SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ________ TO ________ |
Commission file number 0-24751
SALISBURY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Connecticut | 06-1514263 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
5 Bissell Street, Lakeville, CT | 06039 | |
(Address of principal executive offices) | (Zip code) |
(860) 435-9801
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The number of shares of Common Stock outstanding as of November 13, 2015 is 2,733,576.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||
Item 1. | Financial Statements (unaudited) | 3 |
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2015 (unaudited) AND DECEMBER 31, 2014 | 3 | |
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (unaudited) | 4 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (unaudited) | 5 | |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (unaudited) | 5 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (unaudited) | 6 | |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS | 8 | |
Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 33 |
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 52 |
Item 4. | CONTROLS AND PROCEDURES | 54 |
PART II. OTHER INFORMATION | ||
Item 1. | LEGAL PROCEEDINGS | 54 |
Item 1A. | RISK FACTORS | 56 |
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 56 |
Item 3. | DEFAULTS UPON SENIOR SECURITIES | 56 |
Item 4. | MINE SAFETY DISCLOSURES | 56 |
Item 5. | OTHER INFORMATION | 56 |
Item 6. | EXHIBITS | 57 |
PART I - FINANCIAL INFORMATION
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) | September 30, 2015 (unaudited) | December 31, 2014 | ||||||
ASSETS | ||||||||
Cash and due from banks | $ | 11,436 | $ | 13,280 | ||||
Interest bearing demand deposits with other banks | 70,259 | 22,825 | ||||||
Total cash and cash equivalents | 81,695 | 36,105 | ||||||
Securities | ||||||||
Available-for-sale at fair value | 80,371 | 91,312 | ||||||
Federal Home Loan Bank of Boston stock at cost | 3,515 | 3,515 | ||||||
Loans held-for-sale | 573 | 568 | ||||||
Loans receivable, net (allowance for loan losses: $5,659 and $5,358) | 687,719 | 673,330 | ||||||
Other real estate owned | 167 | 1,002 | ||||||
Bank premises and equipment, net | 14,588 | 14,431 | ||||||
Goodwill | 12,552 | 12,552 | ||||||
Intangible assets (net of accumulated amortization: $2,752 and $2,258) | 2,496 | 2,990 | ||||||
Accrued interest receivable | 2,296 | 2,334 | ||||||
Cash surrender value of life insurance policies | 13,591 | 13,314 | ||||||
Deferred taxes | 2,788 | 2,428 | ||||||
Other assets | 1,882 | 1,546 | ||||||
Total Assets | $ | 904,233 | $ | 855,427 | ||||
LIABILITIES and SHAREHOLDERS' EQUITY | ||||||||
Deposits | ||||||||
Demand (non-interest bearing) | $ | 194,618 | $ | 161,386 | ||||
Demand (interest-bearing) | 129,779 | 117,169 | ||||||
Money market | 184,409 | 174,274 | ||||||
Savings and other | 123,017 | 121,387 | ||||||
Certificates of deposit | 129,656 | 141,210 | ||||||
Total deposits | 761,479 | 715,426 | ||||||
Repurchase agreements | 4,210 | 4,163 | ||||||
Federal Home Loan Bank of Boston advances | 26,928 | 28,813 | ||||||
Note payable | 380 | — | ||||||
Capital lease liability | 422 | 424 | ||||||
Accrued interest and other liabilities | 5,364 | 4,780 | ||||||
Total Liabilities | 798,783 | 753,606 | ||||||
Shareholders' Equity | ||||||||
Preferred stock - $.01 per share par value | ||||||||
Authorized: 25,000; Issued: 16,000 (Series B); | ||||||||
Liquidation preference: $1,000 per share | 16,000 | 16,000 | ||||||
Common stock - $.10 per share par value | ||||||||
Authorized: 5,000,000; | ||||||||
Issued: 2,733,576 and 2,720,766 | 273 | 272 | ||||||
Paid-in capital | 41,362 | 41,077 | ||||||
Retained earnings | 46,558 | 42,677 | ||||||
Unearned compensation - restricted stock awards | (186 | ) | (313 | ) | ||||
Accumulated other comprehensive income | 1,443 | 2,108 | ||||||
Total Shareholders' Equity | 105,450 | 101,821 | ||||||
Total Liabilities and Shareholders' Equity | $ | 904,233 | $ | 855,427 |
3 |
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Periods ended September 30, | Three months ended | Nine months ended | ||||||||||||||
(in thousands, except per share amounts) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Interest and dividend income | ||||||||||||||||
Interest and fees on loans | $ | 7,955 | $ | 4,656 | $ | 23,727 | $ | 13,983 | ||||||||
Interest on debt securities | ||||||||||||||||
Taxable | 286 | 330 | 910 | 1,075 | ||||||||||||
Tax exempt | 351 | 416 | 1,098 | 1,294 | ||||||||||||
Other interest and dividends | 58 | 42 | 132 | 87 | ||||||||||||
Total interest and dividend income | 8,650 | 5,444 | 25,867 | 16,439 | ||||||||||||
Interest expense | ||||||||||||||||
Deposits | 463 | 379 | 1,359 | 1,079 | ||||||||||||
Repurchase agreements | 2 | 3 | 5 | 5 | ||||||||||||
Capital lease | 18 | 12 | 53 | 29 | ||||||||||||
Note payable | 1 | — | 1 | — | ||||||||||||
Federal Home Loan Bank of Boston advances | 269 | 296 | 832 | 892 | ||||||||||||
Total interest expense | 753 | 690 | 2,250 | 2,005 | ||||||||||||
Net interest and dividend income | 7,897 | 4,754 | 23,617 | 14,434 | ||||||||||||
Provision for loan losses | 655 | 318 | 651 | 969 | ||||||||||||
Net interest and dividend income after provision for loan losses | 7,242 | 4,436 | 22,966 | 13,465 | ||||||||||||
Non-interest income | ||||||||||||||||
Trust and wealth advisory | 798 | 791 | 2,510 | 2,509 | ||||||||||||
Service charges and fees | 798 | 639 | 2,307 | 1,807 | ||||||||||||
Gains on sales and calls of available-for-sale securities, net | 6 | — | 192 | — | ||||||||||||
Gains on sales of mortgage loans, net | 47 | — | 227 | 43 | ||||||||||||
Mortgage servicing, net | 5 | 41 | (15 | ) | 80 | |||||||||||
Other | 115 | 82 | 343 | 234 | ||||||||||||
Total non-interest income | 1,769 | 1,553 | 5,564 | 4,673 | ||||||||||||
Non-interest expense | ||||||||||||||||
Salaries | 2,531 | 1,980 | 7,520 | 5,776 | ||||||||||||
Employee benefits | 916 | 697 | 2,881 | 2,176 | ||||||||||||
Premises and equipment | 863 | 667 | 2,683 | 2,080 | ||||||||||||
Data processing | 404 | 420 | 1,276 | 1,166 | ||||||||||||
Professional fees | 398 | 315 | 1,642 | 1,025 | ||||||||||||
Collections, OREO and loan related | 125 | 85 | 594 | 319 | ||||||||||||
FDIC insurance | 163 | 119 | 494 | 340 | ||||||||||||
Marketing and community support | 174 | 115 | 465 | 355 | ||||||||||||
Amortization of core deposit intangibles | 161 | 75 | 494 | 194 | ||||||||||||
Merger and acquisition related expenses | — | 196 | — | 586 | ||||||||||||
Other | 467 | 439 | 1,528 | 1,269 | ||||||||||||
Total non-interest expense | 6,202 | 5,108 | 19,577 | 15,286 | ||||||||||||
Income before income taxes | 2,809 | 881 | 8,953 | 2,852 | ||||||||||||
Income tax provision | 824 | 113 | 2,663 | 567 | ||||||||||||
Net income | $ | 1,985 | $ | 768 | $ | 6,290 | $ | 2,285 | ||||||||
Net income available to common shareholders | $ | 1,945 | $ | 728 | $ | 6,170 | $ | 2,159 | ||||||||
Basic earnings per common share | $ | 0.71 | $ | 0.43 | $ | 2.26 | $ | 1.26 | ||||||||
Diluted earnings per common share | 0.71 | 0.43 | 2.25 | 1.26 | ||||||||||||
Common dividends per share | 0.28 | 0.28 | 0.84 | 0.84 |
4 |
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Three months ended | Nine months ended | |||||||||||||||
Periods ended September 30, (in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income | $ | 1,985 | $ | 768 | $ | 6,290 | $ | 2,285 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Net unrealized gains (losses) on securities available-for-sale | 116 | 342 | (816 | ) | 2,771 | |||||||||||
Reclassification of net realized gains in net income (1) | (6 | ) | — | (192 | ) | — | ||||||||||
Unrealized gains (losses) on securities available-for-sale | 110 | 342 | (1,008 | ) | 2,771 | |||||||||||
Income tax (expense) benefit | (37 | ) | (116 | ) | 343 | (942 | ) | |||||||||
Other comprehensive income (loss), net of tax | 73 | 226 | (665 | ) | 1,829 | |||||||||||
Comprehensive income | $ | 2,058 | $ | 994 | $ | 5,625 | $ | 4,114 |
(1) Reclassification adjustments include realized security gains and losses. The gains and losses have been reclassified out of other comprehensive income (loss) and have affected certain lines in the consolidated statements of income as follows: The pre-tax amount is reflected as gains on sales of available-for-sale securities, net, the tax effect is included in the income tax provision and the after tax amount is included in net income.
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
(dollars in thousands) (unaudited) | Common Stock | Preferred stock | Paid-in capital | Retained earnings | Unearned compensation – restricted stock awards | Accumulated other comp- rehensive income | Total share- holders' equity | |||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||
Balances at December 31, 2013 | 1,710,121 | $ | 171 | $ | 16,000 | $ | 13,668 | $ | 42,240 | $ | (335 | ) | $ | 1,046 | $ | 72,790 | ||||||||||||||||
Net income for period | — | — | — | — | 2,285 | — | — | 2,285 | ||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 1,829 | 1,829 | ||||||||||||||||||||||||
Common stock dividends declared | — | — | — | — | (1,439 | ) | — | — | (1,439 | ) | ||||||||||||||||||||||
Preferred stock dividends declared | — | — | — | — | (126 | ) | — | — | (126 | ) | ||||||||||||||||||||||
Issuance of restricted common stock | 3,000 | — | — | 81 | — | (81 | ) | — | — | |||||||||||||||||||||||
Forfeiture of restricted common stock | (2,000 | ) | — | — | (50 | ) | — | 50 | — | — | ||||||||||||||||||||||
Stock based compensation-restricted stock awards | — | — | — | — | — | 112 | — | 112 | ||||||||||||||||||||||||
Issuance of common stock for directors | 2,160 | — | — | 65 | — | — | — | 65 | ||||||||||||||||||||||||
Balances at September 30, 2014 | 1,713,281 | $ | 171 | $ | 16,000 | $ | 13,764 | $ | 42,960 | $ | (254 | ) | $ | 2,875 | $ | 75,516 | ||||||||||||||||
Balances at December 31, 2014 | 2,720,766 | $ | 272 | $ | 16,000 | $ | 41,077 | $ | 42,677 | $ | (313 | ) | $ | 2,108 | $ | 101,821 | ||||||||||||||||
Net income for period | — | — | — | — | 6,290 | — | — | 6,290 | ||||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | (665 | ) | (665 | ) | ||||||||||||||||||||||
Common stock dividends declared | — | — | — | — | (2,289 | ) | — | — | (2,289 | ) | ||||||||||||||||||||||
Preferred stock dividends declared | — | — | — | — | (120 | ) | — | — | (120 | ) | ||||||||||||||||||||||
Stock options exercised | 9,450 | 1 | — | 182 | — | — | — | 183 | ||||||||||||||||||||||||
Issuance of common stock for executives | 1,000 | — | — | 29 | — | — | — | 29 | ||||||||||||||||||||||||
Forfeiture of restricted common stock | (300 | ) | — | — | (7 | ) | — | 7 | — | — | ||||||||||||||||||||||
Issuance of common stock for directors | 2,660 | — | — | 81 | — | — | — | 81 | ||||||||||||||||||||||||
Stock based compensation-restricted stock awards | — | — | — | — | — | 120 | — | 120 | ||||||||||||||||||||||||
Balances at September 30, 2015 | 2,733,576 | $ | 273 | $ | 16,000 | $ | 41,362 | $ | 46,558 | $ | (186 | ) | $ | 1,443 | $ | 105,450 |
5 |
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended September 30, (in thousands) | 2015 | 2014 | ||||||
Operating Activities | ||||||||
Net income | $ | 6,290 | $ | 2,285 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
(Accretion), amortization and depreciation: | ||||||||
Securities | 178 | 163 | ||||||
Bank premises and equipment | 917 | 737 | ||||||
Core deposit intangible | 494 | 193 | ||||||
Mortgage servicing rights | 282 | 220 | ||||||
(Increase) decrease fair value adjustment on loans | (2,031 | ) | 24 | |||||
(Increase) decrease fair value adjustment on deposits | (355 | ) | 53 | |||||
(Gains) and losses, including write-downs | ||||||||
Gain on calls of securities available-for-sale, net | (40 | ) | (39 | ) | ||||
Gain on sales of securities available-for-sale, net | (152 | ) | — | |||||
Gain on sales of loans, excluding capitalized servicing rights | (102 | ) | — | |||||
Write-downs of other real estate owned | 238 | 4 | ||||||
Loss on sale/disposals of premises and equipment | 45 | 5 | ||||||
Provision for loan losses | 651 | 969 | ||||||
Proceeds from loans sold | 4,897 | 3,536 | ||||||
Loans originated for sale | (4,800 | ) | (3,324 | ) | ||||
Decrease (increase) in deferred loan origination fees and costs, net | 25 | (21 | ) | |||||
Mortgage servicing rights originated | (125 | ) | (6 | ) | ||||
Increase (decrease) in mortgage servicing rights impairment reserve | 3 | (14 | ) | |||||
Decrease (increase) in interest receivable | 38 | (74 | ) | |||||
Deferred tax benefit | (17 | ) | (39 | ) | ||||
Increase in prepaid expenses | (409 | ) | (81 | ) | ||||
Increase in cash surrender value of life insurance policies | (277 | ) | (173 | ) | ||||
Increase in income tax receivable | — | (329 | ) | |||||
Increase in income tax payable | 271 | — | ||||||
Increase in other assets | (87 | ) | (76 | ) | ||||
Decrease in accrued expenses | (11 | ) | (144 | ) | ||||
Decrease in interest payable | (45 | ) | (5 | ) | ||||
Increase in other liabilities | 369 | 82 | ||||||
Stock based compensation-restricted stock awards | 120 | 112 | ||||||
Net cash provided by operating activities | 6,367 | 4,058 | ||||||
Investing Activities | ||||||||
Maturity of interest-bearing time deposits with other banks | — | 738 | ||||||
Redemption of Federal Home Loan Bank of Boston stock | — | 1,825 | ||||||
Purchases of securities available-for-sale | (9,322 | ) | — | |||||
Proceeds from sales of securities available-for-sale | 3,861 | — | ||||||
Proceeds from calls of securities available-for-sale | 7,995 | 4,115 | ||||||
Proceeds from maturities of securities available-for-sale | 7,413 | 7,539 | ||||||
Loan originations and principal collections, net | (13,748 | ) | (24,694 | ) | ||||
Recoveries of loans previously charged off | 613 | 50 | ||||||
Proceeds from sales of other real estate owned | 698 | 40 | ||||||
Premiums paid on bank-owned life insurance | — | (1,100 | ) | |||||
Cash and cash equivalents acquired from Sharon, CT branch office of another institution | — | 17,462 | ||||||
Capital expenditures | (739 | ) | (1,872 | ) | ||||
Net cash (utilized) provided by investing activities | (3,229 | ) | 4,103 |
6 |
Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Financing Activities | ||||||||
Increase in deposit transaction accounts, net | 57,607 | 24,527 | ||||||
(Decrease) increase in time deposits, net | (11,199 | ) | 2,174 | |||||
Increase in securities sold under agreements to repurchase, net | 47 | 3,946 | ||||||
Principal payments on Federal Home Loan Bank of Boston advances | (786 | ) | (1,193 | ) | ||||
Modification payment on Federal Home Loan Bank of Boston advances | (1,099 | ) | ||||||
Decrease in capital lease obligation | (2 | ) | (1 | ) | ||||
Stock options exercised | 183 | — | ||||||
Issuance of shares for director fees | 81 | 65 | ||||||
Issuance of shares for executives | 29 | — | ||||||
Common stock dividends paid | (2,289 | ) | (1,439 | ) | ||||
Series B preferred stock dividends paid | (120 | ) | (126 | ) | ||||
Net cash provided by financing activities | 42,452 | 27,953 | ||||||
Net increase in cash and cash equivalents | 45,590 | 36,114 | ||||||
Cash and cash equivalents, beginning of period | 36,105 | 12,711 | ||||||
Cash and cash equivalents, end of period | $ | 81,695 | $ | 48,825 | ||||
Cash paid during period | ||||||||
Interest | $ | 2,650 | $ | 2,010 | ||||
Income taxes | 2,409 | 935 | ||||||
Non-cash investing and financing activities | ||||||||
Transfer from loans to other real estate owned | 101 | — | ||||||
Note payable to finance building purchase | 380 | — | ||||||
Sharon branch acquisition | ||||||||
Cash and cash equivalents acquired | — | 17,462 | ||||||
Net loans acquired | — | 63 | ||||||
Fixed assets acquired | — | 158 | ||||||
Core deposit intangible | — | 489 | ||||||
Deposits assumed | — | 18,171 | ||||||
Accrued interest payable assumed | — | 1 |
7 |
Salisbury Bancorp, Inc. and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of Salisbury and the statements of income, comprehensive income, shareholders’ equity and cash flows for the interim periods presented.
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, expected cash flows from loans acquired in a business combination, other-than-temporary impairment of securities, impairment of goodwill and intangibles and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.
Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2014 Annual Report on Form 10-K for the year ended December 31, 2014.
The allowance for loan losses is a significant accounting policy and is presented in the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis, which provides information on how significant assets are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.
Impact of New Accounting Pronouncements Issued
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The objective of this ASU is to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. However, in July 2015, the FASB voted to approve deferring the effective date by one year (i.e. interim and annual reporting periods beginning after December 15, 2017). Early adoption is permitted, but not before the original effective date (i.e. interim and annual reporting periods beginning after December 15, 2016). Salisbury is currently reviewing this ASU to determine if it will have an impact on its consolidated financial statements.
8 |
In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. Salisbury anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The guidance should be applied on a retrospective basis. Salisbury anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. Salisbury anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.
In May 2015, the FASB issued ASU 2015-07: “Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” The objective of this update is to address the diversity in practice related to how certain investments measured at net asset value with redemption dates in the future are categorized within the fair value hierarchy. The amendments in this update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Salisbury anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16: “Simplifying the Accounting for Measurement-Period Adjustments.” Under the ASU, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation or amortization, or other income effects (if any) as a result of the change to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively. The ASU also requires that the acquirer present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been issued. Salisbury anticipates that the adoption of this ASU will not have a material impact on its consolidated financial statements.
9 |
NOTE 2 - SECURITIES
The composition of securities is as follows:
(in thousands) | Amortized cost (1) | Gross
un- realized gains | Gross
un- realized losses | Fair value | ||||||||||||
September 30, 2015 | ||||||||||||||||
Available-for-sale | ||||||||||||||||
U.S. Treasury notes | $ | 7,498 | $ | 67 | $ | — | $ | 7,565 | ||||||||
U.S. Government agency notes | 498 | 2 | — | 500 | ||||||||||||
Municipal bonds | 32,691 | 690 | (64 | ) | 33,317 | |||||||||||
Mortgage-backed securities | ||||||||||||||||
U.S. Government agencies and U.S. Government-sponsored enterprises | 26,449 | 575 | (18 | ) | 27,006 | |||||||||||
Collateralized mortgage obligations | ||||||||||||||||
U.S. Government agencies | 2,136 | 21 | — | 2,157 | ||||||||||||
Non-agency | 4,834 | 505 | (7 | ) | 5,332 | |||||||||||
SBA bonds | 3,297 | 53 | — | 3,350 | ||||||||||||
CRA mutual funds | 762 | 7 | — | 769 | ||||||||||||
Preferred stock | 20 | 355 | — | 375 | ||||||||||||
Total securities available-for-sale | $ | 78,185 | $ | 2,275 | $ | (89 | ) | $ | 80,371 | |||||||
Non-marketable securities | ||||||||||||||||
Federal Home Loan Bank of Boston stock | $ | 3,515 | $ | — | $ | — | $ | 3,515 |
(in thousands) | Amortized cost (1) | Gross
un- realized gains | Gross
un- realized losses | Fair value | ||||||||||||
December 31, 2014 | ||||||||||||||||
Available-for-sale | ||||||||||||||||
U.S. Treasury notes | $ | 2,699 | $ | 107 | $ | — | $ | 2,806 | ||||||||
U.S. Government agency notes | 5,850 | 24 | — | 5,874 | ||||||||||||
Municipal bonds | 38,962 | 1,455 | (65 | ) | 40,352 | |||||||||||
Mortgage-backed securities | ||||||||||||||||
U.S. Government agencies and U.S. Government-sponsored enterprises | 27,036 | 688 | (15 | ) | 27,709 | |||||||||||
Collateralized mortgage obligations | ||||||||||||||||
U.S. Government agencies | 2,657 | 22 | — | 2,679 | ||||||||||||
Non-agency | 6,056 | 552 | (12 | ) | 6,596 | |||||||||||
SBA bonds | 4,336 | 129 | — | 4,465 | ||||||||||||
CRA mutual funds | 502 | 2 | — | 504 | ||||||||||||
Preferred stock | 20 | 307 | — | 327 | ||||||||||||
Total securities available-for-sale | $ | 88,118 | $ | 3,286 | $ | (92 | ) | $ | 91,312 | |||||||
Non-marketable securities | ||||||||||||||||
Federal Home Loan Bank of Boston stock | $ | 3,515 | $ | — | $ | — | $ | 3,515 |
(1) | Net of other-than-temporary impairment write-downs recognized in earnings. |
Salisbury sold $3.7 million in securities available-for-sale during the nine month period ended September 30, 2015, and did not sell any securities available-for-sale during the nine month period ended September 30, 2014. Realized gains on sales of securities sold in 2015 are $153,000.
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The following table summarizes, for all securities in an unrealized loss position, the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:
(in thousands) | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
Municipal bonds | $ | 1,267 | $ | (64 | ) | $ | — | $ | — | $ | 1,267 | $ | (64 | ) | ||||||||||
Mortgage-backed securities | 1,828 | (18 | ) | — | — | 1,828 | (18 | ) | ||||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||||||
Non-agency | 244 | (7 | ) | — | — | 244 | (7 | ) | ||||||||||||||||
Total temporarily impaired securities | 3,339 | (89 | ) | — | — | 3,339 | (89 | ) |
(in thousands) | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||
Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
Municipal bonds | $ | 177 | $ | 1 | $ | 1,589 | $ | 64 | $ | 1,766 | $ | 65 | ||||||||||||
Mortgage-backed securities | 56 | 1 | 1,885 | 14 | 1,941 | 15 | ||||||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||||||
Non-agency | 441 | 7 | 164 | 5 | 605 | 12 | ||||||||||||||||||
Total temporarily impaired securities | 674 | 9 | 3,638 | 83 | 4,312 | 92 |
Salisbury evaluates securities for OTTI where the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers whether it has the intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.
The following summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at September 30, 2015.
U.S. Government agency mortgage-backed securities: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be at maturity, and Salisbury does not intend to sell these securities. Therefore, management does not consider these securities to be OTTI at September 30, 2015.
Municipal bonds: Contractual cash flows are performing as expected. Salisbury’s portfolio is mostly comprised of tax-exempt general obligation bonds or public-purpose revenue bonds for schools, municipal offices, sewer infrastructure and fire houses, for small towns and municipalities across the United States. In the wake of the financial crisis, most monoline bond insurers had their ratings downgraded or withdrawn because of excessive exposure to insurance for collateralized debt obligations. Where appropriate, Salisbury performs credit underwriting reviews of unrated issuers, including some that have had their ratings withdrawn and are insured by insurers that have had their ratings withdrawn, to assess default risk. For all completed reviews, pass credit risk ratings have been assigned. Management expects to recover the entire amortized cost basis of these securities. It is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be at maturity, and Salisbury does not intend to sell these securities. Therefore, management does not consider these securities to be OTTI at September 30, 2015.
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Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 2015, to assess whether any of the securities were OTTI. Salisbury uses cash flow forecasts for each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009, Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of September 30, 2015. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and depending upon such factor could reduce its position in these securities, although it has no present intention to do so, and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis.
The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which a portion of an OTTI charge was recognized in accumulated other comprehensive income:
Nine months ended September 30 (in thousands) | 2015 | 2014 | ||||||
Balance, beginning of period | $ | 1,128 | $ | 1,128 | ||||
Credit component on debt securities in which OTTI was not previously recognized | — | — | ||||||
Balance, end of period | $ | 1,128 | $ | 1,128 |
The Federal Home Loan Bank of Boston (FHLBB) is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of September 30, 2015. 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.
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NOTE 3 – LOANS
The composition of loans receivable and loans held-for-sale is as follows:
September 30, 2015 | December 31, 2014 | |||||||||||||||||||||||
(In thousands) | Business Activities Loans | Acquired Loans | Total | Business Activities Loans | Acquired Loans | Total | ||||||||||||||||||
Residential 1-4 family | $ | 260,912 | $ | 8,026 | $ | 268,938 | $ | 252,258 | $ | 9,223 | $ | 261,481 | ||||||||||||
Residential 5+ multifamily | 6,192 | 6,228 | 12,420 | 5,556 | 8,735 | 14,291 | ||||||||||||||||||
Construction of residential 1-4 family | 6,193 | — | 6,193 | 2,004 | — | 2,004 | ||||||||||||||||||
Home equity credit | 33,880 | — | 33,880 | 34,627 | — | 34,627 | ||||||||||||||||||
Residential real estate | 307,177 | 14,254 | 321,431 | 294,445 | 17,958 | 312,403 | ||||||||||||||||||
Commercial | 110,955 | 91,467 | 202,422 | 98,498 | 97,899 | 196,397 | ||||||||||||||||||
Construction of commercial | 12,987 | 4,862 | 17,849 | 18,602 | 9,045 | 27,647 | ||||||||||||||||||
Commercial real estate | 123,942 | 96,329 | 220,271 | 117,100 | 106,944 | 224,044 | ||||||||||||||||||
Farm land | 3,485 | — | 3,485 | 3,239 | — | 3,239 | ||||||||||||||||||
Vacant land | 9,446 | — | 9,446 | 9,342 | — | 9,342 | ||||||||||||||||||
Real estate secured | 444,050 | 110,583 | 554,633 | 424,126 | 124,902 | 549,028 | ||||||||||||||||||
Commercial and industrial | 70,858 | 53,928 | 124,786 | 49,204 | 68,714 | 117,918 | ||||||||||||||||||
Municipal | 6,947 | — | 6,947 | 6,083 | — | 6,083 | ||||||||||||||||||
Consumer | 5,760 | 74 | 5,834 | 4,334 | 122 | 4,456 | ||||||||||||||||||
Loans receivable, gross | 527,615 | 164,585 | 692,200 | 483,747 | 193,738 | 677,485 | ||||||||||||||||||
Deferred loan origination fees and costs, net | 1,178 | — | 1,178 | 1,203 | — | 1,203 | ||||||||||||||||||
Allowance for loan losses | (5,386 | ) | (273 | ) | (5,659 | ) | (5,337 | ) | (21 | ) | (5,358 | ) | ||||||||||||
Loans receivable, net | $ | 523,407 | $ | 164,312 | $ | 687,719 | $ | 479,613 | $ | 193,717 | $ | 673,330 | ||||||||||||
Loans held-for-sale | ||||||||||||||||||||||||
Residential 1-4 family | $ | 573 | $ | — | $ | 573 | $ | 568 | $ | — | $ | 568 |
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 Columbia 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, and installment and collateral loans. 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.
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Loan Credit Quality
The composition of loans receivable by risk rating grade is as follows:
Business Activities Loans
(in thousands) | Pass | Special mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||
Residential 1-4 family | $ | 246,872 | $ | 7,053 | $ | 6,895 | $ | 92 | $ | — | $ | 260,912 | ||||||||||||
Residential 5+ multifamily | 4,180 | 1,048 | 964 | — | — | 6,192 | ||||||||||||||||||
Construction of residential 1-4 family | 6,193 | — | — | — | — | 6,193 | ||||||||||||||||||
Home equity credit | 32,331 | 469 | 1,080 | — | — | 33,880 | ||||||||||||||||||
Residential real estate | 289,576 | 8,570 | 8,939 | 92 | — | 307,177 | ||||||||||||||||||
Commercial | 99,165 | 4,984 | 6,806 | — | — | 110,955 | ||||||||||||||||||
Construction of commercial | 12,416 | — | 571 | — | — | 12,987 | ||||||||||||||||||
Commercial real estate | 111,581 | 4,984 | 7,377 | — | — | 123,942 | ||||||||||||||||||
Farm land | 2,449 | — | 1,036 | — | — | 3,485 | ||||||||||||||||||
Vacant land | 6,446 | 71 | 2,929 | — | — | 9,446 | ||||||||||||||||||
Real estate secured | 410,052 | 13,625 | 20,281 | 92 | — | 444,050 | ||||||||||||||||||
Commercial and industrial | 69,007 | 1,230 | 621 | — | — | 70,858 | ||||||||||||||||||
Municipal | 6,947 | — | — | — | — | 6,947 | ||||||||||||||||||
Consumer | 5,742 | 11 | 7 | — | — | 5,760 | ||||||||||||||||||
Loans receivable, gross | $ | 491,748 | $ | 14,866 | $ | 20,909 | $ | 92 | $ | — | $ | 527,615 |
Acquired Loans
(in thousands) | Pass | Special mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||
Residential 1-4 family | $ | 7,168 | $ | 91 | $ | 767 | $ | — | $ | — | $ | 8,026 | ||||||||||||
Residential 5+ multifamily | 6,228 | — | — | — | — | 6,228 | ||||||||||||||||||
Construction of residential 1-4 family | — | — | — | — | — | — | ||||||||||||||||||
Home equity credit | — | — | — | — | — | — | ||||||||||||||||||
Residential real estate | 13,396 | 91 | 767 | — | — | 14,254 | ||||||||||||||||||
Commercial | 83,657 | 3,052 | 4,758 | — | — | 91,467 | ||||||||||||||||||
Construction of commercial | 4,590 | — | 272 | — | — | 4,862 | ||||||||||||||||||
Commercial real estate | 88,247 | 3,052 | 5,030 | — | — | 96,329 | ||||||||||||||||||
Farm land | — | — | — | — | — | — | ||||||||||||||||||
Vacant land | — | — | — | — | — | — | ||||||||||||||||||
Real estate secured | 101,643 | 3,143 | 5,797 | — | — | 110,583 | ||||||||||||||||||
Commercial and industrial | 52,051 | 1,192 | 603 | 82 | — | 53,928 | ||||||||||||||||||
Municipal | — | — | — | — | — | — | ||||||||||||||||||
Consumer | 50 | 7 | — | 17 | — | 74 | ||||||||||||||||||
Loans receivable, gross | $ | 153,744 | $ | 4,342 | $ | 6,400 | $ | 99 | $ | — | $ | 164,585 |
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Business Activities Loans
(in thousands) | Pass | Special mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||
Residential 1-4 family | $ | 232,628 | $ | 12,350 | $ | 7,187 | $ | 93 | $ | — | $ | 252,258 | ||||||||||||
Residential 5+ multifamily | 3,420 | 1,072 | 1,064 | — | — | 5,556 | ||||||||||||||||||
Construction of residential 1-4 family | 2,004 | — | — | — | — | 2,004 | ||||||||||||||||||
Home equity credit | 32,639 | 807 | 1,181 | — | — | 34,627 | ||||||||||||||||||
Residential real estate | 270,691 | 14,229 | 9,432 | 93 | — | 294,445 | ||||||||||||||||||
Commercial | 79,975 | 10,728 | 7,795 | — | — | 98,498 | ||||||||||||||||||
Construction of commercial | 18,024 | — | 578 | — | — | 18,602 | ||||||||||||||||||
Commercial real estate | 97,999 | 10,728 | 8,373 | — | — | 117,100 | ||||||||||||||||||
Farm land | 772 | 1,361 | 1,106 | — | — | 3,239 | ||||||||||||||||||
Vacant land | 6,039 | 140 | 3,163 | — | — | 9,342 | ||||||||||||||||||
Real estate secured | 375,501 | 26,458 | 22,074 | 93 | — | 424,126 | ||||||||||||||||||
Commercial and industrial | 44,903 | 3,527 | 774 | — | — | 49,204 | ||||||||||||||||||
Municipal | 6,083 | — | — | — | — | 6,083 | ||||||||||||||||||
Consumer | 4,271 | 53 | 10 | — | — | 4,334 | ||||||||||||||||||
Loans receivable, gross | $ | 430,758 | $ | 30,038 | $ | 22,858 | $ | 93 | $ | — | $ | 483,747 |
Acquired Loans
(in thousands) | Pass | Special mention | Substandard | Doubtful | Loss | Total | ||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||
Residential 1-4 family | $ | 8,661 | $ | — | $ | 562 | $ | — | $ | — | $ | 9,223 | ||||||||||||
Residential 5+ multifamily | 8,735 | — | — | — | — | 8,735 | ||||||||||||||||||
Construction of residential 1-4 family | — | — | — | — | — | — | ||||||||||||||||||
Home equity credit | — | — | — | — | — | — | ||||||||||||||||||
Residential real estate | 17,396 | — | 562 | — | — | 17,958 | ||||||||||||||||||
Commercial | 89,820 | 3,830 | 3,723 | 526 | — | 97,899 | ||||||||||||||||||
Construction of commercial | 9,045 | — | — | — | — | 9,045 | ||||||||||||||||||
Commercial real estate | 98,865 | 3,830 | 3,723 | 526 | — | 106,944 | ||||||||||||||||||
Farm land | — | — | — | — | — | — | ||||||||||||||||||
Vacant land | — | — | — | — | — | — | ||||||||||||||||||
Real estate secured | 116,261 | 3,830 | 4,285 | 526 | — | 124,902 | ||||||||||||||||||
Commercial and industrial | 66,098 | 1,675 | 941 | — | — | 68,714 | ||||||||||||||||||
Municipal | — | — | — | — | — | — | ||||||||||||||||||
Consumer | 96 | 7 | 19 | — | — | 122 | ||||||||||||||||||
Loans receivable, gross | $ | 182,455 | $ | 5,512 | $ | 5,245 | $ | 526 | $ | — | $ | 193,738 |
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The composition of loans receivable by delinquency status is as follows:
Business Activities Loans
Past due | ||||||||||||||||||||||||||||||||||||
180 | 30 | |||||||||||||||||||||||||||||||||||
(in thousands) | Current | 1-29 | 30-59 | 60-89 | 90-179 | days | days | Accruing | Non- | |||||||||||||||||||||||||||
days | days | days | days | and | and | 90 days | accrual | |||||||||||||||||||||||||||||
over | over | and over | ||||||||||||||||||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 252,773 | $ | 3,454 | $ | 332 | $ | 426 | $ | 93 | $ | 3,834 | $ | 4,685 | $ | — | $ | 5,770 | ||||||||||||||||||
Residential 5+ multifamily | 6,032 | 71 | — | — | — | 89 | 89 | — | 89 | |||||||||||||||||||||||||||
Construction of residential 1-4 family | 6,193 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Home equity credit | 32,733 | 424 | 291 | — | 422 | 10 | 723 | — | 494 | |||||||||||||||||||||||||||
Residential real estate | 297,731 | 3,949 | 623 | 426 | 515 | 3,933 | 5,497 | — | 6,353 | |||||||||||||||||||||||||||
Commercial | 106,638 | 1,708 | 1,569 | 240 | 119 | 681 | 2,609 | — | 2,423 | |||||||||||||||||||||||||||
Construction of commercial | 12,539 | — | — | 448 | — | — | 448 | — | — | |||||||||||||||||||||||||||
Commercial real estate | 119,177 | 1,708 | 1,569 | 688 | 119 | 681 | 3,057 | — | 2,423 | |||||||||||||||||||||||||||
Farm land | 2,762 | — | — | — | — | 723 | 723 | — | 1,036 | |||||||||||||||||||||||||||
Vacant land | 5,504 | 1,119 | — | — | — | 2,823 | 2,823 | — | 2,857 | |||||||||||||||||||||||||||
Real estate secured | 425,174 | 6,776 | 2,192 | 1,114 | 634 | 8,160 | 12,100 | — | 12,669 | |||||||||||||||||||||||||||
Commercial and industrial | 69,459 | 840 | 139 | 397 | 5 | 18 | 559 | 5 | 419 | |||||||||||||||||||||||||||
Municipal | 6,947 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Consumer | 5,653 | 92 | 14 | 1 | — | — | 15 | — | — | |||||||||||||||||||||||||||
Loans receivable, gross | $ | 507,233 | $ | 7,708 | $ | 2,345 | $ | 1,512 | $ | 639 | $ | 8,178 | $ | 12,674 | $ | 5 | $ | 13,088 |
Acquired Loans
September 30, 2015 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 6,977 | $ | 190 | $ | — | $ | — | $ | 269 | $ | 590 | $ | 859 | $ | 91 | $ | 767 | ||||||||||||||||||
Residential 5+ multifamily | 6,228 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Construction of residential 1-4 family | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Home equity credit | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Residential real estate | 13,205 | 190 | — | — | 269 | 590 | 859 | 91 | 767 | |||||||||||||||||||||||||||
Commercial | 86,852 | 1,982 | — | 461 | 102 | 2,070 | 2,633 | — | 2,172 | |||||||||||||||||||||||||||
Construction of commercial | 4,590 | — | — | — | — | 272 | 272 | — | 272 | |||||||||||||||||||||||||||
Commercial real estate | 91,442 | 1,982 | — | 461 | 102 | 2,342 | 2,905 | — | 2,444 | |||||||||||||||||||||||||||
Farm land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Vacant land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Real estate secured | 104,647 | 2,172 | — | 461 | 371 | 2,932 | 3,764 | 91 | 3,211 | |||||||||||||||||||||||||||
Commercial and industrial | 53,116 | 561 | 191 | 20 | 40 | — | 251 | — | 40 | |||||||||||||||||||||||||||
Municipal | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Consumer | 70 | — | 4 | — | — | — | 4 | — | — | |||||||||||||||||||||||||||
Loans receivable, gross | $ | 157,833 | $ | 2,733 | $ | 195 | $ | 481 | $ | 411 | $ | 2,932 | $ | 4,019 | $ | 91 | $ | 3,251 |
16 |
Business Activities Loans
Past due | ||||||||||||||||||||||||||||||||||||
180 | 30 | |||||||||||||||||||||||||||||||||||
(in thousands) | Current | 1-29 | 30-59 | 60-89 | 90-179 | days | days | Accruing | Non- | |||||||||||||||||||||||||||
days | days | days | days | and | and | 90 days | accrual | |||||||||||||||||||||||||||||
over | over | and over | ||||||||||||||||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 241,567 | $ | 7,299 | $ | 1,250 | $ | 555 | $ | 976 | $ | 611 | $ | 3,392 | $ | — | $ | 2,445 | ||||||||||||||||||
Residential 5+ multifamily | 5,467 | — | — | — | 89 | — | 89 | — | 89 | |||||||||||||||||||||||||||
Construction of residential 1-4 family | 2,004 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Home equity credit | 33,488 | 387 | 122 | 528 | 39 | 63 | 752 | — | 348 | |||||||||||||||||||||||||||
Residential real estate | 282,526 | 7,686 | 1,372 | 1,083 | 1,104 | 674 | 4,233 | — | 2,882 | |||||||||||||||||||||||||||
Commercial | 94,598 | 2,079 | 602 | — | — | 1,219 | 1,821 | — | 1,219 | |||||||||||||||||||||||||||
Construction of commercial | 18,602 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Commercial real estate | 113,200 | 2,079 | 602 | — | — | 1,219 | 1,821 | — | 1,219 | |||||||||||||||||||||||||||
Farm land | 2,119 | — | 13 | 723 | — | 384 | 1,120 | — | 384 | |||||||||||||||||||||||||||
Vacant land | 6,422 | 51 | 7 | — | 39 | 2,823 | 2,869 | — | 2,862 | |||||||||||||||||||||||||||
Real estate secured | 404,267 | 9,816 | 1,994 | 1,806 | 1,143 | 5,100 | 10,043 | — | 7,347 | |||||||||||||||||||||||||||
Commercial and industrial | 48,478 | 582 | 91 | 17 | 36 | — | 144 | 17 | 33 | |||||||||||||||||||||||||||
Municipal | 6,083 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Consumer | 4,274 | 47 | 8 | 5 | — | — | 13 | — | — | |||||||||||||||||||||||||||
Loans receivable, gross | $ | 463,102 | $ | 10,445 | $ | 2,093 | $ | 1,828 | $ | 1,179 | $ | 5,100 | $ | 10,200 | $ | 17 | $ | 7,380 | ||||||||||||||||||
Acquired Loans
December 31, 2014 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 8,661 | $ | — | $ | — | $ | — | $ | — | $ | 562 | $ | 562 | $ | — | $ | 562 | ||||||||||||||||||
Residential 5+ multifamily | 8,735 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Construction of residential 1-4 family | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Home equity credit | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Residential real estate | 17,396 | — | — | — | — | 562 | 562 | — | 562 | |||||||||||||||||||||||||||
Commercial | 95,695 | 1,109 | 167 | — | 285 | 643 | 1,095 | — | 1,931 | |||||||||||||||||||||||||||
Construction of commercial | 9,045 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Commercial real estate | 104,740 | 1,109 | 167 | — | 285 | 643 | 1,095 | — | 1,931 | |||||||||||||||||||||||||||
Farm land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Vacant land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Real estate secured | 122,136 | 1,109 | 167 | — | 285 | 1,205 | 1,657 | — | 2,493 | |||||||||||||||||||||||||||
Commercial and industrial | 67,665 | 740 | 89 | 220 | — | — | 309 | — | — | |||||||||||||||||||||||||||
Municipal | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Consumer | 117 | 5 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Loans receivable, gross | $ | 189,918 | $ | 1,854 | $ | 256 | $ | 220 | $ | 285 | $ | 1,205 | $ | 1,966 | $ | — | $ | 2,493 | ||||||||||||||||||
Interest on impaired loans that would have been recorded as additional interest income for the nine months ended September 30, 2015 and 2014 had the loans been current in accordance with their original terms totaled $609,000 and $410,000, respectively, disregarding the impact of purchased accounting on these loans.
17 |
Troubled Debt Restructurings
Troubled debt restructurings occurring during the periods are as follows:
Business Activities Loans | Nine months ended | |||||||||||||||||||||||
September 30, 2015 | September 30, 2014 | |||||||||||||||||||||||
(in thousands) | Quantity | Pre- modification balance | Post- modification balance | Quantity | Pre- modification balance | Post- modification balance | ||||||||||||||||||
Residential real estate | 2 | $ | 923 | $ | 923 | 2 | $ | 237 | $ | 237 | ||||||||||||||
Commercial real estate | 2 | 478 | 478 | 3 | 846 | 846 | ||||||||||||||||||
Construction of commercial | — | — | — | 1 | 131 | 131 | ||||||||||||||||||
Home equity credit | 1 | 35 | 35 | 2 | 72 | 72 | ||||||||||||||||||
Troubled debt restructurings | 5 | $ | 1,436 | $ | 1,436 | 8 | $ | 1,286 | $ | 1,286 | ||||||||||||||
Rate reduction and term extension | 2 | $ | 478 | $ | 478 | — | — | — | ||||||||||||||||
Interest only and term extension | — | — | — | 1 | 48 | 48 | ||||||||||||||||||
Term extension and amortization | — | — | — | 2 | 338 | 338 | ||||||||||||||||||
Interest only | — | — | — | 2 | 54 | 54 | ||||||||||||||||||
Debt consolidation, rate reduction, term extension | — | — | — | 1 | 399 | 399 | ||||||||||||||||||
Debt consolidation and term extension | — | — | — | 2 | 447 | 447 | ||||||||||||||||||
Note bifurcation | 1 | 48 | 48 | — | — | — | ||||||||||||||||||
Term extension | 2 | 910 | 910 | — | — | — | ||||||||||||||||||
Troubled debt restructurings | 5 | $ | 1,436 | $ | 1,436 | 8 | $ | 1,286 | $ | 1,286 |
Five loans were modified in troubled debt restructurings during 2015, one of which was past due at September 30, 2015.
There was one acquired loan modified in a troubled debt restructuring during the nine months ended September 30, 2015.
As of September 30, 2015, the Bank had $4.3 million in loans collateralized by residential real estate property in the process of foreclosure.
18 |
Allowance for Loan Losses
Changes in the allowance for loan losses are as follows:
Business Activities Loans | Acquired Loans | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Three months ended September 30, 2015 | Three months ended September 30, 2015 | ||||||||||||||||||||||||||||||||||||||
Beginning balance | Provision (benefit) | Charge- offs | Reco- veries | Ending balance | Beginning balance | Provision (benefit) | Charge- offs | Reco- veries | Ending balance | |||||||||||||||||||||||||||||||
Residential | $ | 2,147 | $ | 632 | $ | (92 | ) | $ | 111 | $ | 2,798 | $ | 15 | $ | 55 | $ | — | $ | — | $ | 70 | |||||||||||||||||||
Commercial | 1,339 | (102 | ) | (10 | ) | — | 1,227 | 77 | 81 | — | 5 | 163 | ||||||||||||||||||||||||||||
Land | 182 | 168 | (72 | ) | — | 278 | — | — | — | — | — | |||||||||||||||||||||||||||||
Real estate | 3,668 | 698 | (174 | ) | 111 | 4,303 | 92 | 136 | — | 5 | 233 | |||||||||||||||||||||||||||||
Commercial and industrial | 691 | (197 | ) | — | 4 | 498 | 52 | (22 | ) | — | 10 | 40 | ||||||||||||||||||||||||||||
Municipal | 64 | (16 | ) | — | — | 48 | — | — | — | — | — | |||||||||||||||||||||||||||||
Consumer | 123 | 1 | (17 | ) | 6 | 113 | — | — | — | — | — | |||||||||||||||||||||||||||||
Unallocated | 369 | 55 | — | — | 424 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Totals | $ | 4,915 | $ | 541 | $ | (191 | ) | $ | 121 | $ | 5,386 | $ | 144 | $ | 114 | $ | — | $ | 15 | $ | 273 | |||||||||||||||||||
Business Activities Loans | Acquired Loans | |||||||||||||||||||||||||||||||||||||||
(in thousands) | Nine months ended September 30, 2015 | Nine months ended September 30, 2015 | ||||||||||||||||||||||||||||||||||||||
Beginning balance | Provision (benefit) | Charge- offs | Reco- veries | Ending balance | Beginning balance | Provision (benefit) | Charge- offs | Reco- veries | Ending balance | |||||||||||||||||||||||||||||||
Residential | $ | 2,306 | $ | 952 | $ | (573 | ) | $ | 113 | $ | 2,798 | $ | — | $ | 70 | $ | — | $ | — | $ | 70 | |||||||||||||||||||
Commercial | 1,697 | (256 | ) | (214 | ) | — | 1,227 | 7 | 151 | — | 5 | 163 | ||||||||||||||||||||||||||||
Land | 164 | 186 | (72 | ) | — | 278 | — | — | — | — | — | |||||||||||||||||||||||||||||
Real estate | 4,167 | 882 | (859 | ) | 113 | 4,303 | 7 | 221 | — | 5 | 233 | |||||||||||||||||||||||||||||
Commercial and industrial | 583 | (484 | ) | (56 | ) | 455 | 498 | 14 | — | — | 26 | 40 | ||||||||||||||||||||||||||||
Municipal | 61 | (13 | ) | — | — | 48 | — | — | — | — | — | |||||||||||||||||||||||||||||
Consumer | 117 | 30 | (47 | ) | 13 | 113 | — | — | — | — | — | |||||||||||||||||||||||||||||
Unallocated | 409 | 15 | — | — | 424 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Totals | $ | 5,337 | $ | 430 | $ | (962 | ) | $ | 581 | $ | 5,386 | $ | 21 | $ | 221 | $ | — | $ | 31 | $ | 273 | |||||||||||||||||||
(in thousands) | Three months ended September 30, 2014 | Nine months ended September 30, 2014 | ||||||||||||||||||||||||||||||||||||||
Beginning balance | Provision | Charge- offs | Reco- veries | Ending balance | Beginning balance | Provision | Charge- offs | Reco- veries | Ending balance | |||||||||||||||||||||||||||||||
Residential | $ | 1,974 | $ | 357 | $ | (46 | ) | $ | 16 | $ | 2,301 | $ | 1,938 | $ | 494 | $ | (149 | ) | $ | 18 | $ | 2,301 | ||||||||||||||||||
Commercial | 1,622 | 89 | — | — | 1,711 | 1,385 | 378 | (52 | ) | — | 1,711 | |||||||||||||||||||||||||||||
Land | 184 | (17 | ) | (6 | ) | — | 161 | 226 | 33 | (98 | ) | — | 161 | |||||||||||||||||||||||||||
Real estate | 3,780 | 429 | (52 | ) | 16 | 4,173 | 3,549 | 905 | (299 | ) | 18 | 4,173 | ||||||||||||||||||||||||||||
Commercial and industrial | 584 | (68 | ) | — | 1 | 517 | 561 | (57 | ) | (1 | ) | 14 | 517 | |||||||||||||||||||||||||||
Municipal | 44 | 18 | — | — | 62 | 43 | 19 | — | — | 62 | ||||||||||||||||||||||||||||||
Consumer | 49 | 11 | (3 | ) | 2 | 59 | 105 | (46 | ) | (18 | ) | 18 | 59 | |||||||||||||||||||||||||||
Unallocated | 645 | (72 | ) | — | — | 573 | 425 | 148 | — | — | 573 | |||||||||||||||||||||||||||||
Totals | $ | 5,102 | $ | 318 | $ | (55 | ) | $ | 19 | $ | 5,384 | $ | 4,683 | $ | 969 | $ | (318 | ) | $ | 50 | $ | 5,384 |
19 |
The composition of loans receivable and the allowance for loan losses is as follows:
Business Activities Loans
(in thousands) | Collectively evaluated | Individually evaluated | Total portfolio | |||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||
Residential 1-4 family | $ | 252,454 | $ | 1,603 | $ | 8,458 | $ | 724 | $ | 260,912 | $ | 2,327 | ||||||||||||
Residential 5+ multifamily | 4,315 | 37 | 1,877 | — | 6,192 | 37 | ||||||||||||||||||
Construction of residential 1-4 family | 6,193 | 52 | — | — | 6,193 | 52 | ||||||||||||||||||
Home equity credit | 33,230 | 345 | 650 | 37 | 33,880 | 382 | ||||||||||||||||||
Residential real estate | 296,192 | 2,037 | 10,985 | 761 | 307,177 | 2,798 | ||||||||||||||||||
Commercial | 106,573 | 937 | 4,382 | 170 | 110,955 | 1,107 | ||||||||||||||||||
Construction of commercial | 12,864 | 120 | 123 | — | 12,987 | 120 | ||||||||||||||||||
Commercial real estate | 119,437 | 1,057 | 4,505 | 170 | 123,942 | 1,227 | ||||||||||||||||||
Farm land | 2,449 | 19 | 1,036 | 1 | 3,485 | 20 | ||||||||||||||||||
Vacant land | 6,364 | 234 | 3,082 | 24 | 9,446 | 258 | ||||||||||||||||||
Real estate secured | 424,442 | 3,347 | 19,608 | 956 | 444,050 | 4,303 | ||||||||||||||||||
Commercial and industrial | 70,372 | 494 | 486 | 4 | 70,858 | 498 | ||||||||||||||||||
Municipal | 6,947 | 48 | — | — | 6,947 | 48 | ||||||||||||||||||
Consumer | 5,760 | 113 | — | — | 5,760 | 113 | ||||||||||||||||||
Unallocated allowance | — | 424 | — | — | — | 424 | ||||||||||||||||||
Totals | $ | 507,521 | $ | 4,426 | $ | 20,094 | $ | 960 | $ | 527,615 | $ | 5,386 |
Acquired Loans
(in thousands) | Collectively evaluated | Individually evaluated | ASC 310-30 loans | Total portfolio | ||||||||||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 7,259 | $ | — | $ | 767 | $ | 70 | $ | — | $ | — | $ | 8,026 | $ | 70 | ||||||||||||||||
Residential 5+ multifamily | 6,228 | — | — | — | — | — | 6,228 | — | ||||||||||||||||||||||||
Construction of residential 1-4 family | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Home equity credit | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Residential real estate | 13,487 | — | 767 | 70 | — | — | 14,254 | 70 | ||||||||||||||||||||||||
Commercial | 83,257 | 13 | 2,920 | 145 | 5,290 | 2 | 91,467 | 160 | ||||||||||||||||||||||||
Construction of commercial | 4,590 | 3 | 272 | — | — | — | 4,862 | 3 | ||||||||||||||||||||||||
Commercial real estate | 87,847 | 16 | 3,192 | 145 | 5,290 | 2 | 96,329 | 163 | ||||||||||||||||||||||||
Farm land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Vacant land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Real estate secured | 101,334 | 16 | 3,959 | 215 | 5,290 | 2 | 110,583 | 233 | ||||||||||||||||||||||||
Commercial and industrial | 52,587 | 40 | 40 | — | 1,301 | — | 53,928 | 40 | ||||||||||||||||||||||||
Municipal | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Consumer | 57 | — | — | — | 17 | — | 74 | — | ||||||||||||||||||||||||
Unallocated allowance | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Totals | $ | 153,978 | $ | 56 | $ | 3,999 | $ | 215 | $ | 6,608 | $ | 2 | $ | 164,585 | $ | 273 |
20 |
Business Activities Loans
(in thousands) | Collectively evaluated | Individually evaluated | Total portfolio | |||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||
Residential 1-4 family | $ | 245,997 | $ | 1,316 | $ | 6,261 | $ | 549 | $ | 252,258 | $ | 1,865 | ||||||||||||
Residential 5+ multifamily | 4,536 | 66 | 1,020 | 3 | 5,556 | 69 | ||||||||||||||||||
Construction of residential 1-4 family | 2,004 | 13 | — | — | 2,004 | 13 | ||||||||||||||||||
Home equity credit | 34,231 | 350 | 396 | 9 | 34,627 | 359 | ||||||||||||||||||
Residential real estate | 286,768 | 1,745 | 7,677 | 561 | 294,445 | 2,306 | ||||||||||||||||||
Commercial | 93,784 | 1,018 | 4,714 | 486 | 98,498 | 1,504 | ||||||||||||||||||
Construction of commercial | 18,474 | 193 | 128 | — | 18,602 | 193 | ||||||||||||||||||
Commercial real estate | 112,258 | 1,211 | 4,842 | 486 | 117,100 | 1,697 | ||||||||||||||||||
Farm land | 2,855 | 59 | 384 | — | 3,239 | 59 | ||||||||||||||||||
Vacant land | 6,245 | 67 | 3,097 | 38 | 9,342 | 105 | ||||||||||||||||||
Real estate secured | 408,126 | 3,082 | 16,000 | 1,085 | 424,126 | 4,167 | ||||||||||||||||||
Commercial and industrial | 48,635 | 532 | 569 | 51 | 49,204 | 583 | ||||||||||||||||||
Municipal | 6,083 | 61 | — | — | 6,083 | 61 | ||||||||||||||||||
Consumer | 4,334 | 117 | — | — | 4,334 | 117 | ||||||||||||||||||
Unallocated allowance | — | 409 | — | — | — | 409 | ||||||||||||||||||
Totals | $ | 467,178 | $ | 4,201 | $ | 16,569 | $ | 1,136 | $ | 483,747 | $ | 5,337 |
Acquired Loans
(in thousands) | Collectively evaluated | Individually evaluated | ASC 310-30 loans | Total portfolio | ||||||||||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 8,661 | $ | — | $ | 562 | $ | — | $ | — | $ | — | $ | 9,223 | $ | — | ||||||||||||||||
Residential 5+ multifamily | 8,735 | — | — | — | — | — | 8,735 | — | ||||||||||||||||||||||||
Construction of residential 1-4 family | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Home equity credit | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Residential real estate | 17,396 | — | 562 | — | — | — | 17,958 | — | ||||||||||||||||||||||||
Commercial | 89,820 | — | 2,502 | — | 5,577 | — | 97,899 | — | ||||||||||||||||||||||||
Construction of commercial | 9,045 | 7 | — | — | — | — | 9,045 | 7 | ||||||||||||||||||||||||
Commercial real estate | 98,865 | 7 | 2,502 | — | 5,577 | — | 106,944 | 7 | ||||||||||||||||||||||||
Farm land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Vacant land | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Real estate secured | 116,261 | 7 | 3,064 | — | 5,577 | — | 124,902 | 7 | ||||||||||||||||||||||||
Commercial and industrial | 66,874 | 14 | — | — | 1,840 | — | 68,714 | 14 | ||||||||||||||||||||||||
Municipal | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Consumer | 103 | — | — | — | 19 | — | 122 | — | ||||||||||||||||||||||||
Unallocated allowance | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Totals | $ | 183,238 | $ | 21 | $ | 3,064 | $ | — | $ | 7,436 | $ | — | $ | 193,738 | $ | 21 |
21 |
The credit quality segments of loans receivable and the allowance for loan losses are as follows:
Business Activities Loans
September 30, 2015 (in thousands) | Collectively evaluated | Individually evaluated | Total portfolio | |||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||
Performing loans | $ | 503,052 | $ | 3,935 | $ | — | $ | — | $ | 503,052 | $ | 3,935 | ||||||||||||
Potential problem loans | 4,469 | 67 | — | — | 4,469 | 67 | ||||||||||||||||||
Impaired loans | — | — | 20,094 | 960 | 20,094 | 960 | ||||||||||||||||||
Unallocated allowance | — | 424 | — | — | — | 424 | ||||||||||||||||||
Totals | $ | 507,521 | $ | 4,426 | $ | 20,094 | $ | 960 | $ | 527,615 | $ | 5,386 |
Acquired Loans
September 30, 2015 (in thousands) | Collectively evaluated | Individually evaluated | Total portfolio | |||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||
Performing loans | $ | 158,144 | $ | 56 | $ | — | $ | — | $ | 158,144 | $ | 56 | ||||||||||||
Potential problem loans | 2,442 | 2 | — | — | 2,442 | 2 | ||||||||||||||||||
Impaired loans | — | — | 3,999 | 215 | 3,999 | 215 | ||||||||||||||||||
Unallocated allowance | — | — | — | — | — | — | ||||||||||||||||||
Totals | $ | 160,586 | $ | 58 | $ | 3,999 | $ | 215 | $ | 164,585 | $ | 273 |
Business Activities Loans
December 31, 2014 (in thousands) | Collectively evaluated | Individually evaluated | Total portfolio | |||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||
Performing loans | $ | 457,744 | $ | 3,283 | $ | — | $ | — | $ | 457,744 | $ | 3,283 | ||||||||||||
Potential problem loans | 9,423 | 509 | 11 | — | 9,434 | 509 | ||||||||||||||||||
Impaired loans | — | — | 16,569 | 1,136 | 16,569 | 1,136 | ||||||||||||||||||
Unallocated allowance | — | 409 | — | — | — | 409 | ||||||||||||||||||
Totals | $ | 467,167 | $ | 4,201 | $ | 16,580 | $ | 1,136 | $ | 483,747 | $ | 5,337 |
Acquired Loans
December 31, 2014 (in thousands) | Collectively evaluated | Individually evaluated | Total portfolio | |||||||||||||||||||||
Loans | Allowance | Loans | Allowance | Loans | Allowance | |||||||||||||||||||
Performing loans | $ | 187,966 | $ | 21 | $ | — | $ | — | $ | 187,966 | $ | 21 | ||||||||||||
Potential problem loans | 2,708 | — | — | — | 2,708 | — | ||||||||||||||||||
Impaired loans | — | — | 3,064 | — | 3,064 | — | ||||||||||||||||||
Unallocated allowance | — | — | — | — | — | — | ||||||||||||||||||
Totals | $ | 190,674 | $ | 21 | $ | 3,064 | $ | — | $ | 193,738 | $ | 21 |
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A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the present value of expected cash flows or collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as follows:
Business Activities Loans
Impaired loans with specific allowance | Impaired loans with no specific allowance | |||||||||||||||||||||||||||||||||||
(in thousands) | Loan balance | Specific | Income | Loan balance | Income | |||||||||||||||||||||||||||||||
Book | Note | Average | allowance | recognized | Book | Note | Average | recognized | ||||||||||||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 7,170 | $ | 7,703 | $ | 6,213 | $ | 724 | $ | 109 | $ | 3,165 | $ | 3,314 | $ | 3,043 | $ | 82 | ||||||||||||||||||
Home equity credit | 543 | 557 | 176 | 37 | 6 | 107 | 122 | 611 | 2 | |||||||||||||||||||||||||||
Residential real estate | 7,713 | 8,260 | 6,389 | 761 | 115 | 3,272 | 3,436 | 3,654 | 84 | |||||||||||||||||||||||||||
Commercial | 3,864 | 4,309 | 2,629 | 170 | 113 | 518 | 548 | 2,130 | 12 | |||||||||||||||||||||||||||
Construction of commercial | — | — | — | — | — | 123 | 129 | 127 | 6 | |||||||||||||||||||||||||||
Farm land | 11 | 13 | 445 | 1 | — | 1,025 | 1,100 | 270 | 15 | |||||||||||||||||||||||||||
Vacant land | 2,870 | 3,789 | 3,058 | 24 | 2 | 212 | 244 | 5 | 7 | |||||||||||||||||||||||||||
Real estate secured | 14,458 | 16,371 | 12,521 | 956 | 230 | 5,150 | 5,457 | 6,186 | 124 | |||||||||||||||||||||||||||
Commercial and industrial | 247 | 255 | 120 | 4 | 8 | 239 | 272 | 464 | 7 | |||||||||||||||||||||||||||
Consumer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Totals | $ | 14,705 | $ | 16,626 | $ | 12,641 | $ | 960 | $ | 238 | $ | 5,389 | $ | 5,729 | $ | 6,650 | $ | 131 |
Acquired Loans
Impaired loans with specific allowance | Impaired loans with no specific allowance | |||||||||||||||||||||||||||||||||||
(in thousands) | Loan balance | Specific | Income | Loan balance | Income | |||||||||||||||||||||||||||||||
Book | Note | Average | allowance | recognized | Book | Note | Average | recognized | ||||||||||||||||||||||||||||
September 30, 2015 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 590 | $ | 716 | $ | 176 | $ | 70 | $ | — | $ | 177 | $ | 177 | $ | 436 | $ | 4 | ||||||||||||||||||
Home equity credit | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Residential real estate | 590 | 716 | 176 | 70 | — | 177 | 177 | 436 | 4 | |||||||||||||||||||||||||||
Commercial | 2,146 | 2,897 | 557 | 145 | 61 | 774 | 1,091 | 2,097 | 10 | |||||||||||||||||||||||||||
Construction of commercial | — | — | — | — | — | 272 | 278 | 138 | 16 | |||||||||||||||||||||||||||
Farm land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Vacant land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Real estate secured | 2,736 | 3,613 | 733 | 215 | 61 | 1,223 | 1,546 | 2,671 | 30 | |||||||||||||||||||||||||||
Commercial and industrial | 40 | 70 | 4 | — | 1 | — | — | — | — | |||||||||||||||||||||||||||
Consumer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Totals | $ | 2,776 | $ | 3,683 | $ | 737 | $ | 215 | $ | 62 | $ | 1,223 | $ | 1,546 | $ | 2,671 | $ | 30 |
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Business Activities Loans
Impaired loans with specific allowance | Impaired loans with no specific allowance | |||||||||||||||||||||||||||||||||||
(in thousands) | Loan balance | Specific | Income | Loan balance | Income | |||||||||||||||||||||||||||||||
Book | Note | Average | allowance | recognized | Book | Note | Average | recognized | ||||||||||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | 5,008 | $ | 5,157 | $ | 4,547 | $ | 552 | $ | 128 | $ | 2,273 | $ | 2,395 | $ | 2,703 | $ | 57 | ||||||||||||||||||
Home equity credit | 9 | 24 | 91 | 9 | — | 387 | 405 | 441 | 4 | |||||||||||||||||||||||||||
Residential real estate | 5,017 | 5,181 | 4,638 | 561 | 128 | 2,660 | 2,800 | 3,144 | 61 | |||||||||||||||||||||||||||
Commercial | 3,383 | 3,563 | 3,262 | 486 | 108 | 1,331 | 1,520 | 1,468 | 54 | |||||||||||||||||||||||||||
Construction of commercial | — | — | — | — | — | 128 | 134 | 123 | — | |||||||||||||||||||||||||||
Farm land | — | — | — | — | — | 384 | 384 | 384 | — | |||||||||||||||||||||||||||
Vacant land | 3,097 | 3,996 | 3,090 | 38 | 12 | — | — | — | — | |||||||||||||||||||||||||||
Real estate secured | 11,497 | 12,740 | 10,990 | 1,085 | 248 | 4,503 | 4,838 | 5,119 | 115 | |||||||||||||||||||||||||||
Commercial and industrial | 102 | 161 | 106 | 51 | 2 | 467 | 469 | 516 | 30 | |||||||||||||||||||||||||||
Consumer | — | — | — | — | — | — | — | 19 | — | |||||||||||||||||||||||||||
Totals | $ | 11,599 | $ | 12,901 | $ | 11,096 | $ | 1,136 | $ | 250 | $ | 4,970 | $ | 5,307 | $ | 5,654 | $ | 145 |
Acquired Loans
Impaired loans with specific allowance | Impaired loans with no specific allowance | |||||||||||||||||||||||||||||||||||
(in thousands) | Loan balance | Specific | Income | Loan balance | Income | |||||||||||||||||||||||||||||||
Book | Note | Average | allowance | recognized | Book | Note | Average | recognized | ||||||||||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||||||||||||||||||
Residential 1-4 family | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 562 | $ | 716 | $ | 562 | $ | 3 | ||||||||||||||||||
Home equity credit | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Residential real estate | — | — | — | — | — | 562 | 716 | 562 | 3 | |||||||||||||||||||||||||||
Commercial | — | — | — | — | — | 2,502 | 4,014 | 2,502 | 12 | |||||||||||||||||||||||||||
Construction of commercial | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Farm land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Vacant land | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Real estate secured | — | — | — | — | — | 3,064 | 4,730 | 3,064 | 15 | |||||||||||||||||||||||||||
Commercial and industrial | — | — | — | — | — | — | 4 | — | — | |||||||||||||||||||||||||||
Consumer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Totals | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3,064 | $ | 4,734 | $ | 3,064 | $ | 15 |
Acquired Loans
Loans that Salisbury acquired through business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest.
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For loans that meet the criteria stipulated in ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” Salisbury recognizes the accretable yield, which is defined as the excess of all cash flows expected to be collected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference is not recognized as an adjustment of yield, a loss accrual, or a valuation allowance. Going forward, Salisbury continues to evaluate whether the timing and the amount of cash to be collected are reasonably expected. Subsequent significant increases in cash flows Salisbury expects to collect will first reduce any previously recognized valuation allowance and then be reflected prospectively as an increase to the level yield. Subsequent decreases in expected cash flows may result in the loan being considered impaired. Interest income is not recognized to the extent that the net investment in the loan would increase to an amount greater than the estimated payoff amount.
For ASC 310-30 loans, the expected cash flows reflect anticipated prepayments, determined on a loan by loan basis according to the anticipated collection plan of these loans. The expected prepayments used to determine the accretable yield are consistent between the cash flows expected to be collected and projections of contractual cash flows so as to not affect the nonaccretable difference. For ASC 310-30 loans, prepayments result in the recognition of the nonaccretable balance as current period yield. Changes in prepayment assumptions may change the amount of interest income and principal expected to be collected.
The carrying amount of the acquired loans at September 30, 2015 totaled $165 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $9.8 million (and a note balance of $12.2 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows.
The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under ASC-310-30:
Three months | Nine months | |||||||||||||||
Periods ended September 30, (in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Balance at beginning of period | $ | 1,604 | $ | — | $ | 1,242 | $ | — | ||||||||
Acquisitions | — | — | — | — | ||||||||||||
Sales | — | — | — | — | ||||||||||||
Reclassification from nonaccretable difference for loans with improved cash flows | 379 | — | 1,157 | — | ||||||||||||
Change in cash flows that do not affect nonaccretable difference | — | — | — | — | ||||||||||||
Accretion | (297 | ) | — | (713 | ) | — | ||||||||||
Balance at end of period | $ | 1,686 | $ | — | $ | 1,686 | $ | — |
For loans that do not meet the ASC 310-30 criteria, Salisbury accretes interest income on a level yield basis using the contractually required cash flows. Salisbury subjects loans that do not meet the ASC 310-30 criteria to ASC Topic 450, “Contingencies” by collectively evaluating these loans for an allowance for loan losses.
Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Salisbury can reasonably estimate the timing and amount of the expected cash flows on such loans and if Salisbury expects to fully collect the new carrying value of the loans. As such, Salisbury may no longer consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable yield.
NOTE 4 - MORTGAGE SERVICING RIGHTS
(in thousands) | September 30, 2015 | December 31, 2014 | ||||||
Residential mortgage loans serviced for others | $ | 132,201 | $ | 138,106 | ||||
Fair value of mortgage servicing rights | 1,429 | 1,568 |
Changes in mortgage servicing rights are as follows:
Three months | Nine months | |||||||||||||||
Periods ended September 30, (in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Mortgage Servicing Rights | ||||||||||||||||
Balance, beginning of period | $ | 599 | $ | 838 | $ | 694 | $ | 980 | ||||||||
Originated | 22 | (17 | ) | 124 | 5 | |||||||||||
Amortization (1) | (85 | ) | (56 | ) | (282 | ) | (220 | ) | ||||||||
Balance, end of period | 536 | 765 | 536 | 765 | ||||||||||||
Valuation Allowance | ||||||||||||||||
Balance, beginning of period | (2 | ) | (1 | ) | 1 | (15 | ) | |||||||||
Decrease (increase) in impairment reserve (1) | 1 | 1 | (2 | ) | 15 | |||||||||||
Balance, end of period | (1 | ) | — | (1 | ) | — | ||||||||||
Loan servicing rights, net | $ | 535 | $ | 765 | $ | 535 | $ | 765 |
(1) | Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net. |
NOTE 5 - PLEDGED ASSETS
(in thousands) | September 30, 2015 | December 31, 2014 | ||||||
Securities available-for-sale (at fair value) | $ | 68,569 | $ | 69,055 | ||||
Loans receivable | 159,436 | 157,581 | ||||||
Total pledged assets | $ | 228,005 | $ | 226,636 |
At September 30, 2015, securities were pledged as follows: $60.4 million to secure public deposits, $8.1 million to secure repurchase agreements and $0.1 million to secure FHLBB advances. In addition to securities, loans receivable were pledged to secure FHLBB advances and credit facilities.
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NOTE 6 – 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:
Three months | Nine months | |||||||||||||||
Periods ended September 30, (in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income | $ | 1,985 | $ | 768 | $ | 6,290 | $ | 2,285 | ||||||||
Less: Preferred stock dividends declared | (40 | ) | (40 | ) | (120 | ) | (126 | ) | ||||||||
Net income available to common shareholders | 1,945 | 728 | 6,170 | 2,159 | ||||||||||||
Less: Undistributed earnings allocated to participating securities | (17 | ) | (8 | ) | (54 | ) | (26 | ) | ||||||||
Net income allocated to common stock | $ | 1,928 | $ | 720 | $ | 6,116 | $ | 2,133 | ||||||||
Common shares issued | 2,731 | 1,713 | 2,728 | 1,713 | ||||||||||||
Less: Unvested restricted stock awards | (24 | ) | (20 | ) | (24 | ) | (21 | ) | ||||||||
Common shares outstanding used to calculate basic earnings per common share | 2,707 | 1,693 | 2,704 | 1,692 | ||||||||||||
Add: Dilutive effect of stock options | 17 | — | 17 | — | ||||||||||||
Common shares outstanding used to calculate diluted earnings per common share | 2,724 | 1,693 | 2,721 | 1,692 | ||||||||||||
Earnings per common share (basic) | $ | 0.71 | $ | 0.43 | $ | 2.26 | $ | 1.26 | ||||||||
Earnings per common share (diluted) | $ | 0.71 | $ | 0.43 | $ | 2.25 | $ | 1.26 |
NOTE 7 – SHAREHOLDERS’ EQUITY
Capital Requirements
Salisbury 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 and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Salisbury’s and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require Salisbury and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as defined) to average assets (as defined) and total, Common Equity Tier 1 and Tier 1 capital (as defined) to risk-weighted assets (as defined). Management believes, as of September 30, 2015, that Salisbury and the Bank meet all of the capital adequacy requirements to which they are subject.
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In July 2013, the Federal Reserve Bank (FRB) approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank subsidiaries. On July 9, 2013, the FDIC also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. On April 8, 2014, the FDIC adopted as final its interim final rule, which is identical in substance to the final rules issued by the FRB in July 2013. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank and Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 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 new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.
The phase-in period for the final rules began for Salisbury and the Bank on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule and should be fully phased-in by January 1, 2019.
The Bank was classified, as of its most recent notification, as "well capitalized." The Bank's actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" are as follows:
To be Well Capitalized | ||||||||||||||||||||||||
Actual | For Capital Adequacy Purposes | Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
(dollars in thousands) | Amount |