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 quarterlyperiodended ~~September 30, 2017~~March 31, 2023

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

		~~FOR THE TRANSITION PERIOD FROM ________ TO ________~~

FOR THE TRANSITION PERIOD FROM ________ TO ________

Commission file number ~~0-24751~~001-14854

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)~~ (860) 435-9801

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, Par Value $0.10 per share	SAL	NASDAQ

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, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act.~~Act).

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

~~Large accelerated filer~~☐ ~~Accelerated filer~~☐~~Non-accelerated filer~~☐ ~~Smaller reporting company~~☑~~Emerging growth company~~☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

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

Yes ☐ No ☑

The number of shares of Common Stock outstanding as of ~~November 14, 2017~~May 3, 2023 is ~~2,785,916.~~5,807,119.

TABLE OF CONTENTS

			PART I FINANCIAL INFORMATION	Page
~~PART I. FINANCIAL INFORMATION~~Item 1. Financial Statements (unaudited)
~~Item 1.~~		~~Financial Statements as of SEPTEMBER 30, 2017~~CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2023 (unaudited) and DECEMBER 31, ~~2016:~~
		~~CONSOLIDATED BALANCE SHEETS (unaudited)~~		2022	3
		CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS ENDED MARCH 31, 2023 and 2022 (unaudited)			4
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022 (unaudited)			5
		CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022 (unaudited)			5
		CONSOLIDATED STATEMENTS OF CASH ~~FLOW~~FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022 (unaudited)			6
		NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			8
Item 2.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			32	26
Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			49	37
Item 4.		CONTROLS AND PROCEDURES			50
39
PART II. OTHER INFORMATION 50	39
Item 1.		LEGAL PROCEEDINGS			51	39
Item 1A.		RISK FACTORS			51	39
Item 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			51	39
Item 3.		DEFAULTS UPON SENIOR SECURITIES			51	39
Item 4.		MINE SAFETY DISCLOSURES			51	39
Item 5.		OTHER INFORMATION			51	39
Item 6.		EXHIBITS			51	40
SIGNATURES				52	41

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)	September 30, 2017			December 31, 2016				March 31, 2023			December 31, 2022
ASSETS
Cash and due from banks	$	6,833		$	5,434		$	6,231		$	5,864
Interest bearing demand deposits with other banks		42,570			30,051			43,613			44,675
Total cash and cash equivalents		49,403			35,485			49,844			50,539
Securities
Available-for-sale at fair value		85,508			79,623
Available-for-sale, at fair value								187,598			187,410
Mutual funds at fair value								2,068			1,933
Federal Home Loan Bank of Boston stock at cost		3,038			3,211			5,030			1,285
Loans held-for-sale		561			—
Loans receivable, net (allowance for loan losses: $6,494 and $6,127)		784,136			763,184
Other real estate owned		3,944			3,773
Loans receivable, net (allowance for credit losses: $16,009 and $14,846)								1,234,632			1,213,671
Bank premises and equipment, net		16,329			14,398			21,597			22,148
Goodwill		13,815			12,552			13,815			13,815
Intangible assets (net of accumulated amortization: $3,906 and $3,511)		1,974			1,737
Intangible assets (net of accumulated amortization: $5,691 and $5,654)								188			227
Accrued interest receivable		2,520			2,424			6,383			6,797
Cash surrender value of life insurance policies		14,297			14,038			30,571			30,379
Deferred taxes		1,326			1,367			8,234			8,492
Other assets		2,618			3,574			5,374			4,886
Total Assets	$	979,469		$	935,366		$	1,565,334		$	1,541,582
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing)	$	225,496		$	218,420		$	370,049		$	395,994
Demand (interest bearing)		139,521			127,854			218,902			231,486
Money market		196,745			182,476			296,974			343,965
Savings and other		152,570			135,435			236,755			233,578
Certificates of deposit		117,657			117,585			170,362			153,370
Total deposits		831,989			781,770			1,293,042			1,358,393
Repurchase agreements		4,529			5,535			3,230			7,228
Federal Home Loan Bank of Boston advances		27,364			37,188			100,000			10,000
Subordinated debt		9,805			9,788			24,545			24,531
Note payable		321			344			117			128
Capital lease liability		1,859			418
Finance lease obligations								4,225			4,262
Accrued interest and other liabilities		6,076			6,316			7,820			8,685
Total Liabilities		881,943			841,359			1,432,979			1,413,227
Shareholders' Equity
Common stock - $.10 per share par value
Authorized: 5,000,000;
Issued: 2,785,916 and 2,758,086		279			276
Common stock - $0.10 per share par value
Authorized: 10,000,000;
Issued: 5,807,719 and 5,798,816
Outstanding: 5,807,719 and 5,798,816								581			580
Unearned compensation – restricted stock awards								(961	)		(1,144	)
Paid-in capital		42,983			42,085			47,396			47,466
Retained earnings		54,368			51,521			103,371			102,178
Unearned compensation - restricted stock awards		(660	)		(352	)
Accumulated other comprehensive income		556			477
Accumulated other comprehensive loss, net								(18,032	)		(20,725	)
Total Shareholders' Equity		97,526			94,007			132,355			128,355
Total Liabilities and Shareholders' Equity	$	979,469		$	935,366		$	1,565,334		$	1,541,582

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

		Three months ended				Nine months ended
Periods ended September 30, (in thousands, except per share amounts)		2017		2016		2017			2016
Three months ended March 31, (in thousands, except per share amounts)											2023		2022
Interest and dividend income
Interest and fees on loans	$	8,196	$	8,067	$	24,544		$	23,935	$	13,250	$	10,163
Interest on debt securities
Taxable		443		310		1,115			889		1,068		724
Tax exempt		68		202		345			725		212		174
Other interest and dividends		175		91		351			226		393		57
Total interest and dividend income		8,882		8,670		26,355			25,775		14,923		11,118
Interest expense
Deposits		682		565		1,776			1,603		2,818		478
Repurchase agreements		2		2		4			4		16		3
Capital lease		29		17		66			53
Finance lease											40		41
Note payable		6		6		13			15		2		2
Subordinated debt		156		156		468			468
Subordinated Debt											233		233
Federal Home Loan Bank of Boston advances		241		237		769			714		687		55
Total interest expense		1,116		983		3,096			2,857		3,796		812
Net interest and dividend income		7,766		7,687		23,259			22,918		11,127		10,306
Provision for loan losses		237		344		953			1,332
Net interest and dividend income after provision for loan losses		7,529		7,343		22,306			21,586
Provision for credit losses											1,016		363
Net interest and dividend income after provision for credit losses											10,111		9,943
Non-interest income
Trust and wealth advisory		874		849		2,620			2,517		1,153		1,241
Service charges and fees		935		822		2,799			2,277		1,235		1,138
Gains on sales of mortgage loans, net		25		55		104			151
Mortgage servicing, net		104		40		180			119
Gains (losses) on sales and calls of available-for-sale securities, net		—		9		(14	)		157
Mortgage banking activities, net											59		355
Gains (losses) on mutual funds											20		(42	)
Gains on sales of available -for-sale securities, net											—		210
BOLI income											192		162
Other		142		113		365			343		34		30
Total non-interest income		2,080		1,888		6,054			5,564		2,693		3,094
Non-interest expense
Salaries		2,829		2,757		8,266			8,018		3,721		3,479
Employee benefits		1,004		924		2,923			2,922		1,468		1,277
Premises and equipment		995		809		2,797			2,546		1,105		1,104
Data processing		545		473		1,521			1,369
Loss on write-down and sale of assets											158		9
Information processing and services											831		685
Professional fees		481		459		1,962			1,403		945		787
Collections, OREO, and loan related		419		109		875			420		72		117
FDIC insurance		106		164		354			474		98		171
Marketing and community support		220		144		623			524		127		184
Amortization of intangibles		142		148		395			455		39		54
Other		479		513		1,561			1,846		470		786
Total non-interest expense		7,220		6,500		21,277			19,977		9,034		8,653
Income before income taxes		2,389		2,731		7,083			7,173		3,770		4,384
Income tax provision		695		812		1,903			2,008		752		816
Net income	$	1,694	$	1,919	$	5,180		$	5,165	$	3,018	$	3,568
Net income available to common stock	$	1,678	$	1,904	$	5,139		$	5,124
Net income available to common shareholders										$	2,968	$	3,508

Basic earnings per common share	$	0.61	$	0.70	$	1.87		$	1.88
Weighted average common shares outstanding, to calculate basic earnings per share		2,759		2,737		2,755			2,732
Diluted earnings per common share	$	0.60	$	0.69	$	1.85		$	1.87
Weighted average common shares outstanding, to calculate diluted earnings per share		2,779		2,751		2,774			2,747
Common dividends per share	$	0.28	$	0.28	$	0.84		$	0.84
Basic earnings per common share ¹										$	0.52	$	0.62
Diluted earnings per common share ¹											0.52		0.62
Common dividends per share ¹											0.16		0.16

¹The number of shares and per share amounts for all periods has been adjusted to reflect the two-for-one forward stock split effective June 30, 2022.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

Three months ended Nine months ended
Periods ended September 30, (in thousands) 2017 2016 2017 2016
Net income $ 1,694 $ 1,919 $ 5,180 $ 5,165
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale (16 ) (332 ) 106 (211 )
Reclassification of net realized (gains) losses and write-downs in net income⁽¹⁾ — (10 ) 14 (157 )
Unrealized (losses) gains on securities available-for-sale (16 ) (342 ) 120 (368 )
Income tax benefit (expense) 5 116 (41 ) 126
Other comprehensive (loss) income (11 ) (226 ) 79 (242 )
Comprehensive income $ 1,683 $ 1,693 $ 5,259 $ 4,923

Three months ended March 31, (in thousands)		2023			2022
Net income	$	3,018		$	3,568
Other comprehensive income (loss)
Net unrealized income (loss) on securities available-for-sale		3,409			(11,549	)
Reclassification of net realized loss in net income ⁽¹⁾		—			(210	)
Unrealized income (loss) on securities available-for-sale		3,409			(11,759	)
Income tax (expense) benefit		(716	)		2,470
Unrealized income (loss) on securities available-for-sale, net of tax		2,693			(9,289	)
Comprehensive income (loss)	$	5,711		$	(5,721	)

^{(1) Reclassification adjustments include realized security gains and losses.gains. 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-taxthe pretax amount is reflected as gains on sales and calls ofon available-for-sale securities, net,net; the tax effect is included in the income tax provision and the after taxafter-tax amount is included in net income. The income tax expense related to reclassification of net tax effect for the three months ending September 30, 2017 and 2016 arerealized gains was approximately $0 thousand and ($3)$44 thousand respectively. The net tax effect for the nine months ending September 30, 2017three-months ended March 31, 2023 and 2016 are $5 thousand and ($53) thousand,2022, respectively.}

S~~alisbury~~

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) ~~Nine months ended September~~


Three months ended March 31, (dollars in thousands)	Common Stock					Paid-in			Retained			Unearned compensation restricted stock			Accumulated other comprehensive			Total shareholders'
	Shares ¹			Amount		Capital			Earnings			awards			(loss) income			equity
Balances at December 31, 2021		5,723,394		$	286	$	46,374		$	89,995		$	(925	)	$	870		$	136,600
Net income		—			—		—			3,568			—			—			3,568
Other comprehensive loss, net of tax		—			—		—			—			—			(9,289	)		(9,289	)
Common stock dividends declared ($0.16 per share)		—			—		—			(915	)		—			—			(915	)
Issuance of restricted common stock		28,700			2		811			—			(813	)		—			—
Issuance of restricted stock units upon vesting		12,900			—		—			—			—			—			—
Net settlement impact for vesting of performance restricted stock units		(78	)		—		(183	)		—			—			—			(183	)
Stock based compensation-restricted stock awards		—			—		97			—			188			—			285
Balances at March 31, 2022		5,764,916		$	288	$	47,099		$	92,648		$	(1,550	)	$	(8,419	)	$	130,066
Balances at December 31, 2022		5,798,816		$	580	$	47,466		$	102,178		$	(1,144	)	$	(20,725	)	$	128,355
Cumulative effect of accounting changes (Note 1)		—			—		—			(898	)		—			—			(898	)
Net income		—			—		—			3,018			—			—			3,018
Other comprehensive income, net of tax		—			—		—			—			—			2,693			2,693
Common stock dividends declared ($0.16 per share)		—			—		—			(927	)		—			—			(927	)
Issuance of restricted stock units upon vesting		13,473			1		—			—			—			—			1
Net settlement impact of performance restricted stock units upon vesting		(4,570	)		—		(112	)		—			—			—			(112	)
Stock based compensation-restricted stock awards							42						183			—			225
Balances at March 31, 2023		5,807,719		$	581	$	47,396		$	103,371		$	(961	)	$	(18,032	)	$	132,355

¹The number of shares and per share amounts for all periods has been adjusted to reflect the two-for-one forward stock split effective June 30, ~~2017 and 2016~~

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

Accumulated other comp-
rehensive income
Total shareholders' equity
Shares Amount
Balances at December 31, 2015 2,733,576 $ 273 $ 41,364 $ 47,922 $ (110 ) $ 1,125 $ 90,574
Net income for period — — — 5,165 — — 5,165
Other comprehensive loss, net of tax — — — — — (242 ) (242 )
Common stock dividends declared — — — (2,314 ) — — (2,314 )
Stock options exercised 4,050 — 87 — — — 87
Issuance of restricted common stock 15,800 2 464 — (466 ) — —
Forfeiture of restricted common stock (100 ) — (3 ) — 3 — —
Issuance of vested common stock for directors 4,760 1 141 — — — 142
Stock based compensation-restricted stock awards — — — — 142 — 142
Balances at September 30, 2016 2,758,086 $ 276 $ 42,053 $ 50,773 $ (431 ) $ 883 $ 93,554
Balances at December 31, 2016 2,758,086 $ 276 $ 42,085 $ 51,521 $ (352 ) $ 477 $ 94,007
Net income for period — — — 5,180 — — 5,180
Other comprehensive income, net of tax — — — — — 79 79
Common stock dividends declared — — — (2,333 ) — — (2,333 )
Stock options exercised 12,150 1 311 — — — 312
Issuance of restricted common stock 11,800 2 426 — (428 ) — —
Forfeiture of restricted common stock (200 ) — (3 ) — 3 — —
Issuance of vested common stock for directors 2,056 — 81 — — — 81
Issuance of director’s restricted stock awards 2,024 — 83 — (83 ) — —
Stock based compensation-restricted stock awards — — — — 200 — 200
Balances at September 30, 2017 2,785,916 $ 279 $ 42,983 $ 54,368 $ (660 ) $ 556 $ 97,526

2022.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine months ended September 30, (in thousands) 2017 2016
Operating Activities
Net income $ 5,180 $ 5,165
Adjustments to reconcile net income to net cash provided by operating activities
(Accretion), amortization and depreciation
Securities 116 204
Bank premises and equipment 979 889
Core deposit intangible 395 455
Modification fees on Federal Home Loan Bank of Boston advances 176 173
Subordinated debt issuance costs 17 18
Mortgage servicing rights 149 182
Fair value adjustment on loans (969 ) (1,429 )
Fair value adjustment on deposits (64 ) (97 )
(Gains) and losses, including write-downs
Loss and (gain) on sales and calls of securities available-for-sale, net 14 (157 )
Gain on sales of loans, excluding capitalized servicing rights (79 ) (152 )
Write-downs of other real estate owned 395 —
Loss on sale/disposals of premises and equipment 1 13
Provision for loan losses 953 1,332
Proceeds from loans sold 4,495 6,814
Loans originated for sale (4,977 ) (6,736 )
Increase in deferred loan origination fees and costs, net (38 ) (91 )
Mortgage servicing rights originated (53 ) (71 )
(Decrease) increase in mortgage servicing rights impairment reserve (24 ) 13
(Increase) decrease in interest receivable (84 ) 47
(Increase) decrease in prepaid expenses (59 ) 18
Increase in cash surrender value of life insurance policies (259 ) (267 )
Decrease in income tax receivable 43 433
Decrease in other assets 920 218
(Decrease) increase in accrued expenses (384 ) 1,079
Increase (decrease) in interest payable 157 (125 )
(Decrease) increase in other liabilities (16 ) 1,310
Stock based compensation-restricted stock awards 200 142
Net cash provided by operating activities 7,184 9,380
Investing Activities
Redemption of Federal Home Loan Bank of Boston stock, net of purchases 173 239
Purchases of securities available-for-sale (36,654 ) (45,317 )
Proceeds from sales of securities available-for-sale — 3,860
Proceeds from calls of securities available-for-sale 11,141 11,811
Proceeds from maturities of securities available-for-sale 19,618 29,125
Loan originations and principal collections, net (14,776 ) (57,351 )
Recoveries of loans previously charged off 232 111
Proceeds from sales of other real estate owned 177 —
Capital expenditures (1,306 ) (1,168 )
Cash and cash equivalents acquired from acquisition 22,387 —
Net cash provided (utilized) by investing activities 992 (58,690 )
Financing Activities
Increase in deposit transaction accounts, net 18,714 35,320
Increase (decrease) in time deposits, net 136 (3,026 )
Decrease in securities sold under agreements to repurchase, net (1,006 ) (333 )
Principal payments on Federal Home Loan Bank of Boston advances (10,000 ) (18 )
Principal payments on note payable (23 ) (25 )
Decrease in capital lease obligation (139 ) (3 )
Stock options exercised 312 87
Issuance of shares for directors’ fees 81 142
Common stock dividends paid (2,333 ) (2,314 )
Net cash provided by financing activities 5,742 29,830
Net increase (decrease) in cash and cash equivalents 13,918 (19,480 )
Cash and cash equivalents, beginning of period 35,485 62,118
Cash and cash equivalents, end of period $ 49,403 $ 42,638

Three months ended March 31, (in thousands)		2023			2022
Operating Activities
Net income	$	3,018		$	3,568
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion), amortization and depreciation:
Securities		311			361
Bank premises and equipment		396			392
Core deposit intangible		39			53
Modification fees on Federal Home Loan Bank of Boston advances		—			21
Subordinated debt issuance costs		14			14
Mortgage servicing rights		26			39
(Gains) and losses, including write-downs
(Gain) loss on mutual funds		(20	)		42
Gain on sales of securities available-for-sale, net		—			(210	)
Gain on sales of loans, excluding capitalized servicing rights		—			(275	)
Sales/disposals of premises and equipment		158			9
Provision for credit losses		1,016			363
Proceeds from loans sold		—			8,852
Loans originated for sale		—			(6,963	)
Decrease (increase) in deferred loan origination fees and costs, net		126			(476	)
Mortgage servicing rights originated		—			(55	)
Decrease in interest receivable		414			365
Deferred tax (benefit) expense		(172	)		467
Increase in prepaid expenses		(119	)		(111	)
Increase in cash surrender value of life insurance policies		(192	)		(162	)
(Increase) decrease in other assets		(395	)		403
Decrease in income tax receivable		—			79
Decrease in accrued expenses		(2,598	)		(1,537	)
Increase in income tax payable		702			—
Decrease in interest payable		(230	)		(12	)
Increase (decrease) in other liabilities		256			(53	)
Stock based compensation-restricted stock awards		225			285
Net cash provided by operating activities		2,975			5,459
Investing Activities
Net redemptions of Federal Home Loan Bank of Boston stock		(3,745	)		320
Purchases of securities available-for-sale		—			(145,297	)
Purchase/reinvestment of mutual funds		(115	)		(3	)
Proceeds from sales of securities available-for-sale		—			17,718
Proceeds from maturities/principal payments of securities available-for-sale		2,910			102,413
Loan originations and principal collections, net		(22,285	)		641
Recoveries of loans previously charged off		3			6
Capital expenditures		(3	)		(343	)
Net cash utilized by investing activities	$	(23,235	)	$	(24,545	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

Cash paid during period
Interest $ 2,810 $ 2,714
Income taxes 1,958 842
Non-cash transfers
From loans to other real estate owned 743 2,823
Empire State Bank branch acquisition 2017
Cash and cash equivalents acquired 22,387 —
Net loans acquired 7,097 —
Fixed assets acquired (including capital leases) 1,605 —
Accrued interest receivable acquired 12 —
Other assets acquired 20 —
Core deposit intangible 632 —
Goodwill 1,263 —
Deposits assumed 31,433 —
Capital lease assumed 1,580 —
Other liabilities assumed 3 —

Three months ended March 31, (in thousands)		2023			2022
Financing Activities
Decrease in deposit transaction accounts, net	$	(82,343	)	$	(54,923	)
Increase in time deposits, net		16,992			9,204
Decrease in securities sold under agreements to repurchase, net		(3,998	)		(3,269	)
Repayments of Federal Home Loan Bank of Boston long term advances		—			(6,000	)
Federal Home Loan Bank of Boston short term advances(net)		90,000			—
Principal payments on amortizing FHLB Advances		—			(1,258	)
Principal payments on note payable		(11	)		(11	)
Principal payments on finance lease obligations		(37	)		(33	)
Net settlement of restricted stock units		(111	)		(183	)
Common stock dividends paid		(927	)		(915	)
Net cash provided (utilized) by financing activities		19,565			(57,388	)
Net decrease in cash and cash equivalents		(695	)		(76,474	)
Cash and cash equivalents, beginning of period		50,539			175,335
Cash and cash equivalents, end of period	$	49,844		$	98,861
Cash paid during period
Interest		3,567			789
Income taxes		221			270
Non cash investing and financing activities:
Fixed Asset		65			289
Finance lease liability		(65	)		(289	)
Loans transferred to Loans Held for Sale		—			3,389

The accompanying notes are an integral part of these unaudited consolidated financial statements.

S~~alisbury~~

Salisbury Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position of Salisbury and the consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity and cash flows for the interim periods presented.

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

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended ~~September 30, 2017~~March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2023. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's ~~2016~~2022 Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022.

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.

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

In March 2016, the FASB issued ASU 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. Salisbury has opted to recognize forfeitures as they occur as the impact is not expected to be material. ASU 2016-09 was effective for interim and annual reporting periods beginning after December 15, 2016. Salisbury adopted ASU 2016-09 as of January 1, 2017. Adoption contributed a $105 thousand benefit to the tax provision in the second quarter 2017 and did not have a material effect on the financial results for the nine month period ended September 30, 2017.

In June 2016, the FASB issued Accounting Standards Update (ASU) ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and related subsequent amendments, which ~~adds a new Topic 326~~replaces the incurred loss methodology with an expected loss methodology that is referred to as the ~~Codification and removes~~current expected credit loss (“CECL”) methodology. The measurement of expected losses under the ~~thresholds that companies apply~~CECL methodology is applicable to ~~measure credit losses on~~ financial ~~instruments~~assets measured at amortized cost, ~~such~~ as ~~loans, receivables,~~well as unfunded commitments that are considered off-balance sheet credit exposures at the reporting date. The measurement is based on historical experience, current conditions, and ~~held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize~~reasonable and supportable forecasts. Financial Institutions and other organizations will now use forward-looking information to enhance their credit loss estimates. The update requires enhanced disclosures to help investors and other financial statements users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The current expected credit loss measurement will be used to estimate the allowance for credit losses (“ACL”) over the life of the financial assets.

Salisbury adopted CECL on January 1, 2023. Under CECL, the Bank determines its allowance for credit losses on loans using pools of assets with similar risk characteristics. The Bank segments its loan portfolio by loan type, to evaluate loans with similar risk characteristics for credit risk. The Bank’s lifetime credit loss models are based on historical data and incorporate forecasts of macroeconomic variables, expected prepayments and recoveries. Non-economic qualitative factors are also evaluated for each loan segment. A four-quarter reasonable and supportable forecast period is currently used for all loan portfolios. When the risk characteristics of a loan no longer match the characteristics of the collective pool, the loan is removed from the pool and individually assessed for credit losses. Generally, non-accrual loans and collateral dependent loans are individually assessed.

The Bank has ~~been incurred. The revised guidance will remove all recognition thresholds~~elected to present accrued interest receivable separately from the amortized cost basis on the balance sheet and ~~will require companies to recognize~~is not estimating an allowance for credit ~~losses for the difference between the amortized cost basis~~loss on accrued interest. This election applies to loans as well as debt securities. The Bank’s non-accrual polices have not changed as a result 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.adopting CECL.

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

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this ASU are intended to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a screen to determine when a set of 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 March 2017, the FASB issued ASU 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU will amend the amortization period for certain purchased callable debt securities held at a premium. The Board is shortening the amortization period for the premium to the earliest call date. Under current generally accepted accounting principles, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 is effective for public business entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. Entities should apply the guidance on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Salisbury is currently evaluating the provisions of ASU 2017-08 and does not expect that the adoption of the new standard will have a material impact on Salisbury’s Consolidated Financial Statements.

108

~~In May 2017,~~On January 1, 2023 Salisbury adopted ASC 326 using the modified retrospective approach method for all financial assets measured at amortized cost. Results for the reporting periods after January 1, 2023 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. On the adoption date, the Bank increased the allowance for credit losses for loans by $0.2 million and increased the allowance for credit losses for unfunded loan commitments by $0.9 million (in other liabilities). The new ASU removes the ability to offset a charge-off against the remaining loan discount and requires an allowance for credit losses to be recognized in addition to the loan discount. The impact of adopting the ASU, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available for sale securities portfolio, along with management judgments. The FASB ~~issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope~~provided transition relief, allowing entities to irrevocably elect, upon adoption of ~~Modification Accounting.” This ASU will provide clarity~~CECL, the fair value option (FVO) on financial instruments that were previously recorded at amortized cost and are within the scope of ASC 326-20 if the instruments are eligible for the FVO under ASC 825-10. The adoption of ASC 326 was applied through a cumulative-effect adjustment to retained earnings. The impact of the January 1 2023, adoption entry is summarized in the table below:

(in thousands)	December 31, 2022 Pre-ASC 326 Adoption			Impact of ASC 326 Adoption			January 1, 2023 Post-ASC Adoption
Assets:
Loans	$	1,228,517		$	—		$	1,228,517
Allowance for credit losses on loans		(14,846	)		(271	)		(15,117	)
Deferred tax assets, net		8,492			286			8,778
Liabilities and shareholders’ equity:
Other liabilities (ACL unfunded loan commitments)		178			913			1,091
Retained Earnings		102,178			(898	)		101,280

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting ~~guidance regarding~~under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a ~~change to~~three year period the terms or conditions of a share-based payment award. ASU 2017-09 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. Entities should apply the guidance prospectively to an award modifiedday one adverse effects on ~~or after the adoption date. Salisbury is currently evaluating the provisions of ASU 2017-09 and does not expect~~regulatory capital that may result from the adoption of the new ~~standard~~accounting standard.

Allowance for Credit Losses – Available-For-Sale Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will ~~have~~be required to sell a ~~material impact~~security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Recent Accounting Pronouncements

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848).” In 2020, the Board issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on ~~Salisbury’s Consolidated~~ Financial ~~Statements.~~ Reporting, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide temporary relief during the transition period. The Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. At the time that Update 2020-04 was issued, the UK Financial Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR. In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in this Update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The amendments in this ASU were effective upon issuance.

NOTE 2 – ACQUISITIONS AND DISPOSITIONS

Pending Acquisition

On December 5, 2022, Salisbury and NBT Bancorp Inc. (“NBT”) announced that they entered into a definitive agreement under which Salisbury will merge with and into NBT, with NBT as the surviving entity, in an all-stock transaction. Immediately thereafter, the Bank will merge with and into NBT Bank, with NBT Bank as the surviving bank. Under the terms of the agreement, each share of Salisbury common stock will be converted into the right to receive 0.745 shares of NBT common stock. The merger is expected to be consummated in second quarter 2023, subject to regulatory approval. Merger-related expenses totaling $385 thousand related to this transaction were recorded in first quarter 2023.

NOTE 3 - SECURITIES

The composition of securities is as follows:

(in thousands)	Amortized cost basis (1)		Gross un- realized gains		Gross un- realized losses		Fair Value			Amortized cost basis		Gross un-realized gains		Gross un-realized losses		Fair value
September 30, 2017
March 31, 2023
Available-for-sale
U.S. Treasury									$	19,299	$	—	$	1,820	$	17,479
U.S. Government Agency notes										29,017		58		2,231		26,844
Municipal bonds	$	4,611	$	30	$	—	$	4,641		55,099		—		6,900		48,199
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		49,655		274		172		49,757
U.S. Government agencies and U.S. Government- sponsored enterprises										67,804		19		7,273		60,550
Collateralized mortgage obligations:
U.S. Government agencies		10,815		39		13		10,841		24,954		—		3,039		21,915
Non-agency		2,464		420		16		2,868
SBA bonds		12,767		59		10		12,816
CRA mutual funds		847		—		7		840
Corporate bonds		3,500		57		—		3,557		14,250		—		1,639		12,611
Preferred stock		7		181		—		188
Total securities available-for-sale	$	84,666	$	1,060	$	218	$	85,508	$	210,423	$	77	$	22,902	$	187,598
Mutual funds															$	2,068
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	3,038	$	—	$	—	$	3,038	$	5,030	$	—	$	—	$	5,030

(in thousands)		Amortized cost basis		Gross un-realized gains		Gross un-realized losses		Fair value
December 31, 2022
Available-for-sale
U.S. Treasury	$	19,283	$	—	$	2,150	$	17,133
U.S. Government Agency notes		29,696		94		2,636		27,154
Municipal bonds		55,179		—		8,641		46,538
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		69,866		20		8,011		61,875
Collateralized mortgage obligations:
U.S. Government agencies		25,370		—		3,434		21,936
Corporate bonds		14,250		—		1,476		12,774
Total securities available-for-sale	$	213,644	$	114	$	26,348	$	187,410
Mutual Funds							$	1,933
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,285	$	—	$	—	$	1,285

(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 ~~nine month~~three-month periods ended March 31, 2023. Salisbury sold $17.7 million of available-for-sale securities during the three-month period ended ~~September 30, 2017. Salisbury sold $3.9 million~~March 31, 2022 realizing gains of $451 thousand and losses of $241 thousand resulting in ~~securities available-for-sale during the nine month period ended September 30, 2016 realizing~~ a ~~pre-tax~~net gain of ~~$148~~$210 thousand and a related tax expense of ~~$50~~$44 thousand.

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

September 30, 2017 (in thousands) Less than 12 Months 12 Months or Longer Total
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value Unrealized losses
Available-for-sale
Mortgage-backed securities $ 10,483 $ 56 $ 18,553 $ 116 $ 29,036 $ 172
Collateralized mortgage obligations:
U.S. Government agencies 4,810 13 — — 4,810 13
Non-agency — — 118 3 118 3
SBA bonds 3,414 10 — — 3,414 10
Corporate bonds 500 — — — 500 —
CRA mutual funds 840 7 — — 840 7
Total temporarily impaired securities 20,047 86 18,671 119 38,718 205
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Non-agency 107 13 — — 107 13
Total temporarily impaired and other-than-temporarily impaired securities $ 20,154 $ 99 $ 18,671 $ 119 $ 38,825 $ 218

December 31, 2016 (in thousands) Less than 12 Months 12 Months or Longer Total
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value Unrealized losses
Available-for-sale
Municipal bonds $ 517 $ 1 $ — $ — $ 517 $ 1
Mortgage-backed securities 34,758 329 249 6 35,007 335
Collateralized mortgage obligations:
Non-agency 60 — 339 5 399 5
SBA bonds 475 1 — — 475 1
CRA 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


	Less than 12 Months				12 Months or Longer				Total
March 31, 2023 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	—	$	—	$	17,479	$	1,820	$	17,479	$	1,820
U.S. Government Agency notes		2,839		123		18,567		2,108		21,406		2,231
Municipal bonds		8,334		326		39,864		6,574		48,198		6,900
Mortgage- backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		4,826		8		53,266		7,265		58,092		7,273
Collateralized mortgage obligations:
U.S. Government agencies		2,648		191		19,267		2,848		21,915		3,039
Corporate bonds		7,892		858		4,719		781		12,611		1,639
Total temporarily impaired securities	$	26,539	$	1,506	$	153,162	$	21,396	$	179,701	$	22,902


	Less than 12 Months				12 Months or Longer				Total
December 31, 2022 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	6,435	$	484	$	10,698	$	1,666	$	17,133	$	2,150
U.S. Government Agency notes		3,106		158		17,467		2,478		20,573		2,636
Municipal bonds		37,277		5,950		9,261		2,691		46,538		8,641
Mortgage-backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		18,861		1,559		39,909		6,452		58,770		8,011
Collateralized mortgage obligations		14,333		1,782		7,603		1,652		21,936		3,434
Corporate bonds		11,251		1,249		1,523		227		12,774		1,476
Total temporarily impaired securities	$	91,263	$	11,182	$	86,461	$	15,166	$	177,724	$	26,348

The table below presents the amortized cost, fair value and tax equivalent yield of securities, by maturity. Debt securities issued by U.S. Government agencies (SBA securities), MBS, and CMOS are disclosed separately in the table below as these securities may prepay prior to the scheduled contractual maturity ~~are as follows:~~dates.

September 30, 2017 (in thousands) Maturity Amortized cost Fair value Yield(1)
Municipal bonds Within 1 year $ 305 $ 306 6.26 %
After 1 year but within 5 years 491 495 5.10
After 10 years but within 15 years 1,839 1,852 7.01
After 15 years 1,976 1,988 6.94
Total 4,611 4,641 6.73
Mortgage-backed securities U.S. Government agency and U.S. Government-sponsored enterprises 49,655 49,757 2.31
Collateralized mortgage obligations U.S. Government agency and U.S. Government-sponsored enterprises 10,815 10,841 2.73
Non-agency 2,464 2,868 3.99
SBA bonds 12,767 12,816 3.02
CRA mutual funds 847 840 2.30
Corporate bonds After 5 years but within 10 years 3,500 3,557 5.57
Preferred stock 7 188 5.49
Securities available-for-sale $ 84,666 $ 85,508 2.89 %

March 31, 2023 (in thousands)	Maturity	Amortized cost			Fair value	Yield⁽¹⁾
U.S. Treasury	After 1 year but within 5 years	$	10,814	$	10,005	1.29	%
	After 5 year but within 10 years		8,485		7,474	1.17
	Total		19,299		17,479	1.24
U.S. Government Agency notes	After 1 year but within 5 years		7,964		7,100	1.05
	After 5 year but within 10 years		7,960		6,863	1.42
	Total		15,924		13,963	1.23
Municipal bonds	After 1 year but within 5 years		1,486		1,343	2.11
	After 5 year but within 10 years		14,308		12,054	2.31
	After 10 years but within 15 years		15,458		13,580	2.33
	After 15 years		23,847		21,222	2.73
	Total		55,099		48,199	2.49
Mortgage-backed securities, U.S. Government Agency and Collateralized mortgage obligations	Securities not due at a single maturity date		105,851		95,346	2.95
	Total		105,851		95,346	2.95
Corporate bonds	After 5 years but within 10 years		14,250		12,611	4.46
	After 10 years but within 15 years		—		—
	Total		14,250		12,611	4.46
Securities available-for-sale		$	210,423	$	187,598	2.79	%

⁽¹⁾ Yield is based on amortized cost.

For the three months ended March 31, 2023 and 2022, the unrealized losses on the Company’s available-for-sale debt securities have not been recognized into income because management does not intend to sell and it is not more-likely-than-not it will be required to sell any of the available-for-sale debt securities before recovery of its amortized cost basis. Furthermore, the unrealized losses were due to changes in interest rates and other market conditions and were not reflective of credit events. The issuers continue to make timely principal and interest payments on the bonds. Agency-backed and government sponsored have a long 40 year history with no credit losses, including during times of severe stress such as the 2007-2008 financial crisis. The principal and interest payments on agency guaranteed debt is backed by the U.S. government. Government-sponsored enterprises similarly guarantee principal and interest payments and carry an implicit guarantee from the U.S. Department of the Treasury. Additionally, government-sponsored enterprise securities are exceptionally liquid, readily marketable, and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses.

At March 31, 2023 and December 31, 2022, total accrued interest receivable on available-for-sale debt securities, which has been excluded from the reported amortized cost basis on available-for-sale debt securities, was $0.62 million and $0.56 million, respectively, and was reported within accrued interest receivable on the consolidated balance sheets. An allowance was not carried on the accrued interest receivable at either date.

NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Salisbury segregates its loan portfolio into discrete loan pools for purposes of evaluating credit risk. Each loan pool possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of March 31, 2023, the Company aggregated the individual loan pools as follows:

Commercial & Industrial - Commercial loans consist of revolving and term loan obligations extended to businesses, municipalities and educational facilities for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

Commercial Real Estate – Commercial real estate loans include non-owner-occupied and owner-occupied properties as well as loans for agricultural purposes and land development. Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Residential Real Estate - Residential real estate loans are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one-to four-family residences, including for investment purposes.

Consumer - Home equity loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one-to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable. Consumer loans may be secured or unsecured.

The table below provides the composition of loans receivable. Commercial and industrial loans include loans to businesses, municipalities and independent schools. Commercial real estate includes construction, commercial, residential 5+ multi-family, farm and vacant land loans. Residential real estate includes residential 1-4 family and residential construction loans. Consumer includes HELOC, consumer, indirect auto loans and overdrafts.

(In thousands)		March 31, 2023			December 31, 2022¹
Commercial & Industrial	$	232,033		$	239,997
Commercial real estate		515,266			491,659
Residential real estate		457,506			449,652
Consumer		44,961			46,208
Total Loans		1,249,766			1,227,516
Deferred loan origination costs, net		875			1,001
Allowance for credit losses		(16,009	)		(14,846	)
Loans receivable, net	$	1,234,632		$	1,213,671

¹Certain loan categories were reclassified from prior filings based on loan type.

On January 1, 2023, the Bank adopted ASU 326 to calculate the allowance for credit losses. The impact of adopting this standard during first quarter 2023 was a net increase in the allowance for credit losses of $0.3 million. See Note 1 for a summary of the impact of adopting this standard during first quarter 2023.

Also included within scope of the CECL standard are off-balance sheet loan commitments, which includes the unfunded portion of committed lines of credit and commitments “in-process”, which reflect loans that are not in Salisbury’s gross loans receivable balance as of the balance sheet date but rather negotiated loan/line of credit terms and rates that the Bank has offered to customers and is committed to honoring. In reference to “in-process” credits, the Bank defines an unfunded commitment as a credit that has been offered to and accepted by a borrower, which has not closed and by which the obligation is not unconditionally cancellable.

The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Bank. The allowance for credit losses on off-balance sheet exposures includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments to be funded over its estimated life.

~~Salisbury evaluates securities~~At March 31, 2023, the allowance for ~~OTTI where~~off-balance-sheet credit losses was $1.2 million compared with $0.2 million at December 31, 2022. This balance is included in “other liabilities” on Salisbury’s consolidated balance sheet. During first quarter 2023, the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers whether it has the intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.

~~The following summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at September 30, 2017.~~

U.S. Government agency mortgage-backed securities and collateralized mortgage obligations: 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 changesBank recorded $92 thousand in credit ~~quality. Management expects to recover~~loss expense for off-balance-sheet items compared with $0.2 million for first quarter 2022. These balances are included in the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Therefore, management does not consider the twenty-four securities with unrealized losses at September 30, 2017 to be OTTI.

SBA bonds: The contractual cash flows are guaranteed by the U.S. government. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality since time of purchase. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Therefore, management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses on six positions were temporary in nature and does not consider these investments to be other-than temporarily impaired at September 30, 2017.

~~Corporate bonds: Salisbury regularly monitors and analyzes its corporate bond portfolio~~“provision for credit ~~quality. Management believes the unrealized loss position is attributable to interest rate~~losses” for 2023 and ~~spread movements~~“other non-interest expense” in 2022 on Salisbury’s Consolidated Income Statement.

Salisbury has entered into loan participation agreements with other banks 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 evaluated the impairment status of this debt security, and concluded that the gross unrealized loss was temporary in nature and does not consider this investment- to be other-than temporarily impaired at September 30, 2017.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 2017, to assess whether any of the securities were OTTI. Salisbury uses cash flow forecasts for each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009, Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of September 30, 2017. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and depending upon such factor could reduce its position in these securities, although it has no present intention to do so, and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis.

CRA mutual funds consist of an investment in a fixed income mutual fund ($840 thousand in total fair value and $7 thousand in total unrealized losses as of September 30, 2017). The severity of the impairment (fair value is approximately 0.83% 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 September 30, 2017.

~~The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which~~transferred a portion of ~~an OTTI charge was recognized~~its originated loans to the participating banks. Transferred amounts are accounted for as sales and excluded from Salisbury’s loans receivable. Salisbury and its participating lenders share ratably in ~~accumulated other comprehensive income:~~

Nine months ended September 30 (in thousands) 2017 2016
Balance, beginning of period $ 1,128 $ 1,128
Credit component on debt securities in which OTTI was not previously recognized — —
Balance, end of period $ 1,128 $ 1,128

~~The Federal Home Loan Bank~~any gains or losses that may result from a borrower’s lack of ~~Boston (FHLBB) is a cooperative that provides~~compliance with contractual terms of the loan. Salisbury services ~~including funding in~~ the ~~form~~loans on behalf 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~~participating lenders and, as such, collects cash payments from the ~~FHLBB. No market exists for shares~~borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties.

Salisbury also has entered into loan participation agreements with other banks and purchased a portion of the ~~FHLBB~~other banks’ originated loans. Purchased amounts are accounted for as loans without recourse to the originating bank. Salisbury and ~~therefore, they are carried at par value. FHLBB stock~~its originating lenders share ratably in any gains or losses that may ~~be redeemed at par value five years following termination~~result from a borrower’s lack 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~~compliance with contractual terms of the ~~FHLBB. While~~loan. The originating banks service 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~~loans on ~~the capital adequacy and the liquidity position~~behalf of the ~~FHLBB, management believes there is no impairment related~~participating lenders and, as such, collect cash payments from the borrowers, remit payments (net of servicing fees) to ~~the carrying amount of the Bank’s FHLBB stock as of September 30, 2017. Deterioration of the FHLBB’s capital levels may require the Bank~~participating lenders and disburse required escrow funds 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.relevant parties.

~~NOTE 3 – LOANS~~At March 31, 2023 and December 31, 2022, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $66.5 million and $64.1 million, respectively.

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

September 30, 2017 December 31, 2016
(In thousands) Business Activities Loans
Acquired
Loans
Total Business Activities Loans
Acquired
Loans
Total
Residential 1-4 family $ 304,711 $ 5,626 $ 310,337 $ 295,030 $ 6,098 $ 301,128
Residential 5+ multifamily 11,904 5,251 17,155 7,976 5,649 13,625
Construction of residential 1-4 family 11,582 — 11,582 10,951 — 10,951
Home equity lines of credit 35,529 — 35,529 35,487 — 35,487
Residential real estate 363,726 10,877 374,603 349,444 11,747 361,191
Commercial 180,055 67,306 247,361 155,628 79,854 235,482
Construction of commercial 8,444 809 9,253 3,481 1,917 5,398
Commercial real estate 188,499 68,115 256,614 159,109 81,771 240,880
Farm land 4,692 — 4,692 3,914 — 3,914
Vacant land 7,464 — 7,464 6,600 — 6,600
Real estate secured 564,381 78,992 643,373 519,067 93,518 612,585
Commercial and industrial 114,447 14,126 128,573 121,144 20,329 141,473
Municipal 12,499 — 12,499 8,626 — 8,626
Consumer 4,851 49 4,900 5,312 68 5,380
Loans receivable, gross 696,178 93,167 789,345 654,149 113,915 768,064
Deferred loan origination fees and costs, net 1,285 — 1,285 1,247 — 1,247
Allowance for loan losses (6,280 ) (214 ) (6,494 ) (5,816 ) (311 ) (6,127 )
Loans receivable, net $ 691,183 $ 92,953 $ 784,136 $ 649,580 $ 113,604 $ 763,184
Loans held-for-sale
Residential 1-4 family $ 561 $ — $ 561 $ — $ — $ —

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in ~~northwestern Connecticut,~~Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New ~~York~~York; and Berkshire County, 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 loans and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

Salisbury’s commercial loan portfolio is comprised of loans to diverse industries, several of which may experience operating challenges due to the COVID-19 virus pandemic (“virus”). Approximately 32% of the Bank’s commercial loan portfolio are to entities who operate rental properties, which include commercial strip malls, smaller rental units as well as multi-unit dwellings. Approximately 10% of the Bank’s commercial loans are to entities in the hospitality industry, which includes hotels, bed & breakfast inns and restaurants. Approximately 9% of the Bank’s commercial loans are to educational institutions and approximately 4% of Salisbury’s commercial loans are to entertainment and recreation related businesses, which include camps and amusement parks. Salisbury’s commercial real estate exposure as a percentage of the Bank’s total risk-based capital, which represents Tier 1 plus Tier 2 capital, was approximately 209% as of March 31, 2023 and 198% at December 31, 2022 compared to the regulatory monitoring guideline of 300%. Salisbury’s commercial loan exposure is mitigated by a variety of factors including the personal liquidity of the borrower, real estate and/or non-real estate collateral, U.S. Department of Agriculture or Small Business Administration (“SBA”) guarantees, loan payment deferrals and economic stimulus loans from the U.S. government as a result of the virus, and other factors.

Credit Quality

Salisbury uses credit risk ratings as part of its determination of the allowance for credit losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. The rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 4 are considered not criticized and are aggregated as pass rated, and 5 through 8 are criticized as defined by the regulatory agencies. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

Loans rated as "special mention" (5) possess credit deficiencies or potential weaknesses deserving management’s close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

Loans rated as "substandard" (6) are loans where the Bank’s position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

Loans rated "doubtful" (7) have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

Loans classified as "loss" (8) are considered uncollectible and of such little value that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this loan even though partial recovery may be made in the future.

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

Based on the most recent analysis performed, the risk category of loans by segment and by vintage, reported under the CECL methodology, is presented below. Commercial and industrial loans include loans to businesses, municipalities and independent schools. Commercial real estate includes construction, commercial, residential 5+ multi-family, farm and vacant land loans. Residential real estate includes residential 1-4 family and residential construction loans. Consumer includes HELOC, consumer, indirect auto loans and overdrafts.

(in thousands)	2023			2022			2021			2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2023
Commercial & industrial
Risk rating
Pass	$	6,472		$	55,315		$	41,258		$	30,157	$	16,644	$	39,817	$	34,648	$	—	$	224,311
Special mention		—			300			—			—		—		5,584		350		—		6,234
Substandard		—			—			—			—		633		154		701		—		1,488
Doubtful		—			—			—			—		—		—		—		—		—
Loss		—			—			—			—		—		—		—		—		—
Total commercial & industrial	$	6,472		$	55,615		$	41,258		$	30,157	$	17,277	$	45,555	$	35,699	$	—	$	232,033
Commercial real estate
Risk rating
Pass	$	26,352		$	147,533		$	109,300		$	67,765	$	25,899	$	126,509	$	—	$	—	$	503,358
Special mention		—			—			—			3,576		—		2,942		—		—		6,518
Substandard		—			—			—			—		3,751		1,639		—		—		5,390
Doubtful		—			—			—			—		—		—		—		—		—
Loss		—			—			—			—		—		—		—		—		—
Total commercial real estate	$	26,352		$	147,533		$	109,300		$	71,341	$	29,650	$	131,090	$	—	$	—	$	515,266
Residential real estate
Risk rating
Pass	$	12,583		$	104,906		$	115,289		$	64,488	$	27,118	$	127,790	$	165	$	—	$	452,339
Special mention		—			—			—			21		—		3,239		—		—		3,260
Substandard		—			—			668			—		—		1,239		—		—		1,907
Doubtful		—			—			—			—		—		—		—		—		—
Loss		—			—			—			—		—		—		—		—		—
Total residential real estate	$	12,583		$	104,906		$	115,957		$	64,509	$	27,118	$	132,268	$	165	$	—	$	457,506
Consumer
Risk rating
Pass	$	790		$	1,653		$	945		$	256	$	408	$	15,492	$	22,808	$	2,439	$	44,791
Special mention		—			—			—			—		—		—		97		61		158
Substandard		—			—			—			—		—		4		8		—		12
Doubtful		—			—			—			—		—		—		—		—		—
Loss		—			—			—			—		—		—		—		—		—
Total consumer	$	790		$	1,653		$	945		$	256	$	408	$	15,496	$	22,913	$	2,500	$	44,961
Total loans	$	46,197		$	309,707		$	267,460		$	166,263	$	74,453	$	324,409	$	58,777	$	2,500	$	1,249,766
Total Gross Charge-offs	$	(18	)	$	(13	)	$	(4	)	$	—	$	—	$	—	$	—	$	—	$	(35	)
Total Recoveries		3			—			—			—		—		—		—		—		3
Total Net Charge-offs	$	(15	)	$	(13	)	$	(4	)	$	—	$	—	$	—		—	$	—	$	(32	)

~~Loan Credit Quality~~

The composition of loans receivable by risk rating grade, under the incurred loss methodology is as follows:

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2022
Commercial & industrial	$	232,259	$	6,195	$	1,543	$	—	$	—	$	239,997
Commercial real estate		477,006		8,798		5,855		—		—		491,659
Residential real estate		444,778		2,995		1,879		—		—		449,652
Consumer		46,041		162		5		—		—		46,208
Loans receivable, gross	$	1,200,084	$	18,150	$	9,282	$	—	$	—	$	1,227,516

~~Business Activities Loans~~

(in thousands) Pass Special mention Substandard Doubtful Loss Total
September 30, 2017
Residential 1-4 family $ 294,812 $ 6,657 $ 3,242 $ — $ — $ 304,711
Residential 5+ multifamily 9,917 1,834 153 — — 11,904
Construction of residential 1-4 family 11,582 — — — — 11,582
Home equity lines of credit 34,463 738 328 — — 35,529
Residential real estate 350,774 9,229 3,723 — — 363,726
Commercial 170,227 3,611 6,217 — — 180,055
Construction of commercial 8,334 — 110 — — 8,444
Commercial real estate 178,561 3,611 6,327 — — 188,499
Farm land 3,712 — 980 — — 4,692
Vacant land 7,349 79 36 — — 7,464
Real estate secured 540,396 12,919 11,066 — — 564,381
Commercial and industrial 112,799 1,225 423 — — 114,447
Municipal 12,499 — — — — 12,499
Consumer 4,812 39 — — — 4,851
Loans receivable, gross $ 670,506 $ 14,183 $ 11,489 $ — $ — $ 696,178

A financial asset is considered collateral dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of individually analyzed collateral-dependent loans by loan portfolio segment:

~~Acquired Loans~~The following table presents the amortized cost basis of collateral-dependent non-accrual loans as of March 31, 2023. Commercial and industrial loans include loans to businesses, municipalities and independent schools. Commercial real estate includes construction, commercial, residential 5+ multi-family, farm and vacant land loans. Residential real estate includes residential 1-4 family and residential construction loans. Consumer includes HELOC, consumer, indirect auto loans and overdrafts.

(in thousands) Pass Special mention Substandard Doubtful Loss Total
September 30, 2017
Residential 1-4 family $ 5,475 $ 103 $ 48 $ — $ — $ 5,626
Residential 5+ multifamily 5,251 — — — — 5,251
Construction of residential 1-4 family — — — — — —
Home equity lines of credit — — — — — —
Residential real estate 10,726 103 48 — — 10,877
Commercial 59,511 2,118 5,677 — — 67,306
Construction of commercial 551 — 258 — — 809
Commercial real estate 60,062 2,118 5,935 — — 68,115
Farm land — — — — — —
Vacant land — — — — — —
Real estate secured 70,788 2,221 5,983 — — 78,992
Commercial and industrial 13,199 844 83 — — 14,126
Municipal — — — — — —
Consumer 47 2 — — — 49
Loans receivable, gross $ 84,034 $ 3,067 $ 6,066 $ — $ — $ 93,167


		Collateral Type
(in thousands)		Real Estate		Business Assets		Total Collateral-Dependent Non-Accrual Loans
March 31, 2023
Commercial & industrial	$	—	$	144	$	144
Commercial real estate		1,222		—		1,222
Residential real estate		858		—		858
Consumer		8		9		17
Total	$	2,088	$	153	$	2,241

The following is a summary of loans by past due status at March 31, 2023:


			Past due
(in thousands)	Current		30-59 days		60-89 days		90 days or Greater Past Due		Total Past Due		Total Loans Outstanding		Loans Greater than 90 Days Past Due and Accruing
March 31, 2023
Commercial & industrial	$	231,733	$	300	$	—	$	—	$	300	$	232,033	$	—
Commercial real estate		514,822		359		—		85		443		515,266		—
Residential real estate		456,300		1,124		67		15		1,207		457,506		—
Consumer		44,513		373		58		17		448		44,961		—
Total	$	1,247,368	$	2,156	$	125	$	117	$	2,398	$	1,249,766	$	—

~~Business Activities Loans~~The following is a summary of the amortized cost basis of loans on non-accrual status.

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


		March 31, 2023						December 31, 2022
(in thousands)		Non-Accrual Loans with an Allowance		Non-Accrual Loans without an Allowance		Total Non-Accrual Loans		Total Non-Accrual Loans
Commercial & industrial	$	—	$	144	$	144	$	189
Commercial real estate		—		1,222		1,222		1,648
Residential real estate		—		858		858		820
Consumer		9		8		17		5
Total	$	9	$	2,232	$	2,241	$	2,662


			Past due

									180		30		Accruing
(in thousands)									days		days		90 days
			30-59		60-89		90-179		and		and		and		Non-
	Current		days		days		days		over		over		over		accrual
December 31, 2022
Commercial & industrial	$	239,847	$	149	$	1	$	—	$	—	$	150	$	—	$	189
Commercial real estate		491,574		—		—		85		—		85		—		1,648
Residential real estate		448,935		672		30		—		15		717		—		820
Consumer		45,677		442		84		5		—		531		—		5
Loans receivable, gross	$	1,226,033	$	1,263	$	115	$	90	$	15	$	1,483	$	—	$	2,662

~~Acquired Loans~~Loan Modifications Made to Borrowers Experiencing Financial Difficulty

(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 allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. Salisbury uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses as a result of the measurement methodologies used to estimate the allowance, a change in the allowance for credit losses is generally not recorded upon modification. In certain instances, Salisbury will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as an interest rate reduction, may be granted. Salisbury did not restructure any troubled debt in the first quarter of 2023 or 2022.

The components of troubled debt restructured loans at December 31, 2022 are as follows:

(in thousands)		December 31, 2022
Commercial & industrial	$	—
Commercial real estate		1,381
Residential real estate		1,289
Consumer		—
Accruing troubled debt restructured loans		2,670
Commercial & industrial		—
Commercial real estate		—
Residential real estate		67
Consumer		—
Non-accrual troubled debt restructured loans		67
Troubled debt restructured loans	$	2,737

The past due status of troubled debt restructured loans at December 31, 2022 is as follows:

(in thousands)		December 31, 2022
Current	$	2,670
Past due 30-59 days		—
Past due 60-89 days		—
Accruing troubled debt restructured loans		2,670
Current		—
Past due 30-59 days		67
Past due 180 days and over		—
Non-accrual troubled debt restructured loans		67
Total troubled debt restructured loans	$	2,737

Allowance for Credit Losses for Loans

The ~~composition~~ACL on loans at March 31, 2023, was $16.0 million, an increase of $1.2 million, or 7.8%, since December 31, 2022. The increase was driven by the adoption of CECL, effective January 1, 2023, and the estimate of expected credit losses based on certain macro-economic factors. At March 31, 2023, the ACL on loans ~~receivable~~estimate used a reasonable and supportable forecast period of one year across all of its loan segments. At March 31, 2023, the reasonable and supportable forecast used to estimate the ACL on loans used the following loss drivers by ~~delinquency status~~loan segment: (i) Commercial & Industrial – National Gross Domestic Product (“GDP”) and National Unemployment; (ii) Commercial Real Estate - National GDP and National Unemployment; (iii) Residential Real Estate – National Housing Price Index and National Unemployment; (iv) Consumer - National Unemployment. National GDP and National Unemployment are sourced from the Federal Reserve Open Market Committee’s published forecast whereas the National Housing Price Index is sourced from the Federal National Mortgage Association’s published forecast. The Company's qualitative factors at March 31, 2023, included consideration of the level of uncertainty surrounding the impact of macro-economic factors such as interest rates, inflation, supply chain disruption, geo-political events as well as other factors. At March 31, 2023, the ACL estimate for loans used a reversion period of two years for each loan segment.

The increase in the ACL on loans at March 31, 2023 compared with March 31, 2022, for the commercial & industrial and commercial real estate loan segments was primarily driven by changes in loan balances as well as changes in current and forecasted economic conditions between reporting periods. The increase in the ACL on loans in the residential real estate and consumer loan segments was primarily driven by changes in loan balances and a decline in the national housing price index between reporting periods.

The activity in Salisbury’s allowance for credit losses for loans is presented below. Commercial and industrial loans include loans to businesses, municipalities and independent schools. Commercial real estate includes construction, commercial, residential 5+ multi-family, farm and vacant land loans. Residential real estate includes residential 1-4 family and residential construction loans. Consumer includes HELOC, consumer, indirect auto loans and overdrafts.


	Three Months Ended March 31, 2023
(in thousands)	Beginning balance		Impact of Adopting ASC 326			Subtotal		Provision for Credit Losses			Charge-offs			Recoveries		Ending balance
Commercial & industrial	$	1,921	$	2,447		$	4,368	$	(89	)	$	—		$	—	$	4,279
Commercial real estate		8,425		(3,236	)		5,189		705			—			—		5,894
Residential real estate		4,108		831			4,939		287			—			—		5,226
Consumer		392		229			621		21			(35	)		3		610
Total allowance for credit losses	$	14,846	$	271		$	15,117	$	924		$	(35	)	$	3	$	16,009


	Three months ended March 31, 2022
(in thousands)	Beginning balance		Provision			Charge-offs			Recoveries		Ending balance
Commercial & industrial	$	1,811	$	(173	)	$	(46	)	$	1	$	1,593
Commercial real estate		6,973		261			(334	)		—		6,900
Residential real estate		3,020		252			(16	)		—		3,253
Consumer		277		37			(17	)		5		302
Unallocated		881		(14	)		—			—		867
Totals	$	12,962	$	363		$	(416	)	$	6	$	12,915

Charge-offs for first quarter 2022 included a write-down of $374 thousand to reduce the carrying value on $3.8 million of non-performing and under-performing loans, which Salisbury sold during the quarter, to the initial bid prices. The proceeds from the sale of these loans subsequently increased by approximately $239 thousand due to higher final bids. This increase was recorded in mortgage banking activities, net in Salisbury’s consolidated statement of income.

The Bank’s allowance for credit losses on unfunded commitments is recognized as a liability (in other liabilities on consolidated balance sheet), with adjustments to the reserve recognized in the provision for credit losses in the consolidated income statement. The Bank’s activity in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2023 and 2022 was 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
September 30, 2017
Residential 1-4 family $ 301,613 $ 1,108 $ 228 $ 430 $ 1,332 $ 3,098 $ 102 $ 2,169
Residential 5+ multifamily 11,904 — — — — — — 153
Construction of residential 1-4 family 11,582 — — — — — — —
Home equity lines of credit 34,753 293 394 89 — 776 — 209
Residential real estate 359,852 1,401 622 519 1,332 3,874 102 2,531
Commercial 177,985 276 — — 1,793 2,069 — 1,793
Construction of commercial 8,444 — — — — — — —
Commercial real estate 186,429 276 — — 1,793 2,069 — 1,793
Farm land 3,711 258 — — 723 981 — 980
Vacant land 7,428 — — 36 — 36 36 —
Real estate secured 557,420 1,935 622 555 3,848 6,960 138 5,304
Commercial and industrial 114,037 194 5 75 137 411 75 137
Municipal 12,499 — — — — — — —
Consumer 4,774 75 2 — — 77 — —
Loans receivable, gross $ 688,730 $ 2,204 $ 629 $ 630 $ 3,985 $ 7,448 $ 213 $ 5,441

	Three months ended March 31, 2023
Balance at the beginning of period December 31, 2022	$	178
Impact of adopting ASC 326		913
Subtotal		1,091
Provision for credit losses		92
Balance at the end of period March 31, 2023	$	1,183

~~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
September 30, 2017
Residential 1-4 family $ 5,626 $ — $ — $ — $ — $ — $ — $ —
Residential 5+ multifamily 5,251 — — — — — — —
Construction of residential 1-4 family — — — — — — — —
Home equity lines of credit — — — — — — — —
Residential real estate 10,877 — — — — — — —
Commercial 64,204 698 4 545 1,856 3,103 545 1,856
Construction of commercial 551 — — — 258 258 — 258
Commercial real estate 64,755 698 4 545 2,114 3,361 545 2,114
Farm land — — — — — — — —
Vacant land — — — — — — — —
Real estate secured 75,632 698 4 545 2,114 3,361 545 2,114
Commercial and industrial 13,754 61 310 — — 371 — —
Municipal — — — — — — — —
Consumer 49 — — — — — — —
Loans receivable, gross $ 89,435 $ 759 $ 314 $ 545 $ 2,114 $ 3,732 $ 545 $ 2,114

	Three months ended March 31, 2022
Balance at the beginning of period December 31, 2021	$	146
Other expense – unfunded commitments		37
Balance at the end of period March 31, 2022	$	183

~~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 nine months ended September 30, 2017 and 2016 had the loans been current in accordance with their original terms totaled $691 thousand and $666 thousand, respectively.

~~Troubled Debt Restructurings~~

~~Troubled debt restructurings occurring during the periods are as follows:~~

~~Business Activities Loans~~

Nine months ended
September 30, 2017 September 30, 2016
(in thousands) Quantity
Pre-
modification balance

Post-
modification balance
Quantity
Pre-
modification balance

Post-
modification balance
Residential real estate — $ — $ — 4 $ 683 $ 683
Commercial real estate 1 600 600 2 2,123 2,123
Troubled debt restructurings 1 $ 600 $ 600 6 $ 2,806 $ 2,806
Rate reduction and term extension — $ — $ — 1 $ 174 $ 174
Debt consolidation — — — 2 2,123 2,123
Term extension 1 600 600 3 509 509
Troubled debt restructurings 1 $ 600 $ 600 6 $ 2,806 $ 2,806

~~Acquired Loans~~

~~No acquired loans have been modified as a troubled debt restructure during the nine months ended September 30, 2017 and September 30, 2016.~~

~~Allowance for Loan Losses~~

~~Changes in the allowance for loan losses are as follows:~~

Business Activities Loans Acquired Loans
(in thousands) Three months ended September 30, 2017 Three months ended September 30, 2017
Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance
Residential $ 2,353 $ 34 $ (93 ) $ 4 $ 2,298 $ — $ — $ — $ — $ —
Commercial 2,099 50 — 69 2,218 285 53 (190 ) 48 196
Land 154 51 (27 ) — 178 — — — — —
Real estate 4,606 135 (120 ) 73 4,694 285 53 (190 ) 48 196
Commercial and industrial 979 (59 ) — 1 921 22 31 (41 ) 6 18
Municipal 18 2 — — 20 — — — — —
Consumer 69 12 (17 ) 4 68 — — — — —
Unallocated 514 63 — — 577 — — — — —
Totals $ 6,186 $ 153 $ (137 ) $ 78 $ 6,280 $ 307 $ 84 $ (231 ) $ 54 $ 214

Business Activities Loans Acquired Loans
(in thousands) Nine months ended September 30, 2017 Nine months ended September 30, 2017
Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance
Residential $ 2,427 $ 35 $ (172 ) $ 8 $ 2,298 $ — $ — $ — $ — $ —
Commercial 1,683 504 (38 ) 69 2,218 275 184 (340 ) 77 196
Land 198 23 (43 ) — 178 — — — — —
Real estate 4,308 562 (253 ) 77 4,694 275 184 (340 ) 77 196
Commercial and industrial 1,043 (115 ) (57 ) 50 921 36 72 (105 ) 15 18
Municipal 53 (33 ) — — 20 — — — — —
Consumer 75 43 (63 ) 13 68 — — — — —
Unallocated 337 240 — — 577 — — — — —
Totals $ 5,816 $ 697 $ (373 ) $ 140 $ 6,280 $ 311 $ 256 $ (445 ) $ 92 $ 214

Business Activities Loans Acquired Loans
(in thousands) Three months ended September 30, 2016 Three months ended September 30, 2016
Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance
Residential $ 2,248 $ 224 $ (155 ) $ 8 $ 2,325 $ 69 $ 5 $ — $ — $ 74
Commercial 1,734 29 (1 ) — 1,762 134 37 — — 171
Land 166 82 (42 ) — 206 — — — — —
Real estate 4,148 335 (198 ) 8 4,293 203 42 — — 245
Commercial and industrial 851 (16 ) (2 ) 25 858 37 (11 ) — 8 34
Municipal 56 (3 ) — — 53 — — — — —
Consumer 89 17 (17 ) 5 94 — — — — —
Unallocated 334 (19 ) — — 315 — — — — —
Totals $ 5,478 $ 314 $ (217 ) $ 38 $ 5,613 $ 240 $ 31 $ — $ 8 $ 279

Business Activities Loans Acquired Loans
(in thousands) Nine months ended September 30, 2016 Nine months ended September 30, 2016
Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance Beginning balance
Provision

Charge-
offs

Reco-
veries
Ending balance
Residential $ 2,477 $ 370 $ (550 ) $ 28 $ 2,325 $ 79 $ (5 ) $ — $ — $ 74
Commercial 1,466 332 (37 ) 1 1,762 132 133 (98 ) 4 171
Land 188 106 (88 ) — 206 — — — — —
Real estate 4,131 808 (675 ) 29 4,293 211 128 (98 ) 4 245
Commercial and industrial 683 (167 ) (32 ) 40 858 24 403 (416 ) 23 34
Municipal 61 (8 ) — — 53 — — — — —
Consumer 124 1 (46 ) 15 94 — — — — —
Unallocated 482 (167 ) — — 315 — — — — —
Totals $ 5,481 $ 801 $ (753 ) $ 84 $ 5,613 $ 235 $ 531 $ (514 ) $ 27 $ 279

The composition of loans receivable and the allowance for ~~loan~~credit losses is ~~as follows:~~presented in the tables below. The loan categories for previously reported periods have been updated to conform to the current presentation.


(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
March 31, 2023
Commercial & industrial	$	231,889	$	4,279	$	144	$	—	$	232,033	$	4,279
Commercial real estate		514,044		5,894		1,222		—		515,266		5,894
Residential real estate		456,648		5,226		858		—		457,506		5,226
Consumer		44,953		610		8		—		44,961		610
Totals	$	1,247,534	$	16,009	$	2,232	$	—	$	1,249,766	$	16,009

~~Business Activities Loans~~

(in thousands) Collectively evaluated Individually evaluated Total portfolio
Loans Allowance Loans Allowance Loans Allowance
September 30, 2017
Residential 1-4 family $ 299,406 $ 1,749 $ 5,305 $ 85 $ 304,711 $ 1,833
Residential 5+ multifamily 10,152 123 1,752 1 11,904 124
Construction of residential 1-4 family 11,582 76 — — 11,582 76
Home equity lines of credit 35,273 264 256 1 35,529 265
Residential real estate 356,413 2,211 7,313 87 363,726 2,298
Commercial 176,063 2,087 3,992 62 180,055 2,149
Construction of commercial 8,334 69 110 — 8,444 69
Commercial real estate 184,397 2,156 4,102 62 188,499 2,218
Farm land 3,712 28 980 — 4,692 28
Vacant land 7,263 147 201 3 7,464 150
Real estate secured 551,785 4,542 12,596 152 564,381 4,694
Commercial and industrial 114,260 889 187 32 114,447 921
Municipal 12,499 20 — — 12,499 20
Consumer 4,851 68 — — 4,851 68
Unallocated allowance — 577 — — — 577
Totals $ 683,395 $ 6,096 $ 12,783 $ 184 $ 696,178 $ 6,280

~~Acquired Loans~~

(in thousands) Collectively evaluated Individually evaluated ASC 310-30 loans Total portfolio
Loans Allowance Loans Allowance Loans Allowance Loans Allowance
September 30, 2017
Residential 1-4 family $ 5,626 $ — $ — $ — $ — $ — $ 5,626 $ —
Residential 5+ multifamily 5,251 — — — — — 5,251 —
Construction of residential 1-4 family — — — — — — — —
Home equity lines of credit — — — — — — — —
Residential real estate 10,877 — — — — — 10,877 —
Commercial 60,904 27 2,645 87 3,757 81 67,306 195
Construction of commercial 551 1 258 — — — 809 1
Commercial real estate 61,455 28 2,903 87 3,757 81 68,115 196
Farm land — — — — — — — —
Vacant land — — — — — — — —
Real estate secured 72,332 28 2,903 87 3,757 81 78,992 196
Commercial and industrial 14,047 10 — — 79 8 14,126 18
Municipal — — — — — — — —
Consumer 34 — — — 15 — 49 —
Unallocated allowance — — — — — — — —
Totals $ 86,413 $ 38 $ 2,903 $ 87 $ 3,851 $ 89 $ 93,167 $ 214


(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2022
Commercial & industrial	$	239,808	$	1,780	$	189	$	—	$	239,997	$	1,780
Commercial real estate		488,630		7,781		3,029		22		491,659		7,803
Residential real estate		447,543		3,805		2,109		—		449,652		3,805
Consumer		46,203		363		5		—		46,208		363
Unallocated allowance		—		1,095		—		—		—		1,095
Totals	$	1,222,184	$	14,824	$	5,332	$	22	$	1,227,516	$	14,846

~~Business Activities Loans~~Certain data with respect to loans individually evaluated for impairment is presented in the tables below. The loan categories for previously reported periods have been updated to conform to the current presentation.

(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


	Loans with no specific allowance
	Loan balance						Income
	Book		Note		Average		Recognized
March 31, 2023
Commercial & industrial	$	144	$	244	$	165	$	—
Commercial real estate		1,222		1,748		1,619		14
Residential real estate		858		941		1,170		—
Consumer		8		8		31		—
Totals	$	2,232	$	2,941	$	2,985	$	14

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

~~Business Activities Loans~~

September 30, 2017 (in thousands) Collectively evaluated Individually evaluated Total portfolio
Loans Allowance Loans Allowance Loans Allowance
Performing loans $ 678,906 $ 5,313 $ — $ — $ 678,906 $ 5,313
Potential problem loans 4,489 206 — — 4,489 206
Impaired loans — — 12,783 184 12,783 184
Unallocated allowance — 577 — — — 577
Totals $ 683,395 $ 6,096 $ 12,783 $ 184 $ 696,178 $ 6,280

~~Acquired Loans~~

September 30, 2017 (in thousands) Collectively evaluated Individually evaluated Total portfolio
Loans Allowance Loans Allowance Loans Allowance
Performing loans $ 87,102 $ 48 $ — $ — $ 87,102 $ 48
Potential problem loans 3,162 79 — — 3,162 79
Impaired loans — — 2,903 87 2,903 87
Unallocated allowance — — — — — —
Totals $ 90,264 $ 127 $ 2,903 $ 87 $ 93,167 $ 214

~~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 present value of expected cash flows or fair value of collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as ~~follows:~~follows as of and for the three months ended March 31, 2022:


	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, 2022
Commercial & industrial	$	76	$	76	$	146	$	3	$	1	$	28	$	25	$	79	$	—
Commercial real estate		598		598		602		23		7		3,174		3,785		3,282		11
Residential real estate		—		—		21		—		—		1,938		2,020		2,944		14
Consumer		—		—		—		—		—		—		—		15		—
Totals	$	674	$	674	$	769	$	26	$	8	$	5,140	$	5,830	$	6,320	$	25

~~Business Activities Loans~~

Impaired loans with specific allowance Impaired loans with no specific allowance
(in thousands) Loan balance Specific Income Loan balance Income
Book Note Average allowance recognized Book Note Average recognized
September 30, 2017
Residential $ 3,256 $ 3,367 $ 3,388 $ 86 $ 80 $ 3,803 $ 4,641 $ 3,605 $ 89
Home equity lines of credit �� 47 47 88 1 1 209 264 173 6
Residential real estate 3,303 3,414 3,476 87 81 4,012 4,905 3,778 95
Commercial 1,555 1,596 1,943 62 49 2,437 2,947 1,913 33
Construction of commercial 110 116 44 — 5 — — 68 —
Farm land — — — — — 980 1,177 982 —
Vacant land 44 44 45 3 2 157 181 161 8
Real estate secured 5,012 5,170 5,508 152 137 7,586 9,210 6,902 136
Commercial and industrial 110 110 44 32 2 76 171 110 2
Consumer — — — — — — 6 2 —
Totals $ 5,122 $ 5,280 $ 5,552 $ 184 $ 139 $ 7,662 $ 9,387 $ 7,014 $ 138

~~Acquired Loans~~

Impaired loans with specific allowance Impaired loans with no specific allowance
(in thousands) Loan balance Specific Income Loan balance Income
Book Note Average allowance recognized Book Note Average recognized
September 30, 2017
Residential $ — $ — $ — $ — $ — $ — $ — $ — $ —
Home equity lines of credit — — — — — — — — —
Residential real estate — — — — — — — — —
Commercial 339 437 973 87 10 2,306 3,248 1,525 60
Construction of commercial — — — — — 258 272 258 —
Farm land — — — — — — — — —
Vacant land — — — — — — — — —
Real estate secured 339 437 973 87 10 2,564 3,520 1,783 60
Commercial and industrial — — — — — — — — —
Consumer — — — — — — — — —
Totals $ 339 $ 437 $ 973 $ 87 $ 10 $ 2,564 $ 3,520 $ 1,783 $ 60

2318

~~Business Activities Loans~~

Impaired loans with specific allowance Impaired loans with no specific allowance
(in thousands) Loan balance Specific Income Loan balance Income
Book Note Average allowance recognized Book Note Average recognized
December 31, 2016
Residential $ 3,516 $ 3,684 $ 5,907 $ 135 $ 88 $ 3,437 $ 4,031 $ 2,822 $ 94
Home equity lines of credit 406 435 462 22 2 227 277 331 3
Residential real estate 3,922 4,119 6,369 157 90 3,664 4,308 3,153 97
Commercial 3,021 3,304 3,347 60 34 667 897 934 42
Construction of commercial — — 56 — — 115 121 63 8
Farm land — — 394 — — 1,002 1,140 622 —
Vacant land 46 46 1,786 4 3 164 189 195 12
Real estate secured 6,989 7,469 11,952 221 127 5,612 6,655 4,967 159
Commercial and industrial — — 31 — — 84 130 201 3
Consumer — — — — — 3 16 7 —
Totals $ 6,989 $ 7,469 $ 11,983 $ 221 $ 127 $ 5,699 $ 6,801 $ 5,175 $ 162

NOTE 5 – LEASES

~~Acquired Loans~~

Impaired loans with specific allowance Impaired loans with no specific allowance
(in thousands) Loan balance Specific Income Loan balance Income
Book Note Average allowance recognized Book Note Average recognized
December 31, 2016
Residential $ — $ — $ 504 $ — $ — $ — $ — $ 238 $ —
Home equity lines of credit — — — — — — — — —
Residential real estate — — 504 — — — — 238 —
Commercial 1,254 1,628 725 191 14 2,134 2,621 2,112 38
Construction of commercial — — — — — 258 272 258 —
Farm land — — — — — — — — —
Vacant land — — — — — — — — —
Real estate secured 1,254 1,628 1,229 191 14 2,392 2,893 2,608 38
Commercial and industrial — 77 — — — — 19 —
Consumer — — — — — — — — —
Totals $ 1,254 $ 1,628 $ 1,306 $ 191 $ 14 $ 2,392 $ 2,893 $ 2,627 $ 38

AsThe Bank leases facilities and equipment with various expiration dates. The facilities leases have varying renewal options, generally require fixed annual rent, and provide that real estate taxes, insurance, and maintenance expenses are to be paid by Salisbury. The following table provides the assets and liabilities as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022, as well as the ~~recorded investment in residential mortgage loans collateralized by real estate that were~~costs of operating and financial leases, which are included in the ~~process~~Bank’s consolidated income statement for the three months ended March 31, 2023 and 2022.

($ in thousands, except lease term and discount rate)	Classification		March 31, 2023		December 31, 2022
Assets
Operating	Other assets	$	1,183	$	1,175
Finance	Bank premises and equipment ¹		3,800		3,856
Total leased assets		$	4,983	$	5,031
Liabilities
Operating	Other liabilities	$	1,183	$	1,175
Finance	Finance lease		4,225		4,262
Total lease liabilities		$	5,408	$	5,437

¹ Net of ~~foreclosure was $5.1 million~~accumulated depreciation of $776 thousand and ~~$2.1 million,~~$720 thousand, respectively. ~~At September 30, 2017 and December~~

Lease cost	Classification		Three Months Ended		Three Months Ended
			March 31, 2023		March 31, 2022
Operating leases	Premises and equipment	$	76	$	74
Finance leases:
Amortization of leased assets	Premises and equipment		56		35
Interest on finance leases	Interest expense		40		41
Total lease cost		$	172	$	150

Weighted Average Remaining Lease Term	March 31, 2023		December 31, 2022
Operating leases	5.6 years		5.9 years
Financing leases	21.5 years		21.5 years
Weighted Average Discount Rate ¹
Operating leases	3.74	%	3.63	%
Financing leases	3.76	%	3.74	%
¹ Salisbury uses the applicable FHLBB Advance rate as the discount rate, as its leases do not provide an implicit rate.

The following is a schedule by years of the present value of the net minimum lease payments as of March 31, ~~2016, the carrying amount of foreclosed residential real estate held as a result of obtaining physical possession amounted to $3.2 million and $3.6 million, respectively.~~2023.

Future minimum lease payments (in thousands)		Operating Leases			Finance Leases
2023	$	201		$	228
2024		270			314
2025		218			323
2026		213			334
2027		188			344
Thereafter		242			4,924
Total future minimum lease payments		1,333			6,167
Less amount representing interest		(150	)		(1,941	)
Total present value of net future minimum lease payments	$	1,183		$	4,225

NOTE 46 - MORTGAGE SERVICING RIGHTS

(in thousands)		September 30, 2017		December 31, 2016		March 31, 2023		December 31, 2022
Residential mortgage loans serviced for others	$	120,429	$	125,243	$	130,275	$	133,100
Fair value of mortgage servicing rights		1,004		902		1,309		1,376

Changes in mortgage servicing rights are as follows:

		Three months						Nine months
Periods ended September 30, (in thousands)		2017			2016			2017			2016
Three months ended March 31, (in thousands)														2023			2022
Mortgage Servicing Rights
Balance, beginning of period	$	241		$	416		$	339		$	487		$	630		$	700
Originated		15			28			53			71			—			55
Amortization (1)		(13	)		(67	)		(149	)		(181	)		(26	)		(39	)
Balance, end of period	$	243		$	377		$	243		$	377		$	604		$	716
Valuation Allowance
Balance, beginning of period	$	(25	)	$	(25	)	$	(23	)	$	(3	)		—			—
Decrease (increase) in impairment reserve (1)		26			7			24			(17	)
Decrease in impairment reserve ⁽¹⁾														—			—
Balance, end of period		1			(18	)		1			(20	)		—			—
Mortgage servicing rights, net	$	244		$	359		$	244		$	357		$	604		$	716

(1)

Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net.

NOTE 57 - PLEDGED ASSETS

(in thousands) September 30, 2017 December 31, 2016
Securities available-for-sale (at fair value) $ 69,795 $ 63,833
Loans receivable (at book value) 190,868 203,145
Total pledged assets $ 260,663 $ 266,978

The following securities and loans were pledged to secure public and trust deposits, securities sold under agreements to repurchase, FHLBB advances and credit facilities available.

(in thousands)		March 31, 2023		December 31, 2022
Securities available-for-sale (at fair value)	$	80,456	$	74,303
Loans receivable (at book value)		381,740		380,787
Total pledged assets	$	462,196	$	455,090

At ~~September 30, 2017,~~March 31, 2023, securities were pledged as follows: ~~$64.6~~$77.3 million to secure public deposits ~~$5.1~~and $3.2 million to secure repurchase ~~agreements and $0.1 million to secure FHLBB advances.~~agreements. In addition to securities, loans receivable were pledged to secure FHLBB advances and credit facilities.

NOTE 68 – EARNINGS PER SHARE

Salisbury defines unvested share-based payment awards that contain non-forfeitable rights to dividends as participating securities that are included in computing earnings per share (EPS) using the two-class method.

The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. Basic EPS excludes dilution and is computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated:

		Three months						Nine months
Periods ended September 30, (in thousands, except per share data)		2017			2016			2017			2016
Three months ended March 31, (in thousands, except per share data)														2023			2022
Net income	$	1,694		$	1,919		$	5,180		$	5,165		$	3,018		$	3,568
Less: Undistributed earnings allocated to participating securities		(16	)		(15	)		(41	)		(41	)		(50	)		(60	)
Net income allocated to common stock	$	1,678		$	1,904		$	5,139		$	5,124		$	2,968		$	3,508
Weighted average common shares issued		2,785			2,758			2,777			2,754
Weighted-average common shares issued														5,799			5,734
Less: Unvested restricted stock awards		(26	)		(21	)		(22	)		(22	)		(97	)		(98	)
Weighted average common shares outstanding used to calculate basic earnings per common share		2,759			2,737			2,755			2,732			5,702			5,636
Add: Dilutive effect of stock options		20			14			19			15
Weighted average common shares outstanding used to calculate diluted earnings per common share		2,779			2,751			2,774			2,747
Add: Dilutive effect of stock options and restricted stock units														12			58
Weighted-average common shares outstanding used to calculate diluted earnings per common share														5,714			5,694
Earnings per common share (basic)	$	0.61		$	0.70		$	1.87		$	1.88		$	0.52		$	0.62
Earnings per common share (diluted)	$	0.60		$	0.69		$	1.85		$	1.87		$	0.52		$	0.62

NOTE 79 – SHAREHOLDERS’ EQUITY

Capital Requirements

~~Salisbury~~The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional 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~~its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. ~~Salisbury and the~~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 Bank is subject to capital regulations adopted by the Board of Governors of the Federal Reserve ~~Bank~~System (FRB) ~~approved~~and the ~~final rules implementing~~FDIC, which implemented 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~~III regulatory capital ~~requirements for U.S. banks, following~~reforms and 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~~changes required by the ~~FRB in July 2013. Under the final rules,~~Dodd-Frank Act. The required minimum ~~requirements increased for both the quantity and quality of~~regulatory capital ~~held by~~ratios to which the Bank is subject, and ~~Company. The rules include~~the minimum ratios required for the Bank to be categorized as “well capitalized” under the prompt corrective action framework are noted in the table below. In addition, the regulations established a 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~~2.5% effective January 1, ~~capital, is also established above the regulatory minimum capital requirements. The initial implementation of~~2019. Failure to maintain the capital conservation buffer ~~began phasing in January 1, 2016 at 0.625%~~will limit the ability of ~~risk-weighted assets~~the Company 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 September 30, 2017,~~the Bank to pay discretionary bonuses and dividends. At March 31, 2023, the Bank exceeded the ~~fully phased in regulatory~~minimum requirement for the capital conservation buffer. ~~Strict eligibility criteria for regulatory capital instruments were also implemented~~As of March 31, 2023, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the ~~final rules.~~regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed that categorization.

In March 2022, Salisbury announced that its Board of Directors renewed a share repurchase program, which provides for the repurchase of Salisbury’s common stock in amounts up to an aggregate of five percent (5%) of the outstanding shares of Salisbury’s common stock from time to time over the next twelve months. Salisbury did not repurchase any shares pursuant to such program.

The Bank’s risk-weighted assets at March 31, 2023 and December 31, 2022 were $1,280.9 million and $1,256.6 million, respectively. Actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" for ~~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
September 30, 2017
Total Capital (to risk-weighted assets)
Salisbury $ 98,246 13.20 % $ 59,563 8.0 % n/a —
Bank 95,078 12.77 59,578 8.0 $ 74,473 10.0 %
Tier 1 Capital (to risk-weighted assets)
Salisbury 81,576 10.96 44,672 6.0 n/a —
Bank 88,408 11.87 44,684 6.0 59,578 8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury 81,576 10.96 33,504 4.5 n/a —
Bank 88,408 11.87 33,513 4.5 48,407 6.5
Tier 1 Capital (to average assets)
Salisbury 81,576 8.49 38,442 4.0 n/a —
Bank 88,408 9.20 38,442 4.0 48,052 5.0
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 9.51 36,762 4.0 45,953 5.0


	Actual					Minimum Capital Required For Capital Adequacy					Minimum Capital Required For Capital Adequacy Plus Required Capital Conservation Buffer					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2023
Total Capital (to risk-weighted assets)	$	171,829		13.41	%	$	102,472		8.0	%	$	134,495		10.5	%	$	128,090		10.0	%

Tier 1 Capital (to risk-weighted assets)		155,812		12.16			76,854		6.0			108,877		8.5			102,472		8.0

Common Equity Tier 1 Capital (to risk-weighted assets)		155,812		12.16			57,641		4.5			89,663		7.0			83,259		6.5

Tier 1 Capital (to average assets)	$	155,812		9.98		$	62,444		4.0		$	62,444		4.0		$	78,055		5.0

~~DIVIDENDS~~

December 31, 2022
Total Capital (to risk-weighted assets)	$	168,786	13.43	%	$	100,525	8.0	%	$	131,939	10.5	%	$	125,656	10.0	%

Tier 1 Capital (to risk-weighted assets)		153,762	12.24			75,394	6.0			106,808	8.5			100,525	8.0

Common Equity Tier 1 Capital (to risk-weighted assets)		153,762	12.24			56,545	4.5			87,959	7.0			81,677	6.5

Tier 1 Capital (to average assets)	$	153,762	9.99		$	61,540	4.0		$	61,540	4.0		$	76,925	5.0

Restrictions on Cash Dividends to Common Shareholders

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

FRB Supervisory Letter SR 09-4, February 24, 2009, revised 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 810 – BENEFITS

Salisbury offers a 401(k) Plan to eligible employees. Under the 401(k) Plan, eligible participants may contribute a percentage of their pay subject to IRS limitations. Salisbury may make discretionary contributions to the Plan. The Plan includes a safe harbor contribution of 3% for all qualifying employees. The Bank’s safe harbor contribution percentage is reviewed annually and, under provisions of the 401(k) Plan, is subject to change in the future. An additional discretionary match may also be made for all employees that meet the 401(k) Plan’s qualifying requirements for such a match. This discretionary matching percentage, if any, is also subject to review under the provisions of the 401(k) Plan. Both the safe harbor and additional discretionary match, if any, vest immediately. Salisbury’s 401(k) Plan expense was ~~$210,000~~$328 thousand and ~~$179,000,~~$294 thousand, respectively, for the ~~three month~~three-month periods ended ~~September 30, 2017~~March 31, 2023 and 2016, and $681,000 and $568,000, respectively, for the nine month periods ended September 30, 2017 and 2016. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $53,000 and $19,000, respectively, for the three month periods ended September 30, 2017 and 2016, and $88,000 and $56,000, respectively, for the nine month periods ended September 30, 2017 and 2016.2022.

ESOP

Salisbury offers an ESOP to eligible employees. Under the Plan, Salisbury may make discretionary contributions to the ~~Plan, which generally~~Plan. Discretionary contributions vest in full upon six years and reflect the following schedule of qualified service: 20% after the second year, 20% per year thereafter, vesting at 100% after six full years of service.

Salisbury’s ESOP expense was ~~$34,000~~$98 thousand and ~~$51,000,~~$35 thousand, respectively, for the ~~three month~~three-month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022. On December 21, 2022, the Board of Directors of the Company adopted resolutions to terminate the Plan effective on the date immediately preceding the closing date of the pending merger with NBT (see Note 2). Upon termination, the employees participating in the Plan will become fully vested in the Company’s contributions to the Plan.

Other Retirement Plans

Split-Dollar Life Insurance

Salisbury adopted ASC 715-60, “Compensation - Retirement Benefits - Defined Benefit Plans - Other Postretirement" and ~~$83,000 and $132,000, respectively,~~recognized a liability for Salisbury’s future postretirement benefit obligations under endorsement split-dollar life insurance arrangements. The total liability for the ~~nine month~~arrangements included in other liabilities was $694 thousand and $702 thousand at March 31, 2023, and December 31, 2022, respectively. The Bank realized a credit of $8 thousand for the three months ended March 31, 2023 and 2022.

Supplemental Retirement Agreement

The Bank assumed a Supplemental Retirement Plan Agreement with a former Chief Executive Officer of Riverside Bank that provides for supplemental post retirement payments for a fifteen-year period ending in 2025 as described in the agreement. The related liability was $199 thousand and $212 thousand at March 31, 2023 and December 31, 2022, respectively. The related expenses were immaterial for all periods ~~ended September 30, 2017 and 2016.~~presented.

~~Other Retirement Plans~~Non-Qualified Deferred Compensation Plan

A Non-Qualified Deferred Compensation Plan (the ~~"NQDC Plan"~~"Plan") was adopted effective January 1, 2013. ~~The NQDC~~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 ~~the NQDC~~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. ~~The NQDC~~This Plan is intended to comply with Internal Revenue Code ("Code") Section 409A and any regulatory or other guidance issued under such ~~Section.~~Section

On December 27, 2021, the Board of Directors of Salisbury Bank and Trust Company executed the Salisbury Bank and Trust Company Amended and Restated Non-Qualified Deferred Compensation Plan (the “Plan”), effective as of January 1, 2022. The Plan permits the Board to select certain key employees of the Bank to participate in the Plan, provided that such employees also evidence their participation by execution of a Participation Agreement. Before amendment and restatement, the Plan provided solely for discretionary bank contributions to selected participant’s accounts. The participation agreement sets forth the vesting terms of the discretionary contributions and the “benefit age” at which a participant could retire with a fully vested benefit. The participation agreement also sets forth how a participant’s benefit would be distributed (i.e., in a lump sum or in annual installments over a period of up to 10 years, as selected by the participant). Until distribution, a participant’s account would earn interest as of the last day of the plan year at the highest certificate of deposit rate for that year, compounded annually. The participant’s benefits under the Plan are subject to the vesting schedule ~~is based~~set forth in the participant’s participation agreement. Notwithstanding the vesting schedule, the participant’s account balance will become automatically 100% vested upon involuntary termination without cause, death, disability or a change in control.

The amended and restated Plan allows participant deferrals and provides greater flexibility in participant elections and investment options. The amended and restated Plan also provides additional distribution options, including distributions in the event of an unforeseeable emergency and on the ~~Executive’s~~occurrence of a specified date before separation from service, and allows a participant to elect for each year’s contributions the manner in which such distributions will be paid. Installment distributions can be made in monthly, quarterly or annual installments. Payment of ~~retirement~~benefits under the Plan, other than benefits payable as a result of base salary deferrals, are conditioned on the participant’s covenant to comply with non-compete, non-solicitation and ~~ranges~~non-disclosure provisions for a period of one year following the participant’s separation from ~~7.7% per year~~service. The Bank has established a grantor trust to ~~50% per year~~hold the assets of the Plan. Until distributed, the assets of the Plan are not legally owned by the participants. In first quarter 2023, the Bank awarded one (1) Executive with ~~two exceptions which are 10 year and 15 year cliff vesting schedules from the date of initial award.~~

~~Additionally, pursuant~~a discretionary contribution to the ~~2013 Phantom Stock Appreciation Unit~~plan. In first quarter 2022, the Bank awarded seven (7) Executives with discretionary contributions to the plan. Salisbury’s expense for this plan was $145 thousand and ~~Long-Term Incentive Plan (the “Phantom Stock Plan”), the Compensation Committee granted a total of 56,600 and 47,470 Phantom Stock Appreciation Units~~$47 thousand, respectively, for the ~~nine months~~three-month periods ended ~~September 30,2017~~March 31, 2023 and ~~2016, respectively to certain employees,~~2022.

Management Agreements

Management Agreements: Salisbury or the Bank has entered into various management agreements with its named executive officers (“NEOs”), including ~~the three Named Executive Officers. The units will vest on the third anniversary of the grant date.~~

Expenses related to the NQDC Plan and the Phantom Stock Plan amounted to $89,000 for the third quarter of 2017 and $56,000 for the third quarter of 2016. Additionally, expenses related to these plans amounted to $165,000 and $168,000 for the nine months ended September 30, 2017 and 2016, respectively.

~~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 (“2011 LTIP”), which was approved by shareholders at the 2011 Annual Meeting, to 42 employees, including 6,000 shares to three Named Executive Officers. Richard J.severance agreement with Mr. Cantele, ~~Jr.,~~ President and Chief Executive Officer, ~~received 5,000 shares~~a change in control agreement with Mr. Albero, Executive Vice President and ~~John~~Chief Financial Officer, and a severance agreement with Mr. Davies, President of the New York Region and Chief Lending ~~Officer~~Officer. In addition to these agreements, Salisbury has change in control agreements or a severance agreement, with change in control provisions, with ten other executives with payouts ranging from 0.5 to 1.0 times base salary, annual cash bonus and ~~Donald E. White, who served as Chief Financial Officer until October 20, 2017, each received 500 shares. The fair value~~other benefits. Such agreements, and their subsequent amendments, are designed to allow Salisbury to retain the services of the designated executives while reducing, to the extent possible, unnecessary disruptions to Salisbury’s operations.

NOTE 11 – LONG TERM INCENTIVE PLANS

Restricted stock

Salisbury did not grant restricted stock ~~as of the grant date was determined~~awards in first quarter 2023. Expense in first quarter 2023 and 2022 related to ~~be $466~~employee and directors’ stock-based compensation totaled $183 thousand and ~~the stock will be vested three years from the grant date.~~

Expense related to such grants in the three months ended September 30, 2017 and 2016 totaled $74,000 and $57,000, respectively, and for the nine months ended September 30, 2017 and 2016 totaled $194,000 and $164,000,$188 thousand, respectively. Unrecognized compensation cost relating to the awards as of ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 totaled ~~$660,000~~$961 thousand and ~~$431,000,~~$1.6 million, respectively. There were no forfeitures in the ~~three months ended September 30, 2017 and 2016, respectively. Forfeitures~~first quarter of 2023 or 2022.

Performance-based restricted stock units

On July 29, 2020, the Compensation Committee granted an additional 14,500 units under the RSU plan. The performance goal for this tranche is based on the relative increase in the ~~nine months ended September 30, 2017~~Bank’s tangible book value compared with a pre-determined group of peer banks over the performance period for threshold performance. Vesting will range from 50% of target for achieving threshold performance, to 100% of target for achieving tangible book value growth of at least 50% but less than 55% of the peer group, to 150% of target for achieving in excess of target payout performance and, ~~2016 totaled 200~~if the performance goal is achieved. These awards vested in first quarter 2023 at 94% of target for achieving below target payout performance.

On June 23, 2021, the Compensation Committee granted an additional 14,800 units under the RSU plan. The performance goal for this tranche is based on the increase in the Bank’s tangible book value by $3.50 per share over the performance period for threshold performance. Vesting will range from 75% of target for achieving threshold performance, to 100% of target for achieving target payout performance ($4.50 increase in tangible book value per share) to 150% of target for achieving in excess of target payout performance and, ~~100 shares, respectively.~~

if the performance goals are achieved, vesting will occur no later than March 15, 2024. The ~~Board~~number of ~~Directors adopted~~units awarded and the ~~2017 Long Term Incentive Plan (the “2017 LTIP”) on February 24, 2017,~~performance goals for this tranche have been adjusted to reflect the two-for-one forward stock split, which was ~~approved by shareholders at~~effective on June 30, 2022.

On February 28, 2022, the ~~2017 Annual Meeting on May 17, 2017. Pursuant to the 2017 LTIP, as of May 2017, following shareholder approval of the 2017 LTIP, no further awards will be made~~Compensation Committee granted an additional 13,900 units under the ~~2011 LTIP, which shall remain~~RSU plan. The performance goal for this tranche is based on the increase in ~~existence solely~~the Bank’s tangible book value by $3.50 per share over the performance period for ~~purposes~~threshold performance. Vesting will range from 75% of ~~administering outstanding grants. Under~~target for achieving threshold performance, to 100% of target for achieving target payout performance ($4.50 increase in tangible book value per share) to 150% of target for achieving in excess of target payout performance and, if the ~~2017 LTIP, the total~~performance goals are achieved, vesting will occur no later than March 15, 2025. The number of ~~shares of Common Stock reserved~~units awarded and ~~available~~the performance goals for ~~issuance in~~this tranche have been adjusted to reflect the ~~next ten years in connection with awards under the 2017 LTIP is 200,000 shares of Common Stock,~~two-for-one forward stock split, 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.was effective on June 30, 2022.

On April 28, 2017, Salisbury granted a total of 10,750 shares of restricted stock pursuant to its 2011 LTIP, 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~~awards granted under the RSU plan at the grant date was ~~determined~~$394 thousand and $354 thousand, respectively, for those grants awarded in 2022 and 2021. Compensation expense of $42 thousand and $97 thousand was recorded with respect to ~~be $419,250~~all RSUs granted to date for the three months ended March 31, 2023 and ~~the stock will be vested three years from the grant date.~~

~~On April 28, 2017, Salisbury granted a total of 2,056~~2022, respectively. The shares of stock pursuant to its 2011 LTIP 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 valuenoted above are contingently issuable only upon attainment of the ~~stock as of the grant date was determined~~minimum performance goal.

Short Term Incentive Plan (STIP)

Salisbury offers a short-term discretionary compensation plan to ~~be $80,000.~~

~~On May 26, 2017,~~eligible employees on an annual basis. Under this incentive plan, Salisbury ~~granted a total of 200 shares of restricted stock pursuant to its 2017 LTIP,~~may reward employees with cash compensation if certain pre-determined Bank and individual performance goals have been achieved. The STIP expense, which was approved by shareholders at the 2017 Annual Meeting, to one employee. The fair value of the stock as of the grant date was determined to be $8,000 and the stock will be vested three years from the grant date.

On May 26, 2017, Salisbury granted a total of 2,024 shares of stock pursuant to the 2011 LTIP to directors as a component of their annual compensation. The fair value of the stock as of the grant date was determined to be $83,000.

On August 23, 2017, Salisbury granted a total of 850 shares of restricted stock pursuant to its 2011 LTIP, to 2 employees, including 500 shares to a Named Executive Officer. Peter Albero, Executive Vice President and Chief Financial Officer received 500 shares. The fair value of the stock as of the grant date was determined to be $36,000 and the stock will be vested three years from the grant date.

~~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.~~

~~The following table presents the pre-tax expense associated with stock options and restricted stock awards as well as the related recognized tax benefits:~~

Three months ended Nine months ended
Periods ended September 30, (in thousands) 2017 2016 2017 2016
Stock Options $ — $ — $ — $ —
Restricted stock awards 74 57 200 142
Total stock based compensation expense $ 74 $ 57 $ 196 $ 142
Related tax benefits recognized in earnings $ 25 $ 19 $ 68 $ 48

~~Not~~is included in ~~the above is the excess tax benefit related to the adoption of ASU 2016-09 in the amount of $105,000~~compensation expenses, totaled $315 thousand and $267 thousand for ~~both~~ the three months ended March 31, 2023 and ~~nine month periods ending September 30, 2017,~~2022, respectively.

NOTE 912 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale and mutual funds 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.

•

Level 1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

•

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 nine months ended September 30, 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.

29•

Securities available-for-sale and mutual funds. Securities available-for-sale and mutual funds 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		Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair		Level 1		Level 2		Level 3		fair
							value								value
September 30, 2017
March 31, 2023
Assets at fair value on a recurring basis
U.S. Treasury									$	—	$	17,479	$	—	$	17,479
U.S. Government Agency notes										—		26,844		—		26,844
Municipal bonds	$	—	$	4,641	$	—	$	4,641		—		48,199		—		48,199
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		49,757		—		49,757		—		60,550		—		60,550
Collateralized mortgage obligations:
U.S. Government agencies		—		10,841		—		10,841		—		21,915		—		21,915
Non-agency		—		2,868		—		2,868
SBA bonds		—		12,816		—		12,816
CRA mutual funds		840		—		—		840
Corporate bonds		—		3,557		—		3,557		834		11,777		—		12,611
Preferred stock		188		—		—		188
Securities available-for-sale	$	1,028	$	84,480	$	—	$	85,508	$	834	$	186,764	$	—	$	187,598
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	5,064	$	5,064
Other real estate owned	$	—	$	—	$	3,944	$	3,944
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
Mutual funds										2,068		—		—		2,068


December 31, 2022
Assets at fair value on a recurring basis
U.S. Treasury	$	—	$	17,133	$	—	$	17,133
U.S. Government Agency notes		—		27,154		—		27,154
Municipal bonds		—		46,538		—		46,538
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		61,875		—		61,875
Collateralized mortgage obligations:
U.S. Government agencies		—		21,936		—		21,936
Corporate bonds		833		11,941		—		12,744
Securities available-for-sale	$	833	$	186,577	$	—	$	187,410
Mutual funds		1,933		—		—		1,933

At March 31, 2023 and December 31, 2022, Salisbury did not have any assets measured at fair value on a non-recurring basis.

3024

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


(in thousands)	Carrying		Estimated		Fair value measurements using						Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3		value		fair value		Level 1		Level 2		Level 3
September 30, 2017
March 31, 2023
Financial Assets
Cash and cash equivalents	$	49,403	$	49,403	$	49,403	$	—	$	—	$	49,844	$	49,844	$	49,844	$	—	$	—
Securities available-for-sale		85,508		85,508		1,028		84,480		—
Federal Home Loan Bank stock		3,038		3,038		—		3,038		—
Securities available-for-sale, net												187,598		187,598		834		186,764		—
Mutual funds												2,068		2,068		2,068		—		—
Federal Home Loan Bank of Boston stock												5,030		5,030		—		5,030		—
Loans held-for-sale		561		561		—		—		561		—		—		—		—		—
Loans receivable, net		784,136		798,367		—		—		798,367		1,234,632		1,193,272		—		—		1,193,272
Accrued interest receivable		2,520		2,520		—		—		2,520		6,383		6,383		—		6,383		—
Cash surrender value of life insurance		14,297		14,297		14,297		—		—
Cash surrender value of life insurance policies												30,571		30,571		—		30,571		—
Financial Liabilities
Demand (non-interest bearing)	$	225,496	$	225,496	$	—	$	—	$	225,496
Demand (non-interest-bearing)											$	370,049	$	370,049	$	—	$	370,049	$	—
Demand (interest-bearing)		139,521		139,521		—		—		139,521		218,902		218,902		—		218,902		—
Money market		196,745		196,745		—		—		196,745		296,974		296,974		—		296,974		—
Savings and other		152,570		152,570		—		—		152,570		236,755		236,755		—		236,755		—
Certificates of deposit		117,657		118,642		—		—		118,642		170,362		170,806		—		170,806		—
Deposits		831,989		833,439		—		—		833,439		1,293,042		1,293,486		—		1,293,486		—
Repurchase agreements		4,529		4,529		—		—		4,529		3,230		3,230		—		3,230		—
FHLBB advances		27,364		28,212		—		—		28,212		100,000		99,999		—		99,999		—
Subordinated debt		9,805		10,394		—		—		10,394		24,545		21,022		—		21,022		—
Note payable		321		351		—		—		351		117		114		—		114		—
Capital lease liability		1,859		2,249		—		—		2,249
Finance lease obligation												4,225		3,449		—		—		3,449
Accrued interest payable		246		246		—		—		246		425		425		—		425		—
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		774,442		—		—		774,442
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


December 31, 2022
Financial Assets
Cash and cash equivalents	$	50,539	$	50,539	$	50,539	$	—	$	—
Securities available-for-sale		187,410		187,410		833		186,577		—
Mutual fund		1,933		1,933		1,933		—		—
Federal Home Loan Bank of Boston stock		1,285		1,285		—		1,285		—
Loans held-for-sale		—		—		—		—		—
Loans receivable, net		1,213,671		1,172,416		—		—		1,172,416
Accrued interest receivable		6,797		6,797		—		6,797		—
Cash surrender value of life insurance policies		30,379		30,379		—		30,379		—
Financial Liabilities
Demand (non-interest-bearing)	$	395,994	$	395,994	$	—	$	395,994	$	—
Demand (interest-bearing)		231,486		231,486		—		231,486		—
Money market		343,965		343,965		—		343,965		—
Savings and other		233,578		233,578		—		233,578		—
Certificates of deposit		153,370		153,411		—		153,411		—
Deposits		1,358,393		1,358,434		—		1,358,434		—
Repurchase agreements		7,228		7,228		—		7,228		—
FHLBB advances		10,000		10,000		—		10,000		—
Subordinated debt		24,531		21,670		—		21,670		—
Note payable		128		125		—		125		—
Finance lease liability		4,262		3,546		—		—		3,546
Accrued interest payable		210		210		—		210		—

NOTE 13 – SUBSEQUENT EVENTS

On April 12, 2023, Salisbury shareholders approved the merger with NBT. The ~~carrying amounts~~merger is expected to close in second quarter 2023 subject to regulatory approval.

On April 26, 2023 the Board of ~~financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions.~~Directors declared a quarterly dividend of $0.16 per common share payable on May 26, 2023 to shareholders of record as of May 12, 2023.

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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.~~2022. Readers should also review other disclosures Salisbury files from time to time with the Securities and Exchange Commission (the “SEC”).

BUSINESS

~~BUSINESS~~

Salisbury Bancorp, Inc., a Connecticut corporation, formed in 1998, is the bank holding company for ~~the~~Salisbury Bank and Trust Company (the "Bank"), a Connecticut-chartered and ~~FDIC~~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 ~~the management~~its operation and ~~operations~~control of the business of the Bank.

The Bank, formed in 1848, ~~is engaged in customary~~currently provides commercial banking, ~~activities, including general deposit taking and lending activities to both~~consumer financing, retail ~~and commercial markets,~~banking and trust and wealth advisory ~~services. The Bank conducts its~~services through a network of fourteen banking business from fourteen full-service offices in the towns of: Canaan, Lakeville, Salisbury and Sharon, Connecticut; Great Barrington, Sheffield and South Egremont, Massachusetts; and, Dover Plains, Fishkill, Millerton, Newburgh, New Paltz, Poughkeepsie, and Red Oaks Mill, New York. The Bank’s trust and wealth advisory services are based in Lakeville, Connecticut. In June 2017, the Bank acquired a branch office and related deposits from another institution in New Paltz, New York adding to Salisbury’s full service offices and ~~a strong commercial lending focus in the~~ten ATMs located in: Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New ~~York market.~~York; and Berkshire County, Massachusetts and through its internet website (salisburybank.com).

Critical Accounting Policies and Estimates

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

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

Allowance for Credit Losses on Loans ~~acquired~~(“ACL”)

Effective January 1, 2023, the Company adopted the new accounting standard for credit losses, ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended (ASU 2016-13). This new accounting standard, commonly referred to as "CECL," significantly changed our methodology for accounting for reserves on loans, unfunded off-balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees. ASU 2016-13 replaced the "incurred loss" methodology used to establish an allowance on loans and off-balance sheet credit exposures, with an "expected loss" approach. Under CECL, the ACL at each reporting period serves as our best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date.

The recorded ACL on loans is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools and individual credits with unique risk factors. Salisbury has elected to use a discounted cash flow approach to calculate the ACL for each loan segment. Within the discounted cash flow model, a probability of default (“PD”) and loss given default (“LGD”) assumption is applied to calculate the expected loss for each loan segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data are derived from internal historical default and loss experience as well as the use of external data where there are not statistically meaningful loss events for a loan segment.

CECL may create more volatility in ~~business combinations are initially recorded at~~the Bank’s ACL for loans and for off-balance sheet credit exposures. Under CECL, Salisbury’s ACL may increase or decrease period to period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) forecast period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative factors outlined in ASU 2016-13.

ASU 2016-13 also changed the methodology and accounting for credit losses within Salisbury’s investment portfolio designated as AFS. To the extent the fair value ~~with no carryover~~of a security designated as AFS is less than its amortized cost and the Bank either (i) intends to sell the security or (ii) it is more-likely-than-not that the Bank will be required to sell the security before recovery of its amortized cost basis, then the investment is permanently impaired and the amortized cost basis is written down to fair value and a corresponding impairment charge is recorded within the consolidated statement of income. If neither of the ~~related allowance for credit losses. Determining~~above is true, but the fair value of the ~~loans involves estimating~~investment is below its amortized cost basis at the ~~amount and timing of cash flows initially expected to be collected and discounting those cash flows at~~reporting date, then an ~~appropriate market rate of interest. The Bank continues to evaluate reasonableness~~allowance is established on the AFS investment for the portion of the ~~timing and~~impairment that is due to credit reasons (e.g. credit rating downgrades, past due receivables, and/or other macro- or micro-adverse trends). The allowance established on an AFS investment due to credit losses is limited to 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. For collateral dependent loans with deteriorated credit quality, the Bank estimates the fair value of the ~~underlying collateral~~investment is below its amortized cost basis as of the ~~loans. These values are discounted using market derived rates~~reporting date. If the fair value of ~~return, with consideration given~~the investment is below its amortized cost basis for non-credit-related reasons (e.g. interest rate environment), then the impairment continues to be recognized within shareholders' equity through AOCI, as it did prior to the ~~period~~adoption of ~~time and costs associated with~~ASU 2016-13.

Management considers the ~~foreclosure and disposition~~ACL on loans to be a critical accounting policy given the uncertainty in evaluating the level of the ~~collateral.~~allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of the loans in its portfolio. Determining the appropriateness of the allowance is a key management function that requires significant judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods. While our current evaluation indicates that the ACL is appropriate, the allowance may need to be increased under adversely different conditions or assumptions.

The allowance for ~~loan~~credit losses represents management’s estimate of credit losses inherent in the loan portfolio. Determining the amount of the allowance for ~~loan~~credit 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~~individually evaluated 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 “Basis of Presentation” describes~~

The significant key assumptions used with the ACL calculation at March 31, 2023 using the CECL methodology, ~~used~~included:

• Macroeconomic factors (loss drivers): Salisbury monitors and assesses National Unemployment, changes in National GDP and changes in National Housing Price Index at least annually to determine if these macroeconomic factors continue to be the most predictive indicator of losses within our loan portfolio. Factors considered in determining the ACL may change from time to time.

• Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period management believes to be reasonable and supportable is four quarters. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. "reversion speed"), management considers factors, which include but are not limited to, historical loan loss experience over previous economic cycles, as well as what stage of the economic cycle management believes the economy is in.

• Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing industry benchmark data due to the stability and increased number of observations. The prepayment speed assumption is utilized with the discounted cash flow model (i.e. the CECL model) to forecast expected cashflows over the contractual life of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.

• Qualitative factors: As within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses. Salisbury continues to consider qualitative factors in determining and arriving at the ACL each reporting period.

As of March 31, 2023, the recorded ACL was $16.0 million and represented management’s best estimate. However, management may adjust its assumptions to account for differences between expected and actual losses from period to period. A future change of management’s assumptions will likely alter the level of allowance ~~for loan losses.~~required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in key CECL assumptions and asset quality, and consider their impact on the Company's financial condition. A discussion of the factors driving changes in the amount of the allowance for ~~loan~~credit losses is included in the “Provision and Allowance for ~~Loan~~Credit Losses” section of Management’s Discussion and Analysis.

~~Management evaluates goodwill~~Refer to Note 1 of the consolidated financial statements for further details on the Company's policies and ~~identifiable intangible assets~~accounting elections made.

Salisbury considers the ACL for ~~impairment annually~~off-balance sheet credit exposures to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses on expected future loan advances of primarily, unfunded loan commitments for those that are not unconditionally cancellable by the Company. The expected credit loss factors for each loan segment determined using ~~valuation techniques~~the ACL on loans methodology described above, as well as within Note 1 of the consolidated financial statements, is used to calculate the ACL on off-balance sheet credit exposures for each applicable loan segment, and, thus, are subject to the same level of estimation risk and volatility previously described. In addition, one other key assumption is used to derive the ACL on off-balance sheet credit exposures and that ~~involve estimates~~is the expected funding rate. The expected funding rate is derived using historical loan-level data for ~~discount rates, projected future cash flows~~credit line usage, and ~~time period calculations, all of which~~is applied to total off-balance sheet credit exposures at each reporting date, excluding any that are ~~susceptible to change based on changes in economic conditions and other factors. Future events or changes in~~unconditionally cancellable by the ~~estimates, which are used~~Company, to determine the ~~carrying value of goodwill and identifiable intangible assets~~expected funding amount. As unfunded loan commitments are funded, the allowance migrates from that provided for off-balance sheet credit exposures to the ACL on loans. If the expected funding rate or ~~which otherwise adversely affect their value or estimated lives~~any other key assumption used is not reasonable, then this could have ~~a material~~an adverse impact on the total ACL upon funding.

As of March 31, 2023, the recorded ACL on off-balance sheet credit exposures of $1.2 million is recorded within accrued interest and other liabilities on Salisbury’s consolidated balance sheet. Increases (decreases) to the allowance are presented within provision (credit) for credit losses on the consolidated statements of income. The allowance at March 31, 2023, represented management’s best estimate, however, management may adjust various assumptions to account for differences between expected and actual losses from period to period. A future change to certain assumptions will likely alter the level of allowance required and may have a material impact on future results of ~~operations.~~operations and financial condition. The ACL on off-balance sheet credit exposures is reviewed on a quarterly basis by the Company's Loan Committee, and subsequently ratified by the Company’s Board of Directors.

As of March 31, 2023, the Company had not identified indications of credit risk and did not carry any allowance for credit losses on its AFS portfolio, nor did it record any permanent impairments during first quarter 2023.

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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 $979.5 million at September 30, 2017, up $44.1 million from December 31, 2016. Loans receivable, net, were $784.1 million at September 30, 2017, up $20.9 million from December 31, 2016. Non-performing assets were $12.3 million at September 30, 2017, down $0.3 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 0.78%, at September 30, 2017, December 31, 2016 and September 30, 2016, respectively. Deposits increased $50.2 million to $832.0 million at September 30, 2017, up from $781.8 million at December 31, 2016.

At September 30, 2017, book value and tangible book value per common share were $35.01 and $29.34, respectively. Salisbury’s Tier 1 leverage, total risk-based and common equity Tier 1 capital ratios were 8.49%, 13.20%, and 10.96%, respectively.

Securities and Short Term Funds

~~During~~As of March 31, 2023, the ~~first nine months~~market value of ~~2017, securities~~Salisbury’s available-for-sale ~~increased $5.9~~(AFS) investment portfolio was $187.6 million ~~to $85.5~~or 12.0% of total assets. compared with $187.4 million, or 12.2% of total assets at ~~September 30, 2017.~~December 31, 2022. Cash and cash equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds sold) ~~increased $13.9 million to $49.4~~of $49.8 million at ~~September 30, 2017.~~March 31, 2023 decreased $0.7 million, or 1.4% from December 31, 2022.

The decline in market interest rates in first quarter 2023 resulted in inception-to-date after-tax unrealized losses in Salisbury’s AFS portfolio of $18.0 million at March 31, 2023 compared with an after-tax unrealized losses of $20.7 million at December 31, 2022. These unrealized losses and gains are recorded in accumulated other comprehensive loss, net on Salisbury’s consolidated balance sheet. Salisbury evaluates securities for ~~OTTI where~~impairment when the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an ~~OTTI~~impairment 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.~~

impairment. 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~~Management does not consider any of its securities ~~other than four non-agency CMO securities reflecting OTTI,~~ to be ~~OTTI~~impaired at ~~September 30, 2017. As of September 30, 2017 one of these positions reflected an unrealized loss of $13 thousand while the remaining three positions reflected an unrealized gain of $354 thousand.~~March 31, 2023.

Salisbury has, and continues to monitor, CMO securities where historical recognition of losses has occurred as a result of OTTI. Salisbury determined, as of September 30, 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

~~Loans~~

Net loans receivable of $1.235 billion at March 31, 2023 increased ~~$20.9 million to $784.1 million at September 30, 2017, compared with $763.2 million~~from $1.214 billion at December 31, ~~2016~~2022. At March 31, 2023 and ~~increased $30.5~~December 31, 2022, Salisbury had approximately $0.2 million ~~from $753.6 million at September 30, 2016.~~of PPP loans on its balance sheet. The increase in net loan receivable balances primarily reflected growth in residential mortgage, commercial real estate and commercial construction balances, partially offset by lower commercial & industrial, consumer and municipal loan balances. Salisbury did not sell any residential loans to FHLB Boston in first quarter 2023 or fourth quarter 2022. The ratio of gross loans to deposits for first quarter 2023 was 96.7% compared with 90.4% for fourth quarter 2022.

~~Loan Credit~~

Asset Quality

During the first ~~nine~~three months of ~~2017, total impaired and potential problem loans~~2023, overall asset quality remained strong. Non-performing assets decreased $0.4 million to ~~$23.3~~$2.2 million, or ~~3.0%~~0.14% of ~~gross loans receivable~~assets at ~~September 30, 2017,~~March 31, 2023, from ~~$23.6~~$2.7 million, or ~~3.1%~~0.17% of ~~gross loans receivable~~assets at December 31, ~~2016, and decreased from $26.1 million at September 30, 2016. The percentage of such loans at September 30, 2017 when compared to September 30, 2016 improved from 3.4% of gross loans.~~

~~Changes in impaired and potential problem loans are as follows:~~

September 30, 2017 September 30, 2016

Three months ended Impaired loans Potential Impaired loans Potential
(in thousands) Non- problem Non- problem
accrual Accruing loans Total accrual Accruing loans Total
Net loans placed on non-accrual status $ 1,559 $ (35 ) $ (1,452 ) $ 72 $ 877 $ (289 ) $ (578 ) $ 10
Foreclosed to OREO (322 ) — — (322 ) (2,823 ) (2,823 )
Loan risk rating downgrades to substandard — — 1,000 1,000 — —
Loan risk rating upgrades from substandard — — — — — — 643 643
Loan repayments (143 ) (83 ) 194 (32 ) (619 ) (205 ) (124 ) (948 )
Loan charge-offs (less charge offs for delinquent taxes) (244 ) — — (244 ) (116 ) — — (116 )
Increase (decrease) in troubled debt restructuring — — — — — 231 — 231
Real estate acquired in settlement of loans — — — — — — — —
Increase (decrease) in loans $ 850 $ (118 ) $ (258 ) $ 474 $ (2,681 ) $ (263 ) $ (59 ) $ (3,003 )

During the third quarter of 2017, Salisbury placed $1.6 million of loans on non-accrual status as a result of deteriorated payment and financial performance and charged-off $244 thousand of non-accrual loans primarily as a result of credit or collateral deficiencies.

2022. 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~~Past Due Loans

~~Salisbury categorizes~~Loans past due 30 days or more increased during first quarter 2023 to $2.4 million, or 0.19% of gross 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.
at March 31, 2023 compared with $1.5 million, or 0.12% of gross loans receivable at December 31, 2022.

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

(in thousands)		March 31, 2023		December 31, 2022
Past due 30-59 days	$	2,156	$	1,195
Past due 60-89 days		78		115
Past due 90-179 days		—		—
Past due 180 days and over		—		—
Accruing loans		2,234		1,310
Past due 30-59 days		—		68
Past due 60-89 days		48		—
Past due 90-179 days		16		90
Past due 180 days and over		100		15
Non-accrual loans		164		173
Total loans past due 30 days or greater	$	2,398	$	1,483

· 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.~~

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Credit Risk Ratings

Salisbury assigns credit risk ratings to loans receivable in order to manage credit risk and to determine the allowance for ~~loan~~credit 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~~bank's regulatory agencies, the FDIC and CTDOB. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

Loans risk rated as "special mention" (5) possess credit deficiencies or potential weaknesses deserving management’s close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

Loans risk rated as "substandard" (6) are loans where the Bank’s position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

Loans risk rated as "doubtful" (7) have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

Loans risk rated as "loss" (8) are considered uncollectible and of such little value that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this loan even though partial recovery may be made in the future.

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

~~Impaired Loans~~Deposits and Borrowings

~~Loans individually evaluated~~Total deposits of $1.3 billion at March 31, 2023 decreased $65.4 million, or 4.8%, from December 31, 2022 and increased $2.6 million, or 0.2%, from March 31, 2022. Salisbury accumulates deposits from a diverse customer base. At March 31, 2023, the composition of Salisbury’s deposit balances was as follows: retail: 45%; commercial: 39%; municipalities: 8%; brokered funds: 4%; Wealth Advisory: 3%; and educational institutions: 1%. At March 31, 2023, the balance of Salisbury’s deposits that were not insured by the FDIC and not collateralized by marketable securities owned by Salisbury was approximately $344 million, or 27%, of total deposits.

At March 31, 2023, Salisbury had outstanding brokered deposits balances of $53.2 million compared with balances of $45.0 million at December 31, 2022. Salisbury did not have any outstanding brokered deposit balances at March 31, 2022. Brokered deposits are included in the certificates of deposit balances on Salisbury’s consolidated balance sheet. Management utilized brokered deposits in first quarter 2023 to fund loan growth and as a source of liquidity. Excluding brokered funds, Salisbury’s deposits declined $73.5 million, or 5.6%, from fourth quarter 2022 and declined $50.6 million, or 3.9%, from first quarter 2022. Average total deposits were $1.3 billion for ~~impairment (impaired loans) are loans~~first quarter 2023, fourth quarter 2022 and first quarter 2022. Average total deposits for ~~which~~ first quarter 2023 included average brokered deposits of $47.9 million compared with $25.8 million for fourth quarter 2022 and $7.5 million for first quarter 2022.

Salisbury ~~does~~has access to various sources of liquidity, including the FHLBB and the Federal Reserve Bank. Salisbury had $100.0 million of outstanding advances from FHLBB at March 31, 2023 compared with $10.0 million at December 31, 2022 and $0.4 million at March 31, 2022, respectively. Salisbury’s excess borrowing capacity at FHLBB was approximately $145 million at March 31, 2023. Additionally, at March 31, 2023, Salisbury had approximately $100 million of eligible collateral that could be posted to the Federal Reserve to secure funds under the Bank Term Funding Program. Salisbury has not ~~expect to collect all contractual principal and interest in accordance~~borrowed funds under this program.

Salisbury has an Irrevocable Letter of Credit Reimbursement Agreement with the ~~contractual terms~~FHLBB, whereby upon the Bank’s request an irrevocable letter of credit is issued to secure municipal and certain other transactional deposit accounts. These letters of credit are secured primarily by residential mortgage loans. The amount of funds available from the ~~loan. Impaired loans include all modified loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components~~FHLBB to the Bank is reduced by any letters of ~~impaired loans are as follows:~~

(in thousands) September 30, 2017 December 31, 2016
Troubled debt restructurings, accruing $ 8,132 $ 7,798
Troubled debt restructurings, non-accrual 2,053 2,262
All other non-accrual loans 5,501 6,274
Impaired loans $ 15,686 $ 16,334

credit outstanding. At March 31, 2023, $20.0 million of letters of credit were outstanding compared with $20.0 million at December 31, 2022.

3529

~~Non-Performing Assets~~

~~Non-performing assets decreased $0.3 million to $12.3 million, or 1.3%~~The distribution of ~~assets at September 30, 2017, from $12.6 million, or 1.3% of assets at December 31, 2016, and decreased $2.2 million from $14.5 million, or 1.6% of assets at September 30, 2016.~~average total deposits by account type was as follows:

	March 31, 2023								December 31, 2022
(in thousands)	Average Balance		Percent			Weighted-Average Interest Rate			Average Balance		Percent			Weighted-Average Interest Rate
Demand deposits	$	382,586		28.99	%		0.00	%	$	395,848		30.01	%		0.00	%
Interest-bearing checking accounts		223,742		16.95			0.22			231,970		17.59			0.18
Regular savings accounts		232,162		17.59			0.70			240,695		18.25			0.26
Money market savings		320,015		24.25			1.61			318,302		24.13			0.49
Certificates of deposit (CD’s)		161,300		12.22			2.58			132,192		10.02			0.84
Total deposits	$	1,319,806		100.00	%		0.87	%	$	1,319,007		100.00	%		0.28	%

The ~~2.5% decrease in non-performing assets in 2017 resulted primarily from $1.5 million in payoffs and repayments, $0.5 million~~classification of ~~loans reinstated to accrual status, and $0.4 million charged off. This decrease was offset in part~~certificates of deposit by ~~$2.2 million placed on non-accrual.~~interest rates is as follows:

Interest rates		March 31, 2023		December 31, 2022
Less than 1.00%	$	48,809	$	104,261
1.00% to 1.99%		10,437		11,739
2.00% to 2.99%		18,734		19,907
3.00% to 3.99%		29,781		17,463
4.00% to 4.99%		62,601		—
Total	$	170,362	$	153,370

The ~~components~~distribution of ~~non-performing assets~~certificates of deposit by interest rate and maturity is as follows:

	At March 31, 2023
Interest rates	Less Than or Equal to One Year		More Than One to Two Years		More Than Two to Three Years		More Than Three Years		Total		Percent of Total
Less than 1.00%	$	32,823	$	7,998	$	4,329	$	3,659	$	48,809		28.65	%
1.00% to 1.99%		6,041		4,301		95		—		10,437		6.12
2.00% to 2.99%		14,501		1,735		2,498		—		18,734		11.0
3.00% to 3.99%		29,781		—		—		—		29,781		17.48
4.00% to 4.99%		56,928		5,673		—		—		62,601		36.75
Total	$	140,074	$	19,707	$	6,922	$	3,659	$	170,362		100.00	%

Scheduled maturities of time certificates of deposit in denominations of $100,000 or more are as follows:

(in thousands) September 30, 2017 December 31, 2016
Residential 1-4 family $ 2,169 $ 1,920
Residential 5+ multifamily 153 163
Home equity lines of credit 209 519
Commercial 3,907 4,901
Farm land 980 1,002
Vacant land — —
Real estate secured 7,418 8,505
Commercial and industrial 137 27
Consumer — 4
Non-accrual loans 7,555 8,536
Accruing loans past due 90 days and over 758 256
Non-performing loans 8,313 8,792
Real estate acquired in settlement of loans, net 3,944 3,773
Non-performing assets $ 12,257 $ 12,565

March 31, 2023 (in thousands)		Within 3 months				3-6 months				6-12 months				Over 1 year				Total
Certificates of deposit $100,000 and over		$	62,218			$	9,819			$	36,930			$	15,960			$	124,926

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

(in thousands) September 30, 2017 December 31, 2016
Current $ 582 $ 1,005
Past due 30-59 days 457 344
Past due 60-89 days — —
Past due 90-179 days 1,175 2,516
Past due 180 days and over 6,099 4,927
Total non-performing loans $ 8,313 $ 8,792

~~At September 30, 2017, 7.0% of non-performing loans were current with respect to loan payments, compared with 11.43% at December 31, 2016.~~

36Liquidity

~~Troubled Debt Restructured Loans~~

Troubled debt restructured loans increased $0.1 million during the nine month period ended September 30, 2017 to $10.2 million, or 1.29% of gross loans receivable at September 30, 2017, from $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) September 30, 2017 December 31, 2016
Residential 1-4 family $ 3,136 $ 3,209
Residential 5+ multifamily 1,599 1,660
Home equity lines of credit 47 114
Vacant land 201 210
Commercial 3,099 2,549
Real estate secured 8,082 7,742
Commercial and industrial 50 56
Accruing troubled debt restructured loans 8,132 7,798
Residential 1-4 family 72 77
Residential 5+ multifamily 153 163
Home equity lines of credit 35 —
Commercial 1,793 2,022
Real estate secured 2,053 2,262
Commercial and Industrial — —
Non-accrual troubled debt restructured loans 2,053 2,262
Troubled debt restructured loans $ 10,185 $ 10,060

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

(in thousands) September 30, 2017 December 31, 2016
Current $ 7,991 $ 7,683
Past due 30-59 days 141 115
Accruing troubled debt restructured loans 8,132 7,798
Current 225 240
Past due 90-179 days 35 1,793
Past due 180 days and over 1,793 229
Non-accrual troubled debt restructured loans 2,053 2,262
Total troubled debt restructured loans $ 10,185 $ 10,060

~~At September 30, 2017, 80.7% of troubled debt restructured loans were current with respect to loan payments, as compared with 78.8% at December 31, 2016.~~

~~Total Past Due Loans~~

Loans past due 30 days or more decreased $1.1 million during the nine month period ended September 30, 2017 to $11.2 million, or 1.4% of gross loans receivable at September 30, 2017, compared with $12.3 million, or 1.6% of gross loans receivable at December 31, 2016.

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

(in thousands) September 30, 2017 December 31, 2016
Past due 30-59 days $ 2,506 $ 3,733
Past due 60-89 days 943 804
Past due 90-179 days 757 256
Past due 180 days and over — —
Accruing loans 4,206 4,793
Past due 30-59 days 457 344
Past due 60-89 days — —
Past due 90-179 days 418 2,260
Past due 180 days and over 6,099 4,927
Non-accrual loans 6,974 7,531
Total loans past due 30 days and over $ 11,180 $ 12,324

~~Potential Problem Loans~~

Total potential problem loans increased $0.4 million during the nine month period ended September 30, 2017 to $7.6 million, or 1.0% of gross loans receivable at September 30, 2017, compared with $7.3 million, or 1.0% of gross loans receivable at December 31, 2016.

~~The components of potential problem loans are as follows:~~

(in thousands) September 30, 2017 December 31, 2016
Residential 1-4 family $ 647 $ 514
Residential 5+ multifamily — —
Construction of residential 1-4 family — —
Home equity lines of credit 119 123
Residential real estate 766 637
Commercial 6,530 6,057
Construction of commercial — —
Commercial real estate 6,530 6,057
Farm land — —
Vacant land 36 —
Real estate secured 7,332 6,694
Commercial and industrial 319 581
Consumer — —
Other classified loans receivable $ 7,651 $ 7,275

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

(in thousands) September 30, 2017 December 31, 2016
Current $ 5,707 $ 6,383
Past due 30-59 days 1,226 826
Past due 60-89 days 36 66
Past due 90-179 days 682 —
Total potential problem loans $ 7,651 $ 7,275

~~At September 30, 2017, 74.6% of potential problem loans were current with respect to loan payments, as compared with 87.7% 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 increased $50.2 million during the nine months ended September 30, 2017 to $832.0 million, from $781.8 million at December 31, 2016, and increased $45.3 million year-over-year from $786.7 million at September 30, 2016. Retail repurchase agreements decreased $1.0 million during the nine months ended September 30, 2017 to $4.5 million compared with $5.5 million at December 31, 2016, and increased $0.9 million as compared with balances of $3.6 million at September 30, 2016.

Federal Home Loan Bank of Boston (FHLBB) advances decreased $9.8 million during the nine months ended September 30, 2017 to $27.4 million at September 30, 2017, from $37.2 million at December 31, 2016, and increased $0.3 million year-over-year from $27.1 million at September 30, 2016. The increase in short term advances was primarily due to 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. During first quarter 2023, Salisbury increased its utilization of brokered deposits by $5.3 million and increased its borrowings from FHLBB by $90.0 million to fund loan growth and to provide liquidity. At March 31, 2023, Salisbury’s outstanding borrowings and excess borrowing capacity at FHLBB were $100 million and $145 million, respectively. Salisbury maintains access to multiple sources of liquidity, including wholesale funding. An increase in funding costs could have an adverse impact on Salisbury’s net interest margin. If an extended economic shutdown causes depositors to withdraw their funds, Salisbury could become more dependent on more expensive sources of funding.

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 September 30, 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 21.01%, up from 21.89% at December 31, 2016. Management believes Salisbury’s funding sources will meet anticipated funding needs.

Operating activities for the ~~nine-month~~three-month period ended ~~September 30, 2017~~March 31, 2023 provided net cash of ~~$7.2~~$3.0 million. Investing activities ~~provided~~utilized net cash of ~~$1.0~~$23.2 million ~~principally from cash and cash equivalents related~~due to the ~~New Paltz, New York branch acquisition~~net loan originations of ~~$22.4~~$22.3 million, net purchases of FHLB stock of $3.7 million and ~~proceeds~~other activity of ~~$30.7~~$0.2 million, ~~from calls and maturities of securities available-for-sale,~~ partly offset by ~~$36.7~~$3.0 million from the maturities/principal paydowns of ~~purchases of securities~~ available-for-sale ~~$14.7 million of net loan originations and principal collections and $1.3 million of capital expenditures.~~(AFS) securities. Financing activities provided net cash of ~~$5.7~~$19.6 million ~~principally~~primarily due to anthe increase of short-term FHLB borrowings of $90 million, increase in ~~transaction account~~time deposits $17.0 million partly off-set by the decrease of savings deposits of ~~$18.7~~$82.4 million, ~~partly offset by the repayment of FHLBB advances of $10.0 million, the payment of common stock dividends of $2.3 million and~~ a decrease of ~~$1.0~~$4.0 million in securities sold under agreements to ~~repurchase.~~repurchase and $1.0 million in dividends paid.

At ~~September 30, 2017,~~March 31, 2023, Salisbury had outstanding commitments to fund new loan originations of ~~$38.9~~$42.6 million and unused lines of credit of ~~$117.2~~$253.0 million. Salisbury believes that these commitments can be met in the normal course of ~~business and~~business. Salisbury believes that its liquidity sources will continue to provide funding sufficient to support operating activities, loan originations and commitments, ~~as well as~~and deposit withdrawals.

~~RESULTS OF OPERATIONS~~

~~For the three month periods ended September 30, 2017 and 2016~~

~~OVERVIEW~~

Net income allocated to common stock was $1.7 million, or $0.61 per common share, for the third quarter ended September 30, 2017 (third quarter 2017), compared with $1.9 million, or $0.70 per common share, for the third quarter ended September 30, 2016 (third quarter 2016), and $1.9 million, or $0.68 per common share, for the second quarter ended June 30, 2017 (second quarter 2017).

~~Net Income per share for the quarter was $0.61 per share compared with $0.68 last quarter and $0.70 for the third quarter 2016.~~

~~Results for the current quarter included a pre-tax charge of $217 thousand, or $0.05 per share, related to the pending sale of an OREO property.~~

~~Wealth assets under administration increased to $595 million at September 30, 2017, an increase of $9 million, or 1.5%, from second quarter 2017.~~

~~Book value per common share increased to $35.01 at September 30, 2017 from $34.66 at June 30, 2017, and $33.92 at September 30, 2016.~~

~~Net Interest Income~~

Tax equivalent net interest income for third quarter 2017 decreased $18 thousand, or 0.22%, versus second quarter 2017, and increased $3 thousand or 0.04%, versus third quarter 2016. Average earning assets increased $33.6 million versus second quarter 2017, and increased $30.2 million versus third quarter 2016. Average total interest bearing deposits increased $28.6 million versus second quarter 2017 and increased $5.0 million versus third quarter 2016. The net interest margin of 3.49% decreased 9 basis points from 3.58% in the second quarter 2017 and decreased 11 basis points from 3.60% for the third quarter 2016.

3930

RESULTS OF OPERATIONS

For the three month periods ended March 31, 2023 and 2022

OVERVIEW

Net income allocated to common shareholders was $3.0 million, or $0.52 basic earnings per common share, for the first quarter ended March 31, 2023 (first quarter 2023), compared with $4.1 million, or $0.71 basic earnings per common share, for the fourth quarter ended December 31, 2022 (fourth quarter 2022), and $3.5 million, or $0.62 basic earnings per common share, for the first quarter ended March 31, 2022 (first quarter 2022). The decrease from fourth quarter 2022 primarily reflected lower net interest income of $0.9 million, a higher provision for credit losses of $0.4 million and higher non-interest expenses of $0.2 million. The decrease from first quarter 2022 primarily reflected a higher provision for credit losses of $0.6 million, lower non-interest income of $0.4 million and higher non-interest expense of $0.5 million, partially offset by higher net interest income of $0.8 million. First quarter 2023 included cost of $385 thousand related to the pending merger with NBT.

Net Interest Income

Tax equivalent net interest income for first quarter 2023 increased $834 thousand, or 8.0%, versus first quarter 2022. Average total earning assets for the first quarter 2023 increased $82.5 million, or 5.8%, versus first quarter 2022. Average total interest bearing deposits for the first quarter 2023 increased $19.4 million, or 2.1%, versus first quarter 2022. The tax equivalent net interest margin for the first quarter 2023 was 2.99% compared with 2.95% for the first quarter 2022. Excluding PPP loans, the tax equivalent net interest margin for the first quarter 2023 was 2.99% compared with 2.86% for first quarter 2022.

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 September 30, Average Balance Income / Expense Average Yield / Rate
(dollars in thousands) 2017 2016 2017 2016 2017 2016
Loans (a)(d)(f) $ 781,847 $ 757,207 $ 8,382 $ 8,250 4.29 % 4.36 %
Securities (c)(d) 84,804 78,845 544 618 2.57 3.14
FHLBB stock 3,442 3,430 39 31 4.53 3.62
Short term funds (b) 47,558 47,979 136 60 1.14 0.50
Total earning assets 917,651 887,461 9,101 8,959 3.97 4.04
Other assets 59,018 57,371
Total assets $ 976,669 $ 944,832
Interest-bearing demand deposits $ 139,247 $ 125,365 85 81 0.25 0.26
Money market accounts 197,274 225,443 187 160 0.38 0.28
Savings and other 151,668 127,553 140 59 0.37 0.19
Certificates of deposit 117,273 122,091 270 265 0.92 0.87
Total interest-bearing deposits 605,462 600,452 682 565 0.45 0.38
Repurchase agreements 4,017 5,135 2 2 0.20 0.16
Capital lease 1,907 419 29 17 6.08 16.23
Note payable 323 353 6 6 7.43 6.80
Subordinated debt (net of issuance costs) 9,802 9,779 156 156 6.37 6.38
FHLBB advances 28,630 30,638 241 237 3.37 3.09
Total interest-bearing liabilities 650,141 646,776 1,116 982 0.69 0.61
Demand deposits 223,458 194,169
Other liabilities 5,600 10,596
Shareholders’ equity 97,470 93,291
Total liabilities & shareholders’ equity $ 976,669 $ 944,832
Net interest income (f) $ 7,985 $ 7,977
Spread on interest-bearing funds 3.28 3.43
Net interest margin (e) 3.49 3.60

Three months ended March 31,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		2023		2022		2023		2022		2023		2022
Loans (a)(d)	$	1,236,778	$	1,079,610	$	13,367	$	10,277		4.29	%	3.79	%
Securities (c)(d)		214,246		208,140		1,353		962		2.53		1.85
FHLBB stock		3,436		1,434		19		7		2.29		2.05
Short term funds (b)		40,689		123,454		375		50		3.72		0.16
Total interest-earning assets		1,495,149		1,412,638		15,114		11,296		4.02		3.19
Other assets		55,022		74,795
Total assets	$	1,550,171	$	1,487,433
Interest-bearing demand deposits	$	223,742	$	232,464		119		99		0.22		0.17
Money market accounts		320,015		321,198		1,270		126		1.61		0.16
Savings and other		232,162		233,092		402		64		0.70		0.11
Certificates of deposit		161,300		131,059		1,027		189		2.58		0.59
Total interest-bearing deposits		937,219		917,813		2,818		478		1.22		0.21
Repurchase agreements		3,961		7,146		16		3		1.65		0.14
Finance lease		5,397		5,097		40		41		2.96		3.23
Note payable		121		163		2		2		6.17		6.12
Subordinated debt (net of issuance costs)		24,536		24,480		233		233		3.80		3.81
FHLBB advances		57,056		2,974		687		55		4.82		7.46
Total interest-bearing liabilities		1,028,290		957,673		3,796		812		1.49		0.34
Demand deposits		382,601		386,884
Other liabilities		8,427		7,036
Shareholders’ equity		130,853		135,840
Total liabilities & shareholders’ equity	$	1,550,171	$	1,487,433
Net interest income (d)					$	11,318	$	10,484
Spread on interest-bearing funds										2.54		2.84
Net interest margin (e)										2.99		2.95

(a)

Includes ~~non-accrual~~non-accural loans.

(b)

Includes interest-bearing deposits in other banks and federal funds sold.

(c)

Average balances of securities are based on ~~historical~~ cost.

(d)

Includestax exempt income benefit of ~~$219,000~~$190,000 and ~~$295,000,~~$178,000, respectively, for ~~2017~~2023 and ~~2016~~2022 ontax-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 $211,000 and $406,000, respectively.~~

4031

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

Three months ended September 30, (in thousands)	2017 versus 2016
Three months ended March 31, (in thousands)										Three months ended March 31, (in thousands)	2023 versus 2022
Change in interest due to		Volume			Rate			Net				Volume			Rate			Net
Loans	$	266		$	(134	)	$	132			$	1,633		$	1,457		$	3,090
Securities		42			(116	)		(74	)			34			357			391
FHLBB stock		—			8			8				11			1			12
Short term funds		(1	)		77			76				(405	)		730			325
Interest-earning assets		307			(165	)		142				1,273			2,545			3,818
Deposits		5			113			118				(7	)		2,347			2,340
Repurchase agreements		—			—			—				(8	)		21			13
Capital lease		42			(30	)		12
Note payable		—			1			1
Subordinated debt		—			—			—
Finance lease												2			(3	)		(1	)
Subordinated debt and notes payable												1			(1	)		—
FHLBB advances		(16	)		20			4				830			(198	)		632
Interest-bearing liabilities		31			104			135				818			2,166			2,984
Net change in net interest income	$	276		$	(269	)	$	7			$	455		$	379		$	834

Interest Income

Tax equivalent interest income increased ~~$136 thousand~~$3.8 million, or 33.8%, to ~~$9.1~~$15.1 million for ~~third~~first quarter ~~2017 as~~2023 compared with ~~third~~first quarter ~~2016.~~

2022. Loan income as compared ~~to third~~with first quarter ~~2016~~2022 increased ~~$132 thousand,~~$3.1 million, or ~~1.6%~~30.0%, primarily due to a 750 basis ~~points decrease~~point increase in the average loan yield ~~partially offset by~~and a ~~$24.6~~$157.2 million, or ~~3.3%~~14.6%, increase in average loans. ~~The third quarter of 2017 reflects the net accretion of $211 thousand related to fair value adjustments of loans related to the Riverside acquisition compared to $406 thousand in third quarter 2016.~~

Tax equivalent securities income ~~decreased $80~~increased $391 thousand, or ~~12.8%~~40.6%, for ~~third~~first quarter ~~2017 as~~2023 compared with ~~third~~first quarter ~~2016,~~2022, primarily due to a ~~56 basis point decrease in average yield, partially offset by a $6.0~~$6.1 million, or ~~7.6%~~2.9%, increase in average ~~volume.~~balances and a 68 basis point increase in average yield. Income on short-term funds compared with first quarter 2022 increased $325 thousand, or 650.0%, primarily due to a 356 basis point increase in the average short-term funds yields, partially offset by an $82.7 million, or 67.0% decrease in average balances.

Interest Expense

Interest expense increased ~~$133 thousand,~~$3.0 million, or ~~13.5%~~367.5%, to ~~$1.1~~$3.8 million for ~~third~~first quarter ~~2017 as~~2023 compared with ~~third~~first quarter ~~2016.~~

2022. Interest on deposit accounts increased ~~$117 thousand,~~$2.3 million, or ~~20.7%~~489.5%, as a result of a ~~$5.2~~101 basis point increase in average deposit rates and a $19.4 million, or 2.1%, increase in the average balances ~~and an average increase in deposit rates of 7 basis points as~~ compared with ~~third~~first quarter ~~2016.~~

2022. Interest expense on FHLBB borrowings increased $4$632 thousand, ~~as a result of a higher average borrowings rate which increased 28 basis points as~~or 1,149.1%, compared with ~~third~~first quarter ~~2016,~~2022 due to an average balance increase of $54.1 million, or 1,818.5%, partially offset by ana 264 basis point decrease in the average ~~balance decrease of $2.0 million as compared with third quarter 2016.~~borrowings rate. Interest expense on ~~subordinated debt totaled $156~~FHLBB borrowings for first quarter 2022 included a non-recurring expense of approximately $30 thousand ~~for the third quarter~~to pay off a $6.0 million advance due in ~~both 2017 and 2016.~~December 2022.

Provision and Allowance for ~~Loan~~Credit Losses

During first quarter 2023, the allowance for credit losses on loans increased by the provision for credit losses on loans of $0.9 million compared with a provision expense of $0.5 million for fourth quarter 2022 and a provision expense of $0.4 million for first quarter 2022. The provision expense for first quarter 2023 primarily reflected loan ~~losses was $237 thousand for third~~growth during the quarter ~~2017, compared with $344 thousand for third quarter 2016. Included~~as well as changes in the ~~provision are (recovery) / impairments related to ASC 310-30 purchased loans~~forecast of ~~$18 thousand and ($34 thousand) for~~certain macro-economic factors, which underpin the ~~third quarter of 2017 and 2016, respectively.~~Bank’s CECL model. Net loan charge-offs were ~~$236 thousand and $171~~$32 thousand for the ~~respective quarters.~~first quarter 2023, $13 thousand for fourth quarter 2022 and $410 thousand for the first quarter 2022. Charge-offs for first quarter 2022 included a write-down of $374 thousand to reduce the carrying value on $3.8 million of non-performing and under-performing residential and commercial loans, which Salisbury sold during the quarter, to the initial bid prices. Upon the adoption of ASU 326, Salisbury increased its ACL for off-balance sheet credit exposures by $0.9 million. In first quarter 2023, Salisbury increased the ACL for this exposure by $92 thousand.

(in thousands)	March 31, 2023			March 31, 2022
At or For the Three Months Ended	(CECL)			(Incurred Loss)
ACL on loans, beginning of period	$	14,846		$	12,962
Impact of CECL adoption		271			—
Provision for credit losses		924			363
Charge-offs:
Commercial & industrial		—			(46	)
Commercial real estate		—			(334	)
Residential real estate		—			(19	)
Consumer		(35	)		(17	)
Total loan charge-offs		(35	)		(416	)
Recoveries:
Commercial & industrial		—			1
Commercial real estate		—			—
Residential real estate		—			—
Consumer		3			5
Total loan recoveries		3			6
Net charge-offs	$	(32	)	$	(410	)
ACL on loans, end of the period	$	16,009		$	12,915
ACL on unfunded commitments, beginning of period	$	183		$	146
Impact of CECL adoption		913			—
Provision for credit losses		92			37
ACL on unfunded commitments, end of period	$	1,183		$	183
Components of ACL:
ACL on loans	$	16,009		$	12,915
ACL on unfunded commitments		1,183			183
ACL, end of period	$	17,192		$	13,098
Net charge-offs to average loans
Provision for credit losses on loans to average loans		0.07	%		0.03	%
ACL on loans to total loans		1.28	%		1.20	%

As a result of these factors, reserve coverage, as measured by the ratio of the allowance for credit losses to gross loans, excluding PPP loans, was 1.28% for the first quarter 2023, versus 1.21% for the fourth quarter 2022 and 1.20% for the first quarter 2022. Similarly, reserve coverage, as measured by the ratio of the allowance for credit losses to non-performing loans was 714% for first quarter of 2023, versus 558% for fourth quarter of 2022 and 467% for first quarter of 2022.

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

Three months ended September 30, 2017 2016
Net charge-offs to average loans receivable, gross 0.03 % 0.02 %
Non-performing loans to loans receivable, gross 1.05 1.54
Accruing loans past due 30-89 days to loans receivable, gross 0.44 0.78
Allowance for loan losses to loans receivable, gross 0.82 0.78
Allowance for loan losses to non-performing loans 78.1 50.47
Non-performing assets to total assets 1.25 1.56

Three months ended March 31,	2023		2022
Net charge-offs (recoveries) to average loans receivable, gross	0.00	%	0.04	%
Non-performing loans to loans receivable, gross	0.18		0.26
Accruing loans past due 30-89 days to loans receivable, gross	0.18		0.22
Allowance for credit losses to loans receivable, gross	1.28		1.20
Allowance for credit losses to non-performing loans	714.35		467.27
Non-performing assets to total assets	0.14		0.19

~~Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, increased to 0.82% at September 30, 2017 compared to 0.78% at September 30, 2016.~~

Non-performing loans (non-accrual loans plus accruing loans past-due 90 days or more) ~~amounted to $8.3~~were $2.4 million, or ~~1.05%~~0.18% of gross loans receivable at ~~September 30, 2017~~March 31, 2023 as compared to ~~$11.7~~$2.7 million, or ~~1.54%~~0.22% at December 31, 2022 and $2.8 million, or 0.26%, at ~~September 30, 2016.~~March 31, 2022. Accruing loans past due 30-89 days ~~decreased $2.4 million to $3.5~~were $2.2 million, or ~~0.44% of gross loans receivable from $5.9 million, or 0.78%~~0.18% of gross loans receivable at ~~September 30, 2016.~~March 31, 2023 compared with $1.3 million, or 0.11% of gross loans receivable at December 31, 2022 and $2.3 million, or 0.22% of gross loans receivable, at March 31, 2022. See “Financial Condition – ~~Loan Credit~~Asset Quality” above for further discussion and analysis.

~~The allowance~~Salisbury adopted CECL on January 1, 2023. Under CECL, the Bank’s lifetime credit loss models are based on historical data and incorporate forecasts of macroeconomic variables, expected prepayments and recoveries. Non-economic qualitative factors are also evaluated for each loan ~~losses represents management’s estimate of~~segment. A four-quarter reasonable and supportable forecast period is currently used for all loan portfolios. When 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 portionrisk characteristics of a loan no longer match the characteristics of the collective pool, the loan is removed from the pool and individually assessed for credit losses. Generally, non-accrual loans and collateral dependent loans are individually assessed.

Salisbury segregates its loan portfolio into discrete loan pools for purposes of evaluating credit risk. Each loan pool possesses unique risk characteristics that are considered when determining the appropriate level of allowance. See Note 4 for a description of these discrete loan pools.

At March 31, 2023, the reasonable and supportable forecast used to estimate the ACL on loans used the following loss drivers by loan segment: (i) Commercial & Industrial – National Gross Domestic Product (“GDP”) and National Unemployment; (ii) Commercial Real Estate - National GDP and National Unemployment; (iii) Residential Real Estate – National Housing Price Index and National Unemployment; (iv) Consumer - National Unemployment. National GDP and National Unemployment are sourced from the Federal Reserve Open Market Committee’s published forecast whereas the National Housing Price Index is sourced from the Federal National Mortgage Association’s published forecast. The Company's qualitative factors at March 31, 2023, included consideration of the level of uncertainty surrounding the impact of macro-economic factors such as interest rates, inflation, supply chain disruption, geo-political events as well as other factors. At March 31, 2023, the ACL estimate for loans used a reversion period of two years for each loan segment.

The individual assessment for credit impairment is generally based on a discounted cash flow approach unless the asset is collateral dependent. A loan is considered collateral dependent when repayment is expected to be ~~uncollectible. The allowance for loan losses~~provided substantially through the operation or sale of the collateral and the borrower is ~~computed by segregating the portfolio into three components: (1) loans collectively evaluated for impairment: general loss allocation factors for non-impaired~~experiencing financial difficulty. Collateral dependent loans are ~~segmented into pools of loans~~individually assessed and the expected credit loss is 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~~collateral. The fair value is reduced for 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~~is expected to be realized through sale.

Also included within scope of CECL standard are off-balance sheet loan commitments, which includes the unfunded portion of committed lines of credit and commitments “in-process” reflect loans not in Salisbury’s gross loans receivable balance as of the ~~loan~~balance sheet date but rather negotiated loan/line of credit terms and rates that the Bank has offered to customers and is ~~lower than~~committed to honoring. In reference to “in-process” credits, the ~~carrying value of~~Bank defines an unfunded commitment as a credit that ~~loan.~~

has been offered to and accepted by a borrower, which has not closed and by which the obligation is not unconditionally cancellable. The ~~component~~Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk through a contractual obligation to extend credit, unless that obligation in unconditionally cancellable by the Bank. The allowance for credit losses on losses on off-balance sheet exposures includes consideration of the ~~allowance for loan losses for loans collectively evaluated for impairment is estimated by stratifying loans into segments~~likelihood that funding will occur 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 the first nine months of 2017.

~~The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s~~an 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.expected credit losses on commitments to be funded over its estimated life.

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 ~~September 30, 2017.~~March 31, 2023.

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 September 30, (dollars in thousands)		2017		2016		2017 vs. 2016
Three months ended March 31, (dollars in thousands)										Three months ended March 31, (dollars in thousands)		2023		2022			2023 vs. 2022
Trust and wealth advisory	$	874	$	849	$	25		3	%		$	1,153	$	1,241		($	88	)	(7.1	%)
Service charges and fees		935		822		113		14				1,235		1,138			97		8.5
Gains on sales of mortgage loans, net		25		55		(30	)	(55	)
Mortgage servicing, net		104		40		64		160
Gains on sales and calls of available-for-sale securities, net		—		9		(9	)	(100	)
Mortgage banking activities, net												59		355			(296	)	(83.4	)
Gains (losses) on mutual funds												20		(42	)		62		147.6
Gains on securities, net												—		210			(210	)	(100.0	)
Bank-owned life insurance (“BOLI”) income												192		162			30		18.5
Other		142		113		29		26				34		30			4		13.3
Total non-interest income	$	2,080	$	1,888	$	192		10	%		$	2,693	$	3,094		($	401	)	(13.0	%)

Non-interest income ~~for third~~decreased $401 thousand, or 13.0% in first quarter ~~2017 increased $192~~of 2023 versus first quarter of 2022. Trust and wealth advisory revenues decreased $88 thousand versus ~~third~~first quarter ~~2016. Trust~~2022 primarily due to lower asset management fees. Assets under administration were $1.30 billion at March 31, 2023 compared with $1.29 billion at December 31, 2022 and ~~Wealth Advisory~~$1.0 billion at March 31, 2022. Discretionary assets under administration of $588.4 million in first quarter 2023 increased ~~$25 thousand versus third~~from $561.1 million in fourth quarter ~~2016. Revenue~~2022 and decreased from $625.3 million in first quarter 2022. The variance from the comparative quarters primarily reflected changes in market valuations. Non-discretionary assets under administration of $712.7 million in first quarter 2023 declined from $728.9 million in fourth quarter 2022 and increased from $423.9 million in first quarter 2022. The variance from the comparative periods primarily reflected changes in the valuation of certain partnership assets for ~~Trust~~an existing client relationship. The trust and ~~Wealth Advisory Services came in higher year over year representing~~wealth business records only a ~~net growth in asset based fees.~~ nominal annual fee on this relationship.

Service charges and fees increased ~~$113~~$97 thousand versus ~~third~~first quarter ~~2016. Income~~2022 and primarily reflected higher deposit fees and interchange fees. First quarter 2023 income from mortgage sales and servicing decreased $296 thousand due to a lower volume of sales of residential mortgage loans ~~increased $34~~to the FHLB Boston. Salisbury did not sell any residential loans to FHLBB during first quarter 2023 compared with sales of $5.5 million in first quarter 2022. Mortgage banking activities, net for first quarter 2022 also included a pre-tax gain of $239 thousand ~~versus third~~on the sale of $3.8 million of non-performing and under-performing commercial and residential loans.

The first quarter ~~2016. Third quarter 2017 and third quarter 2016~~2023 included net ~~mortgage servicing amortization and periodic impairment (benefit) charges~~gains of ~~$(12)~~$20 thousand ~~and $60~~on investments in mutual funds compared with net losses of $42 thousand ~~respectively. The benefit~~ in ~~the current~~first quarter ~~primarily reflected management’s review of the portfolio and the update of key assumptions to more closely reflect the portfolio’s historical performance. As~~2022. Non-interest income for first quarter 2022 included a ~~result of this review, the current quarter includes the reversal of a previously recorded impairment charge of $25 thousand. The impact of this change was partly offset by lower gains~~pre-tax gain on the ~~sales~~sale of ~~mortgage loans~~available-for-sale (“AFS”) securities of $210 thousand. Salisbury did not sell any AFS securities in first quarter 2023.

BOLI income of $192 thousand increased $30 thousand compared ~~with the third~~to $162 thousand in first quarter ~~2016. Third quarter 2017 mortgage loans sales totaled $0.4 million versus $3.3 million for third quarter 2016.~~2022. Other income primarily includes ~~bank owned life insurance income and~~ rental property income.

Non-Interest Expense

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

Three months ended September 30, (dollars in thousands)		2017		2016		2017 vs. 2016
Three months ended March 31, (dollars in thousands)										Three months ended March 31, (dollars in thousands)		2023		2022		2023 vs. 2022
Salaries	$	2,829	$	2,757	$	72		3	%		$	3,721	$	3,479	$	242		7.0	%
Employee benefits		1,004		924		80		9				1,468		1,277		191		15.0
Premises and equipment		995		809		186		23				1,105		1,104		1		0.1
Data processing		545		473		72		15
Loss on write-down and sale of assets												158		9		149		1655.6
Information processing and services												831		685		146		21.3
Professional fees		481		459		22		5				945		787		158		20.1
Collections, OREO, and loan related		419		109		310		284				72		117		(45	)	(38.5	)
FDIC insurance		106		164		(58	)	(35	)			98		171		(73	)	(42.7	)
Marketing and community support		220		144		76		53				127		184		(57	)	(31.0	)
Amortization of intangibles		142		148		(6	)	(4	)
Amortization of core deposit intangibles												39		54		(15	)	(27.8	)
Other		479		513		(34	)	(7	)			470		786		(316	)	(40.2	)
Total non-interest expense	$	7,220	$	6,500	$	720		11	%
Non-interest expense											$	9,034	$	8,653	$	381		4.4	%

Non-interest expense for ~~third~~first quarter ~~2017~~2023 increased ~~$720~~$381 thousand versus ~~third~~first quarter ~~2016. Total salary and employee benefits~~2022. Non-interest expense for first quarter 2023 included costs of approximately $385 thousand associated with the pending NBT merger. Non-interest expense for first quarter 2023 also included a non-recurring charge of $158 thousand to write off fixed assets in the Red Oaks Mill, New York branch, which will be closed on April 30, 2023. Salaries expense increased ~~$152~~$242 thousand ~~in the current year’s~~versus first quarter ~~as compared to the same period in the prior year.~~2022. The increase ~~is mainly attributable to the mix and levels of staff~~primarily reflected higher base salary expense and higher ~~employee benefit costs~~incentive accruals as well as lower deferred ~~expense in the current quarter related to loan origination. Premises and equipment~~compensation expense. Employee benefits expense increased ~~$186~~$191 thousand versus ~~third~~first quarter ~~2016. The year-over-year increase was substantially attributable~~2022 primarily due to ~~lease expense related to the acquisition of the Newburgh~~higher medical insurance costs and ~~New Paltz branches. Data~~ESOP and 401k expense. Information processing expense increased ~~$72~~$146 thousand versus ~~third~~first quarter ~~2016. The year over year increase reflects~~2022 primarily due to higher core ~~data~~ processing costs and ~~data communications charges.~~ATM and debit card processing fees. Professional fees increased ~~$22~~$158 thousand versus ~~third~~first quarter ~~2016. Collections,~~2022 primarily as a result of increased audit and legal fees. Loan and OREO ~~and loan~~ related expenses ~~increased $310~~decreased $45 thousand versus ~~third~~first quarter 2016 and include the write down of $217 thousand in the current quarter related to the pending sale of an OREO property, which is expected to close in the current year. The decline in FDIC related expense is attributable to adjustments related2022, mainly due to lower ~~assessment rates.~~appraisal expenses and mortgage recording taxes. Marketing and community support ~~costs increased $76~~expense decreased $57 thousand ~~compared to the prior year third quarter.~~versus first quarter 2022. The ~~increase~~decrease in other expenses of $316 thousand primarily reflected ~~costs associated customer mailings related to the Bank’s core system conversion.~~two isolated instances of debit card or check cashing fraud-related losses aggregating $251 thousand in first quarter 2022.

Income Taxes

The effective income tax rates for ~~third~~first quarter ~~2017~~2023 and ~~third~~first quarter ~~2016~~2022 were ~~29.09%~~19.95% and ~~29.74%~~18.60%, respectively. ~~Generally, fluctuations~~The higher tax rate in the ~~effective tax rate result from changes in the~~first quarter 2023 primarily reflected a lower 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 income from municipal bonds, tax advantaged loans and ~~loans as well as bank owned~~bank-owned life ~~insurance.~~insurance on a comparatively lower level of pre-tax income.

Salisbury did not incur Connecticut income tax in ~~2017~~2023 (to date) or ~~2016,~~2022, 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 Connecticut state income tax, other than minimum Connecticut state income tax, in the foreseeable future unless there is a change in Connecticut tax law.

~~For the nine month periods ended September 30, 2017 and 2016~~CAPITAL RESOURCES

~~Overview~~Shareholders’ Equity

~~Net income allocated~~Shareholders’ equity increased $4.0 million in first quarter to ~~common stock was $5.1~~$132.4 million or $1.87 per common share, for the nine month period ended September 30, 2017 (nine month period 2017), compared with $5.1 million, or $1.88 per common share, for the nine month period ended September 30, 2016 (nine month period 2016).

~~Net Interest Income~~

Tax equivalent net interest income for the nine months of 2017 increased $101 thousand, or 0.42%, versus the nine months of 2016. Average earning assets increased $36.14 million versus the nine months of 2016. Average total interest bearing deposits increased $8.38 million versus the nine months of 2016. The net interest margin of 3.57% decreased 14 basis points versus 3.71% for the nine months of 2016.

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

Nine months ended September 30, Average Balance Income / Expense Average Yield / Rate
(dollars in thousands) 2017 2016 2017 2016 2017 2016
Loans (a)(d)(f) $ 775,067 $ 740,828 $ 25,092 $ 24,469 4.32 % 4.40 %
Securities (c)(d) 79,099 76,009 1,623 2,031 2.74 3.56
FHLBB stock 3,631 3,327 104 88 3.82 3.53
Short term funds (b) 36,449 37,943 247 138 0.90 0.48
Total earning assets 894,246 858,107 27,066 26,726 4.04 4.15
Other assets 56,695 57,091
Total assets $ 950,941 $ 915,198
Interest-bearing demand deposits $ 133,700 $ 124,375 230 238 0.23 0.26
Money market accounts 189,718 203,088 487 433 0.34 0.28
Savings and other 144,464 125,284 285 168 0.26 0.18
Certificates of deposit 116,395 123,149 774 764 0.89 0.83
Total interest-bearing deposits 584,277 575,896 1,776 1,603 0.41 0.37
Repurchase agreements 2,462 3,686 4 4 0.22 0.14
Capital lease 925 420 66 53 9.51 16.82
Note payable 330 364 13 15 5.25 5.49
Subordinated debt (net of issuance costs) 9,796 9,773 468 468 6.37 6.38
FHLBB advances 37,222 31,725 769 714 2.75 3.00
Total interest-bearing liabilities 635,012 621,864 3,096 2,857 0.65 0.61
Demand deposits 213,782 191,454
Other liabilities 5,893 9,634
Shareholders’ equity 96,254 92,246
Total liabilities & shareholders’ equity $ 950,941 $ 915,198
Net interest income (f) $ 23,970 $ 23,869
Spread on interest-bearing funds 3.39 3.54
Net interest margin (e) 3.57 3.71

~~(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 $711,000 and $951,000, respectively for 2017 and 2016 ontax-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 $969,000 and $895,000, respectively.~~

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

Nine months ended September 30, (in thousands) 2017 versus 2016
Change in interest due to Volume Rate Net
Loans $ 1,121 $ (498 ) $ 623
Securities 73 (481 ) (408 )
FHLBB stock 7 9 16
Short term funds (8 ) 117 109
Interest-earning assets 1,193 (853 ) 340
Deposits 24 149 173
Repurchase agreements (2 ) 2 —
Capital lease 48 (35 ) 13
Note payable — (2 ) (2 )
Subordinated Debt 1 (1 ) —
FHLBB advances 119 (64 ) 55
Interest-bearing liabilities 190 49 239
Net change in net interest income $ 1,003 $ (902 ) $ 101

~~Interest Income~~

~~Tax equivalent interest income increased $340 thousand to $27.1 million forthe nine month period 2017~~at March 31, 2023 as ~~compared withthe nine month period 2016~~.

Loan income, as compared to the nine months of 2016, increased $622 thousand or 2.5% primarily due to a $34.3 million, or 4.6%, increase in average loans. The increase was partially offset by an 8 basis point decreaseunrealized gains in the ~~average loan yield. The nine month period 2017 reflects the net accretion~~available-for-sale securities (“AFS”) portfolio of ~~$969 thousand related to fair value adjustments of loans related to the Riverside acquisition compared to net accretion of $895 thousand in the nine month period 2016.~~

Tax equivalent securities income decreased $408 thousand, or 20.1%, for the nine month period 2017 as compared with the nine month period 2016, primarily due to an 82 basis point decrease in average yield, partially offset by a $3.1$2.7 million, ~~or 4.1%, increase in average volume.~~

~~Interest Expense~~

~~Interest expense increased $239 thousand, or 8.4%, to $3.1 million forthe nine month period 2017as compared with thenine month period 2016~~.

Interest on deposit accounts increased $173 thousand, or 10.8%, as a result of an $8.4 million increase in the average balances. Average deposit rates increased 4 basis points as compared with the nine month period 2016.

Interest expense on FHLBB borrowings increased $55 thousand as a result of an average balance increase of $5.5 million as compared with the nine month period 2016, partially offset by a lower average borrowings rate which decreased 25 basis points. Interest expense on subordinated debt totaled $468 thousand for the nine month periods 2017 and 2016.

~~Provision and Allowance for Loan Losses~~

The provision for loan losses was $953 thousand for the nine month period ended September 30, 2017 as compared to $1.3 million for the nine month period ended September 30, 2016. Included in the provision are impairments related to ASC 310-30 purchased loans of $32 thousand and $534 thousand for the nine months ended September 30, 2017 and 2016, respectively. Net loan charge-offs were $586 thousand and $1.2 million for the respective periods.

Reserve coverage at September 30, 2017, as measured by the ratio of allowance for loan losses to gross loans, at 0.82%, compares with 0.78% a year ago at September 30, 2016. During the first nine months of 2017, non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) decreased $0.5 million to $8.3 million. Non-performing loans represent 1.05% of gross loans receivable, a decrease from 1.16% at December 31, 2016. At September 30, 2017, accruing loans past due 30-89 days decreased $1.1 million to $3.4 million or 0.44% of gross loans receivable from 0.60% at December 31, 2016. See “Financial Condition – Loan Credit Quality” for further discussion and analysis.

~~Non-interest income~~

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

Nine months ended September 30, (dollars in thousands) 2017 2016 2017 vs. 2016
Trust and wealth advisory $ 2,620 $ 2,517 $ 103 4 %
Service charges and fees 2,799 2,277 522 23
Gains on sales of mortgage loans, net 104 151 (47 ) (31 )
Mortgage servicing, net 180 119 61 51
(Loss) gains on sales, calls and write-downs of available-for-sale securities, net (14 ) 157 (171 ) (109 )
Other 365 343 22 6
Total non-interest income $ 6,054 $ 5,564 $ 490 9 %

Non-interest income for the nine month period ended September 30, 2017 increased $490 thousand versus the same period in 2016. Trust and wealth advisory revenues increased $103 thousand mainly due to growth in asset based fees. Service charges and fees increased $522 thousand primarily due to growth in overdraft and ATM fees. Income from sales and servicing of mortgage loans increased $14 thousand as a benefit in the current year for the reversal of impairment charges for mortgage servicing rights was partly offset by lower gains on sales of fixed rate residential mortgage loans. Mortgage loans sales totaled $4.4 million for the nine month period ended September 30, 2017 and $6.8 million for the nine month period ended September 30, 2016. The nine month periods ended September 30, 2017 and 2016 included mortgage servicing amortization of $149 thousand and $182 thousand, respectively. 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.~~

Nine months ended September 30, (dollars in thousands) 2017 2016 2017 vs. 2016
Salaries $ 8,266 $ 8,018 $ 248 3 %
Employee benefits 2,923 2,922 1 0
Premises and equipment 2,797 2,546 251 10
Data processing 1,521 1,369 152 11
Professional fees 1,962 1,403 559 40
Collections, OREO, and loan related 875 420 455 108
FDIC insurance 354 474 (120 ) (25 )
Marketing and community support 623 524 99 19
Amortization of intangible assets 395 455 (60 ) (13 )
Other 1,561 1,846 (285 ) (15 )
Non-interest expense $ 21,277 $ 19,977 $ 1,300 7 %

Non-interest expense for the nine month period ended September 30, 2017 increased $1.3 million versus the same period in 2016. Salaries and benefits increased $249 thousand primarily due to increased staffing levels and market and merit adjustments. Premises and equipment increased $251 thousand mainly due to higher lease related expense related to the Newburgh and New Paltz branches. Data processing increased $152 thousand mainly due to expenses related to core processing, data communications as well as ATM and debit card processing related expenses. The professional fees increase of $559 thousand versus the nine month period 2016 fees is substantially attributable to consulting, audit related and legal fees. Collections, OREO, and loan related expense increased $455 thousand due primarily to higher levels of OREO year over year. Salisbury had six foreclosed properties at September 30, 2017 and one at September 30, 2016. FDIC insurance decreased $120 thousand due to a refund of a 2016 overpayment and lower assessment rates. Marketing and community support increased $99 thousand due primarily to an increase in general marketing campaigns. Amortization of intangible assets decreased $60 thousand due to the aging off of expenses related to previous acquisitions. Other expenses decreased $285 thousand mainly due to the reduction of expenses related to loans serviced for others which were incurred in the 2016 period.

~~Income taxes~~

The effective income tax rates for the nine month periods ended September 30, 2017 and September 30, 2016 were 26.86% and 28.00%, respectively. Fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income as well as the impact of stock based compensation related adjustments. Salisbury’s effective tax rate is generally less than the 34% federal statutory rate due to holdings of tax-exempt municipal bonds, tax-exempt loans and bank owned life insurance and other tax advantaged assets.

~~CAPITAL RESOURCES~~

Shareholders’ equity was $97.5 million at September 30, 2017, up $3.5 million from December 31, 2016. Book value and tangible book value per common share were $35.01 and $29.34, respectively, compared with $34.07 and $28.90, respectively, at December 31, 2016. Contributing to the increase in shareholders’ equity for year-to-date 2017 was net income of ~~$5.2~~$3.0 million and ~~stock options exercised~~other activity of ~~$0.3~~$0.1 million were partially offset by common stock dividends paid of ~~$2.3 million. Accumulated other comprehensive income consists~~$0.9 million and a reduction of $0.9 million due to the adoption of CECL. Book value per common share of $22.79 at March 31, 2023 increased $0.66 from fourth quarter 2022 and increased $0.23 from first quarter 2022. Tangible book value per common share of $20.38 at March 31, 2023 increased $0.67 from fourth quarter 2022 and increased $0.28 from first quarter 2022.

At March 31, 2023 and December 31, 2022, the ratio of Salisbury’s tangible common shareholders’ equity, which included the after-tax unrealized ~~gains~~losses on available-for-sale securities, ~~available-for-sale, net of tax, of $0.6 million~~to tangible total assets were as ~~of September 30, 2017.~~follows:

	March 31, 2023			December 31, 2022
Common shareholders’ equity	$	132,355		$	128,355
Less: Goodwill		(13,815	)		(13,815	)
Less: Intangible assets		(188	)		(227	)
Tangible common shareholders’ equity	$	118,352		$	114,313

Total assets	$	1,565,334		$	1,541,582
Less: Goodwill		(13,815	)		(13,815	)
Less: Intangible assets		(188	)		(227	)
Tangible total assets	$	1,551,331		$	1,527,540
Tangible common shareholders’ equity to tangible total assets		7.63	%		7.48	%

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~~meets all capital adequacy requirements to which ~~they are~~it is subject and the Bank is considered to be well-capitalized. The unrealized losses in the AFS portfolio noted above do not affect the Bank’s regulatory capital ratios. As a ~~result,~~well-capitalized financial institution, the Bank pays lower federal deposit insurance premiums than those banks that are not ~~“well- capitalized.~~“well-capitalized.” Requirements for classification as a well-capitalized institution and for minimum capital adequacy along with the Bank's regulatory capital ratios are as follows:

	March 31, 2023			December 31, 2022
Total Capital (to risk-weighted assets)		13.41	%		13.43	%
Common Equity Tier 1 Capital		12.16			12.24
Tier 1 Capital (to risk-weighted assets)		12.16			12.24
Tier 1 Capital (to average assets)		9.98			9.99

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 to Tier 1 ratio of 6.5% or above, and a Leverage ratio of 5% or above, and is not subject to any written order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level. Maintaining strong capital is essential to Salisbury and the Bank’s safety and soundness. However, the effective management of capital resources requires generating attractive returns on equity to build value for shareholders while maintaining appropriate levels of capital to fund growth, meet regulatory requirements and be consistent with prudent industry practices.

The ~~FRB and FDIC approved the~~FRB’s final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank ~~subsidiaries. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Bank and Company. The rules~~subsidiaries include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer ~~was initially phased~~began phasing in ~~beginning~~ January 1, 2016 at 0.625% of risk-weighted assets and ~~increases~~increased each subsequent year by an additional 0.625% until ~~reaching~~it reached its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

As of ~~September 30, 2017,~~March 31, 2023, 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.

~~Requirements~~On September 17, 2019, the Office of the Comptroller of the Currency, the FRB and the FDIC published its final rule establishing a “Community Bank Leverage Ratio” (“CBLR”) that simplifies capital requirements for ~~classification~~certain community banking organizations with less than $10 billion in total consolidated assets (such as the Bank). Under the final rule, depository institutions and their holding companies that meet certain criteria (generally, those with limited amounts of off-balance sheet exposures, trading assets and liabilities, mortgage servicing assets, and temporary difference deferred tax assets) (“qualifying community banking organizations”) may elect to report the components of its Tier 1 leverage ratio as a measure of capital adequacy. A qualifying community banking organization with a CBLR of greater than 9% that “elects to use the CBLR framework” will not be subject to other risk-based and leverage capital requirements and will be considered to have met the well-capitalized ~~institution~~ratio requirements for purposes of the agencies’ Prompt Corrective Action (“PCA”) framework. Under the final rule, if a bank that has opted to use the CBLR framework subsequently fails to satisfy one or more of the qualifying criteria, but continues to report a leverage ratio of greater than 8 %, the bank may continue to use the framework and will be deemed “well capitalized” for ~~minimum~~a grace period of up to two quarters. A qualifying community banking organization will be required to comply with the generally applicable capital ~~adequacy along~~rule and file the relevant regulatory reports if the banking organization: (1) is unable to restore compliance with all qualifying criteria during the two-quarter grace period (including achieving compliance with the greater than 9% leverage ratio requirement); (2) reports a leverage ratio of 8% or less; or (3) ceases to satisfy the qualifying criteria due to consummation of a merger transaction. The final rule became effective on January 1, 2020. The Bank would qualify for the CBLR methodology and would also be considered to be well capitalized if it elected to utilize such methodology. The Bank is currently evaluating the benefits of transitioning to this simplified methodology for assessing capital adequacy.

Share Repurchases

On March 23, 2022 Salisbury announced that its Board of Directors has renewed its share repurchase program that was established in March 2021. The share repurchase program provides for the potential repurchase of Salisbury’s common stock in amounts up to an aggregate of five percent (5%) of the outstanding shares of Salisbury’s common stock from time to time over a period of the next twelve (12) months through privately negotiated transactions and/or market purchases at appropriate prices, subject to price and market conditions on terms determined to be in the ~~Bank's regulatory capital ratios are as follows:~~

September 30, 2017 December 31, 2016
Salisbury Bank Salisbury Bank
Total Capital (to risk-weighted assets) 13.20 % 12.77 % 13.26 % 12.92 %
Tier 1 Capital (to risk-weighted assets) 10.96 11.87 11.02 12.05
Common Equity Tier 1 Capital (to risk-weighted assets) 10.96 11.87 11.02 12.05
Tier 1 Capital (to average assets) 8.49 9.20 8.69 9.51

~~Dividends~~best interests of Salisbury. Salisbury did not repurchase any shares during first quarter 2023.

Dividends

During the ~~nine month~~three-month period ended ~~September 30, 2017,~~March 31, 2023, Salisbury paid ~~$2.3 million~~$927 thousand in dividends on common ~~stock dividends.~~

stock. On ~~October 27, 2017,~~April 26, 2023, the Board of Directors of Salisbury declared a ~~common stock~~ dividend of ~~$0.28~~$0.16 per common share payable on ~~November 24, 2017~~May 26, 2023 to shareholders of record on ~~November 10, 2017. Common stock dividends, when declared, are generally 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.~~12, 2023.

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. Additionally, the effects of inflation on commercial and consumer customers can have implications with respect to their borrowing needs and saving and deposit practices. Potentially, if sustained, inflation could precipitate recessionary trends that could affect commercial development and residential construction. Inflation could also increase the cost of labor and products and services used by the Bank and thereby hinder efficiencies in the Bank’s ability to deliver products and services. There is no precise method, however, to measure the effects of inflation on Salisbury’s consolidated financial statements. Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation. Although not a material factor in recent years, inflation could impact earnings in future periods.

FORWARD-LOOKING STATEMENTS

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

(a)

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

(b)

expectations for revenues and earnings for Salisbury and the Bank.

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

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

(a)

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

(b)

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

(c)

increased competition from other financial and non-financial institutions;

(d)

the impact of technological advances and cybersecurity matters;

(e)

interest rate fluctuations; ~~and~~

(f)

the effect of the COVID-19 pandemic on Salisbury, the communities served by the Bank, the State of Connecticut and the United States, related to the economy and overall financial stability;

(g)

the risk of adverse changes in business conditions due to geo-political tensions and;

(h)

the risk that the pending merger with NBT will not be completed; and

(i)

changes in Salisbury’s liquidity risk profile due to uncertain economic conditions and competition for deposits; and

(j)

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

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

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 ~~September 30, 2017~~March 31, 2023 analysis, ~~three of~~ the simulations incorporate static growth assumptions over the simulation horizons ~~with~~for regulatory compliance and interest rate risk measurement purposes. In the dynamic growth scenarios, allowances are 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~~varies 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 ~~September 30, 2017,~~March 31, 2023, 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~~of 400 basis points ~~for~~across the ~~2-year Treasury rates to 300 basis points for the 10-year Treasury;~~yield curve; (3) immediately falling interest rates – immediate parallel downward shift in market interest rates ~~ranging from 100~~of 300 basis points ~~for~~across the ~~2-year Treasury rates to 100 basis points for the 10-year Treasury;~~yield curve; and (4) gradual and non-parallel ~~increase~~changes in interest rates ~~–upward shift in market interest rates ranging from 352 basis points for~~– the ~~2-year Treasury rates to 224 basis points for the 10-year Treasury. Deposit rates are~~yield curve is assumed to ~~shift~~rise through most of 2023 before flattening out and declining toward the latter part of 2023 and into 2024. The Federal Funds rates increases to 5.25% by ~~lesser amounts due~~May 2023 and remains flat until a projected 0.25% rate cut in December 2023 and several additional rate cuts throughout 2024 to ~~their relative historical insensitivity~~reach a terminal rate of 2.00%. Through the remaining nine months of 2023, the two year, five year, and 10 year treasury are projected to ~~market interest rate movements. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. Income simulations~~increase by 0.47%, 0.58%, and 0.73%, respectively. In 2024, the two year, five year, and 10 year treasury decline by 3.00%, 2.02%, and 1.03%, respectively. Simulations do not reflect adjustments in strategy that the ALCO could implement in response to ~~rates.~~ rate shifts.

As of ~~September 30, 2017,~~March 31, 2023, net interest income simulations indicated that ~~the Bank’s~~Salisbury’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~~Salisbury’s financial instruments as of ~~September 30, 2017:~~March 31, 2023.

As of September 30, 2017 Months 1-12 Months 13-24
Immediately rising interest rates (static growth assumptions) (4.86 )% 2.41 %
Immediately falling interest rates (static growth assumptions) (2.17 ) (5.33 )
Gradual and non-parallel increasing interest rates (with yield curve inversion) (2.20 ) (5.24 )

As of March 31, 2023	Months 1-12			Months 13-24
Immediately rising interest rates + 200bp (static growth assumptions)		(7.2	)%		(2.3	)%
Immediately rising interest rates + 100bp (static growth assumptions)		(3.3	)		(0.9	)
Immediately falling interest rates - 100bp (static growth assumptions)		(0.1	)		(3.0	)
Immediately falling interest rates - 200bp (static growth assumptions)		(1.6	)		(8.5	)

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~~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 September 30, 2017 (in thousands)		Rates up 100bp			Rates up 200bp
U.S. Treasury notes	$	—		$	—
As of March 31, 2023 (in thousands)								Rates up 100bp			Rates up 200bp
U.S. Treasury							$	(659	)	$	(1,287	)
U.S. Government agency notes		—			—			(1,164	)		(1,907	)
Municipal bonds		(34	)		(87	)		(3,353	)		(6,546	)
Mortgage backed securities		(942	)		(2,322	)
U.S. Government agencies and U.S. Government- sponsored enterprises								(2,867	)		(5,598	)
Collateralized mortgage obligations		(455	)		(978	)
SBA pools		(712	)		(1,317	)
Other		(106	)		(199	)
U.S. Government agencies								(1,394	)		(2,783	)
Corporate bonds								(426	)		(808	)
Total available-for-sale debt securities	$	(2,249	)	$	(4,903	)	$	(9,863	)	$	(18,929	)

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 ~~September 30, 2017.~~March 31, 2023. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective as of ~~September 30, 2017.~~March 31, 2023.

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 usSalisbury in ~~our~~its 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 ~~September 30, 2017~~March 31, 2023 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~~There were no material changes to the risk factors previously disclosed in Salisbury’s Annual Report on Form 10-K for the year ended December 31, 2022.

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~~
2.1	Agreement and Plan of Merger by and among NBT Bancorp Inc., NBT Bank, N.A., Salisbury Bancorp, Inc., and Salisbury Bank and Trust Company ~~and Riverside Bank~~ dated ~~March 18, 2014~~December 5, 2022 (incorporated by reference to Exhibit 2.1 of Form 8-K filed on ~~March 19, 2014)~~December 5, 2022).
~~3.1~~
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~~
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~~
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~~
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~~
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~~
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of Form 8-K filed November 25, 2014).
~~4.1~~
4.1	Form of Subordinated Note, dated as of ~~December 10, 2015,~~March 31, 2021, issued by Salisbury Bancorp, Inc. (incorporated by reference to Exhibit ~~4.1of~~4.1 of Registrant’s Form 8-K filed ~~December 10, 2015)~~March 31, 2021).

~~10.1~~	2017 Long Term Incentive Plan adopted by the Board on February 24, 2017 and approved 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~~
10.1	Amended and Restated Non-Qualified Deferred Compensation Plan ~~dated as of April 28, 2017~~effective January 1, 2022 (incorporated by reference to Exhibit ~~10.2~~10.1 of ~~Registrant’s~~ Form ~~10-Q~~8-K filed ~~on May 15, 2017)~~December 29, 2021).
~~21.1~~	~~Subsidiaries of the Registrant.~~
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~~
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~~
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.

5140

~~SIGNATURES~~

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.

~~November 14, 2017~~May 5, 2023	By:	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer

~~November 14, 2017~~May 5, 2023	By:	/s/ Peter Albero
		Peter Albero,
		Executive Vice President and Chief Financial Officer

Cash paid during period
Interest	$	2,810	$	2,714
Income taxes		1,958		842
Non-cash transfers
From loans to other real estate owned		743		2,823
Empire State Bank branch acquisition 2017
Cash and cash equivalents acquired		22,387		—
Net loans acquired		7,097		—
Fixed assets acquired (including capital leases)		1,605		—
Accrued interest receivable acquired		12		—
Other assets acquired		20		—
Core deposit intangible		632		—
Goodwill		1,263		—
Deposits assumed		31,433		—
Capital lease assumed		1,580		—
Other liabilities assumed		3		—

September 30, 2017 (in thousands)	Less than 12 Months				12 Months or Longer				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
Mortgage-backed securities	$	10,483	$	56	$	18,553	$	116	$	29,036	$	172
Collateralized mortgage obligations:
U.S. Government agencies		4,810		13		—		—		4,810		13
Non-agency		—		—		118		3		118		3
SBA bonds		3,414		10		—		—		3,414		10
Corporate bonds		500		—		—		—		500		—
CRA mutual funds		840		7		—		—		840		7
Total temporarily impaired securities		20,047		86		18,671		119		38,718		205
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Non-agency		107		13		—		—		107		13
Total temporarily impaired and other-than-temporarily impaired securities	$	20,154	$	99	$	18,671	$	119	$	38,825	$	218

December 31, 2016 (in thousands)	Less than 12 Months				12 Months or Longer				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
Municipal bonds	$	517	$	1	$	—	$	—	$	517	$	1
Mortgage-backed securities		34,758		329		249		6		35,007		335
Collateralized mortgage obligations:
Non-agency		60		—		339		5		399		5
SBA bonds		475		1		—		—		475		1
CRA 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

	Nine months ended
	September 30, 2017						September 30, 2016
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		—	$	—	$	—		4	$	683	$	683
Commercial real estate		1		600		600		2		2,123		2,123
Troubled debt restructurings		1	$	600	$	600		6	$	2,806	$	2,806
Rate reduction and term extension		—	$	—	$	—		1	$	174	$	174
Debt consolidation		—		—		—		2		2,123		2,123
Term extension		1		600		600		3		509		509
Troubled debt restructurings		1	$	600	$	600		6	$	2,806	$	2,806

	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2017												Three months ended September 30, 2017
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision		Charge- offs			Reco- veries		Ending balance
Residential	$	2,353	$	34		$	(93	)	$	4	$	2,298	$	—	$	—	$	—		$	—	$	—
Commercial		2,099		50			—			69		2,218		285		53		(190	)		48		196
Land		154		51			(27	)		—		178		—		—		—			—		—
Real estate		4,606		135			(120	)		73		4,694		285		53		(190	)		48		196
Commercial and industrial		979		(59	)		—			1		921		22		31		(41	)		6		18
Municipal		18		2			—			—		20		—		—		—			—		—
Consumer		69		12			(17	)		4		68		—		—		—			—		—
Unallocated		514		63			—			—		577		—		—		—			—		—
Totals	$	6,186	$	153		$	(137	)	$	78	$	6,280	$	307	$	84	$	(231	)	$	54	$	214

						To be Well Capitalized
	Actual					For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2017
Total Capital (to risk-weighted assets)
Salisbury	$	98,246		13.20	%	$	59,563		8.0	%		n/a		—
Bank		95,078		12.77			59,578		8.0		$	74,473		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		81,576		10.96			44,672		6.0			n/a		—
Bank		88,408		11.87			44,684		6.0			59,578		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		81,576		10.96			33,504		4.5			n/a		—
Bank		88,408		11.87			33,513		4.5			48,407		6.5
Tier 1 Capital (to average assets)
Salisbury		81,576		8.49			38,442		4.0			n/a		—
Bank		88,408		9.20			38,442		4.0			48,052		5.0
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		9.51			36,762		4.0			45,953		5.0

Three months ended September 30,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		2017		2016		2017		2016		2017		2016
Loans (a)(d)(f)	$	781,847	$	757,207	$	8,382	$	8,250		4.29	%	4.36	%
Securities (c)(d)		84,804		78,845		544		618		2.57		3.14
FHLBB stock		3,442		3,430		39		31		4.53		3.62
Short term funds (b)		47,558		47,979		136		60		1.14		0.50
Total earning assets		917,651		887,461		9,101		8,959		3.97		4.04
Other assets		59,018		57,371
Total assets	$	976,669	$	944,832
Interest-bearing demand deposits	$	139,247	$	125,365		85		81		0.25		0.26
Money market accounts		197,274		225,443		187		160		0.38		0.28
Savings and other		151,668		127,553		140		59		0.37		0.19
Certificates of deposit		117,273		122,091		270		265		0.92		0.87
Total interest-bearing deposits		605,462		600,452		682		565		0.45		0.38
Repurchase agreements		4,017		5,135		2		2		0.20		0.16
Capital lease		1,907		419		29		17		6.08		16.23
Note payable		323		353		6		6		7.43		6.80
Subordinated debt (net of issuance costs)		9,802		9,779		156		156		6.37		6.38
FHLBB advances		28,630		30,638		241		237		3.37		3.09
Total interest-bearing liabilities		650,141		646,776		1,116		982		0.69		0.61
Demand deposits		223,458		194,169
Other liabilities		5,600		10,596
Shareholders’ equity		97,470		93,291
Total liabilities & shareholders’ equity	$	976,669	$	944,832
Net interest income (f)					$	7,985	$	7,977
Spread on interest-bearing funds										3.28		3.43
Net interest margin (e)										3.49		3.60

Nine months ended September 30,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		2017		2016		2017		2016		2017		2016
Loans (a)(d)(f)	$	775,067	$	740,828	$	25,092	$	24,469		4.32	%	4.40	%
Securities (c)(d)		79,099		76,009		1,623		2,031		2.74		3.56
FHLBB stock		3,631		3,327		104		88		3.82		3.53
Short term funds (b)		36,449		37,943		247		138		0.90		0.48
Total earning assets		894,246		858,107		27,066		26,726		4.04		4.15
Other assets		56,695		57,091
Total assets	$	950,941	$	915,198
Interest-bearing demand deposits	$	133,700	$	124,375		230		238		0.23		0.26
Money market accounts		189,718		203,088		487		433		0.34		0.28
Savings and other		144,464		125,284		285		168		0.26		0.18
Certificates of deposit		116,395		123,149		774		764		0.89		0.83
Total interest-bearing deposits		584,277		575,896		1,776		1,603		0.41		0.37
Repurchase agreements		2,462		3,686		4		4		0.22		0.14
Capital lease		925		420		66		53		9.51		16.82
Note payable		330		364		13		15		5.25		5.49
Subordinated debt (net of issuance costs)		9,796		9,773		468		468		6.37		6.38
FHLBB advances		37,222		31,725		769		714		2.75		3.00
Total interest-bearing liabilities		635,012		621,864		3,096		2,857		0.65		0.61
Demand deposits		213,782		191,454
Other liabilities		5,893		9,634
Shareholders’ equity		96,254		92,246
Total liabilities & shareholders’ equity	$	950,941	$	915,198
Net interest income (f)					$	23,970	$	23,869
Spread on interest-bearing funds										3.39		3.54
Net interest margin (e)										3.57		3.71

As of September 30, 2017	Months 1-12			Months 13-24
Immediately rising interest rates (static growth assumptions)		(4.86	)%		2.41	%
Immediately falling interest rates (static growth assumptions)		(2.17	)		(5.33	)
Gradual and non-parallel increasing interest rates (with yield curve inversion)		(2.20	)		(5.24	)