Edgar Filing: SALISBURY BANCORP INC

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑

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

For the quarterly period ended March 31, 2017

☐

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

FOR THE TRANSITION PERIOD FROM ________ TO ________

Commission file number 0-24751

SALISBURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Connecticut		06-1514263
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

5 Bissell Street, Lakeville, CT		06039
(Address of principal executive offices)		(Zip code)

(860) 435-9801

(Registrant's telephone number, including area code)

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

Yes ☑ No ☐

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

Yes ☑ No ☐

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

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

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

Yes ☐ No ☑

The number of shares of Common Stock outstanding as of May 15, 2017 is 2,782,842.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2017 (unaudited) and DECEMBER 31, 2016	3
	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016 (unaudited)	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016 (unaudited)	5
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016 ( unaudited)	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 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	33
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

(dollars in thousands, except share value)	March 31, 2017			December 31, 2016
ASSETS		(unaudited)
Cash and due from banks	$	6,376		$	5,434
Interest bearing demand deposits with other banks		34,916			30,051
Total cash and cash equivalents		41,292			35,485
Securities
Available-for-sale at fair value		76,849			79,623
Federal Home Loan Bank of Boston stock at cost		3,510			3,211
Loans held-for-sale		53			—
Loans receivable, net (allowance for loan losses: $6,285 and $6,127)		764,665			763,184
Other real estate owned		3,833			3,773
Bank premises and equipment, net		14,574			14,398
Goodwill		12,552			12,552
Intangible assets (net of accumulated amortization: $3,638 and $3,511)		1,611			1,737
Accrued interest receivable		2,431			2,424
Cash surrender value of life insurance policies		14,126			14,038
Deferred taxes		1,361			1,367
Other assets		2,692			3,574
Total Assets	$	939,549		$	935,366
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing)	$	201,215		$	218,420
Demand (interest bearing)		132,527			127,854
Money market		182,438			182,476
Savings and other		141,085			135,435
Certificates of deposit		115,151			117,585
Total deposits		772,416			781,770
Repurchase agreements		2,350			5,535
Federal Home Loan Bank of Boston advances		52,745			37,188
Subordinated debt		9,794			9,788
Note payable		335			344
Capital lease liability		417			418
Accrued interest and other liabilities		6,271			6,316
Total Liabilities		844,328			841,359
Shareholders' Equity
Common stock - $0.10 per share par value
Authorized: 5,000,000;
Issued: 2,770,036 and 2,758,086		277			276
Paid-in capital		42,394			42,085
Retained earnings		52,351			51,521
Unearned compensation - restricted stock awards		(288	)		(352	)
Accumulated other comprehensive income, net		487			477
Total Shareholders' Equity		95,221			94,007
Total Liabilities and Shareholders' Equity	$	939,549		$	935,366

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three months ended March 31, (in thousands except per share amounts)		2017		2016
Interest and dividend income
Interest and fees on loans	$	8,342	$	7,930
Interest on debt securities
Taxable		317		293
Tax exempt		164		286
Other interest and dividends		83		74
Total interest and dividend income		8,906		8,583
Interest expense
Deposits		515		509
Repurchase agreements		1		1
Capital lease		17		17
Note payable		2		5
Subordinated debt		156		156
Federal Home Loan Bank of Boston advances		262		231
Total interest expense		953		919
Net interest and dividend income		7,953		7,664
Provision for loan losses		352		463
Net interest and dividend income after provision for loan losses		7,601		7,201
Non-interest income
Trust and wealth advisory		854		784
Service charges and fees		962		702
Gains on sales of mortgage loans, net		49		39
Mortgage servicing, net		45		34
Gains on sales and calls of available-for-sale securities, net		—		2
Other		113		114
Total non-interest income		2,023		1,675
Non-interest expense
Salaries		2,890		2,573
Employee benefits		1,088		1,088
Premises and equipment		895		892
Data processing		472		447
Professional fees		717		380
Collections and other real estate owned		301		186
FDIC insurance		149		134
Marketing and community support		251		201
Amortization of core deposit intangibles		126		155
Other		538		781
Total non-interest expense		7,427		6,837
Income before income taxes		2,197		2,039
Income tax provision		593		527
Net income	$	1,604	$	1,512
Net income allocated to common stock	$	1,594	$	1,499

Basic earnings per common share	$	0.58	$	0.55
Weighted average common shares outstanding, to calculate basic earnings per share		2,749		2,723
Diluted earnings per common share	$	0.58	$	0.55
Weighted average common shares outstanding, to calculate diluted earnings per share		2,768		2,741
Common dividends per share	$	0.28	$	0.28

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three months ended March 31, (in thousands)		2017			2016
Net income	$	1,604		$	1,512
Other comprehensive income (loss)
Net unrealized gains (losses) on securities available-for-sale		16			(68	)
Reclassification of net realized gains (losses) in net income⁽¹⁾		—			(2	)
Unrealized gains (losses) on securities available-for-sale		16			(70	)
Income tax (expense) benefit		(6	)		24
Unrealized gains (losses) on securities available-for-sale, net of tax		10			(46	)
Comprehensive income	$	1,614		$	1,466

^{(1)
Reclassification adjustments include realized security gains and losses. The gains and losses have been reclassified out of accumulated
other comprehensive income (loss) and have affected certain lines in the consolidated statements of income as follows: The pre-tax
amount is reflected as gains on sales and calls of available-for-sale securities, net, the tax effect is included in the income
tax provision and the after tax amount is included in net income.}

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

(dollars in thousands)	Common Stock					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		—			—		—			1,512			—			—			1,512
Other comprehensive loss, net of tax		—			—		—			—			—			(46	)		(46	)
Common stock dividends declared		—			—		—			(772	)		—			—			(772	)
Stock options exercised		4,050			—		87			—			—			—			87
Issuance of restricted stock awards		15,800			2		464			—			(466	)		—			—
Stock based compensation-restricted stock awards		—			—		—			—			47			—			47
Balances at March 31, 2016		2,753,426		$	275	$	41,915		$	48,662		$	(529	)	$	1,079		$	91,402
Balances at December 31, 2016		2,758,086		$	276	$	42,085		$	51,521		$	(352	)	$	477		$	94,007
Net income		—			—		—			1,604			—			—			1,604
Other comprehensive loss, net of tax		—			—		—			—			—			10			10
Common stock dividends declared		—			—		—			(774	)		—			—			(774	)
Stock options exercised		12,150			1		312			—			—			—			313
Forfeiture of restricted stock awards		(200	)		—		(3	)		—			3			—			—
Stock based compensation-restricted stock awards		—			—		—			—			61			—			61
Balances at March 31, 2017		2,770,036		$	277	$	42,394		$	52,351		$	(288	)	$	487		$	95,221

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three months ended March 31, (in thousands)		2017			2016
Operating Activities
Net income	$	1,604		$	1,512
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion), amortization and depreciation:
Securities		42			60
Bank premises and equipment		327			306
Core deposit intangible		126			155
Modification fees on Federal Home Loan Bank of Boston advances		57			58
Subordinated debt issuance costs		6			6
Mortgage servicing rights		68			51
Fair value adjustment on loans		(495	)		(586	)
Fair value adjustment on deposits		(24	)		(38	)
(Gains) and losses, including write-downs
Gain on sales and calls of securities available-for-sale, net		—			(2	)
Gain on sales of loans, excluding capitalized servicing rights		(36	)		(19	)
Write-downs of other real estate owned		144			—
Loss on sale/disposals of premises and equipment		—			13
Provision for loan losses		352			463
Proceeds from loans sold		1,881			1,787
Loans originated for sale		(1,898	)		(1,188	)
Decrease (increase) in deferred loan origination fees and costs, net		152			(44	)
Mortgage servicing rights originated		(25	)		(20	)
Increase in mortgage servicing rights impairment reserve		2			20
Increase in interest receivable		(7	)		(144	)
(Increase) decrease in prepaid expenses		(269	)		47
Increase in cash surrender value of life insurance policies		(88	)		(90	)
Decrease in income tax receivable		293			506
Decrease in other assets		813			125
Decrease in accrued expenses		(130	)		(113	)
Increase (decrease) in interest payable		149			(30	)
(Decrease) increase in other liabilities		(64	)		51
Stock based compensation-restricted stock awards		61			47
Net cash provided by operating activities		3,041			2,933
Investing Activities
(Purchase) redemption of Federal Home Loan Bank of Boston stock		(299	)		59
Purchases of securities available-for-sale		(5,016	)		(10,072	)
Proceeds from calls of securities available-for-sale		2,990			5,351
Proceeds from maturities of securities available-for-sale		4,774			2,253
Loan originations and principal collections, net		(1,777	)		(29,674	)
Recoveries of loans previously charged off		83			14
Capital expenditures		(503	)		(644	)
Net cash provided (utilized) by investing activities		252			(32,713	)

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

Three months ended March 31, (in thousands)		2017			2016
Financing Activities
(Decrease) increase in deposit transaction accounts, net		(6,920	)		3,330
Decrease in time deposits, net		(2,410	)		(2,167	)
Decrease in securities sold under agreements to repurchase, net		(3,185	)		(1,294	)
Federal Home Loan Bank of Boston advances		15,500			—
Principal payments on Federal Home Loan Bank of Boston advances		—			(6	)
Principal payments on note payable		(9	)		(11	)
Decrease in capital lease obligation		(1	)		(2	)
Stock options exercised		313			87
Common stock dividends paid		(774	)		(772	)
Net cash provided (utilized) by financing activities		2,514			(835	)
Net increase (decrease) in cash and cash equivalents		5,807			(30,615	)
Cash and cash equivalents, beginning of period		35,485			62,118
Cash and cash equivalents, end of period	$	41,292		$	31,503
Cash paid during period
Interest	$	765		$	760
Income taxes		300			258
Non-cash investing and financing activities
Transfer from loans to other real estate owned		204			—

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 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. 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 statement of condition, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, expected cash flows from loans acquired in a business combination, other-than-temporary impairment of securities and impairment of goodwill and intangibles.

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended March 31, 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. 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. Adoption of ASU 2016-09 did not have a material effect on the financial results for the first quarter of 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 October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." This ASU is intended to simplify and improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the revised guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been issued or made available for issuance. Entities will be required to apply 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 2016-16 to determine the potential impact the new standard will have 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 input, 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 February 2017, the FASB issued ASU 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).” This ASU is intended to clarify the scope of Subtopic 610-20 and to add guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for public entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Entities may apply the guidance either retrospectively or modified retrospectively. Salisbury is currently evaluating the provisions of ASU 2017-05 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU is intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost and provide additional guidance on the presentation of net benefit cost in the income statement and on the components eligible for capitalization in assets. The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments require that an employer disaggregate the service cost component from the other components of net benefit cost. ASU 2017-07 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 as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Entities should apply the guidance retrospectively. Salisbury is currently evaluating the provisions of ASU 2017-07 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 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
March 31, 2017
Available-for-sale
Municipal bonds		$	12,816		$	137		$	—		$	12,953
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises			49,217			221			229			49,209
Collateralized mortgage obligations:
U.S. Government agencies			6,360			3			—			6,363
Non-agency			2,997			419			9			3,407
SBA bonds			1,876			7			1			1,882
CRA mutual funds			838			—			16			822
Corporate bonds			2,000			41			—			2,041
Preferred stock			7			165			—			172
Total securities available-for-sale		$	76,111		$	993		$	255		$	76,849
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	3,510		$	—		$	—		$	3,510
(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 three month periods ended March 31, 2017 and March 31, 2016.

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

March 31, 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	$	30,690	$	223	$	246	$	6	$	30,936	$	229
Collateralized mortgage obligations:
Non-agency		44		5		305		4		349		9
SBA bonds		348		1		74		—		422		1
CRA funds		822		16		—		—		822		16
Total temporarily impaired securities	$	31,904	$	245	$	625	$	10	$	32,529	$	255

At March 31, 2017 there were no other than temporarily impaired securities with unrealized losses.

	Less than 12 Months				12 Months or Longer				Total
December 31, 2016 (in thousands)	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 mutual 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:

March 31, 2017 (in thousands)	Maturity	Amortized cost		Fair value		Yield(1)
Municipal bonds	Within 1 year	$	75	$	75		4.92	%
	After 1 year but within 5 years		869		873		5.48
	After 10 years but within 15 years		4,478		4,522		6.64
	After 15 years		7,394		7,483		6.73
	Total		12,816		12,953		6.61
Mortgage-backed securities	U.S. Government agency and U.S. Government-sponsored enterprises		49,217		49,209		2.35
Collateralized mortgage obligations	U.S. Government agency and U.S. Government-sponsored enterprises		6,360		6,363		2.64
	Non-agency		2,997		3,407		4.04
SBA bonds			1,876		1,882		3.48
CRA mutual funds			838		822		4.51
Corporate bonds	After 5 years but within 10 years		2,000		2,041		5.50
Preferred stock			7		172		0.00
Securities available-for-sale		$	76,111	$	76,849		3.29	%

(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 March 31, 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 securities with unrealized losses at March 31, 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 two positions were temporary in nature and does not consider these investments to be other-than temporarily impaired at March 31, 2017.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at March 31, 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 March 31, 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 ($822 thousand in total fair value and $16 thousand in total unrealized losses as of March 31, 2017). The severity of the impairment (fair value is approximately 1.91% 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 March 31, 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:

Three months ended March 31 (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 March 31, 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:

	March 31, 2017									December 31, 2016
(In thousands)	Business Activities Loans			Acquired Loans			Total			Business Activities Loans			Acquired Loans			Total
Residential 1-4 family	$	297,111		$	6,016		$	303,127		$	295,030		$	6,098		$	301,128
Residential 5+ multifamily		9,938			5,526			15,464			7,976			5,649			13,625
Construction of residential 1-4 family		10,990			—			10,990			10,951			—			10,951
Home equity lines of credit		35,033			—			35,033			35,487			—			35,487
Residential real estate		353,072			11,542			364,614			349,444			11,747			361,191
Commercial		176,318			72,308			248,626			155,628			79,854			235,482
Construction of commercial		4,352			1,857			6,209			3,481			1,917			5,398
Commercial real estate		180,670			74,165			254,835			159,109			81,771			240,880
Farm land		4,599			—			4,599			3,914			—			3,914
Vacant land		6,567			—			6,567			6,600			—			6,600
Real estate secured		544,908			85,707			630,615			519,067			93,518			612,585
Commercial and industrial		107,491			17,869			125,360			121,144			20,329			141,473
Municipal		8,737			—			8,737			8,626			—			8,626
Consumer		5,080			63			5,143			5,312			68			5,380
Loans receivable, gross		666,216			103,639			769,855			654,149			113,915			768,064
Deferred loan origination fees and costs, net		1,095			—			1,095			1,247			—			1,247
Allowance for loan losses		(5,966	)		(319	)		(6,285	)		(5,816	)		(311	)		(6,127	)
Loans receivable, net	$	661,345		$	103,320		$	764,665		$	649,580		$	113,604		$	763,184
Loans held-for-sale
Residential 1-4 family	$	53		$	—		$	53		$	—		$	—		$	—

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
March 31, 2017
Residential 1-4 family	$	288,103	$	6,112	$	2,896	$	—	$	—	$	297,111
Residential 5+ multifamily		7,928		1,849		161		—		—		9,938
Construction of residential 1-4 family		10,990		—		—		—		—		10,990
Home equity lines of credit		33,938		852		243		—		—		35,033
Residential real estate		340,959		8,813		3,300		—		—		353,072
Commercial		166,867		3,720		5,731		—		—		176,318
Construction of commercial		4,239		—		113		—		—		4,352
Commercial real estate		171,106		3,720		5,844		—		—		180,670
Farm land		3,605		—		994		—		—		4,599
Vacant land		6,484		83		—		—		—		6,567
Real estate secured		522,154		12,616		10,138		—		—		544,908
Commercial and industrial		106,007		1,286		198		—		—		107,491
Municipal		8,737		—		—		—		—		8,737
Consumer		5,060		20		—		—		—		5,080
Loans receivable, gross	$	641,958	$	13,922	$	10,336	$	—	$	—	$	666,216

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
March 31, 2017
Residential 1-4 family	$	5,909	$	107	$	—	$	—	$	—	$	6,016
Residential 5+ multifamily		5,526		—		—		—		—		5,526
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		11,435		107		—		—		—		11,542
Commercial		64,985		2,590		4,733		—		—		72,308
Construction of commercial		1,598		—		259		—		—		1,857
Commercial real estate		66,583		2,590		4,992		—		—		74,165
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		78,018		2,697		4,992		—		—		85,707
Commercial and industrial		16,823		987		59		—		—		17,869
Municipal		—		—		—		—		—		—
Consumer		61		2		—		—		—		63
Loans receivable, gross	$	94,902	$	3,686	$	5,051	$	—	$	—	$	103,639

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 of 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
March 31, 2017
Residential 1-4 family	$	291,506	$	3,624	$	519	$	—	$	1,462	$	5,605	$	—	$	2,138
Residential 5+ multifamily		9,814		124		—		—		—		124		—		161
Construction of residential 1-4 family		10,990		—		—		—		—		—		—		—
Home equity lines of credit		34,418		421		181		13		—		615		—		87
Residential real estate		346,728		4,169		700		13		1,462		6,344		—		2,386
Commercial		173,684		497		344		—		1,793		2,634		—		1,793
Construction of commercial		4,352		—		—		—		—		—		—		—
Commercial real estate		178,036		497		344		—		1,793		2,634		—		1,793
Farm land		3,866		10		—		—		723		733		—		994
Vacant land		6,522		45		—		—		—		45		—		—
Real estate secured		535,152		4,721		1,044		13		3,978		9,756		—		5,173
Commercial and industrial		106,963		129		343		30		26		528		30		26
Municipal		8,737		—		—		—		—		—		—		—
Consumer		5,057		16		7		—		—		23		—		4
Loans receivable, gross	$	655,909	$	4,866	$	1,394	$	43	$	4,004	$	10,307	$	30	$	5,203

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
March 31, 2017
Residential 1-4 family	$	5,920	$	47	$	49	$	—	$	—	$	96	$	—	$	—
Residential 5+ multifamily		5,526		—		—		—		—		—		—		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		11,446		47		49		—		—		96		—		—
Commercial		66,214		2,349		2,179		—		1,566		6,094		—		1,566
Construction of commercial		1,493		106		—				258		364		—		258
Commercial real estate		67,707		2,455		2,179		—		1,824		6,458		—		1,824
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		79,153		2,502		2,228		—		1,824		6,554		—		1,824
Commercial and industrial		16,911		958		—		—		—		958		—		—
Municipal		—		—		—		—		—		—		—		—
Consumer		63		—		—		—		—		—		—		—
Loans receivable, gross	$	96,127	$	3,460	$	2,228	$	—	$	1,824	$	7,512	$	—	$	1,824

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
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 quarters ended March 31, 2017 and 2016 had the loans been current in accordance with their original terms totaled $117 thousand and $365 thousand, respectively.

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

Business Activities Loans

	March 31, 2017						March 31, 2016
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		—	$	—	$	—		1	$	89	$	89
Commercial real estate		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Troubled debt restructurings		—	$	—	$	—		1	$	89	$	89
Refinance		—	$	—	$	—		1	$	89	$	89
Rate reduction and term extension		—		—		—		—		—		—
Debt consolidation and term extension		—		—		—		—		—		—
Debt consolidation, rate reduction, term extension and note bifurcation		—		—		—		—		—		—
Term extension		—		—		—		—		—		—
Troubled debt restructurings		—	$	—	$	—		1	$	89	$	89

No acquired loans have been modified as a troubled debt restructure during the first quarter of March 31, 2017.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended March 31, 2017												Three months ended March 31, 2017
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision		Charge- offs			Reco- veries		Ending balance
Residential	$	2,427	$	96		$	(43	)	$	2	$	2,482	$	—	$	—	$	—		$	—	$	—
Commercial		1,683		107			(38	)		—		1,752		275		118		(150	)		28		271
Land		198		6			(15	)		—		189		—		—		—			—		—
Real estate		4,308		209			(96	)		2		4,423		275		118		(150	)		28		271
Commercial and industrial		1,043		(217	)		(1	)		41		866		36		8		—			4		48
Municipal		53		2			—			—		55		—		—		—			—		—
Consumer		75		39			(30	)		8		92		—		—		—			—		—
Unallocated		337		193			—			—		530		—		—		—			—		—
Totals	$	5,816	$	226		$	(127	)	$	51	$	5,966	$	311	$	126	$	(150	)	$	32	$	319

	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended March 31, 2016												Three months ended March 31, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,477	$	86		$	(106	)	$	1	$	2,458	$	79	$	(10	)	$	—		$	—	$	69
Commercial		1,466		154			(36	)		1		1,585		132		56			(96	)		2		94
Land		188		(1	)		(23	)		—		164		—		—			—			—		—
Real estate		4,131		239			(165	)		2		4,207		211		46			(96	)		2		163
Commercial and industrial		683		125			(31	)		4		781		24		114			(1	)		4		141
Municipal		61		(2	)		—			—		59		—		—			—			—		—
Consumer		124		11			(23	)		2		114		—		—			—			—		—
Unallocated		482		(70	)		—			—		412		—		—			—			—		—
Totals	$	5,481	$	303		$	(219	)	$	8	$	5,573	$	235	$	160		$	(97	)	$	6	$	304

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

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2017
Residential 1-4 family	$	291,788	$	1,857	$	5,323	$	134	$	297,111	$	1,991
Residential 5+ multifamily		8,171		78		1,767		6		9,938		84
Construction of residential 1-4 family		10,990		77		—		—		10,990		77
Home equity lines of credit		34,833		329		200		1		35,033		330
Residential real estate		345,782		2,341		7,290		141		353,072		2,482
Commercial		172,875		1,692		3,443		29		176,318		1,721
Construction of commercial		4,239		31		113		—		4,352		31
Commercial real estate		177,114		1,723		3,556		29		180,670		1,752
Farm land		3,605		39		994		—		4,599		39
Vacant land		6,360		146		207		4		6,567		150
Real estate secured		532,861		4,249		12,047		174		544,908		4,423
Commercial and industrial		107,410		866		81		—		107,491		866
Municipal		8,737		55		—		—		8,737		55
Consumer		5,076		92		4		—		5,080		92
Unallocated allowance		—		530		—		—		—		530
Totals	$	654,084	$	5,792	$	12,132	$	174	$	666,216	$	5,966

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2017
Residential 1-4 family	$	6,016	$	—	$	—	$	—	$	—	$	—	$	6,016	$	—
Residential 5+ multifamily		5,526		—		—		—		—		—		5,526		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		11,542		—		—		—		—		—		11,542		—
Commercial		66,112		23		2,340		193		3,856		53		72,308		269
Construction of commercial		1,599		2		258		—		—		—		1,857		2
Commercial real estate		67,711		25		2,598		193		3,856		53		74,165		271
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		79,253		25		2,598		193		3,856		53		85,707		271
Commercial and industrial		17,736		14		—		—		133		34		17,869		48
Municipal		—		—		—		—		—		—		—		—
Consumer		48		—		—		—		15		—		63		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	97,037	$	39	$	2,598	$	193	$	4,004	$	87	$	103,639	$	319

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2016
Residential 1-4 family	$	289,900	$	1,797	$	5,130	$	129	$	295,030	$	1,926
Residential 5+ multifamily		6,153		56		1,823		6		7,976		62
Construction of residential 1-4 family		10,951		91		—		—		10,951		91
Home equity lines of credit		34,854		326		633		22		35,487		348
Residential real estate		341,858		2,270		7,586		157		349,444		2,427
Commercial		151,940		1,587		3,688		60		155,628		1,647
Construction of commercial		3,366		36		115		—		3,481		36
Commercial real estate		155,306		1,623		3,803		60		159,109		1,683
Farm land		2,912		28		1,002		—		3,914		28
Vacant land		6,390		166		210		4		6,600		170
Real estate secured		506,466		4,087		12,601		221		519,067		4,308
Commercial and industrial		121,060		1,043		84		—		121,144		1,043
Municipal		8,626		53		—		—		8,626		53
Consumer		5,309		75		3		—		5,312		75
Unallocated allowance		—		337		—		—		—		337
Totals	$	641,461	$	5,595	$	12,688	$	221	$	654,149	$	5,816

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2016
Residential 1-4 family	$	6,098	$	—	$	—	$	—	$	—	$	—	$	6,098	$	—
Residential 5+ multifamily		5,649		—		—		—		—		—		5,649		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		11,747		—		—		—		—		—		11,747		—
Commercial		72,569		22		3,388		191		3,897		59		79,854		272
Construction of commercial		1,659		3		258		—		—		—		1,917		3
Commercial real estate		74,228		25		3,646		191		3,897		59		81,771		275
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		85,975		25		3,646		191		3,897		59		93,518		275
Commercial and industrial		20,020		16		—		—		309		20		20,329		36
Municipal		—		—		—		—		—		—		—		—
Consumer		52		—		—		—		16		—		68		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	106,047	$	41	$	3,646	$	191	$	4,222	$	79	$	113,915	$	311

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

Business Activities Loans

March 31, 2017 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	649,738	$	5,088	$	—	$	—	$	649,738	$	5,088
Potential problem loans		4,346		174		—		—		4,346		174
Impaired loans		—		—		12,132		174		12,132		174
Unallocated allowance		—		530		—		—		—		530
Totals	$	654,084	$	5,792	$	12,132	$	174	$	666,216	$	5,966

Acquired Loans

March 31, 2017 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	98,588	$	51	$	—	$	—	$	98,588	$	51
Potential problem loans		2,453		75		—		—		2,453		75
Impaired loans		—		—		2,598		193		2,598		193
Unallocated allowance		—		—		—		—		—		—
Totals	$	101,041	$	126	$	2,598	$	193	$	103,639	$	319

Business Activities Loans

December 31, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	636,645	$	5,062	$	—	$	—	$	636,645	$	5,062
Potential problem loans		4,816		196		—		—		4,816		196
Impaired loans		—		—		12,688		221		12,688		221
Unallocated allowance		—		337		—		—		—		337
Totals	$	641,461	$	5,595	$	12,688	$	221	$	654,149	$	5,816

Acquired Loans

December 31, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	107,810	$	55	$	—	$	—	$	107,810	$	55
Potential problem loans		2,459		65		—		—		2,459		65
Impaired loans		—		—		3,646		191		3,646		191
Unallocated allowance		—		—		—		—		—		—
Totals	$	110,269	$	120	$	3,646	$	191	$	113,915	$	311

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

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
March 31, 2017
Residential	$	3,450	$	3,608	$	3,493	$	140	$	34	$	3,640	$	3,965	$	3,594	$	37
Home equity lines of credit		48		47		137		1		1		152		182		214		1
Residential real estate		3,498		3,655		3,630		141		35		3,792		4,147		3,808		38
Commercial		987		1,028		2,506		29		16		2,456		2,935		1,113		15
Construction of commercial		—		—		—		—		—		113		120		114		2
Farm land		—		—		—		—		—		994		1,153		976		—
Vacant land		45		45		45		4		1		162		186		163		4
Real estate secured		4,530		4,728		6,181		174		52		7,517		8,541		6,174		59
Commercial and industrial		—		—		—		—		—		81		104		129		1
Consumer		—		—		—		—		—		4		7		4		—
Totals	$	4,530	$	4,728	$	6,181	$	174	$	52	$	7,602	$	8,652	$	6,307	$	60

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
March 31, 2017
Residential	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		—		—		—		—		—		—		—		—		—
Commercial		1,035		1,387		1,206		193		24		1,305		1,903		1,755		25
Construction of commercial		—		—		—		—		—		258		272		258		—
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,035		1,387		1,206		193		24		1,563		2,175		2,013		25
Commercial and industrial		—		—		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,035	$	1,387	$	1,206	$	193	$	24	$	1,563	$	2,175	$	2,013	$	25

(1) The table above reflects the book, note and specific allowance as of March 31, 2017, while the average balances and income recognized are for the three months ended March 31, 2017.

Business Activities Loans

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

Acquired Loans

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

(1) The table above reflects the book, note and specific allowance as of March 31, 2016, while the average balances and income recognized are for the three months ended March 31, 2016.

As of March 31,2017 and December 31,2016 the recorded investment in residential mortgage loans collateralized by real estate that were in the process of foreclosure was $1.0 million and $2.1 million, respectively. At March 31, 2017 and December 31, 2016, the carrying amount of foreclosed residential real estate held as a result of obtaining physical possession amounted to $3.5 million and $3.6 million respectively.

NOTE 4 - MORTGAGE SERVICING RIGHTS

(in thousands)		March 31, 2017		December 31, 2016
Residential mortgage loans serviced for others	$	123,925	$	125,243
Fair value of mortgage servicing rights		810		902

Changes in mortgage servicing rights are as follows:

Three months ended March 31, (in thousands)		2017			2016
Mortgage Servicing Rights
Balance, beginning of period	$	339		$	486
Originated		25			20
Amortization (1)		(68	)		(51)
Balance, end of period	$	296		$	455
Valuation Allowance
Balance, beginning of period	$	(23	)	$	(3	)
Increase in impairment reserve (1)		(2	)		(20	)
Balance, end of period		(25	)		(23	)
Mortgage servicing rights, net	$	271		$	432

(1)

Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net, in the consolidated statements of income.

NOTE 5 - PLEDGED ASSETS

(in thousands)		March 31, 2017		December 31, 2016
Securities available-for-sale (at fair value)	$	63,904	$	63,833
Loans receivable		137,500		137,117
Total pledged assets	$	201,404	$	200,950

At March 31, 2017, securities were pledged as follows: $58.4 million to secure public deposits, $5.5 million to secure repurchase agreements and $0.1 million to secure FHLBB advances. Additionally, loans receivable were pledged to secure FHLBB advances and credit facilities.

NOTE 6 – EARNINGS PER SHARE

The Company 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 shareholders 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 ended March 31, (in thousands, except per share data)		2017			2016
Net income	$	1,604		$	1,512
Less: Undistributed earnings allocated to participating securities		(10	)		(13	)
Net income allocated to common stock	$	1,594		$	1,499
Weighted-average common shares issued		2,765			2,747
Less: Unvested restricted stock awards		(16	)		(24	)
Weighted average common shares outstanding used to calculate basic earnings per common share		2,749			2,723
Add: Dilutive effect of stock options		19			18
Weighted-average common shares outstanding used to calculate diluted earnings per common share		2,768			2,741
Earnings per common share (basic)	$	0.58		$	0.55
Earnings per common share (diluted)	$	0.58		$	0.55

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 and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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 increased for both the quantity and quality of capital held by the Bank and Company. The rules include a common equity Tier 1 capital risk-weighted assets minimum ratio of 4.5%, minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. The initial implementation of the capital conservation buffer began phasing in January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent January 1, by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. As of March 31, 2017, the Bank exceeded the fully phased in regulatory requirement for the capital conservation buffer. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

Actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" for Salisbury and the Bank are as follows:

						To be Well Capitalized
	Actual					For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2017
Total Capital (to risk-weighted assets)
Salisbury	$	98,021		13.34	%	$	58,785		8.0	%		n/a		—
Bank		94,859		12.91			58,785		8.0		$	73,482		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		81,585		11.10			44,089		6.0			n/a		—
Bank		88,423		12.03			44,089		6.0			58,785		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		81,585		11.10			33,067		4.5			n/a		—
Bank		88,423		12.03			33,067		4.5			47,763		6.5
Tier 1 Capital (to average assets)
Salisbury		81,585		8.83			37,498		4.0			n/a		—
Bank		88,423		9.59			37,423		4.0			46,778		5.0

						To be Well Capitalized
	Actual					For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2016
Total Capital (to risk-weighted assets)
Salisbury	$	96,166		13.26	%	$	57,997		8.0	%		n/a		—
Bank		93,690		12.92			57,996		8.0		$	72,495		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		79,868		11.02			43,498		6.0			n/a		—
Bank		87,392		12.05			43,497		6.0			57,996		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		79,868		11.02			32,623		4.5			n/a		—
Bank		87,392		12.05			32,623		4.5			47,122		6.5
Tier 1 Capital (to average assets)
Salisbury		79,868		8.69			37,282		4.0			n/a		—
Bank		87,392		9.57			36,762		4.0			45,953		5.0

Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

FRB Supervisory Letter SR 09-4, February 24, 2009, revised March 30, 2009, notes that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the Federal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.

NOTE 8 –BENEFITS

Salisbury’s 401(k) Plan expense was $285 thousand and $216 thousand, respectively, for the three month periods ended March 31, 2017 and 2016. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $18 thousand and $19 thousand for the three month periods ended March 31, 2017 and 2016, respectively.

ESOP

Salisbury offers an ESOP to eligible employees. Under the Plan, Salisbury may make discretionary contributions to the Plan, which generally vests in full upon six years of qualified service.

Salisbury’s ESOP expense was $34 thousand and $36 thousand, respectively, for the three month periods ended March 31, 2017 and 2016.

Other Retirement Plans

A Non-Qualified Deferred Compensation Plan (the "Plan") was adopted effective January 1, 2013. This Plan was adopted by the Bank for the benefit of certain key employees ("Executive" or "Executives") who have been selected and approved by the Bank to participate in this Plan and who have evidenced their participation by execution of a Non-Qualified Deferred Compensation Plan Participation Agreement ("Participation Agreement") in a form provided by the Bank. This Plan is intended to comply with Internal Revenue Code ("Code") Section 409A and any regulatory or other guidance issued under such Section.

In 2017, 2016, 2015, and 2014, the Bank awarded nine (9), nine (9), six (6) and seven (7) Executives, respectively, with discretionary contributions to the plan. Expenses related to this plan amounted to $21 thousand for the first quarter of 2017 and $11 thousand for the first quarter of 2016. The vesting schedule is based on the Executive’s date of retirement and ranges from 7.7% per year to 50% per year with two exceptions which are both 10 year cliff vesting schedules from the date of initial award.

On January 27, 2017, the Compensation Committee granted a total of 56,600 Phantom Stock Appreciation Units pursuant to the 2013 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (the “Plan”), including 23,100 units to three Named Executive Officers. Mr. Cantele received 11,500 units, Mr. Davies received 6,000 units and Mr. White received 5,600 units. The units will vest on the third anniversary of the grant date.

On January 29, 2016, the Compensation Committee granted a total of 47,470 Phantom Stock Appreciation Units pursuant to the 2013 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (the “Plan”), including 23,012 units to three Named Executive Officers. Mr. Cantele received 11,484 units, Mr. Davies received 5,963 units and Mr. White received 5,565 units. The units will vest on the third anniversary of the grant date.

On January 2, 2015, the Compensation Committee granted a total of 48,894 Phantom Stock Appreciation Units pursuant to the 2013 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (the “Plan”), including 23,012 units to three Named Executive Officers. Mr. Cantele received 11,484 units, Mr. Davies received 5,963 units and Mr. White received 5,565 units. The units will vest on the third anniversary of the grant date.

Grants of Restricted Stock and Options

Restricted stock

On January 29, 2016, Salisbury granted a total of 15,800 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 42 employees, including 6,000 shares to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 5,000 and John Davies, President New York Region and Chief Lending Officer and Donald E. White, Chief Financial Officer each received 500 shares. The fair value of the stock as of the grant date was determined to be $466,000 and the stock will be vested three years from the grant date.

Expense in first quarter 2017 and 2016 related to stock based compensation totaled $61 thousand and $47 thousand respectively. Unrecognized compensation cost relating to the awards as of March 31, 2017 and 2016 totaled $288 thousand and $529 thousand, respectively. Forfeitures in the first quarter 2017 and 2016 totaled 200 and 0 shares, respectively.

The Board of Directors adopted the 2017 Long Term Incentive Plan (the “2017 LTIP”) on February 24, 2017, which is subject to shareholder approval at the 2017 Annual Meeting. Upon shareholder approval of the 2017 LTIP, no further awards will be made under the 2011 LTIP, which shall remain in existence solely for purposes of administering outstanding grants. Under the 2017 LTIP, the total number of shares of Common Stock reserved and available for issuance in the next ten years in connection with awards under the 2017 LTIP is 200,000 shares of Common Stock, which represents approximately 7% of Salisbury’s 2,770,036 outstanding shares of Common Stock as of March 20, 2017. Of the maximum shares available under the 2017 LTIP, 200,000 shares may be issued upon the exercise of stock options (all of which may be granted as incentive stock options) and 150,000 shares may be issued as restricted stock or restricted stock units (including deferred stock units), provided that, to the extent that a share is issued as a restricted stock award or a restricted stock unit, the share would no longer be available for award as a stock option, unless the restricted stock award or restricted unit is forfeited or otherwise returned to the 2017 LTIP.

On April 28, 2017, Salisbury granted a total of 10,750 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 37 employees, including 2,500 shares to two Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 2,000 and John Davies, President New York Region and Chief Lending Officer received 500 shares. The fair value of the stock as of the grant date was determined to be $419,250 and the stock will be vested three years from the grant date.

On April 28, 2017, Salisbury granted a total of 2,056 shares of stock to directors as a component of their annual compensation. While all directors received partial awards for their 2016 service, Louise Brown received her full award due to her pending retirement from the board. The fair value of the stock as of the grant date was determined to be $80,184.

Options

On January 9, 2017, 2,700 shares of stock options were exercised at $25.93 per share by one former Riverside Bank executive.

On February 1, 2017, 1,350 shares of stock options were exercised at $25.93 per share by one former Riverside Bank executive.

On February 9, 2017, 1,350 shares of stock options were exercised at $25.93 per share by one former Riverside Bank executive.

On February 14, 2017 and February 20, 2017, 5,400 and 1,350 shares of stock options were exercised, respectively, at $25.93 per share by two former Riverside Bank executives.

NOTE 9 –ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income are as follows:

(in thousands)		March 31, 2017		December 31, 2016
Unrealized gains on securities available-for-sale, net of tax	$	487	$	477
Accumulated other comprehensive income, net	$	487	$	477

NOTE 10 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, other assets are recorded at fair value on a nonrecurring basis, such as loans held for sale, collateral dependent impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

Salisbury adopted ASC 820-10, “Fair Value Measurement - Overall,” which provides a framework for measuring fair value under generally accepted accounting principles. This guidance permitted Salisbury the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. Salisbury did not elect fair value treatment for any financial assets or liabilities upon adoption.

In accordance with ASC 820-10, Salisbury groups its financial assets and financial liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Salisbury’s market assumptions. These two types of inputs have created the following fair value hierarchy:

•

Level 1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

•

Level 2. Significant other observable inputs. Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

•

Level 3. Significant unobservable inputs. Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Salisbury did not have any significant transfers of assets between levels 1 and 2 of the fair value hierarchy during the year ended March 31, 2017.

The following is a description of valuation methodologies for assets recorded at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy:

•

Securities available-for-sale. Securities available-for-sale are recorded at fair value on a recurring basis. Level 1 securities include exchange-traded equity securities. Level 2 securities include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations of the U.S. Treasury and U.S. government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, municipal bonds, SBA bonds, corporate bonds and certain preferred equities. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

•

Collateral dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

•

Other real estate owned acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans. Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair
							value
March 31, 2017
Assets at fair value on a recurring basis
Municipal bonds	$	—	$	12,953	$	—	$	12,953
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		49,209		—		49,209
Collateralized mortgage obligations:
U.S. Government agencies		—		6,363		—		6,363
Non-agency		—		3,407		—		3,407
SBA bonds		—		1,882		—		1,882
CRA mutual funds		822		—		—		822
Corporate bonds		—		2,041		—		2,041
Preferred stock		172		—		—		172
Securities available-for-sale	$	994	$	75,855	$	—	$	76,849
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	5,139	$	5,139
Other real estate owned	$	—	$	—	$	3,833	$	3,833
December 31, 2016
Assets at fair value on a recurring basis
Municipal bonds	$	—	$	15,996	$	—	$	15,996
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		53,301		—		53,301
Collateralized mortgage obligations:
U.S. Government agencies		—		1,474		—		1,474
Non-agency		—		3,735		—		3,735
SBA bonds		—		2,064		—		2,064
CRA mutual funds		818		—		—		818
Corporate bonds		—		2,013		—		2,013
Preferred stock		222		—		—		222
Securities available-for-sale	$	1,040	$	78,583	$	—	$	79,623
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	5,256	$	5,256
Other real estate owned	$	—	$	—	$	3,773	$	3,773

Carrying values and estimated fair values of financial instruments are as follows:

(in thousands)	Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3
March 31, 2017
Financial Assets
Cash and cash equivalents	$	41,292	$	41,292	$	41,292	$	—	$	—
Securities available-for-sale		76,849		76,849		994		75,855		—
Federal Home Loan Bank stock		3,510		3,510		—				3,510
Loans held-for-sale		53		53		—		—		53
Loans receivable, net		764,665		777,371		—		—		777,371
Accrued interest receivable		2,431		2,431		—		—		2,431
Cash surrender value of life insurance		14,126		14,126		14,126		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	201,215	$	201,215	$	—	$	—	$	201,215
Demand (interest-bearing)		132,527		132,527		—		—		132,527
Money market		182,438		182,438		—		—		182,438
Savings and other		141,085		141,085		—		—		141,085
Certificates of deposit		115,151		116,305		—		—		116,305
Deposits		772,416		773,570		—		—		773,570
Repurchase agreements		2,350		2,350		—		—		2,350
FHLBB advances		52,745		53,857		—		—		53,857
Subordinated debt		9,794		10,391		—		—		10,391
Note payable		335		370		—		—		370
Capital lease liability		417		829		—		—		829
Accrued interest payable		238		238		—		—		238
December 31, 2016
Financial Assets
Cash and cash equivalents	$	35,485	$	35,485	$	35,485	$	—	$	—
Securities available-for-sale		79,623		79,623		1,040		78,583		—
Federal Home Loan Bank stock		3,211		3,211		—		—		3,211
Loans receivable, net		763,184		747,442		—		—		747,442
Accrued interest receivable		2,424		2,424		—		—		2,424
Cash surrender value of life insurance		14,038		14,038		14,038		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	218,420	$	218,420	$	—	$	—	$	218,420
Demand (interest-bearing)		127,854		127,854		—		—		127,854
Money market		182,476		182,476		—		—		182,476
Savings and other		135,435		135,435		—		—		135,435
Certificates of deposit		117,585		118,610		—		—		118,610
Deposits		781,770		782,795		—		—		782,795
Repurchase agreements		5,535		5,535		—		—		5,535
FHLBB advances		37,188		38,440		—		—		38,440
Subordinated debt		9,788		10,378		—		—		10,378
Note payable		344		377		—		—		377
Capital lease liability		418		841		—		—		841
Accrued interest payable		89		89		—		—		89

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions or are included in accrued interest and other liabilities.

NOTE 11 – SUBSEQUENT EVENTS

On April 28, 2017 the Board of Directors approved the 2017 Long Term Incentive Plan, which is subject to shareholder approval. Refer to Note 8 for additional discussion.

On April 28, 2017 the Board of Directors declared a dividend of $0.28 per common share payable on May 26, 2017 to shareholders of record on May 12, 2017.

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations of Salisbury Bancorp, Inc. (“Salisbury” or the “Company”) and its subsidiary should be read in conjunction with Salisbury's Annual Report on Form 10-K for the year ended December 31, 2016. Readers should also review other disclosures Salisbury files from time to time with the Securities and Exchange Commission (the “SEC”).

BUSINESS

Salisbury Bancorp, Inc., a Connecticut corporation, formed in 1998, is the bank holding company for Salisbury Bank and Trust Company (the "Bank"), a Connecticut-chartered and Federal Deposit Insurance Corporation (the "FDIC") insured commercial bank headquartered in Lakeville, Connecticut. Salisbury’s common stock is traded on the NASDAQ Capital Market under the symbol “SAL.” Salisbury's principal business consists of its operation and control of the business of the Bank.

The Bank, formed in 1848, currently provides commercial banking, consumer financing, retail banking and trust and wealth advisory services through a network of thirteen banking offices and nine ATMs located in: Litchfield County, Connecticut; Dutchess and Orange Counties, New York; and Berkshire County, Massachusetts and through its internet website (salisburybank.com). In September 2016, the Bank entered into a purchase and assumption agreement with Empire State Bank, pursuant to which the Bank will acquire the New Paltz, New York branch of Empire State Bank and certain related deposits, loans and other assets. Such transaction has been approved by regulators and is anticipated to close in June 2017.

Critical Accounting Policies and Estimates

Salisbury’s consolidated financial statements follow GAAP as applied to the banking industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event.

Salisbury’s significant accounting policies are presented in Note 1 of Notes to Consolidated Financial Statements, which, along with this Management’s Discussion and Analysis, provide information on how significant assets are valued in the financial statements and how those values are determined. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating Salisbury’s reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Loans acquired in 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 cash flows initially expected to be collected and discounting those cash flows at an appropriate market rate of interest. The Bank continues to evaluate reasonableness of the timing and the amount of cash to be collected. Subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. Such decreases may also result in recognition of additional provisions to the allowance for loan losses. For collateral dependent loans with deteriorated credit quality, the Bank estimates the fair value of the underlying collateral of the loans. These values are discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.

The allowance for loan losses represents management’s estimate of credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet. Note 1 describes the methodology used to determine the allowance for loan losses. A discussion of the factors driving changes in the amount of the allowance for loan losses is included in the “Provision and Allowance for Loan Losses” section of Management’s Discussion and Analysis.

Management evaluates goodwill and identifiable intangible assets for impairment annually using valuation techniques that involve estimates for discount rates, projected future cash flows and time period calculations, all of which are susceptible to change based on changes in economic conditions and other factors. Future events or changes in the estimates, which are used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affect their value or estimated lives could have a material adverse impact on the results of operations.

Management evaluates securities for other-than-temporary impairment giving consideration to the extent to which the fair value has been less than cost, estimates of future cash flows, delinquencies and default severity, and the intent and ability of Salisbury to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The consideration of the above factors is subjective and involves estimates and assumptions about matters that are inherently uncertain. Should actual factors and conditions differ materially from those used by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

FINANCIAL CONDITION

Overview

Total assets were $939.5 million at March 31, 2017, an increase of $4.2 million from December 31, 2016. Loans receivable, net, were $764.7 million at March 31, 2017, an increase of $1.5 million from December 31, 2016. Non-performing assets of $10.9 million at March 31, 2017, decreased $1.7 million from $12.6 million at December 31, 2016. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, was 0.82%, 0.80% and 0.80%, at March 31, 2017, December 31, 2016 and March 31, 2016, respectively. Deposits decreased $9.4 million to $772.4 million, down from $781.8 million at December 31, 2016.

At March 31, 2017, book value and tangible book value per common share were $34.38 and $29.26, respectively. Salisbury’s tier 1 leverage, total risk-based capital, and common equity tier 1 capital ratios were 8.83%, 13.34%, and 11.10%, respectively.

Securities and Short Term Funds

During the first quarter of 2017, securities decreased $2.5 million to $80.4 million primarily as a result of a $7.1 million decrease of mortgage backed securities and municipal bonds, partially offset by a $4.6 million increase of collateralized mortgage obligations. Cash and cash equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds sold) increased $5.8 million to $41.3 million.

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 its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.

Salisbury evaluates securities for strategic fit and may reduce its position in securities, although it is not more likely than not that Salisbury will be required to sell securities before recovery of their cost basis, which may be maturity. Therefore, management does not consider any of its securities, other than four non-agency CMO securities reflecting OTTI, to be OTTI at March 31, 2017. As of March 31, 2017 each of these positions reflected an unrealized gain.

Salisbury has, and continues to monitor, CMO securities where historical recognition of losses has occurred as a result of OTTI. Salisbury determined, as of March 31, 2017, that additional recognition of OTTI was not required. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI.

Loans

Net loans receivable increased $1.5 million to $764.7 million at March 31, 2017, compared with $763.2 million at December 31, 2016.

Loan Credit Quality

During the first three months of 2017, non-performing assets decreased $1.7 million primarily from decreases in Commercial ($1.3 million) and Home Equity Loans ($432 thousand) while OREO had a net increase of $60 thousand

During the first quarter of 2017, total impaired and potential problem loans decreased by $2.1 million to $21.5 million, or 2.8% of gross loans receivable at March 31, 2017, from $23.6 million, compared to 3.1% of gross loans receivable at December 31, 2016.

Changes in impaired and potential problem loans are as follows:

	March 31, 2017												March 31, 2016

Three months ended	Impaired loans							Potential					Impaired loans							Potential
(in thousands)		Non-						problem						Non-						problem
		accrual			Accruing			loans			Total			accrual			Accruing			loans			Total
Loans placed on non-accrual status	$	343		$	—		$	—		$	343		$	1,316		$	(229	)	$	(564	)	$	523
Loans restored to accrual status		(452	)		—			—			(452	)		—			—			—			—
Loan risk rating downgrades to substandard		—			—			26			26			—			—			3,754			3,754
Loan risk rating upgrades from substandard		—			—			—			—			—			—			—			—
Loan repayments		(1,028	)		(95	)		(502	)		(1,625	)		(492	)		(46	)		15			(523	)
Loan charge-offs		(167	)		—			—			(167	)		(187	)		—			(30	)		(217	)
Increase (decrease) in TDR loans		—			—			—			—			—			—			—			—
Real estate acquired in settlement of loans		(204	)		—			—			(204	)		—			—			—			—
Inter-month tax advances		—			—			—			—			18			—			—			18
Increase (decrease) in loans	$	(1,508	)	$	(95	)	$	(476	)	$	(2,079	)	$	655		$	(275	)	$	3,175		$	3,555

During the first quarter of 2017, Salisbury placed $343 thousand of loans on non-accrual status as a result of deteriorated payment and financial performance and charged-off $277 thousand of loans primarily as a result of collateral deficiencies.

Salisbury has cooperative relationships with the vast majority of its non-performing loan customers. Substantially all non-performing loans are collateralized with real estate and the repayment of such loans is largely dependent on the return of such loans to performing status or the liquidation of the underlying real estate collateral. Salisbury pursues the resolution of all non-performing loans through collections, restructures, voluntary liquidation of collateral by the borrower and, where necessary, legal action. When attempts to work with a customer to return a loan to performing status, including restructuring the loan, are unsuccessful, Salisbury will initiate appropriate legal action seeking to acquire property by deed in lieu of foreclosure or through foreclosure, or to liquidate business assets.

Credit Quality Segments

Salisbury categorizes loans receivable into the following credit quality segments:

Impaired loans consist of all non-accrual loans and troubled debt restructured loans, and represent loans for which it is probable that Salisbury will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreements.

Non-accrual loans, a sub-set of impaired loans, are loans for which the accrual of interest has been discontinued because, in the opinion of management, full collection of principal or interest is unlikely.

Non-performing loans consist of non-accrual loans, and accruing loans past due 90 days and over that are well collateralized, in the process of collection and where full collection of principal and interest is reasonably assured. Non-performing assets consist of non-performing loans plus real estate acquired in settlement of loans.

Troubled debt restructured loans are loans for which concessions such as reduction of interest rates, other than normal market rate adjustments, or deferral of principal or interest payments, extension of maturity dates, or reduction of principal balance or accrued interest, have been granted due to a borrower’s financial condition. Loan restructuring is employed when management believes the granting of a concession will increase the probability of the full or partial collection of principal and interest.

Potential problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired.

Credit Risk Ratings

Salisbury assigns credit risk ratings to loans receivable in order to manage credit risk and to determine the allowance for loan losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. Salisbury’s rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 4 are pass ratings and 5 through 8 are ratings (special mention, substandard, doubtful, and loss) defined by the bank’s regulatory agencies, the FDIC and CTDOB. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

Loans risk rated as "special mention" possess credit deficiencies or potential weaknesses deserving management’s close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

Loans risk rated as "substandard" are loans where the Bank’s position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

Loans risk rated as "doubtful" have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

Loans risk rated as "loss" are considered uncollectible and of such little value that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this loan even though partial recovery may be made in the future.

Management actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate its assignment of credit risk ratings. In addition, the Bank’s loan portfolio and risk ratings are examined annually on a rotating basis by its two primary regulatory agencies, the FDIC and CTDOB.

Impaired Loans

Loans individually evaluated for impairment (impaired loans) are loans for which Salisbury does not expect to collect all contractual principal and interest in accordance with the contractual terms of the loan. Impaired loans include all modified loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components of impaired loans are as follows:

(in thousands)		March 31, 2017		December 31, 2016
Troubled debt restructured loans, accruing	$	7,702	$	7,798
Troubled debt restructured loans, non-accrual		2,029		2,262
All other non-accrual loans		4,999		6,274
Total impaired loans	$	14,730	$	16,334
Commitments to lend additional amounts to impaired borrowers	$	—	$	—

Non-Performing Assets

Non-performing assets decreased $1.7 million to $10.9 million, or 1.2% of assets at March 31, 2017, from $12.6 million, or 1.3% of assets at December 31, 2016, and decreased $5.9 million from $16.8 million, or 1.9% of assets at March 31, 2016.

The 13.3% decrease in non-performing assets in the first three months of 2017 resulted primarily from $1.0 million in payoffs and repayments, $0.5 million reinstated to accrual, $0.2 million change in 90 + past due status, and $0.3 million charged off. This decrease was offset in part by $0.3 million of loans placed on non-accrual.

The components of non-performing assets are as follows:

(in thousands)		March 31, 2017		December 31, 2016
Residential 1-4 family	$	2,138	$	1,920
Residential 5+ multifamily		161		163
Home equity lines of credit		87		519
Commercial		3,617		4,901
Farm land		994		1,002
Vacant land		—		—
Real estate secured		6,997		8,505
Commercial and industrial		26		27
Consumer		4		4
Non-accruing loans		7,027		8,536
Accruing loans past due 90 days and over		30		256
Non-performing loans		7,057		8,792
Real estate acquired in settlement of loans		3,833		3,773
Non-performing assets	$	10,890	$	12,565

The past due status of non-performing loans is as follows:

(in thousands)		March 31, 2017		December 31, 2016
Current	$	927	$	1,005
Past due 30-59 days		184		344
Past due 60-89 days		75		—
Past due 90-179 days		43		2,516
Past due 180 days and over		5,828		4,927
Total non-performing loans	$	7,057	$	8,792

At March 31, 2017, 13.13% of non-performing loans were current with respect to loan payments, compared with 11.43% at December 31, 2016.

Troubled Debt Restructured Loans

Troubled debt restructured loans improved slightly as a percentage of gross loans during first quarter 2017 at $9.7 million, or 1.26% of gross loans receivable at March 31, 2017, compared to $10.1 million, or 1.31% of gross loans receivable at December 31, 2016.

The components of troubled debt restructured loans are as follows:

(in thousands)		March 31, 2017		December 31, 2016
Residential 1-4 family	$	3,184	$	4,869
Residential 5+ multifamily		1,606		—
Home equity lines of credit		113		114
Personal		—		—
Vacant land		207		210
Commercial		2,538		2,549
Real estate secured		7,648		7,742
Commercial and industrial		54		56
Accruing troubled debt restructured loans		7,702		7,798
Residential 1-4 family		75		240
Residential 5+ multifamily		161		—
Home equity lines of credit		—		—
Commercial		1,793		2,022
Vacant land		—		—
Real estate secured		2,029		2,262
Commercial and Industrial		—		—
Non-accrual troubled debt restructured loans		2,029		2,262
Troubled debt restructured loans	$	9,731	$	10,060

The past due status of troubled debt restructured loans is as follows:

(in thousands)		March 31, 2017		December 31, 2016
Current	$	7,140	$	7,683
Past due 30-59 days		527		115
Past due 60-89 days		35		—
Accruing troubled debt restructured loans		7,702		7,798
Current		211		240
Past due 30-59 days		25		—
Past due 60-89 days		—		—
Past due 90-179 days		—		1,793
Past due 180 days and over		1,793		229
Non-accrual troubled debt restructured loans		2,029		2,262
Total troubled debt restructured loans	$	9,731	$	10,060

At March 31, 2017, 75.54% of troubled debt restructured loans were current with respect to loan payments, as compared with 78.76% at December 31, 2016.

Past Due Loans

Loans past due 30 days or more increased $5.5 million during first quarter 2017 to $17.8 million, or 2.31% of gross loans receivable at March 31, 2017, compared with $12.3 million, or 1.60% of gross loans receivable at December 31, 2016.

The components of loans past due 30 days or greater are as follows:

(in thousands)		March 31, 2017		December 31, 2016
Past due 30-59 days	$	8,142	$	3,733
Past due 60-89 days		3,547		804
Past due 90-179 days		30		256
Past due 180 days and over		—		—
Accruing loans		11,719		4,793
Past due 30-59 days		184		344
Past due 60-89 days		76		—
Past due 90-179 days		13		2,260
Past due 180 days and over		5,828		4,927
Non-accrual loans		6,101		7,531
Total loans past due 30 days or greater	$	17,820	$	12,324

Potential Problem Loans

Potential problem loans decreased $0.5 million during the three months of 2017 to $6.8 million, or 0.88% of gross loans receivable at March 31, 2017, compared with $7.3 million, or 0.95% of gross loans receivable at December 31, 2016.

The components of potential problem loans are as follows:

(in thousands)		March 31, 2017		December 31, 2016
Residential 1-4 family	$	508	$	514
Residential 5+ multifamily		—		—
Construction of residential 1-4 family		—		—
Home equity lines of credit		122		123
Residential real estate		630		637
Commercial		5,992		6,057
Construction of commercial		—		—
Commercial real estate		5,992		6,057
Farm land		—		—
Vacant land		—		—
Real estate secured		6,622		6,694
Commercial and industrial		177		581
Consumer		—		—
Total potential problem loans	$	6,799	$	7,275

The past due status of potential problem loans is as follows:

(in thousands)		March 31, 2017		December 31, 2016
Current	$	5,155	$	6,383
Past due 30-59 days		1,001		826
Past due 60-89 days		643		66
Total potential problem loans	$	6,799	$	7,275

At March 31, 2017, 75.82% of potential problem loans were current with respect to loan payments, as compared with 87.74% at December 31, 2016.

Management cannot predict the extent to which economic or other factors may impact such borrowers’ future payment capacity, and there can be no assurance that such loans will not be placed on nonaccrual status, restructured, or require increased provisions for loan losses.

Deposits and Borrowings

Deposits decreased $9.4 million during first quarter 2017 to $772.4 million, from $781.8 million at December 31, 2016, and increased $16.7 million year-over-year from $755.7 million at March 31, 2016. The quarter over quarter change in deposits reflects a decline in DDA accounts which was partially offset by increases in interest bearing checking and savings accounts. Deposit increases in the current quarter 2017 as compared to the first quarter 2016 in interest bearing demand, non-interest bearing demand and savings accounts more than offset comparative period declines in money market and term deposits.

Retail repurchase agreements decreased $3.1 million during first quarter 2017 to $2.4 million, compared with $5.5 million at December 31, 2016, and decreased $0.2 million for year-over-year compared with $2.6 million at March 31, 2016.

FHLBB advances increased $15.5 million during first quarter 2017 to $52.7 million as of March 31, 2017, from $37.2 million at December 31, 2016, and increased $25.7 million year-over-year from $27.0 million at March 31, 2016. The increase was primarily due changes in the mix of balance sheet funding.

Liquidity

Salisbury manages its liquidity position to ensure that there is sufficient funding availability at all times to meet both anticipated and unanticipated deposit withdrawals, loan originations and advances, securities purchases and other operating cash outflows. Salisbury's primary sources of liquidity are principal payments and maturities of securities and loans, short-term borrowings through repurchase agreements and FHLBB advances, net deposit growth and funds provided by operations. Liquidity can also be provided through sales of loans and available-for-sale securities.

Salisbury manages its liquidity in accordance with a liquidity funding policy, and also maintains a contingency funding plan that provides for the prompt and comprehensive response to unexpected demands for liquidity. At March 31, 2017, Salisbury's liquidity ratio, as represented by cash, short term available-for-sale securities and marketable assets to net deposits and short term unsecured liabilities, was 19.75%, down from 21.89% at December 31, 2016. Management believes Salisbury’s funding sources will meet anticipated funding needs.

Operating activities for the three-month period ended March 31, 2017 provided net cash of $2.9 million. Investing activities provided net cash of $0.4 million, principally from proceeds of $7.8 million from calls and maturities of securities available-for-sale, offset by $5.3 million of purchases of securities available-for-sale and FHLBB stock, $1.7 million of net loan originations and principal collections and $0.5 million of capital expenditures. Financing activities provided net cash of $2.5 million, primarily due to $15.5 million of overnight FHLBB borrowing, offset by decrease of $6.9 million in deposit transaction accounts, a decrease of $3.2 million in securities sold under agreements to repurchase, and decrease of $2.4 million in time deposits.

At March 31, 2017, Salisbury had outstanding commitments to fund new loan originations of $31.5 million and unused lines of credit of $102.6 million. Salisbury believes that these commitments can be met in the normal course of business. Salisbury believes that its liquidity sources will continue to provide funding sufficient to support operating activities, loan originations and commitments, and deposit withdrawals.

RESULTS OF OPERATIONS

For the three month periods ended March 31, 2017 and 2016

OVERVIEW

Net income allocated to common stock was $1.6 million, or $0.58 per common share, for the first quarter ended March 31, 2017 (first quarter 2017), compared with $1.5 million, or $0.55 per common share, for the fourth quarter ended December 31, 2016 (fourth quarter 2016), and $1.5 million, or $0.55 per common share, for the first quarter ended March 31, 2016 (first quarter 2016).

Net Income per share increased to $0.58 per share from $0.55 last quarter and $0.55 for the first quarter 2016.

Non-Performing loans decreased to 0.92% of gross loans receivable from 2.29% at March 31, 2016.

Wealth assets under administration increased to $524.5 million at March 31, 2017, an increase of $101.5 million, or 24%, from first quarter 2016.

Book value per common share increased to $34.38 at March 31, 2017 from $34.07 at December 31, 2016, and $33.20 at March 31, 2016.

Tangible book value per common share increased to $29.26 at March 31, 2017 from $28.90 at December 31, 2016 and $27.84 at March 31, 2016.

Net Interest Income

Tax equivalent net interest income for first quarter 2017 increased $248 thousand, or 3.11%, versus fourth quarter 2016, and increased $240 thousand or 3.01%, versus first quarter 2016. Average earning assets increased $9.65 million versus fourth quarter 2016, and increased $41.6 million versus first quarter 2016. Average total interest bearing deposits decreased $7.71 million versus fourth quarter 2016 and increased $8.54 million versus first quarter 2016. The net interest margin of 3.74% increased 11 basis points versus 3.63% for the fourth quarter 2016 and decreased 6 basis points versus 3.80% for the first quarter 2016.

The following table sets forth the components of Salisbury's fully tax-equivalent (“FTE”) net interest income and yields on average interest-earning assets and interest-bearing liabilities.

Three months ended March 31,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		2017		2016		2017		2016		2017		2016
Loans (a)(d)(f)	$	769,187	$	721,618	$	8,522	$	8,101		4.43	%	4.47	%
Securities (c)(d)		75,902		72,964		562		718		2.96		3.94
FHLBB stock		3,549		3,157		30		28		3.43		3.55
Short term funds (b)		32,363		41,618		53		46		0.66		0.45
Total interest-earning assets		881,001		839,357		9,167		8,893		4.16		4.23
Other assets		54,540		59,079
Total assets	$	935,541	$	898,436
Interest-bearing demand deposits	$	129,564	$	125,733		63		77		0.20		0.25
Money market accounts		184,462		189,167		142		135		0.31		0.28
Savings and other		139,903		123,299		60		53		0.17		0.17
Certificates of deposit		116,015		123,207		250		243		0.88		0.79
Total interest-bearing deposits		569,944		561,406		515		508		0.37		0.36
Repurchase agreements		1,927		3,083		1		1		0.15		0.14
Capital lease		417		421		17		18		16.67		17.10
Note payable		338		373		2		5		2.14		5.44
Subordinated debt		9,790		9,767		156		156		6.37		6.39
FHLBB advances		42,924		27,002		262		231		2.44		3.39
Total interest-bearing liabilities		625,340		602,052		953		919		0.59		0.61
Demand deposits		209,061		196,212
Other liabilities		5,939		8,928
Shareholders’ equity		95,201		91,244
Total liabilities & shareholders’ equity	$	935,541	$	898,436
Net interest income (f)					$	8,214	$	7,974
Spread on interest-bearing funds										3.57		3.62
Net interest margin (e)										3.74		3.80

	(a)	Includes non-accrual loans.
	(b)	Includes interest-bearing deposits in other banks and federal funds sold.
	(c)	Average balances of securities are based on historical cost.
	(d)	Includes tax exempt income benefit of $261,000 and $315,000, respectively, for 2017 and 2016 on tax-exempt securities and loans whose income and yields are calculated on a tax-equivalent basis.
	(e)	Net interest income divided by average interest-earning assets.
	(f)	Interest income for 2017 and 2016 reflect net accretion related to the fair value adjustments of loans acquired in the Riverside Bank acquisition in the amount of $495,000 and $586,000, respectively.

The following table sets forth the changes in FTE interest due to volume and rate.

Three months ended March 31, (in thousands)	2017 versus 2016
Change in interest due to		Volume			Rate			Net
Interest-earning assets
Loans	$	531		$	(110	)	$	421
Securities		25			(181	)		(156	)
FHLBB stock		3			(1	)		2
Short term funds		(13	)		20			7
Interest-earning assets		546			(272	)		274
Interest-bearing liabilities
Deposits		8			(1	)		7
Repurchase agreements		—			—			—
Capital lease		2			(3	)		(1	)
Note payable		(30	)		27			(3	)
Subordinated debt		—			—			—
FHLBB advances		117			(86	)		31
Interest-bearing liabilities		97			(63	)		34
Net change in net interest income	$	449		$	(209	)	$	240

Interest Income

Tax equivalent interest income increased $248 thousand to $8.2 million for first quarter 2017 as compared with first quarter 2016.

Loan income as compared to first quarter 2016 increased $421 thousand, or 5.2%, primarily due to a $47.5 million, or 6.6%, increase in average loans, partially offset by a 4 basis point decrease in the average loan yield. The first quarter of 2017 reflects the net accretion of $495 thousand related to fair value adjustments of loans related to the Riverside acquisition compared to net accretion of $586 thousand in first quarter 2016.

Tax equivalent securities income decreased $156 thousand, or 21.7%, for first quarter 2017 as compared with first quarter 2016, primarily due to a 98 basis point decrease in average yield, partially offset by a $2.9 million, or 4.0%, increase in average volume.

Interest Expense

Interest expense increased $34 thousand, or 3.7%, to $953 thousand for first quarter 2017 as compared with first quarter 2016.

Interest on deposit accounts increased $7 thousand, or 1.4%, as a result of an $8.5 million increase in the average balances. Average deposit rates increased 1 basis point as compared with first quarter 2016.

Interest expense on FHLBB borrowings increased $31 thousand as a result of an average balance increase of $15.9 million as compared with first quarter 2016, partially offset by a lower average borrowings rate which decreased 95 basis points. Interest expense on subordinated debt totaled $156 thousand for the first quarter in both 2017 and 2016.

Provision and Allowance for Loan Losses

Provision for loan loss expense was $352 thousand for first quarter 2017 versus $463 thousand for first quarter 2016. Included in the provision are impairments related to ASC 310-30 purchased loans of $10 thousand for the first quarter 2017 and $143 thousand for the first quarter 2016. Net loan charge-offs (recoveries) were $194 thousand for the first quarter 2017 and $302 thousand for the first quarter 2016. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, was 0.82% for the first quarter 2017, versus 0.80% for first quarter 2016.

The following table details the principal categories of credit quality ratios:

	Q1 2017		Q4 2016
Net charge-offs (recoveries) to average loans receivable, gross	0.03	%	0.04	%
Non-performing loans to loans receivable, gross	0.92		1.16
Accruing loans past due 30-89 days to loans receivable, gross	1.52		0.60
Allowance for loan losses to loans receivable, gross	0.82		0.80
Allowance for loan losses to non-performing loans	89.05		69.43
Non-performing assets to total assets	1.16		1.34

The ratio of non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) to gross loans receivable decreased to 0.92% at March 31, 2017 compared to 1.16% at December 31, 2016. Such increase in non-performing loans is concentrated among a few specific relationships and is not considered to be generally indicative of any adverse trend. The ratio of accruing loans past due 30-89 days to gross loans receivable increased to 1.52% from 0.60% at December 31, 2016.

The allowance for loan losses represents management’s estimate of the probable credit losses inherent in the loan portfolio as of the reporting date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by loan charge-offs. Loan charge-offs are recognized when management determines a loan, or portion of a loan, to be uncollectible. The allowance for loan losses is computed by segregating the portfolio into three components: (1) loans collectively evaluated for impairment: general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as loan product, collateral type and loan-to-value, loan risk rating, historical loss experience, delinquency factors and other similar economic indicators, (2) loans individually evaluated for impairment: individual loss allocations for loans deemed to be impaired based on discounted cash flows or collateral value, and (3) unallocated: general loss allocations for other environmental factors.

Impaired loans and certain potential problem loans, when warranted, are individually evaluated for impairment. Impairment is measured for each individual loan, or for a borrower’s aggregate loan exposure, using either the fair value of the collateral, less estimated costs to sell if the loan is collateral dependent, or the present value of expected future cash flows discounted at the loan’s effective interest rate. A specific allowance is generally established when the collateral value or discounted cash flows of the loan is lower than the carrying value of that loan.

The component of the allowance for loan losses for loans collectively evaluated for impairment is estimated by stratifying loans into segments and credit risk ratings and then applying management’s general loss allocation factors. The general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative factors, including levels or trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. The qualitative factors are determined based on the various risk characteristics of each loan segment. There were no significant changes in Salisbury’s policies or methodology pertaining to the general component of the allowance for loan losses during first quarter 2017.

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses. It reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

Additionally reserves are established for off balance sheet exposures which include those related to loans serviced for others. Reserve balances related to loans serviced for others are included in other liabilities.

Determining the adequacy of the allowance and reserves at any given period is difficult, particularly during deteriorating or uncertain economic periods, and management must make estimates using assumptions and information that are often subjective and changing rapidly. The review of credit exposure related to loans is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment. Should the economic climate deteriorate, borrowers could experience difficulty and the level of non-performing loans, charge-offs and delinquencies could rise, requiring increased provisions and reserves. In management's judgment, Salisbury remains adequately reserved both against total loans and non-performing loans at March 31, 2017.

Management’s loan risk rating assignments, loss percentages and specific reserves are subjected annually to an independent credit review by an external firm. In addition, the Bank is examined annually on a rotational basis by one of its two primary regulatory agencies, the FDIC and CTDOB. As an integral part of their examination process, the FDIC and CTDOB review the adequacy and methodology of the Bank's credit risk ratings and allowance for loan losses.

Non-Interest Income

The following table details the principal categories of non-interest income.

Three months ended March 31, (dollars in thousands)		2017		2016		2017 vs. 2016
Trust and wealth advisory fees	$	854	$	784	$	70		8.9	%
Service charges and fees		962		702		260		37.0
Gains on sales of mortgage loans, net		49		39		10		25.6
Mortgage servicing, net		45		34		11		32.4
Gains on sales and calls of available-for-sale securities, net		—		2		(2	)	(100.0	)
Other		113		114		(1	)	(0.9	)
Total non-interest income	$	2,023	$	1,675	$	348		20.8	%

Non-interest income increased $348 thousand, or 20.8% in the first quarter of 2017 versus the first quarter of 2016. Trust and wealth advisory revenues increased $70 thousand versus first quarter 2016. The year-over-year revenue increase is the result of net growth in asset based fees. Service charges and fees increased $260 thousand versus first quarter 2016. Net fees related to NSF activity increased $100 thousand in the first quarter 2017 as compared to the first quarter 2016. Higher fees related to ATM and interchange income contributed $72 thousand. First quarter 2017 mortgage loans sales totaled $1.9 million versus $1.8 million for first quarter 2016. First quarter 2017 and first quarter 2016 included mortgage servicing amortization and periodic impairment charges (net) of $70 thousand and $71 thousand, respectively. Gain on sales and calls of securities decreased $2 thousand versus first quarter 2016. Gains recognized in the first quarter of 2016 resulted from called securities. Other income includes bank owned life insurance income and rental income.

Non-Interest Expense

The following table details the principal categories of non-interest expense.

Three months ended March 31, (dollars in thousands)		2017		2016		2017 vs. 2016
Salaries	$	2,890	$	2,573	$	317		12.32	%
Employee benefits		1,088		1,088		—		—
Premises and equipment		895		892		3		(0.34	)
Data processing		472		447		25		5.59
Professional fees		717		380		337		88.68
Collections and OREO		301		186		115		61.83
FDIC insurance		149		134		15		11.19
Marketing and community support		251		201		50		24.88
Amortization of core deposit intangibles		126		155		(29	)	(18.71	)
Other		538		781		(243	)	(31.11	)
Non-interest expense	$	7,427	$	6,837	$	590		8.63	%

Non-interest expense for first quarter 2017 increased $590 thousand versus first quarter 2016. The first quarter 2017 results include OREO related expenses, which are discussed below, of $232 thousand. Total salaries expense increased $317 thousand versus first quarter 2016. This increase is mainly attributable to the mix and levels of staff as well as lower deferred expense related to loan origination for the current period. Professional fees increased $337 thousand versus first quarter 2016 primarily as a result of higher consulting, investment management and legal fees. Loan related expenses increased $115 thousand versus first quarter 2016, mainly due to the write-downs associated with OREO properties in first quarter 2017. Other expense decreased $243 thousand versus first quarter 2016 primarily as a result of first quarter 2016 expenses related to sold loans serviced for others.

Income Taxes

The effective income tax rates for first quarter 2017 and first quarter 2016 were 27.0% and 25.9%, respectively. Generally, fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income. Salisbury’s effective tax rate is generally less than the 34% federal statutory rate due to holdings of tax-exempt municipal bonds and loans as well as bank owned life insurance.

Salisbury did not incur Connecticut income tax in 2017 (to date) or 2016, other than minimum state income tax, as a result of a Connecticut law that permits banks to shelter certain mortgage income from the Connecticut corporation business tax through the use of a special purpose entity called a Passive Investment Company or PIC. In 2004, Salisbury availed itself of this benefit by forming a PIC, SBT Mortgage Service Corporation. Salisbury's income tax provision reflects the full impact of the Connecticut legislation. Salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in Connecticut tax law.

CAPITAL RESOURCES

Shareholders’ equity was $95.2 million at March 31, 2017, up $1.2 million from December 31, 2016. Book value and tangible book value per common share were $34.38 and $29.26, respectively, compared with $33.13 and $27.69, respectively, at December 31, 2016. Contributing to the increase in shareholders’ equity for year-to-date 2017 was net income of $1.6 million and stock options exercised of $0.3 million, partially offset by common stock dividends of $0.8 million. Accumulated other comprehensive income consists of unrealized gains on securities available-for-sale, net of tax, of $0.5 million as of March 31, 2017.

Capital Requirements

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 and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. 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.

Under current regulatory definitions, Salisbury and the Bank meet all capital adequacy requirements to which they are subject and the Bank is considered to be well-capitalized. As a result, the Bank pays lower federal deposit insurance premiums than those banks that are not “well-capitalized.” Requirements for classification as a well-capitalized institution and for minimum capital adequacy along with Salisbury’s and the Bank's regulatory capital ratios are as follows:

	March 31, 2017					December 31, 2016
		Salisbury		Bank			Salisbury		Bank
Total Capital (to risk-weighted assets)		13.34	%	12.91	%		13.26	%	12.92	%
Tier 1 Capital (to risk-weighted assets)		11.10		12.03			11.02		12.05
Common Equity Tier 1 Capital (to risk-weighted assets)		11.10		12.03			11.02		12.05
Tier 1 Capital (to average assets)		8.83		9.59			8.69		9.51

A well-capitalized institution, which is the highest capital category for an institution as defined by the Prompt Corrective Action regulations issued by the FDIC and the FRB, is one which maintains a Total Risk-Based ratio of 10% or above, a Tier 1 Risk-Based ratio of 8% or above, a Common Equity Tier 1 ratio of 6.5% or above, and a Leverage ratio of 5% or above, and is not subject to any written order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level. Maintaining strong capital is essential to Salisbury and the Bank’s safety and soundness. However, the effective management of capital resources requires generating attractive returns on equity to build value for shareholders while maintaining appropriate levels of capital to fund growth, meet regulatory requirements and be consistent with prudent industry practices.

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 increased for both the quantity and quality of capital held by the Bank and Salisbury. The rules include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer began phasing in January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent year by an additional 0.625% until reaching its final level of 2.50% 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. As of March 31, 2017, the Company and the Bank met each of their capital requirements and the most recent notification from the FDIC categorized the Bank as “well-capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s category.

Dividends

During the three month period ended March 31, 2017, Salisbury paid $774 thousand in dividends on common stock.

On April 28, 2017, the Board of Directors of Salisbury declared a common stock dividend of $0.28 per common share payable on May 26, 2017 to shareholders of record on May 12, 2017. Common stock dividends, when declared, will generally be paid the last Friday of February, May, August and November, although Salisbury is not obligated to pay dividends on those dates or at any other time.

Salisbury's ability to pay cash dividends is dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

FRB Supervisory Letter SR 09-4, February 24, 2009, revised December 31, 2015, states that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the Federal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital position.

Salisbury believes that the payment of common stock cash dividends is appropriate, provided that such payment considers Salisbury's capital needs, asset quality, and overall financial condition and does not adversely affect the financial stability of Salisbury or the Bank. The continued payment of common stock cash dividends by Salisbury will be dependent on Salisbury's future core earnings, financial condition and capital needs, regulatory restrictions, and other factors deemed relevant by the Board of Directors of Salisbury.

IMPACT OF INFLATION AND CHANGING PRICES

Salisbury’s consolidated financial statements and related notes thereto presented elsewhere in this Form 10-Q are prepared in conformity with GAAP, which require the measurement of financial condition and operating results in terms of historical dollars without considering changes in the relative purchasing power of money, over time, due to inflation. Unlike some other types of companies, the financial nature of Salisbury’s consolidated financial statements is more clearly affected by changes in interest rates than by inflation. Interest rates do not necessarily fluctuate in the same direction or in the same magnitude as the prices of goods and services. However, inflation does affect Salisbury to some extent because, as prices increase, the money supply grows and interest rates are affected by inflationary expectations. There is no precise method, however, to measure the effects of inflation on the Company’s consolidated financial statements. Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation. Although not a material factor in recent years, inflation could impact earnings in future periods.

FORWARD-LOOKING STATEMENTS

This Form 10-Q and future filings made by Salisbury with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by Salisbury and the Bank, and oral statements made by executive officers of Salisbury and the Bank, may include forward-looking statements relating to such matters as:

(a)

assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which Salisbury and the Bank do business; and

(b)

expectations for revenues and earnings for Salisbury and the Bank.

Such forward-looking statements are based on assumptions rather than historical or current facts and, therefore, are inherently uncertain and subject to risk. For those statements, Salisbury claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Salisbury notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of Salisbury’s and the Bank’s business include the following:

(a)

the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Bank operates;

(b)

changes in the legislative and regulatory environment that negatively impacts Salisbury and the Bank through increased operating expenses;

(c)

increased competition from other financial and non-financial institutions;

(d)

the impact of technological advances and cybersecurity matters;

(e)

interest rate fluctuations; and

(f)

other risks detailed from time to time in Salisbury’s filings with the Securities and Exchange Commission.

Such developments could have an adverse impact on Salisbury’s and the Bank’s financial position and results of operations.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Salisbury manages its exposure to interest rate risk through its Asset/Liability Management Committee (“ALCO”) using risk limits and policy guidelines to manage assets and funding liabilities to produce financial results that are consistent with Salisbury’s liquidity, capital adequacy, growth, risk and profitability targets. Interest rate risk is the risk of a negative impact to future earnings due to changes in interest rates.

The ALCO manages interest rate risk using income simulation to measure interest rate risk inherent in Salisbury’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon. In management’s March 31, 2017 analysis, three of the simulations incorporate static growth assumptions over the simulation horizons, with allowances made for loan, deposit and security product mix shifts in selected interest rate scenarios, such as movements between lower rate savings and money market deposit accounts and higher rate time deposits, and changes in the reinvestment of loan and securities cash flows. The fourth simulation incorporates management’s balance sheet growth assumptions. Additionally, the simulations take into account the specific re-pricing, maturity and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios.

The ALCO reviews the simulation results to determine whether Salisbury’s exposure to change in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. Salisbury’s tolerance levels for changes in net interest income in its income simulations vary depending on the magnitude of interest rate changes and level of risk-based capital. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where interest rates remain stable over the forecast horizon. The ALCO also evaluates the directional trends of net interest income, net interest margin and other financial measures over the forecast horizon for consistency with its liquidity, capital adequacy, growth, risk and profitability targets.

ALCO uses four interest rate scenarios to evaluate interest risk exposure and may vary these interest rate scenarios to show the effect of steepening or flattening changes in yield curves as well as parallel changes in interest rates. At March 31, 2017, ALCO used the following interest rate scenarios: (1) unchanged interest rates; (2) immediately rising interest rates – immediate parallel upward shift in market interest rates ranging from 300 basis points for the 2-year Treasury rates to 300 basis points for the 10-year Treasury; (3) immediately falling interest rates – immediate downward shift in market interest rates ranging from 100 basis points for the 2-year Treasury rates to 100 basis points for the 10-year Treasury; and (4) immediately rising interest rates – immediate parallel upward shift in market interest rates ranging from 200 basis points for the 2-year Treasury rates to 200 basis points for the 10-year Treasury. Deposit rates are assumed to shift by lesser amounts due to their relative historical insensitivity to market interest rate movements. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. Income simulations do not reflect adjustments in strategy that the ALCO could implement in response to rates. As of March 31, 2017, net interest income simulations indicated that the Bank’s exposure to changing interest rates over the simulation horizons remained within its tolerance levels.

The following table sets forth the estimated change in net interest income from an unchanged interest rate scenario over the periods indicated for changes in market interest rates using the Bank’s financial instruments as of March 31, 2017:

As of March 31, 2017	Months 1-12			Months 13-24
Immediately rising interest rates (static growth assumptions)		(6.27	)%		2.88	%
Immediately falling interest rates (static growth assumptions)		(3.16	)		(5.85	)
Immediately rising interest rates (static growth assumptions)		(3.13	)		4.19

The negative exposure of net interest income to immediately and gradually rising rates as compared to the unchanged rate scenario results from a faster projected rise in the cost of funds versus income from earning assets, as relatively rate-sensitive money market and time deposits re-price faster than longer duration earning assets. The negative exposure of net interest income to immediately falling rates as compared to an unchanged rate scenario results from a greater decline in earning asset yields compared to rates paid on funding liabilities, as a result of faster prepayments on existing assets and lower reinvestment rates on future loans originated and securities purchased.

While the ALCO reviews simulation assumptions and back-tests simulation results to ensure that they are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future net interest margin. Over time, the re-pricing, maturity and prepayment characteristics of financial instruments and the composition of Salisbury’s balance sheet may change to a different degree than estimated. Simulation modeling assumes Salisbury’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior. Another significant simulation assumption is the sensitivity of core savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. The assumed relationship between short-term interest rate changes and core deposit rate and balance changes used in income simulation may differ from the ALCO’s estimates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

Salisbury also monitors the potential change in market value of its available-for-sale debt securities in changing interest rate environments. The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to Salisbury’s capital and liquidity position. Results are calculated using industry-standard analytical techniques and securities data. Available-for-sale equity securities are excluded from this analysis because the market value of such securities cannot be directly correlated with changes in interest rates.

The following table summarizes the potential change in market value of available-for-sale debt securities resulting from immediate parallel rate shifts:

As of March 31, 2017 (in thousands)		Rates up 100bp			Rates up 200bp
Municipal bonds		(248	)		(474	)
Mortgage backed securities		(1,174	)		(2,751	)
Collateralized mortgage obligations		(388	)		(738	)
SBA pools		(4	)		(8	)
Other		(109	)		(205	)
Total available-for-sale debt securities	$	(1,923	)	$	(4,176	)

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Salisbury’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Salisbury’s disclosure controls and procedures as of March 31, 2017. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective as of March 31, 2017.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

In addition, based on an evaluation of its internal controls over financial reporting, no change in Salisbury’s internal control over financial reporting occurred during the quarter ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, Salisbury’s internal control over financial reporting.

PART II.

OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

The Bank is involved in various claims and legal proceedings arising in the ordinary course of business, which management currently believes are not material, individually or in the aggregate, to the business, financial condition or operating results of Salisbury or any of its subsidiaries. There are no material pending legal proceedings, other than ordinary routine litigation incidental to the registrant’s business, to which Salisbury is a party or of which any of its property is subject.

Item 1A.	RISK FACTORS
	Not applicable

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	None

Item 3.	DEFAULTS UPON SENIOR SECURITIES
	None

Item 4.	MINE SAFETY DISCLOSURES
	Not Applicable

Item 5.	OTHER INFORMATION
	None

Item 6.

EXHIBITS

Exhibit No.	Description
2.1	Agreement and Plan of Merger by and among Salisbury Bancorp, Inc., Salisbury Bank and Trust Company and Riverside Bank dated March 18, 2014 (incorporated by reference to Exhibit 2.1 of Form 8-K filed on March 19, 2014).
3.1	Certificate of Incorporation of Salisbury Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Registrant’s 1998 Registration Statement on Form S-4 filed April 23, 1998, File No.: 33-50857).
3.1.1	Amendment to Article Third of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed March 11, 2009).
3.1.2	Certificate of Amendment to Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed March 19, 2009).
3.1.3	Certificate of Amendment to Certificate of Incorporation for the Series B Preferred Stock (incorporated by reference to Registrant’s Form 8-K filed on August 25, 2011).
3.1.4	Certificate of Amendment to Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed October 30, 2014).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of Form 8-K filed November 25, 2014).
4.1	Form of Subordinated Note, dated as of December 10, 2015, issued by Salisbury Bancorp, Inc. (incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed December 10, 2015).

10.1	2017 Long Term Incentive Plan adopted by the Board on February 24, 2017 and subject to approval by shareholders at Salisbury’s 2017 Annual Meeting of Shareholders (incorporated by reference to Appendix A of the Registrant’s definitive proxy statement filed April 10, 2017).
10.2	Amendment Number Three to 2011 Long Term Incentive Plan dated as of April 28, 2017.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Baker Newman & Noyes, LLC.
23.2	Consent of Shatswell, MacLeod & Company, P.C.
31.1	Chief Executive Officer Certification Pursuant to 17 CFR 240.13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer Certification Pursuant to 17 CF 240.13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Chief Executive Officer and Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SALISBURY BANCORP, INC.

May 15, 2017	By:	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer

May 15, 2017	By:	/s/ Donald E. White
		Donald E. White,
		Executive Vice President and Chief Financial Officer