TABLE OF CONTENTS

 

 

 

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PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)
		CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2017 (unaudited) and DECEMBER 31, 2016		3
		CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (unaudited)		4
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (unaudited)		5
		CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 ( unaudited)		5
		CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2017 AND 2016 (unaudited)		6
		NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		8
Item 2.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		31
Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		47
Item 4.		CONTROLS AND PROCEDURES		48
PART II. OTHER INFORMATION				49
Item 1.		LEGAL PROCEEDINGS		49
Item 1A.		RISK FACTORS		49
Item 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		49
Item 3.		DEFAULTS UPON SENIOR SECURITIES		49
Item 4.		MINE SAFETY DISCLOSURES		49
Item 5.		OTHER INFORMATION		49
Item 6.		EXHIBITS		49
SIGNATURES				50

 

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)		June 30, 2017				December 31, 2016
ASSETS			(unaudited)
Cash and due from banks		$	5,920			$	5,434
Interest bearing demand deposits with other banks			55,472				30,051
Total cash and cash equivalents			61,392				35,485
Securities:
Available-for-sale at fair value			81,016				79,623
Federal Home Loan Bank of Boston stock at cost			3,452				3,211
Loans held-for-sale			594				—
Loans receivable, net (allowance for loan losses: $6,493 and $6,127)			771,850				763,184
Other real estate owned			3,854				3,773
Bank premises and equipment, net			16,149				14,398
Goodwill			13,827				12,552
Intangible assets (net of accumulated amortization: $3,764 and $3,511)			2,116				1,737
Accrued interest receivable			2,303				2,424
Cash surrender value of life insurance policies			14,211				14,038
Deferred taxes			1,320				1,367
Other assets			2,722				3,574
Total Assets		$	974,806			$	935,366
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing)		$	219,660			$	218,420
Demand (interest bearing)			132,899				127,854
Money market			194,704				182,476
Savings and other			145,937				135,435
Certificates of deposit			118,141				117,585
Total deposits			811,341				781,770
Repurchase agreements			2,126				5,535
Federal Home Loan Bank of Boston advances			47,302				37,188
Subordinated debt			9,799				9,788
Note payable			327				344
Capital lease liability			1,987				418
Accrued interest and other liabilities			5,379				6,316
Total Liabilities			878,261				841,359
Shareholders' Equity
Common stock - $0.10 per share par value
Authorized: 5,000,000
Issued: 2,785,066 and 2,758,086			279				276
Paid-in capital			42,984				42,085
Retained earnings			53,453				51,521
Unearned compensation - restricted stock awards			(738	)			(352	)
Accumulated other comprehensive income			567				477
Total Shareholders' Equity			96,545				94,007
Total Liabilities and Shareholders' Equity		$	974,806			$	935,366

 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

			Three months ended								Six months ended
Periods ended June 30, (in thousands, except per share amounts)			2017				2016				2017				2016
Interest and dividend income
Interest and fees on loans		$	8,235			$	7,938			$	16,577			$	15,869
Interest on debt securities:
Taxable			354				286				672				579
Tax exempt			113				237				277				523
Other interest and dividends			94				60				176				134
Total interest and dividend income			8,796				8,521				17,702				17,105
Interest expense
Deposits			578				529				1,094				1,037
Repurchase agreements			1				1				1				2
Capital lease			20				17				37				35
Note payable			5				6				7				11
Subordinated debt			156				156				312				312
Federal Home Loan Bank of Boston advances			266				245				528				476
Total interest expense			1,026				954				1,979				1,873
Net interest and dividend income			7,770				7,567				15,723				15,232
Provision for loan losses			364				525				716				988
Net interest and dividend income after provision for loan losses			7,406				7,042				15,007				14,244
Non-interest income
Trust and wealth advisory			892				884				1,746				1,668
Service charges and fees			902				753				1,863				1,455
Gains on sales of mortgage loans, net			30				57				79				96
Mortgage servicing, net			31				45				76				79
(Loss) /gains and write-downs on sales and calls of available-for-sale securities, net			(14	)			146				(14	)			148
Other			110				115				223				229
Total non-interest income			1,951				2,000				3,973				3,675
Non-interest expense
Salaries			2,777				2,687				5,667				5,261
Employee benefits			831				910				1,919				1,998
Premises and equipment			907				844				1,802				1,739
Data processing			504				449				977				896
Professional fees			764				564				1,481				944
Collections, OREO and loan related			155				125				456				311
FDIC insurance			98				176				247				310
Marketing and community support			152				180				403				380
Amortization of core deposit intangibles			126				152				252				307
Other			546				551				1,081				1,330
Total non-interest expense			6,860				6,638				14,285				13,476
Income before income taxes			2,497				2,404				4,695				4,443
Income tax provision			615				669				1,208				1,196
Net income		$	1,882			$	1,735			$	3,487			$	3,247
Net income allocated to common stock		$	1,867			$	1,721			$	3,461			$	3,220
Basic earnings per common share		$	0.68			$	0.63			$	1.26			$	1.18
Weighted average common shares outstanding, to calculate basic earnings per share			2,757				2,734				2,753				2,729
Diluted earnings per common share		$	0.67			$	0.63			$	1.25			$	1.17
Weighted average common shares outstanding, to calculate diluted earnings per share			2,775				2,749				2,772				2,745
Common dividends per share		$	0.28			$	0.28			$	0.56			$	0.56

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

			Three months ended								Six months ended
Periods ended June 30, (in thousands)			2017				2016				2017				2016
Net income		$	1,882			$	1,735			$	3,487			$	3,247
Other comprehensive income (loss)
Net unrealized gains (losses) on securities available-for-sale			106				190				122				122
Reclassification of net realized losses (gains) and write-downs in net income (1)			14				(146	)			14				(148	)
Unrealized gains (losses) on securities available-for-sale			120				44				136				(26	)
Income tax (expense) benefit			(40	)			(15	)			(46	)			9
Unrealized gains (losses) on securities available-for-sale, net of tax			80				29				90				(17	)
Comprehensive income		$	1,962			$	1,764			$	3,577			$	3,230

 

^{(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 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 30th 2017 and 2016 are $5 thousand and ($50) thousand respectively. The net tax effect for the six month periods ending June 30th are the same.}

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) Six months ended June 30, 2017 and 2016

(dollars in thousands)		Common Stock								Paid-in capital				Retained earnings				Unearned compensation restricted stock awards				Accumulated other comp- rehensive income				Total shareholders' equity
		Shares				Amount
Balances at December 31, 2015			2,733,576			$	273			$	41,364			$	47,922			$	(110	)		$	1,125			$	90,574
Net income for period			—				—				—				3,247				—				—				3,247
Other comprehensive loss, net of tax			—				—				—				—				—				(17	)			(17	)
Common stock dividends declared			—				—				—				(1,542	)			—				—				(1,542	)
Stock options exercised			4,050				—				87				—				—				—				87
Issuance of restricted stock awards			15,800				2				464				—				(466	)			—				—
Issuance of common stock for directors			4,760				1				141				—				—				—				142
Stock based compensation- restricted stock awards			—				—				—				—				93				—				93
Balances at June 30, 2016			2,758,186			$	276			$	42,056			$	49,627			$	(483	)		$	1,108			$	92,584
Balances at December 31, 2016			2,758,086			$	276			$	42,085			$	51,521			$	(352	)		$	477			$	94,007
Net income for period			—				—				—				3,487				—				—				3,487
Other comprehensive income, net of tax			—				—				—				—				—				90				90
Common stock dividends declared			—				—				—				(1,555	)			—				—				(1,555	)
Stock options exercised			12,150				1				312				—				—				—				313
Issuance of restricted stock awards			10,950				2				426				—				(428	)			—				—
Forfeiture of restricted stock awards			(200	)			—				(3	)			—				3				—				—
Issuance of vested common stock for directors			2,056				—				81				—				—				—				81
Issuance of director’s restricted stock awards			2,024				—				83				—				(83	)			—				—
Stock based compensation- restricted stock awards			—				—				—				—				122				—				122
Balances at June 30, 2017			2,785,066			$	279			$	42,984			$	53,453			$	(738	)		$	567			$	96,545

 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Six months ended June 30, (in thousands)			2017				2016
Operating Activities
Net income		$	3,487			$	3,247
Adjustments to reconcile net income to net cash provided by operating activities
(Accretion), amortization and depreciation
Securities			77				133
Bank premises and equipment			648				604
Core deposit intangible			253				307
Modification fees on Federal Home Loan Bank of Boston advances			114				116
Subordinated debt issuance costs			11				12
Mortgage servicing rights			136				116
Fair value adjustment on loans			(744	)			(988	)
Fair value adjustment on deposits			(47	)			(72	)
(Gains) and losses, including write-downs
Loss (gain) and write-downs on sales and calls of securities available-for-sale, net			14				(148	)
Gain on sales of loans, excluding capitalized servicing rights			(59	)			(96	)
Write-downs of other real estate owned			145				—
Loss on sale/disposals of premises and equipment			1				13
Provision for loan losses			716				988
Proceeds from loans sold			3,463				2,048
Loans originated for sale			(3,998	)			(1,189	)
Decrease (increase) in deferred loan origination fees and costs, net			47				(81	)
Mortgage servicing rights originated			(38	)			(45	)
Increase in mortgage servicing rights impairment reserve			1				21
Decrease in interest receivable			133				90
(Increase) decrease in prepaid expenses			(104	)			64
Increase in cash surrender value of life insurance policies			(173	)			(177	)
Decrease in income tax receivable			76				414
Decrease in other assets			802				234
Decrease in accrued expenses			(996	)			(32	)
Decrease in interest payable			(2	)			(32	)
Increase in other liabilities			58				890
Stock based compensation-restricted stock awards			122				93
Net cash provided by operating activities			4,143				6,530
Investing Activities
Purchase of Federal Home Loan Bank of Boston stock, net of redemptions			(241	)			(260	)
Purchases of securities available-for-sale			(25,116	)			(32,536	)
Proceeds from sales of securities available-for-sale			—				3,800
Proceeds from calls of securities available-for-sale			9,221				9,661
Proceeds from maturities of securities available-for-sale			14,547				15,320
Loan originations and principal collections, net			(2,091	)			(50,488	)
Recoveries of loans previously charged off			100				64
Proceeds from sales of other real estate owned			177				—
Capital expenditures			(795	)			(817	)
Cash and cash equivalents acquired from acquisition			22,375				—
Net cash provided (utilized) by investing activities			18,177				(55,256	)

 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six months ended June 30, (in thousands)			2017				2016
Financing Activities
(Decrease) increase in deposit transaction accounts, net			(2,418	)			973
Increase (decrease) in time deposits, net			603				(963	)
Decrease in securities sold under agreements to repurchase, net			(3,409	)			(559	)
Federal Home Loan Bank of Boston advances			10,000				19,994
Principal payments on Federal Home Loan Bank of Boston advances			—				(6	)
Principal payments on note payable			(17	)			(18	)
Decrease in capital lease obligation			(11	)			(2	)
Stock options exercised			313				87
Issuance of shares for directors’ fees			81				142
Common stock dividends paid			(1,555	)			(1,542	)
Net cash provided (utilized) by financing activities			3,587				18,106
Net increase (decrease) in cash and cash equivalents			25,907				(30,620	)
Cash and cash equivalents, beginning of period			35,485				62,118
Cash and cash equivalents, end of period		$	61,392			$	31,498
Cash paid during period
Interest		$	1,903			$	1,977
Income taxes			1,133				782
Non-cash transfers
From loans to other real estate owned			403				—
Empire State Bank branch acquisition 2017
Cash and cash equivalents acquired			22,375
Net loans acquired			7,097
Fixed assets acquired (including capital lease)			1,605
Accrued interest receivable acquired			12
Other assets acquired			20
Core deposit intangible			632
Goodwill			1,275
Deposits assumed			31,433
Capital lease assumed			1,580
Other liabilities assumed			3

 

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, shareholders’ equity and cash flows for the interim periods presented.

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

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2016 Annual Report on Form 10-K for the year ended December 31, 2016.

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, August 2015, May 2016, and December 2016, respectively, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, 2015-14, 2016-12, and 2016-20, “Revenue from Contracts with Customers (Topic 606).” The objective of ASU 2014-09 is to clarify principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in ASU 2014-09 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 ASU 2015-14 defer the effective date of ASU 2014-09 to 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). The amendments in ASU 2016-12 do not change the core principle of the guidance in Topic 606, but rather affect only certain narrow aspects aimed to reduce the potential for diversity in practice at initial application and the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in ASU 2016-20 include technical corrections and improvements to Topic 606 and other Topics amended by ASU 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to ASU 2014-09. Salisbury is currently reviewing ASU 2014-09, 2015-14, 2016-12, and 2016-20 to determine if they will have an impact on its consolidated financial statements.

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

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. Salisbury is currently evaluating this ASU to determine the impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. Salisbury has opted to recognize forfeitures as they occur as the impact is not expected to be material. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. Salisbury adopted ASU 2016-09 as of January 1, 2017. Adoption did not have a material effect on the financial results for the first quarter of 2017 and contributed a $105 thousand benefit to the tax provision in the second quarter 2017.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Salisbury is currently evaluating the provisions of ASU 2016-13 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments." This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU 2016-15 is not expected to have a material impact on Salisbury’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this ASU are intended to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a screen to determine when a set of inputs, processes, and outputs is not a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present. ASU 2017-01 is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance, or for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities should apply the guidance prospectively on or after the effective date. Salisbury is currently evaluating the provisions of ASU 2017-01 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU is intended to allow companies to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019 and interim periods within those years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Entities should apply the guidance prospectively. Salisbury is currently evaluating the provisions of ASU 2017-04 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU will amend the amortization period for certain purchased callable debt securities held at a premium. The Board is shortening the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for public business entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. Entities should apply the guidance on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Salisbury is currently evaluating the provisions of ASU 2017-08 and does not expect that the adoption of the new standard will have a material impact on Salisbury’s Consolidated Financial Statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU will provide clarity in the accounting guidance regarding a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. Entities should apply the guidance prospectively to an award modified on or after the adoption date. Salisbury is currently evaluating the provisions of ASU 2017-09 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)	Amortized cost basis (1)				Gross un- realized gains				Gross un- realized losses				Fair Value
June 30, 2017
Available-for-sale
Municipal bonds		$	6,528			$	71			$	—			$	6,599
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises			48,866				271				173				48,964
Collateralized mortgage obligations
U.S. Government agencies			8,694				66				1				8,759
Non-agency			2,733				419				8				3,144
SBA bonds			10,488				23				3				10,508
CRA mutual funds			842				—				11				831
Corporate bonds			2,000				45				—				2,045
Preferred stock			7				159				—				166
Total securities available-for-sale		$	80,158			$	1,054			$	196			$	81,016
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	3,452			$	—			$	—			$	3,452

 

(in thousands)	Amortized cost basis (1)				Gross un- realized gains				Gross un- realized losses				Fair Value
December 31, 2016
Available-for-sale
Municipal bonds		$	15,800			$	197			$	1			$	15,996
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises			53,407				229				335				53,301
Collateralized mortgage obligations:
U.S. Government agencies			1,470				4				—				1,474
Non-agency			3,327				414				6				3,735
SBA bonds			2,056				9				1				2,064
CRA mutual funds			834				—				16				818
Corporate bonds			2,000				16				3				2,013
Preferred stock			7				215				—				222
Total securities available-for-sale		$	78,901			$	1,084			$	362			$	79,623
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	3,211			$	—			$	—			$	3,211

 

(1)

Net of other-than-temporary impairment write-downs recognized in earnings.

Salisbury did not sell any available-for-sale securities during the six month period ended June 30, 2017. Salisbury sold $3.6 million of securities available-for-sale during the six month period ended June 30, 2016 realizing a pre-tax gain of $148 thousand and related tax expense of $50 thousand.

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

June 30, 2017 (in thousands)		Less than 12 Months								12 Months or Longer								Total
		Fair value				Unrealized losses				Fair value				Unrealized losses				Fair value				Unrealized losses
Available-for-sale
Mortgage-backed securities		$	15,685			$	109			$	10,615			$	64			$	26,300			$	173
Collateralized mortgage obligations:
Non-agency			2,526				1				286				3				2,812				4
SBA bonds			2,669				3				44				—				2,713				3
CRA funds			831				11				—				—				831				11
Total temporarily impaired securities			21,711				124				10,945				67				32,656				191
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency			120				5				—				—				120				5
Total temporarily impaired and other-than-temporarily impaired securities		$	21,831			$	129			$	10,945			$	67			$	32,776			$	196
December 31, 2016 (in thousands)		Less than 12 Months								12 Months or Longer								Total
		Fair value				Unrealized losses				Fair value				Unrealized losses				Fair value				Unrealized losses
Available-for-sale
Municipal bonds		$	517			$	1			$	—			$	—			$	517			$	1
Mortgage-backed securities			34,758				329				249				6				35,007				335
Collateralized mortgage obligations:
Non-agency			60				—				339				5				399				5
SBA bonds			475				1				—				—				475				1
CRA funds			818				16				—				—				818				16
Corporate bonds			498				3				—				—				498				3
Total temporarily impaired securities			37,126				350				588				11				37,714				361
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency			174				1				—				—				174				1
Total temporarily impaired and other-than-temporarily impaired securities		$	37,300			$	351			$	588			$	11			$	37,888			$	362

 

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

June 30, 2017 (in thousands)		Maturity		Amortized cost				Fair value				Yield(1)
Municipal bonds		Within 1 year		$	257			$	258				4.55	%
		After 1 year but within 5 years			543				547				3.25
		After 10 years but within 15 years			2,661				2,684				4.48
		After 15 years			3,067				3,110				4.51
		Total			6,528				6,599				4.40
Mortgage-backed securities		U.S. Government agency and U.S. Government-sponsored enterprises			48,866				48,964				2.33
Collateralized mortgage obligations		U.S. Government agency and U.S. Government-sponsored enterprises			8,694				8,759				2.64
		Non-agency			2,733				3,144				3.99
SBA bonds					10,488				10,508				2.99
CRA mutual funds					842				831				5.01
Corporate bonds		After 5 years but within 10 years			2,000				2,045				5.50
Preferred stock					7				166				5.48
Securities available-for-sale				$	80,158			$	81,016				2.78	%

(1)       Yield is based on amortized cost.

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 June 30, 2017.

U.S. Government agency mortgage-backed securities: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Therefore, management does not consider the twenty-four securities with unrealized losses at June 30, 2017 to be OTTI.

SBA bonds: The contractual cash flows are guaranteed by the U.S. government. 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. Therefore, management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses on six positions were temporary in nature and does not consider these investments to be other-than temporarily impaired at June 30, 2017.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at June 30, 2017, 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 June 30, 2017. 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.

CRA mutual funds consist of an investment in a fixed income mutual fund ($831 thousand in total fair value and $11 thousand in total unrealized losses as of June 30, 2017). The severity of the impairment (fair value is approximately 1.32% less than cost) and the duration of the impairment correlates with interest rates in 2017. Salisbury evaluated the near-term prospects of this fund in relation to the severity and duration of the impairment.  Based on that evaluation, Salisbury does not consider this investment to be OTTI at June 30, 2017.

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:

Six months ended June 30 (in thousands)			2017				2016
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 June 30, 2017. 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:

		June 30, 2017												December 31, 2016
(In thousands)		Business Activities  Loans				Acquired Loans				Total				Business Activities  Loans				Acquired Loans				Total
Residential 1-4 family		$	300,750			$	5,687			$	306,437			$	295,030			$	6,098			$	301,128
Residential 5+ multifamily			11,472				5,456				16,928				7,976				5,649				13,625
Construction of residential 1-4 family			10,376				—				10,376				10,951				—				10,951
Home equity lines of credit			35,806				—				35,806				35,487				—				35,487
Residential real estate			358,404				11,143				369,547				349,444				11,747				361,191
Commercial			175,469				70,146				245,615				155,628				79,854				235,482
Construction of commercial			5,570				1,724				7,294				3,481				1,917				5,398
Commercial real estate			181,039				71,870				252,909				159,109				81,771				240,880
Farm land			4,453				—				4,453				3,914				—				3,914
Vacant land			6,969				—				6,969				6,600				—				6,600
Real estate secured			550,865				83,013				633,878				519,067				93,518				612,585
Commercial and industrial			110,424				15,222				125,646				121,144				20,329				141,473
Municipal			12,737				—				12,737				8,626				—				8,626
Consumer			4,826				56				4,882				5,312				68				5,380
Loans receivable, gross			678,852				98,291				777,143				654,149				113,915				768,064
Deferred loan origination fees and costs, net			1,200				—				1,200				1,247				—				1,247
Allowance for loan losses			(6,186	)			(307	)			(6,493	)			(5,816	)			(311	)			(6,127	)
Loans receivable, net		$	673,866			$	97,984			$	771,850			$	649,580			$	113,604			$	763,184
Loans held-for-sale
Residential 1-4 family		$	594			$	—			$	594			$	—			$	—			$	—

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut, New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, and installment and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

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
June 30, 2017
Residential 1-4 family		$	291,306			$	6,030			$	3,414			$	—			$	—			$	300,750
Residential 5+ multifamily			9,473				1,841				158				—				—				11,472
Construction of residential 1-4 family			10,376				—				—				—				—				10,376
Home equity lines of credit			34,709				819				278				—				—				35,806
Residential real estate			345,864				8,690				3,850				—				—				358,404
Commercial			165,520				3,675				6,274				—				—				175,469
Construction of commercial			5,458				—				112				—				—				5,570
Commercial real estate			170,978				3,675				6,386				—				—				181,039
Farm land			3,467				—				986				—				—				4,453
Vacant land			6,888				81				—				—				—				6,969
Real estate secured			527,197				12,446				11,222				—				—				550,865
Commercial and industrial			108,798				1,337				289				—				—				110,424
Municipal			12,737				—				—				—				—				12,737
Consumer			4,809				17				—				—				—				4,826
Loans receivable, gross		$	653,541			$	13,800			$	11,511			$	—			$	—			$	678,852

Acquired Loans

(in thousands)		Pass				Special mention				Substandard				Doubtful				Loss				Total
June 30, 2017
Residential 1-4 family		$	5,534			$	105			$	48			$	—			$	—			$	5,687
Residential 5+ multifamily			5,456				—				—				—				—				5,456
Construction of residential 1-4 family			—				—				—				—				—				—
Home equity lines of credit			—				—				—				—				—				—
Residential real estate			10,990				105				48				—				—				11,143
Commercial			63,060				2,539				4,547				—				—				70,146
Construction of commercial			1,466				—				258				—				—				1,724
Commercial real estate			64,526				2,539				4,805				—				—				71,870
Farm land			—				—				—				—				—				—
Vacant land			—				—				—				—				—				—
Real estate secured			75,516				2,644				4,853				—				—				83,013
Commercial and industrial			14,247				915				58				2				—				15,222
Municipal			—				—				—				—				—				—
Consumer			54				2				—				—				—				56
Loans receivable, gross		$	89,817			$	3,561			$	4,911			$	2			$	—			$	98,291

Business Activities Loans

(in thousands)		Pass				Special mention				Substandard				Doubtful				Loss				Total
December 31, 2016
Residential 1-4 family		$	285,939			$	6,170			$	2,832			$	89			$	—			$	295,030
Residential 5+ multifamily			5,907				1,906				163				—				—				7,976
Construction of residential 1-4 family			10,951				—				—				—				—				10,951
Home equity lines credit			34,299				512				676				—				—				35,487
Residential real estate			337,096				8,588				3,671				89				—				349,444
Commercial			145,849				3,759				6,020				—				—				155,628
Construction of commercial			3,366				—				115				—				—				3,481
Commercial real estate			149,215				3,759				6,135				—				—				159,109
Farm land			2,912				—				1,002				—				—				3,914
Vacant land			6,513				87				—				—				—				6,600
Real estate secured			495,736				12,434				10,808				89				—				519,067
Commercial and industrial			118,804				1,734				606				—				—				121,144
Municipal			8,626				—				—				—				—				8,626
Consumer			5,288				24				—				—				—				5,312
Loans receivable, gross		$	628,454			$	14,192			$	11,414			$	89			$	—			$	654,149

 Acquired Loans

(in thousands)		Pass				Special mention				Substandard				Doubtful				Loss				Total
December 31, 2016
Residential 1-4 family		$	5,989			$	109			$	—			$	—			$	—			$	6,098
Residential 5+ multifamily			5,649				—				—				—				—				5,649
Construction of residential 1-4 family			—				—				—				—				—				—
Home equity lines of credit			—				—				—				—				—				—
Residential real estate			11,638				109				—				—				—				11,747
Commercial			70,007				4,059				5,788				—				—				79,854
Construction of commercial			1,659				—				258				—				—				1,917
Commercial real estate			71,666				4,059				6,046				—				—				81,771
Farm land			—				—				—				—				—				—
Vacant land			—				—				—				—				—				—
Real estate secured			83,304				4,168				6,046				—				—				93,518
Commercial and industrial			19,110				1,160				59				—				—				20,329
Municipal			—				—				—				—				—				—
Consumer			65				3				—				—				—				68
Loans receivable, gross		$	102,479			$	5,331			$	6,105			$	—			$	—			$	113,915

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

Business Activities Loans

						Past due
																		180				30				Accruing
(in thousands)		Current				30-59				60-89				90-179				days				days				90 days				Non-
						days				days				days				and				and				and				accrual
																		over				over				over
June 30, 2017
Residential 1-4 family		$	297,988			$	184			$	1,073			$	160			$	1,345			$	2,762			$	89			$	1,934
Residential 5+ multifamily			11,472				—				—				—				—				—				—				158
Construction of residential 1-4 family			10,376				—				—				—				—				—				—				—
Home equity lines of credit			35,562				144				100				—				—				244				—				70
Residential real estate			355,398				328				1,173				160				1,345				3,006				89				2,162
Commercial			173,231				165				280				—				1,793				2,238				—				1,793
Construction of commercial			5,570				—				—				—				—				—				—				—
Commercial real estate			178,801				165				280				—				1,793				2,238				—				1,793
Farm land			3,730				—				—				—				723				723				—				986
Vacant land			6,969				—				—				—				—				—				—				—
Real estate secured			544,898				493				1,453				160				3,861				5,967				89				4,941
Commercial and industrial			110,097				190				—				65				72				327				—				137
Municipal			12,737				—				—				—				—				—				—				—
Consumer			4,823				1				2				—				—				3				—				—
Loans receivable, gross		$	672,555			$	684			$	1,455			$	225			$	3,933			$	6,297			$	89			$	5,078

Acquired Loans

						Past due
																		180				30				Accruing
(in thousands)		Current				30-59				60-89				90-179				days				days				90 days				Non-
						days				days				days				and				and				and				accrual
																		over				over				over
June 30, 2017
Residential 1-4 family		$	5,598			$	89			$	—			$	—			$	—			$	89			$	—			$	—
Residential 5+ multifamily			5,456				—				—				—				—				—				—				—
Construction of residential 1-4 family			—				—				—				—				—				—				—				—
Home equity lines of credit			—				—				—				—				—				—				—				—
Residential real estate			11,054				89				—				—				—				89				—				—
Commercial			67,058				—				720				1,000				1,368				3,088				1,000				1,368
Construction of commercial			1,466				—				—				—				258				258				—				258
Commercial real estate			68,524				—				720				1,000				1,626				3,346				1,000				1,626
Farm land			—				—				—				—				—				—				—				—
Vacant land			—				—				—				—				—				—				—				—
Real estate secured			79,578				89				720				1,000				1,626				3,435				1,000				1,626
Commercial and industrial			15,110				70				—				41				1				112				42				—
Municipal			—				—				—				—				—				—				—				—
Consumer			56				—				—				—				—				—				—				—
Loans receivable, gross		$	94,744			$	159			$	720			$	1,041			$	1,627			$	3,547			$	1,042			$	1,626

Business Activities Loans

						Past due
																		180				30				Accruing
(in thousands)		Current				30-59				60-89				90-179				days				days				90 days				Non-
						days				days				days				and				and				and				accrual
																		over				over				over
December 31, 2016
Residential 1-4 family		$	291,941			$	1,161			$	213			$	327			$	1,388			$	3,089			$	236			$	1,920
Residential 5+ multifamily			7,976				—				—				—				—				—				—				163
Construction of residential 1-4 family			10,951				—				—				—				—				—				—				—
Home equity lines of credit			35,190				155				88				—				54				297				—				519
Residential real estate			346,058				1,316				301				327				1,442				3,386				236				2,602
Commercial			152,905				451				250				1,793				229				2,723				—				2,022
Construction of commercial			3,481				—				—				—				—				—				—				—
Commercial real estate			156,386				451				250				1,793				229				2,723				—				2,022
Farm land			2,402				789				—				—				723				1,512				—				1,002
Vacant land			6,575				25				—				—				—				25				—				—
Real estate secured			511,421				2,581				551				2,120				2,394				7,646				236				5,626
Commercial and industrial			120,719				140				239				46				—				425				20				27
Municipal			8,626				—				—				—				—				—				—				—
Consumer			5,268				26				15				3				—				44				—				4
Loans receivable, gross		$	646,034			$	2,747			$	805			$	2,169			$	2,394			$	8,115			$	256			$	5,657

Acquired Loans

						Past due
																		180				30				Accruing
(in thousands)		Current				30-59				60-89				90-179				days				days				90 days				Non-
						days				days				days				and				and				and				accrual
																		over				over				over
December 31, 2016
Residential 1-4 family		$	5,954			$	144			$	—			$	—			$	—			$	144			$	—			$	—
Residential 5+ multifamily			5,649				—				—				—				—				—				—				—
Construction of residential 1-4 family			—				—				—				—				—				—				—				—
Home equity lines of credit			—				—				—				—				—				—				—				—
Residential real estate			11,603				144				—				—				—				144				—				—
Commercial			76,471				762				—				346				2,275				3,383				—				2,621
Construction of commercial			1,659				—				—				—				258				258				—				258
Commercial real estate			78,130				762				—				346				2,533				3,641				—				2,879
Farm land			—				—				—				—				—				—				—				—
Vacant land			—				—				—				—				—				—				—				—
Real estate secured			89,733				906				—				346				2,533				3,785				—				2,879
Commercial and industrial			19,904				425				—				—				—				425				—				—
Municipal			—				—				—				—				—				—				—				—
Consumer			68				—				—				—				—				—				—				—
Loans receivable, gross		$	109,705			$	1,331			$	—			$	346			$	2,533			$	4,210			$	—			$	2,879

Interest on non-accrual loans that would have been recorded as additional interest income for the six months ended June 30, 2017 and 2016 had the loans been current in accordance with their original terms totaled $452 thousand and $578 thousand, respectively.

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

Business Activities Loans

		Six months ended
		June 30, 2017												June 30, 2016
(in thousands)		Quantity				Pre- modification balance				Post- modification balance				Quantity				Pre- modification balance				Post- modification balance
Residential real estate			—			$	—			$	—				3			$	316			$	316
Commercial real estate			1				600				600				1				1,863				1,863
Troubled debt restructurings			1			$	600			$	600				4			$	2,179			$	2,179
Rate reduction and term extension			—			$	—			$	—				2			$	262			$	262
Debt consolidation			—				—				—				1				1,863				1,863
Term extension			1				600				600				1				54				54
Troubled debt restructurings			1			$	600			$	600				4			$	2,179			$	2,179

No acquired loans have been modified as a troubled debt restructure during the six months ended June 30, 2017 or June 30, 2016.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

		Business Activities Loans																				Acquired Loans
(in thousands)		Three months ended June 30, 2017																				Three months ended June 30, 2017
		Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance				Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance
Residential		$	2,482			$	(94	)		$	(37	)		$	2			$	2,353			$	—			$	—			$	—			$	—			$	—
Commercial			1,752				347				—				—				2,099				271				13				—				1				285
Land			189				(35	)			—				—				154				—				—				—				—				—
Real estate			4,423				218				(37	)			2				4,606				271				13				—				1				285
Commercial and industrial			866				162				(56	)			7				979				48				33				(64	)			5				22
Municipal			55				(37	)			—				—				18				—				—				—				—				—
Consumer			92				(9	)			(15	)			1				69				—				—				—				—				—
Unallocated			530				(16	)			—				—				514				—				—				—				—				—
Totals		$	5,966			$	318			$	(108	)		$	10			$	6,186			$	319			$	46			$	(64	)		$	6			$	307

 

		Business Activities Loans																				Acquired Loans
(in thousands)		Six months ended June 30, 2017																				Six months ended June 30, 2017
		Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance				Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance
Residential		$	2,427			$	2			$	(80	)		$	4			$	2,353			$	—			$	—			$	—			$	—			$	—
Commercial			1,683				454				(38	)			—				2,099				275				131				(150	)			29				285
Land			198				(29	)			(15	)			—				154				—				—				—				—				—
Real estate			4,308				427				(133	)			4				4,606				275				131				(150	)			29				285
Commercial and industrial			1,043				(56	)			(57	)			49				979				36				41				(64	)			9				22
Municipal			53				(35	)			—				—				18				—				—				—				—				—
Consumer			75				31				(46	)			9				69				—				—				—				—				—
Unallocated			337				177				—				—				514				—				—				—				—				—
Totals		$	5,816			$	544			$	(236	)		$	62			$	6,186			$	311			$	172			$	(214	)		$	38			$	307

 

		Business Activities Loans																				Acquired Loans
(in thousands)		Three months ended June 30, 2016																				Three months ended June 30, 2016
		Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance				Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance
Residential		$	2,458			$	59			$	(287	)		$	18			$	2,248			$	69			$	—			$	—			$	—				69
Commercial			1,585				149				—				—				1,734				94				40				(1	)			1				134
Land			164				25				(23	)			—				166				—				—				—				—				—
Real estate			4,207				233				(310	)			18				4,148				163				40				(1	)			1				203
Commercial and industrial			781				60				—				10				851				141				299				(414	)			11				37
Municipal			59				(3	)			—				—				56				—				—				—				—				—
Consumer			114				(26	)			(7	)			8				89				—				—				—				—				—
Unallocated			412				(78	)			—				—				334				—				—				—				—				—
Totals		$	5,573			$	186			$	(317	)		$	36			$	5,478			$	304			$	339			$	(415	)		$	12			$	240
		Business Activities Loans																				Acquired Loans
(in thousands)		Six months ended June 30, 2016																				Six months ended June 30, 2016
		Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance				Beginning balance				Provision				Charge- offs				Reco- veries				Ending balance
Residential		$	2,477			$	146			$	(394	)		$	19			$	2,248			$	79			$	(10	)		$	—			$	—			$	69
Commercial			1,466				302				(35	)			1				1,734				132				96				(98	)			4				134
Land			188