| 5,190 | | |
| 2,787 | | |
| 82 | | |
| 69 | | |
| 3.16 | | |
| 4.93 | |
| Note payable | |
| 158 | | |
| 196 | | |
| 5 | | |
| 6 | | |
| 6.13 | | |
| 6.14 | |
| Subordinated Debt (net of issuance costs) | |
| 24,488 | | |
| 20,529 | | |
| 466 | | |
| 534 | | |
| 3.81 | | |
| 5.20 | |
| FHLBB
advances | |
| 1,479 | | |
| 11,197 | | |
| 55 | | |
| 65 | | |
| 7.46 | | |
| 1.17 | |
| Total interest-bearing liabilities | |
| 950,499 | | |
| 913,621 | | |
| 1,669 | | |
| 1,803 | | |
| 0.35 | | |
| 0.40 | |
| Demand deposits | |
| 381,731 | | |
| 338,486 | | |
| | | |
| | | |
| | | |
| | |
| Other liabilities | |
| 6,675 | | |
| 6,851 | | |
| | | |
| | | |
| | | |
| | |
| Shareholders’
equity | |
| 132,293 | | |
| 127,787 | | |
| | | |
| | | |
| | | |
| | |
| Total
liabilities & shareholders’ equity | |
$ | 1,471,198 | | |
$ | 1,386,745 | | |
| | | |
| | | |
| | | |
| | |
| Net interest income (d) | |
| | | |
| | | |
$ | 21,544 | | |
$ | 20,258 | | |
| | | |
| | |
| Spread on interest-bearing funds | |
| | | |
| | | |
| | | |
| | | |
| 2.94 | | |
| 2.95 | |
| Net
interest margin (e) | |
| | | |
| | | |
| | | |
| | | |
| 3.05 | | |
| 3.06 | |
| (a) | Includes non-accrual loans. |
| (b) | Includes interest-bearing deposits in other
banks and federal funds sold. |
| (c) | Average balances of securities are based on
cost. |
| (d) | Includes
tax exempt income benefit of $364,000 and $343,000, respectively for 2022 and 2021 on tax-exempt
securities and loans whose income and yields are calculated on a tax-equivalent basis. The income benefit reflected the U.S. federal statutory
tax rate of 21.0% for 2022 and 2021. |
| (e) | Net interest income divided by average interest-earning assets. |
The following
table sets forth the changes in FTE interest due to volume and rate.
| Six
months ended June 30, (in thousands) |
2022
versus 2021 |
| Change
in interest due to | |
| Volume | | |
| Rate | | |
| Net | |
| Loans | |
$ | 1,440 | | |
$ | (1,074 | ) | |
$ | 366 | |
| Securities | |
| 1,276 | | |
| (557 | ) | |
| 719 | |
| FHLBB stock | |
| (10 | ) | |
| 7 | | |
| (3 | ) |
| Short term funds | |
| (183 | ) | |
| 253 | | |
| 70 | |
| Interest-earning assets | |
| 2,523 | | |
| (1,371 | ) | |
| 1,152 | |
| Deposits | |
| 201 | | |
| (267 | ) | |
| (66 | ) |
| Repurchase agreements | |
| (2 | ) | |
| — | | |
| (2 | ) |
| Finance lease | |
| 84 | | |
| (71 | ) | |
| 13 | |
| Note payable | |
| (1 | ) | |
| — | | |
| (1 | ) |
| Subordinated Debt | |
| 245 | | |
| (313 | ) | |
| (68 | ) |
| FHLBB advances | |
| (409 | ) | |
| 399 | | |
| (10 | ) |
| Interest-bearing liabilities | |
| 118 | | |
| (252 | ) | |
| (134 | ) |
| Net change in net interest income | |
$ | 2,405 | | |
$ | (1,119 | ) | |
$ | 1,286 | |
Interest Income
Tax equivalent interest income of $23.2 million
for the six-month period ended June 30, 2022 increased $1.2 million, or 5.2%, from $22.1 million for the
six-month period ended June 30, 2021. Loan income, as compared to the six months of 2021,
increased $366 thousand, or 1.8%, primarily due to a $43.9 million, or 4.1%, increase in average loan balances, which was partly
offset by a 10 basis point decrease in the average yield. Tax equivalent securities income increased $719 thousand, or 52.9%, for the
six-month period 2022 as compared with the six-month period 2021, primarily due to
a $96.1 million, or 79.6%, increase in average balances, which was partly offset by a 33 basis point decrease in average yield. Income
on short-term funds as compared to six-month period 2021 increased $70 thousand, or 92.1%, primarily due to a $52.5 million, or 37.1%,
decrease in average balances, partly offset by a 22 basis point increase in the average short-term funds yields.
Interest Expense
Interest expense decreased $134 thousand, or 7.4%,
to $1.7 million for the six-month period 2022 compared with $1.8 million for the six-month
period 2021. Interest on deposit accounts decreased $66 thousand, or 5.9%, as a result of a 3 basis point reduction in the average
deposit rate, which was partly offset by an increase in the average total deposit balance of $41.8 million compared with the six-month
period 2021. Interest expense on subordinated debt for the six-month period 2021 included approximately $180 thousand for interest
and the amortization of issuance costs on $10.0 million of subordinated debt, which Salisbury issued in 2015 and fully redeemed in May
2021. In March 2021, Salisbury issued $25.0 million of subordinated debt at a coupon of 3.5%.
Provision
and Allowance for Loan Losses
A provision
of $1.5 million was recorded for the six-month period ended June 30, 2022 compared to a net credit reserve release of $0.9 million for
the six-month period ended June 30, 2021. Net loan charge-offs were $722 thousand and $129 thousand for the respective periods. The provision
expense for six-month period of 2022 reflected significant loan growth and adjustments to qualitative factors due to the uncertain macro-economic
environment. The provision expense for quarter 2022 also reflected a release of credit reserves of $0.6 million due to management’s
upgrade of the internal risk rating on certain loans related to the hospitality and entertainment and recreation industries. In 2021 management
reduced credit reserves as a result of an improvement in the business environment in Salisbury’s market areas due to the rollout
out of vaccinations and the lifting of COVID-19 restrictions.
Charge-off’s for the six-month period in 2022
included a write-down of $374 thousand in first quarter 2022 to reduce the carrying value on $3.8 million of non-performing and under-performing
residential and commercial loans, which Salisbury sold during the quarter, to the initial bid prices. The proceeds from the sale of these
loans subsequently increased by approximately $239 thousand due to higher final bids. This increase was recorded as a pre-tax gain on
sale in Salisbury’s consolidated statement of income in first quarter 2022. In second quarter 2022, Salisbury charged off $312 thousand,
which primarily related to a discrete commercial loan.
Reserve coverage
at June 30, 2022, as measured by the ratio of allowance for loan losses to gross loans, at 1.19%, compares with 1.22% a year ago at June
30, 2021. Excluding PPP loans, the reserve coverage ratio was 1.20% for June 30, 2022 compared with 1.29% for June 30, 2021. Management
will continue to evaluate credit risk in the loan portfolio to ensure a commensurate level of loan loss reserves. A resurgence of the
pandemic or a deterioration in economic conditions due to high inflation and rising interest rates, which results in loan payment delinquencies,
may subsequently necessitate an increase in loan loss reserves.
Non-interest
income
The following
table details the principal categories of non-interest income.
| Six
months ended June 30, (dollars in thousands) |
2022 |
| |
|
2021 |
| |
|
2022
vs. 2021 |
|
| Trust and wealth advisory | |
$ | 2,533 | | |
$ | 2,399 | | |
$ | 134 | | |
| 5.6 | % |
| Service charges and fees | |
| 2,861 | | |
| 2,325 | | |
| 536 | | |
| 23.1 | |
| Mortgage banking activities, net | |
| 432 | | |
| 804 | | |
| (372 | ) | |
| (46.3 | ) |
| (Losses) gains on mutual fund | |
| (72 | ) | |
| (14 | ) | |
| (58 | ) | |
| 414.3 | |
| (Losses) gains on sales and calls of available -for-sale securities, net | |
| 165 | | |
| (9 | ) | |
| 174 | | |
| N/A | |
| BOLI income and gains | |
| 414 | | |
| 251 | | |
| 163 | | |
| 64.9 | |
| Other | |
| 57 | | |
| 57 | | |
| 0 | | |
| 0.0 | |
| Total non-interest income | |
$ | 6,390 | | |
$ | 5,813 | | |
$ | 577 | | |
| 9.9 | % |
Non-interest
income for the six-month period ended June 30, 2022 increased $577 thousand versus the same period in 2021. Trust and wealth
advisory revenues increased $134 thousand mainly due to higher asset-based fees. Service charges and fees increased $536 thousand
during the six-month period ended June 30, 2022. The increase primarily reflected loan prepayment fees recorded in second quarter
2022 as well as higher deposit fees. Income from sales of mortgage loans decreased $372 thousand due to decreased gains on sales of
fixed rate residential mortgage loans to FHLB Boston. Mortgage loan sales totaled $7.5 million for the six-month period ended June
30, 2022 compared with $28.5 million for the six-month period ended June 30, 2021. The six-month periods ended June 30, 2022 and
2021 included mortgage servicing amortization of $78 thousand and $131 thousand, respectively. BOLI income for the
six-month period ended June 30, 2022 included a non-recurring non-taxable gain of $89 thousand related to proceeds receivable
due to the death of a former covered employee.
Non-interest
expense
The following
table details the principal categories of non-interest expense.
| Six
months ended June 30, (dollars in thousands) |
2022 |
| |
|
2021 |
| |
|
2022
vs. 2021 |
|
| Salaries | |
$ | 7,135 | | |
$ | 6,304 | | |
$ | 831 | | |
| 13.2 | % |
| Employee benefits | |
| 2,565 | | |
| 2,668 | | |
| (103 | ) | |
| (3.9 | ) |
| Premises and equipment | |
| 2,086 | | |
| 1,973 | | |
| 113 | | |
| 5.7 | |
| Information processing and services | |
| 1,387 | | |
| 1,193 | | |
| 194 | | |
| 16.3 | |
| Professional fees | |
| 1,609 | | |
| 1,355 | | |
| 254 | | |
| 18.7 | |
| Collections, OREO, and loan related | |
| 232 | | |
| 197 | | |
| 35 | | |
| 17.8 | |
| FDIC insurance | |
| 293 | | |
| 225 | | |
| 68 | | |
| 30.2 | |
| Marketing and community support | |
| 447 | | |
| 296 | | |
| 151 | | |
| 51.0 | |
| Amortization of intangibles | |
| 104 | | |
| 137 | | |
| (33 | ) | |
| (24.1 | ) |
| Other | |
| 1,328 | | |
| 999 | | |
| 329 | | |
| 32.9 | |
| Non-interest expense | |
$ | 17,186 | | |
$ | 15,347 | | |
$ | 1,839 | | |
| 12.0 | % |
Non-interest
expense for the six-month period ended June 30, 2022 increased $1.8 million versus the same period in 2021. Salaries increased $831 thousand
due to higher base salaries and production accruals. Benefits decreased $103 thousand primarily due one-time health insurance credit recorded
in 2022. Premises and equipment increased $113 thousand primarily due to higher lease, utilities expense and software maintenance partially
offset by maintenance and repair expense. Information processing and services increased $194
thousand mainly due to higher core data processing costs, website and ATM and debit card network fees. Professional fees increased $254
thousand versus the six-month period 2021 primarily due to higher consulting, investment management and legal costs partially offset by
lower audit and exam expenses. Collections, OREO and loan related expense increased $35 thousand primarily on higher appraisal and litigation
costs and higher mortgage taxes. Marketing and community support increased $151 thousand primarily due to brand refresh incentives and
additional marketing campaigns and contributions. Other expenses increased $329 thousand primarily due to two isolated instances of debit
card or check cashing net fraud-related losses aggregating $200 thousand incurred in 2022.
Income taxes
The effective
income tax rates for the six-month periods ended June 30, 2022 and June 30, 2021 were 16.9% and 21.4%, respectively. Generally, fluctuations
in the effective tax rate result from changes in the mix of taxable and tax-exempt income. The tax provision for the six-month period
of 2022 included a non-recurring credit of $63 thousand to adjust for an over statement of the Bank’s 2021 tax liability to New
York state. The lower tax rate in 2022 also reflected a higher mix of tax-exempt income from municipal bonds and tax advantaged loans
as well as the BOLI proceeds receivable noted above. Additionally, Salisbury’s effective tax rate is generally less than the federal
statutory rate due to holdings of tax-exempt municipal bonds and loans as well as bank owned life insurance.
Salisbury did
not incur Connecticut income tax in 2022 (to date) or 2021, other than minimum state income tax, as a result of a Connecticut law that
permits banks to shelter certain mortgage income from the Connecticut corporation business tax through the use of a special purpose entity
called a Passive Investment Company or PIC. In 2004, Salisbury availed itself of this benefit by forming a PIC, SBT Mortgage Service Corporation.
Salisbury's income tax provision reflects the full impact of the Connecticut legislation. Salisbury does not expect to pay other than
minimum Connecticut state income tax in the foreseeable future unless there is a change in Connecticut tax law.
CAPITAL RESOURCES
Shareholders’ Equity
Shareholders’
equity decreased $9.3 million in six months to $127.3 million at June 30, 2022 as unrealized after-tax losses in the available-for-sale
securities (“AFS”) portfolio of $15.4 million and common stock dividends paid of $1.8 million were partially offset by net
income of $7.4 million and issued stock and stock-based compensation totaling of $0.5 million. The unrealized losses in the AFS portfolio,
which reflected the sharp increase in market interest rates during first six months of 2022, reduced both book value and tangible book
value at June 30, 2022. Book value per common share of $22.01 at June 30, 2022 decreased $0.55 from first quarter 2022 and decreased $1.00
from second quarter 2021. Tangible book value per common share of $19.57 at June 30, 2022 decreased $0.53 from first quarter 2022 and
decreased $0.93 from second quarter 2021.
Capital Requirements
Under current
regulatory definitions, the Bank meets all capital adequacy requirements to which it is subject and the Bank is considered to be well-capitalized.
As a result, the Bank pays lower federal deposit insurance premiums than those banks that are not “well-capitalized.” Requirements
for classification as a well-capitalized institution and for minimum capital adequacy along with the Bank's regulatory capital ratios
are as follows:
| | |
June 30, 2022 | |
December
31, 2021 |
| Total Capital (to risk-weighted assets) | |
| 13.28 | % | |
| 14.08 | % |
| Tier 1 Capital (to risk-weighted assets) | |
| 12.13 | | |
| 12.87 | |
| Common Equity Tier 1 Capital (to risk-weighted assets) | |
| 12.13 | | |
| 12.87 | |
| Tier 1 Capital (to average assets) | |
| 10.04 | | |
| 9.42 | |
A well-capitalized institution, which is the
highest capital category for an institution as defined by the Prompt Corrective Action regulations issued by the FDIC and the FRB, is
one which maintains a Total Risk-Based ratio of 10% or above, a Tier 1 Risk-Based ratio of 8% or above, a Common Equity Tier 1 ratio of
6.5% or above, and a Leverage ratio of 5% or above, and is not subject to any written order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific capital level. Maintaining strong capital is essential to Salisbury
and the Bank’s safety and soundness. However, the effective management of capital resources requires generating attractive returns
on equity to build value for shareholders while maintaining appropriate levels of capital to fund growth, meet regulatory requirements
and be consistent with prudent industry practices.
The FRB’s final rules implementing
the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank subsidiaries include a
common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets
of 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%.
A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements.
This capital conservation buffer began phasing in January 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent year
by an additional 0.625% until it reached its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital
instruments were also implemented under the final rules.
As of June 30, 2022, the Company and the
Bank met each of their capital requirements and the most recent notification from the FDIC categorized the Bank as “well-capitalized.”
There are no conditions or events since that notification that management believes have changed the Bank’s category.
On September 17, 2019, the Office of the
Comptroller of the Currency, the FRB and the FDIC published its final rule establishing a “Community Bank Leverage Ratio”
(“CBLR”) that simplifies capital requirements for certain community banking organizations with less than $10 billion in total
consolidated assets (such as the Bank). Under the final rule, depository institutions and their holding companies that meet certain criteria
(generally, those with limited amounts of off-balance sheet exposures, trading assets and liabilities, mortgage servicing assets, and
temporary difference deferred tax assets) (“qualifying community banking organizations”) may elect to report the components
of its Tier 1 leverage ratio as a measure of capital adequacy. A qualifying community banking organization with a CBLR of greater than
9% that “elects to use the CBLR framework” will not be subject to other risk-based and leverage capital requirements and
will be considered to have met the “well-capitalized” ratio requirements for purposes of the agencies’ Prompt Corrective Action (“PCA”)
framework. Under the final rule, if a bank that has opted to use the CBLR framework subsequently fails to satisfy one or more of the
qualifying criteria but continues to report a leverage ratio of greater than 8 %, the bank may continue to use the framework and will
be deemed “well capitalized” for a grace period of up to two quarters. A qualifying community banking organization will be
required to comply with the generally applicable capital rule and file the relevant regulatory reports if the banking organization: (1)
is unable to restore compliance with all qualifying criteria during the two-quarter grace period (including achieving compliance with
the greater than 9% leverage ratio requirement); (2) reports a leverage ratio of 8% or less; or (3) ceases to satisfy the qualifying
criteria due to consummation of a merger transaction. The final rule became effective on January 1, 2020. The Bank would qualify for
the CBLR methodology and would also be considered to be well capitalized if it elected to utilize such methodology. The
Bank continues to evaluate the benefits of transitioning to this simplified methodology for assessing capital adequacy.
Stock Repurchase Plan
On March 23, 2022 Salisbury announced that
its Board of Directors has renewed its share repurchase program that was established in March 2021. The share repurchase program provides
for the potential repurchase of Salisbury’s common stock in amounts up to an aggregate of five percent (5%) of the outstanding shares
of Salisbury’s common stock from time to time over a period of the next twelve (12) months through privately negotiated transactions
and/or market purchases at appropriate prices, subject to price and market conditions on terms determined to be in the best interests
of Salisbury. However, there is no assurance that Salisbury will complete repurchases of 5% of its outstanding shares over the next twelve
(12) months. Salisbury did not repurchase any shares during the six-month period ended June 30, 2022.
Stock Split
At Salisbury’s annual shareholder meeting
on May 18, 2022, shareholders approved a recommendation by Salisbury’s Board of Directors to amend Salisbury’s Certificate
of Incorporation to increase Salisbury’s authorized shares of Common Stock from 5,000,000 to 10,000,000 shares. On June 30, 2022,
Salisbury’s Board implemented a two for one forward split of the shares of the Company’s Common Stock as a means of enhancing
the liquidity and marketability of the Company’s securities in the best interests of shareholders.
Subordinated Debt
On March 31, 2021 Salisbury completed a private
placement of $25.0 million in aggregate principal amount of Fixed to Floating Rate Subordinated Notes due 2031 (the “Notes”)
to various accredited investors. The Notes have a maturity date of March 31, 2031 and bear interest at an annual rate of 3.50% per annum,
from and including the closing date to, but excluding March 31, 2026 or the earlier redemption date, payable quarterly in arrears. From
and including March 31, 2026 to, but excluding the maturity date or earlier redemption date, the rate will be a floating per annum rate
expected to be equal to the then current three-month SOFR plus 280 basis points, provided, however, that in the event three-month SOFR
is less than zero, three-month term SOFR shall be deemed to be zero, payable quarterly in arrears. On May 28, 2021, Salisbury redeemed
in full the $10.0 million of subordinated debt issued in 2015.
Dividends
Salisbury paid
$1.8 million in common stock dividends during the six-month period ended June 30, 2022. On July 22, 2022, the Board of Directors
of Salisbury approved a quarterly cash dividend of $0.16 per common share is payable on August 26, 2022 to shareholders of record as of
August 12, 2022.
Common stock
dividends, when declared, will generally be paid the last Friday of February, May, August and November, although Salisbury is not obligated
to pay dividends on those dates or at any other time.
Salisbury's
ability to pay cash dividends is dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on
the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend
except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by
the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits
of that year combined with its retained net profits of the preceding two years.
FRB Supervisory
Letter SR 09-4, February 24, 2009, revised December 31, 2015, states that, as a general matter, the Board of Directors of a Bank Holding
Company (“BHC”) should inform the Federal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net
income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to
fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and
prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy
ratios. Moreover, a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings
for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital
position.
Salisbury
believes that the payment of common stock cash dividends is appropriate, provided that such payment considers Salisbury's capital needs,
asset quality, and overall financial condition and does not adversely affect the financial stability of Salisbury or the Bank. The continued
payment of common stock cash dividends by Salisbury will be dependent on Salisbury's future core earnings, financial condition and capital
needs, regulatory restrictions, and other factors deemed relevant by the Board of Directors of Salisbury.
IMPACT OF INFLATION
AND CHANGING PRICES
Salisbury’s
consolidated financial statements and related notes thereto presented elsewhere in this Form 10-Q are prepared in conformity with GAAP,
which require the measurement of financial condition and operating results in terms of historical dollars without considering changes
in the relative purchasing power of money, over time, due to inflation. Unlike some other types of companies, the financial nature of
Salisbury’s consolidated financial statements is more clearly affected by changes in interest rates than by inflation. Interest
rates do not necessarily fluctuate in the same direction or in the same magnitude as the prices of goods and services. There is no precise method, however, to measure the effects of inflation on Salisbury’s consolidated financial statements.
Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation.
Although not a material factor in recent years, inflation could impact earnings in future periods.
FORWARD-LOOKING STATEMENTS
This Form 10-Q
and future filings made by Salisbury with the Securities and Exchange Commission, as well as other filings, reports and press releases
made or issued by Salisbury and the Bank, and oral statements made by executive officers of Salisbury and the Bank, may include forward-looking
statements relating to such matters as:
| (a) | assumptions concerning future economic and business conditions and
their effect on the economy in general and on the markets in which Salisbury and the Bank do business; and |
| (b) | expectations for revenues and earnings for Salisbury and the Bank. |
Such forward-looking
statements are based on assumptions rather than historical or current facts and, therefore, are inherently uncertain and subject to risk.
For those statements, Salisbury claims the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
Salisbury notes
that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations
described or implied by such forward-looking statements. The risks and uncertainties that may affect the operation, performance, development
and results of Salisbury’s and the Bank’s business include the following:
| (a) | the risk of adverse changes in business conditions in the banking
industry generally and in the specific markets in which the Bank operates; |
| (b) | changes in the legislative and regulatory environment that negatively
impacts Salisbury and the Bank through increased operating expenses; |
| (c) | increased competition from other financial and non-financial institutions; |
| (d) | the impact of technological advances and cybersecurity matters; |
| (e) | interest rate fluctuations; |
| (f) | the effect of the COVID-19 pandemic on Salisbury, the communities
served by the Bank, the State of Connecticut and the United States, related to the economy and overall financial stability; |
| (g) | the risk of adverse changes in business conditions due to geo-political
tensions; |
| (h) | government and regulatory responses to the COVID-19 pandemic; and
|
| (i) | other risks identified from time to time in Salisbury’s filings
with the Securities and Exchange Commission. |
Such developments
could have an adverse impact on Salisbury’s and the Bank’s financial position and results of operations.