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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~~ the quarterly period ended ~~September~~March 3031, ~~2022~~2023

☐

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

FOR THE TRANSITION PERIOD FROM ________ TO ________

Commission file number 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) 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 such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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).

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~~May 23, ~~2022~~2023 is 5,~~783~~807,~~966~~119.

TABLE OF CONTENTS

	Page
PART I FINANCIAL INFORMATION	Page
PART I.	FINANCIAL INFORMATION	3
Item 1. Financial Statements (unaudited)
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2022 (unaudited) AND DECEMBER 31,2021		3
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2023 (unaudited) and DECEMBER 31, 2022	3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (unaudited)		4
CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS ENDED MARCH 31, 2023 and 2022 (unaudited)	4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 and 2021 (unaudited)		5
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2022 and 2021 (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 FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 and 2021 (unaudited)		7
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022 (unaudited)	6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	8	9
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
Item 4.	CONTROLS AND PROCEDURES	43
Item 4. CONTROLS AND PROCEDURES	39
PART II.	OTHER INFORMATION	43
PART II. OTHER INFORMATION	39
Item 1.	LEGAL PROCEEDINGS	43
Item 1. LEGAL PROCEEDINGS	39
Item 1A.	RISK FACTORS	43
Item 1A. RISK FACTORS	39
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	39
Item 3.	DEFAULTS UPON SENIOR SECURITIES	43
Item 3. DEFAULTS UPON SENIOR SECURITIES	39
Item 4.	MINE SAFETY DISCLOSURES	43
Item 4. MINE SAFETY DISCLOSURES	39
Item 5.	OTHER INFORMATION	43
Item 5. OTHER INFORMATION	39
Item 6.	EXHIBITS	43
Item 6. EXHIBITS	40
SIGNATURES	41	44

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share data)		~~September~~March 3031, ~~2022 (unaudited)~~2023			December 31, ~~2021~~2022
ASSETS
Cash and due from banks	$	6,~~314~~231		$	65,~~404~~864
Interest bearing demand deposits with other banks		4943,~~983~~613			~~168~~44,~~931~~675
Total cash and cash equivalents		5649,~~297~~844			~~175~~50,~~335~~539
Interest bearing Time Deposits with Financial Institutions		—			750
Securities
Available-for-sale at fair value		189,161			202,396
Available-for-sale, at fair value		187,598			187,410
Mutual funds at fair value		12,~~882~~068			~~901~~1,933
Federal Home Loan Bank of Boston stock at cost		15,~~487~~030			1,~~397~~285
Loans held-for-sale		—			2,684
Loans receivable, net (allowance for credit losses: $16,009 and $14,846)		1,234,632			1,213,671
Loans receivable, net (allowance for loan losses: $14,334 and $12,962)		1,176,493			1,066,750
Bank premises and equipment, net		21,597			22,148
Bank premises and equipment, net		22,502			22,625
Goodwill		13,815			13,815
Intangible assets (net of accumulated amortization: $5,612 and $5,462)		269			418
Intangible assets (net of accumulated amortization: $5,691 and $5,654)		188			227
Accrued interest receivable		6,~~012~~383			6,~~260~~797
Cash surrender value of life insurance policies		30,~~187~~571			2730,~~738~~379
Deferred taxes		8,~~882~~234			28,~~588~~492
Other assets		5,~~151~~374			54,~~527~~886
Total Assets	$	1,~~512~~565,~~138~~334		$	1,~~529~~541,~~184~~582
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits
Demand (non-interest bearing)	$	~~413~~370,~~584~~049		$	~~416~~395,~~073~~994
Demand (interest bearing)		~~241~~218,~~236~~902			~~233~~231,~~600~~486
Money market		~~313~~296,~~987~~974			~~330~~343,~~436~~965
Savings and other		~~246~~236,~~538~~755			~~237~~233,~~075~~578
Certificates of deposit		~~109~~170,~~859~~362			~~119~~153,~~009~~370
Total deposits		1,~~325~~293,~~204~~042			1,~~336~~358,~~193~~393
Repurchase agreements		73,~~109~~230			117,~~430~~228
Federal Home Loan Bank of Boston advances		20100,000			710,~~656~~000
Subordinated debt		24,~~517~~545			24,~~474~~531
Note payable		~~139~~117			~~170~~128
Finance lease obligations		4,~~296~~225			4,~~107~~262
Accrued interest and other liabilities		7,~~712~~820			8,~~554~~685
Total Liabilities		1,~~388~~432,~~977~~979			1,~~392~~413,~~584~~227
Shareholders' Equity 1
Shareholders' Equity
Common stock - $0.10 per share par value
Authorized: 10,000,000;
Issued: 5,783,966 and 5,723,394
Issued: 5,807,719 and 5,798,816
Outstanding: 5,783,966 and 5,723,394		578			286
Outstanding: 5,807,719 and 5,798,816		581			580
Unearned compensation – restricted stock awards		(~~1,328~~961	)		(~~925~~1,144	)
Paid-in capital		47,~~252~~396			4647,~~374~~466
Retained earnings		98103,~~980~~371			89102,~~995~~178
Accumulated other comprehensive (loss) income, net		(22,321	)		870
Accumulated other comprehensive loss, net		(18,032	)		(20,725	)
Total Shareholders' Equity		~~123~~132,~~161~~355			~~136~~128,~~600~~355
Total Liabilities and Shareholders' Equity	$	1,~~512~~565,~~138~~334		$	1,~~529~~541,~~184~~582

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

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

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

		Three months ended						Nine months ended
Three months ended March 31, (in thousands, except per share amounts)		2023			2022
Periods ended September 30, (in thousands, except per share amounts)		2022			2021			2022			2021
Interest and dividend income
Interest and dividend income
Interest and fees on loans	$	13,250		$	10,163
Interest and fees on loans	$	11,541		$	10,264		$	32,280		$	30,642
Interest on debt securities
Interest on debt securities
Taxable		1,068			724
Taxable		903			486			2,486			1,398
Tax exempt		212			174
Tax exempt		213			172			575			506
Other interest and dividends		393			57
Other interest and dividends		352			79			517			174
Total interest and dividend income		14,923			11,118
Total interest and dividend income		13,009			11,001			35,858			32,720
Interest expense
Interest expense
Deposits		2,818			478
Deposits		883			532			1,938			1,652
Repurchase agreements		16			3
Repurchase agreements		4			5			11			13
Finance lease		40			41
Finance lease		41			33			122			102
Note payable		2			2
Note payable		2			3			7			9
Subordinated Debt		233			233
Subordinated debt		233			233			699			767
Federal Home Loan Bank of Boston advances		687			55
Federal Home Loan Bank of Boston advances		2			30			57			96
Total interest expense		3,796			812
Total interest expense		1,165			836			2,834			2,639
Net interest and dividend income		11,127			10,306
Net interest and dividend income		11,844			10,165			33,024			30,081
Provision for credit losses		1,016			363
Provision (release) for loan losses		695			400			2,158			(517	)
Net interest and dividend income after provision for credit losses		10,111			9,943
Net interest and dividend income after provision (release) for loan losses		11,149			9,765			30,866			30,598
Non-interest income
Non-interest income
Trust and wealth advisory		1,153			1,241
Trust and wealth advisory		1,228			1,286			3,762			3,685
Service charges and fees		1,235			1,138
Service charges and fees		1,219			1,211			4,080			3,536
Mortgage banking activities, net		59			355
Mortgage banking activities, net		64			108			497			912
Gains (losses) on mutual funds		20			(42	)
Losses on mutual fund		(47	)		(4	)		(119	)		(18	)
Gains on sales of available -for-sale securities, net		—			210
Gains (losses) on securities, net		—			7			165			(2	)
BOLI income		192			162
Bank-owned life insurance (“BOLI”) income		201			135			615			386
Other		34			30
Gain on sale of assets		—			73			—			73
Total non-interest income		2,693			3,094
Other		28			24			84			81
Non-interest expense
Total non-interest income		2,693			2,840			9,084			8,653
Salaries		3,721			3,479
Non-interest expense
Employee benefits		1,468			1,277
Salaries		3,802			3,361			10,938			9,664
Premises and equipment		1,105			1,104
Employee benefits		1,224			1,322			3,789			3,990
Loss on write-down and sale of assets		158			9
Premises and equipment		1,117			1,060			3,200			3,034
Information processing and services		831			685
Write-down of assets		—			144			3			144
Professional fees		945			787
Information processing and services		711			632			2,098			1,824
Collections, OREO, and loan related		72			117
Professional fees		689			735			2,297			2,090
FDIC insurance		98			171
Collections, OREO and loan related		67			120			300			317
Marketing and community support		127			184
FDIC insurance		98			146			391			370
Amortization of intangibles		39			54
Marketing and community support		214			256			661			552
Other		470			786
Amortization of intangibles		46			61			150			198
Total non-interest expense		9,034			8,653
Other		544			447			1,872			1,448
Income before income taxes		3,770			4,384
Total non-interest expense		8,512			8,284			25,699			23,631
Income tax provision		752			816
Income before income taxes		5,330			4,321			14,251			15,620
Net income	$	3,018		$	3,568
Income tax provision		994			868			2,501			3,288
Net income available to common shareholders	$	2,968		$	3,508
Net income	$	4,336		$	3,453		$	11,750		$	12,332
Basic earnings per common share 1	$	0.52		$	0.62
Net income available to common shareholders	$	4,264		$	3,400		$	11,543		$	12,148
Diluted earnings per common share 1		0.52			0.62
Basic earnings per common share 1	$	0.75		$	0.60		$	2.04		$	2.16
Common dividends per share 1		0.16			0.16
Diluted earnings per common share 1	$	0.75		$	0.60		$	2.03		$	2.15
Common dividends per share 1	$	0.16		$	0.16		$	0.48		$	0.45

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.

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

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~ (unaudited)

		Three months ended						Nine months ended
Three months ended March 31, (in thousands)		2023			2022
Periods ended September 30, (in thousands)		2022			2021			2022			2021
Net income	$	3,018		$	3,568
Net income	$	4,336		$	3,453		$	11,750		$	12,332
Other comprehensive income (loss)
Other comprehensive (loss) income
Net unrealized income (loss) on securities available-for-sale		3,409			(11,549	)
Net unrealized losses on securities available-for-sale		(9,855	)		(1,199	)		(29,191	)		(2,153	)
Reclassification of net realized loss in net income (1)		—			(210	)
Reclassification of net realized (gains) losses in net income (1)		—			(7	)		(165	)		2
Unrealized income (loss) on securities available-for-sale		3,409			(11,759	)
Unrealized losses on securities available-for-sale		(9,855	)		(1,206	)		(29,356	)		(2,151	)
Income tax (expense) benefit		(716	)		2,470
Income tax benefit		2,070			254			6,165			451
Unrealized income (loss) on securities available-for-sale, net of tax		2,693			(9,289	)
Unrealized losses on securities available-for-sale, net of tax		(7,785	)		(952	)		(23,191	)		(1,700	)
Comprehensive income (loss)	$	5,711		$	(5,721	)
Comprehensive (loss) income	$	(3,449	)	$	2,501		$	(11,441	)	$	10,632

(1) Reclassification adjustments include realized security gains ~~and losses~~. The gains ~~and losses~~ have been reclassified out of accumulated other comprehensive income ~~(loss)~~ and have affected certain lines in the consolidated statements of income as follows: ~~The~~the ~~pre-tax~~pretax amount is reflected as gains ~~(losses)~~ on sales and calls of on available-for-sale securities, net,; the tax effect is included in the income tax provision and the after -tax amount is included in net income. The ~~net~~income tax ~~effect~~expense related ~~for~~to ~~the~~reclassification ~~three~~of ~~months~~net ~~ending~~realized ~~September~~gains ~~30,~~was ~~2022~~approximately ~~and 2021 are~~ $0 thousand and $~~(1)~~44 thousand, ~~respectively. The net tax effect~~ for the ~~nine~~ three-months ~~ending~~ended ~~September~~March 3031, 2023 ~~2022~~ and ~~2021 were $(34) thousand and $1 thousand~~2022, respectively.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

Three months ended September 30, (dollars in thousands)	Common Stock					Paid-in			Retained			Unearned compensation restricted stock			Accumulated other comprehensive			Total shareholders'
Three months ended March 31, (dollars in thousands)	Common Stock					Paid-in			Retained			Unearned compensation restricted stock			Accumulated other comprehensive			Total shareholders'
	Shares1			Amount		Capital			Earnings			awards			(loss) income			equity
	Shares 1			Amount		Capital			Earnings			awards			(loss) income			equity
Balances at June 30, 2021		5,723,394		$	286	$	46,217		$	84,174		$	(1,224	)	$	2,256		$	131,709
Balances at December 31, 2021		5,723,394		$	286	$	46,374		$	89,995		$	(925	)	$	870		$	136,600
Net income		—			—		—			3,~~453~~568			—			—			3,~~453~~568
Other comprehensive loss, net of tax		—			—		—			—			—			(~~952~~9,289	)		(~~952~~9,289	)
Common stock dividends declared		—			—		—			(887	)		—			—			(887	)
Common stock dividends declared ($0.16 per share)		—			—		—			(915	)		—			—			(915	)
Stock based compensation-restricted stock awards		—			—		61			—			149			—			210
Issuance of restricted common stock		28,700			2		811			—			(813	)		—			—
Balances at September 30, 2021		5,723,394		$	286	$	46,278		$	86,740		$	(1,075	)	$	1,304		$	133,533
Issuance of restricted stock units upon vesting		12,900			—		—			—			—			—			—
Balances at June 30, 2022		5,783,966		$	578	$	47,205		$	95,568		$	(1,512	)	$	(14,536	)	$	127,303
Net settlement impact for vesting of performance restricted stock units		(78	)		—		(183	)		—			—			—			(183	)
Net income		—			—		—			4,336			—			—			4,336
Stock based compensation-restricted stock awards		—			—		97			—			188			—			285
Other comprehensive loss, net of tax		—			—		—			—			—			(7,785	)		(7,785	)
Balances at March 31, 2022		5,764,916		$	288	$	47,099		$	92,648		$	(1,550	)	$	(8,419	)	$	130,066
Common stock dividends declared		—			—		—			(924	)		—			—			(924	)
Balances at December 31, 2022		5,798,816		$	580	$	47,466		$	102,178		$	(1,144	)	$	(20,725	)	$	128,355
Stock based compensation-restricted stock awards		—			—		47			—			184			—			231
Cumulative effect of accounting changes (Note 1)		—			—		—			(898	)		—			—			(898	)
Balances at September 30, 2022		5,783,966		$	578	$	47,252		$	98,980		$	(1,328	)	$	(22,321	)	$	123,161
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, 2022.

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

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

Nine months ended September 30, (dollars in thousands)	Common Stock				Paid-in			Retained			Unearned compensation restricted stock			Accumulated other comprehensive			Total shareholders'
	Shares1		Amount		Capital			Earnings			awards			(loss) income			equity
Balances at December 31, 2020		5,686,584	$	284	$	45,264		$	76,974		$	(774	)	$	3,004		$	124,752
Net income for period		—		—		—			12,332			—			—			12,332
Other comprehensive loss, net of tax		—		—		—			—			—			(1,700	)		(1,700	)
Common stock dividends declared		—		—		—			(2,566	)		—			—			(2,566	)
Stock options exercised		3,510		1		30			—			—			—			31
Issuance of restricted common stock		27,700		1		623			—			(624	)		—			—
Issuance of director’s restricted stock awards		5,600		—		126			—			(126	)		—			—
Stock based compensation-restricted stock awards		—		—		235			—			449			—			684
Balances at September 30, 2021		5,723,394	$	286	$	46,278		$	86,740		$	(1,075	)	$	1,304		$	133,533
Balances at December 31, 2021		5,723,394	$	286	$	46,374		$	89,995		$	(925	)	$	870		$	136,600
Net income for period		—		—		—			11,750			—			—			11,750
Other comprehensive loss, net of tax		—		—		—			—			—			(23,191	)		(23,191	)
Common stock dividends declared		—		—		—			(2,765	)		—			—			(2,765	)
Issuance of restricted stock awards		28,700		2		811			—			(813	)		—			—
Stock options exercised		11,070		1		94			—			—			—			95
Issuance of performance based stock awards		12,822		—		(183	)		—			—			—			(183	)
Issuance of director’s restricted stock awards		7,980		—		205			—			(205	)		—			—
Transfer due to 2-for-1 forward stock split		—		289		(289	)		—			—			—			—
Stock based compensation-restricted stock awards		—		—		240			—			615			—			855
Balances at September 30, 2022		5,783,966	$	578	$	47,252		$	98,980		$	(1,328	)	$	(22,321	)	$	123,161

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

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.

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

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

Nine months ended September 30, (in thousands)		2022			2021
Three months ended March 31, (in thousands)		2023			2022
Operating Activities
Financing Activities
Net income	$	11,750		$	12,332
Decrease in deposit transaction accounts, net	$	(82,343	)	$	(54,923	)
Adjustments to reconcile net income to net cash provided by operating activities
Increase in time deposits, net		16,992			9,204
(Accretion), amortization and depreciation
Decrease in securities sold under agreements to repurchase, net		(3,998	)		(3,269	)
Securities		1,082			807
Repayments of Federal Home Loan Bank of Boston long term advances		—			(6,000	)
Bank premises and equipment		1,202			1,142
Federal Home Loan Bank of Boston short term advances(net)		90,000			—
Core deposit intangible		149			198
Principal payments on amortizing FHLB Advances		—			(1,258	)
Modification fees on Federal Home Loan Bank of Boston advances		21			17
Principal payments on note payable		(11	)		(11	)
Subordinated debt issuance costs		43			159
Principal payments on finance lease obligations		(37	)		(33	)
Mortgage servicing rights		117			167
Net settlement of restricted stock units		(111	)		(183	)
(Gains) and losses, including write-downs
Common stock dividends paid		(927	)		(915	)
Sales and calls of securities available-for-sale, net		(165	)		2
Net cash provided (utilized) by financing activities		19,565			(57,388	)
CRA Mutual Fund		119			18
Net decrease in cash and cash equivalents		(695	)		(76,474	)
Sales of loans, excluding capitalized servicing rights		(306	)		(653	)
Cash and cash equivalents, beginning of period		50,539			175,335
Loss on write-down of asset		3			144
Cash and cash equivalents, end of period	$	49,844		$	98,861
Gain on sale of premises and equipment		—			(73	)
Cash paid during period
Gain on redemption of Bank Owen Life Insurance		(89	)		—
Interest		3,567			789
Provision (release) for loan losses		2,158			(517	)
Income taxes		221			270
Proceeds from loans sold		11,343			30,364
Non cash investing and financing activities:
Loans originated for sale		(4,444	)		(27,615	)
Fixed Asset		65			289
Increase in deferred loan origination costs, net		(717	)		(58	)
Finance lease liability		(65	)		(289	)
Mortgage servicing rights originated		(72	)		(276	)
Loans transferred to Loans Held for Sale		—			3,389
Decrease in interest receivable		248			441
(Increase) decrease in deferred tax benefit		(129	)		87
Increase in prepaid expenses		(71	)		(416	)
Increase in cash surrender value of life insurance policies		(526	)		(386	)
Decrease (increase) in income tax receivable		452			(429	)
Increase (decrease) in income tax payable		101			(320	)
Increase in other assets		(50	)		(509	)
Decrease in accrued expenses		(904	)		(290	)
Decrease in interest payable		(31	)		(9	)
Increase in other liabilities		122			365
Stock based compensation-restricted stock awards		855			684
Net cash provided by operating activities		22,263			15,378
Investing Activities
Net (purchases) redemption of Federal Home Loan Bank of Boston stock		(90	)		209
Maturity of Interest-Bearing Time Deposits with Financial Institutions		750			0
Purchases of securities available-for-sale		(52,176	)		(107,811	)
Proceeds from sales of securities available-for-sale		22,012			3,311
Proceeds from calls of securities available-for-sale		1,500			8,500
Proceeds from principal payments and maturities of securities available-for-sale		11,626			15,883
Reinvestment of CRA Mutual Fund		(1,100	)		(8	)
Loan originations and principal collections, net		(115,135	)		(29,323	)
Recoveries of loans previously charged off		42			185
Proceeds from sale/ disposal of premises and equipment		—			248
Capital expenditures		(793	)		(1,889	)
Purchase of life insurance policies		(2,507	)		(3,500	)
Proceeds from life insurance policy		672			—
Net cash used by investing activities	$	(135,199	)	$	(114,195	)

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

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine months ended September 30, (in thousands)		2022			2021
Financing Activities
Increase in deposit transaction accounts, net	$	(1,839	)	$	167,973
Decrease in time deposits, net		(9,150	)		(7,419	)
(Decrease) increase in securities sold under agreements to repurchase, net		(4,321	)		3,334
Federal Home Loan Bank of Boston long-term maturities/payments		(6,000	)		—
Federal Home Loan Bank of Boston short-term advances, net change		20,000			—
Principal payments on Amortizing Federal Home Loan Bank of Boston advance		(1,677	)		(3,751	)
Issuance of Sub Debt, net of issuance costs		—			24,418
Repayment of Sub Debt		—			(10,000	)
Principal payments on note payable		(31	)		(28	)
Decrease in finance lease obligation		(230	)		(42	)
Stock options exercised		95			31
Net settlement of restricted stock units		(183	)		—
Common stock dividends paid		(2,766	)		(2,566	)
Net cash (used by) provided by financing activities		(6,102	)		171,950
Net (decrease) increase in cash and cash equivalents		(119,038	)		73,133
Cash and cash equivalents, beginning of period		175,335			93,162
Cash and cash equivalents, end of period	$	56,297		$	166,295

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

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Supplemental Cash Flow Information:
Cash paid for interest	$	2,801		$	2,472
Cash paid for income taxes		2,077			3,948
Non cash investing and financing activities:
Fixed Assets	$	419		$	—
Finance lease liability		(419	)		—
Transfers from Fixed Assets to Other Assets		—			727
Loans transferred to Loans Held for Sale		3,909			—

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

Salisbury Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

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

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 and unrealized gains and losses related to available-for-sale securities.

~~Salisbury~~Certain ~~increased~~financial ~~the~~information, ~~number~~which ofis ~~issued~~normally ~~and~~included ~~authorized~~in ~~common~~financial ~~shares~~statements ~~and~~prepared ~~effected~~in aaccordance ~~two-for-one~~with ~~forward~~generally ~~stock~~accepted ~~split~~accounting ofprinciples, but ~~the~~which ~~Company’s~~is ~~common~~not ~~stock~~required ~~on June~~for 30interim reporting purposes, ~~2022~~has been condensed or omitted. ~~The~~Operating ~~par~~results ~~value~~for ofthe ~~common~~interim ~~stock~~period ~~was~~ended March ~~not~~31, ~~adjusted~~2023 asare anot ~~result~~necessarily indicative of the ~~forward~~results ~~stock~~that ~~split.~~may ~~All~~be ~~share~~expected ~~and~~for ~~per~~the ~~share~~year ~~amounts~~ending December 31, 2023. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto ~~have~~included ~~been~~in ~~retroactively~~Salisbury's ~~adjusted~~2022 Annual ~~for~~Report ~~all~~on ~~periods~~Form ~~presented~~10-K tofor ~~give~~the ~~effect~~year toended ~~this~~December ~~forward stock~~31, ~~split~~2022.

~~Certain~~In ~~financial~~June 2016, ~~information~~the FASB issued Accounting Standards Update (ASU) ASU 2016-13, ~~which~~“Financial isInstruments ~~normally~~– ~~included~~Credit inLosses ~~financial~~(Topic ~~statements~~326): ~~prepared~~Measurement of inCredit ~~accordance~~Losses ~~with~~on ~~generally~~Financial ~~accepted~~Instruments,” ~~accounting~~and ~~principles~~related subsequent amendments, ~~but~~ which isreplaces ~~not~~the ~~required~~incurred ~~for~~loss ~~interim~~methodology ~~reporting~~with an ~~purposes,~~expected ~~has~~loss ~~been~~methodology ~~condensed~~that oris ~~omitted~~referred to as the current expected credit loss (“CECL”) methodology. ~~Operating~~The ~~results~~measurement of ~~for~~expected losses under the ~~interim~~CECL ~~period~~methodology ~~ended September~~is ~~30,~~applicable ~~2022~~to ~~are~~financial ~~not~~assets ~~necessarily~~measured ~~indicative~~at ofamortized ~~the~~cost, ~~results~~as well as unfunded commitments that ~~may~~are beconsidered ~~expected~~off-balance ~~for~~sheet credit exposures at the ~~year~~reporting ~~ending~~date. ~~December~~The 31measurement is based on historical experience, ~~2022~~current conditions, and reasonable and supportable forecasts. ~~The~~Financial ~~accompanying~~Institutions and other organizations will now use forward-looking information ~~condensed~~to enhance their credit loss estimates. The update requires enhanced disclosures to help investors and other financial statements ~~should~~users better beunderstand ~~read~~significant estimates and judgments used in ~~conjunction~~estimating ~~with~~credit losses, as well as the ~~financial~~credit ~~statements~~quality and ~~notes~~underwriting standards ~~thereto~~of ~~included~~an ~~in Salisbury'~~organization’s ~~2021 Annual~~portfolio. ~~Report~~The oncurrent ~~Form~~expected ~~10-K~~credit loss measurement will be used to estimate the allowance for credit losses (“ACL”) over the ~~year~~life ~~ended~~of ~~December~~the ~~31,~~financial ~~2021~~assets.

~~The~~Salisbury ~~allowance~~adopted CECL on January 1, 2023. Under CECL, the Bank determines its allowance for ~~loan~~credit losses ison aloans ~~significant~~using ~~accounting~~pools ~~policy~~of ~~and~~assets iswith ~~presented~~similar inrisk characteristics. ~~the~~The ~~Notes~~Bank segments its loan portfolio by loan type, to ~~Consolidated~~evaluate ~~Financial~~loans ~~Statements~~with ~~and~~similar inrisk ~~Management~~characteristics for credit risk. The Bank’s lifetime credit loss models are based on historical data and incorporate forecasts of macroeconomic variables, expected ~~Discussion~~prepayments and ~~Analysis~~recoveries. ~~Management~~Non-economic ~~has~~qualitative ~~identified~~factors ~~the~~are ~~determination~~also ofevaluated ~~the~~for ~~allowance~~each loan segment. A four-quarter reasonable and supportable forecast period is currently used for all loan ~~losses~~portfolios. toWhen be the ~~accounting~~risk ~~area~~characteristics ~~that~~of ~~requires~~ a loan no longer match the ~~most~~characteristics of ~~subjective~~the ~~judgments~~collective pool, the loan is removed from the pool and asindividually ~~such~~assessed ~~could~~for becredit ~~most~~losses. ~~subject~~Generally, tonon-accrual ~~revision~~loans asand collateral ~~new~~dependent ~~information~~loans ~~becomes~~are ~~available~~individually assessed.

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 provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually assessed and the expected credit loss is based on the fair value of the collateral. The fair value is reduced for estimated costs to sell if the value of the collateral is expected to be realized through sale.

The Bank has elected to present accrued interest receivable separately from the amortized cost basis on the balance sheet and is not estimating an allowance for credit 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 adopting CECL.

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 provided transition relief, allowing entities to irrevocably elect, upon adoption of 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 under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three year period the day one adverse effects on regulatory capital that may result from the adoption of the new 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 be required to sell a 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 ~~June 2016~~December 2022, the ~~Financial Accounting Standards Board (~~FASB) issued ~~Accounting Standards Update (~~ASU) ~~2016~~2022-1306, “~~Financial~~Reference ~~Instruments~~Rate ~~– Credit~~Reform ~~Losses~~ (Topic ~~326~~848):.” ~~Measurement~~In ~~of Credit Losses on Financial Instruments~~2020,” ~~which adds a new Topic 326 to~~ the ~~Codification and~~Board ~~removes~~issued ~~the~~Accounting ~~thresholds~~Standards ~~that~~Update ~~companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities~~No. ~~Under current U.S. GAAP~~2020-04, ~~companies~~Reference ~~generally~~Rate ~~recognize credit losses when it~~Reform is(Topic ~~probable~~848): ~~that~~Facilitation ~~the~~of ~~loss has been incurred. The revised guidance removes all recognition thresholds and requires companies to recognize an allowance for credit losses for~~ the ~~difference~~Effects ~~between the amortized cost basis~~ of aReference ~~financial~~Rate ~~instrument~~Reform ~~and~~on ~~the~~Financial ~~amount~~Reporting, ofwhich ~~amortized cost~~provides ~~that~~optional ~~the~~guidance ~~company expects~~ to ~~collect~~ease ~~over~~ the ~~instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement~~ ~~guidance~~potential ~~for~~burden ~~available-for-sale debt securities and beneficial interests~~ in ~~securitized~~accounting ~~financial~~for ~~assets.~~(or Inrecognizing ~~April 2019,~~ the ~~FASB~~effects ~~issued ASU 2019-04 which clarifies the treatment~~ of ~~accrued interest when measuring credit losses. Entities may: (1~~) ~~measure~~reference ~~the~~rate ~~allowance~~reform ~~for credit losses~~ on ~~accrued~~financial ~~interest~~reporting. ~~receivable~~The ~~balances~~objective ~~separately from other components~~ of the ~~amortized cost basis of associated financial~~ ~~assets;~~guidance ~~(2)~~in ~~make~~Topic ~~various~~848 ~~accounting~~is ~~policy~~to ~~elections~~provide ~~regarding~~temporary ~~the~~relief ~~treatment~~during ~~of accrued interest receivable; or (3) elect a practical expedient to disclose separately~~ the ~~total~~transition ~~amount~~period. ofThe ~~accrued~~Board ~~interest~~ included ~~in the amortized cost basis as~~ a ~~single~~sunset ~~balance~~provision towithin ~~meet~~Topic ~~certain~~848 ~~disclosure~~based ~~requirements.~~on ~~ASU~~expectations ~~2019-04 also clarifies that expected recoveries~~ of ~~amounts~~when ~~previously written off and expected to be written off should be included in~~ the ~~valuation~~London ~~account~~Interbank ~~and~~Offered ~~should~~Rate ~~not~~(LIBOR) ~~exceed~~would ~~the~~cease ~~aggregate~~being ~~of amounts previously written off and expected to be written off by the entity~~published. InAt ~~addition, for collateral dependent financial assets,~~ the ~~amendments~~time ~~clarify~~ that anUpdate ~~allowance for~~2020-04 ~~credit~~was ~~losses~~issued, ~~that is added to~~ the ~~amortized~~UK ~~cost~~Financial ~~basis~~Conduct ofAuthority ~~the financial asset~~(sFCA) ~~should~~had ~~not~~established ~~exceed~~its ~~amounts~~intent ~~previously~~that ~~written~~it ~~off.~~would ~~In November~~no ~~2019,~~longer ~~the~~be ~~FASB~~necessary ~~issued~~to ~~ASU 2019-10~~persuade, ~~which~~or ~~delayed~~compel, banks ~~the~~to ~~effective~~submit ~~date of ASU 2016-13~~ to ~~fiscal~~LIBOR ~~years beginning~~ after December 1531, ~~2022~~ ~~for smaller reporting companies, although early adoption is permitted~~2021. ~~Salisbury~~As ~~meets the definition of~~ a ~~smaller reporting company. In November 2019~~result, the ~~FASB~~sunset ~~issued~~provision ~~ASU~~was ~~2019-11,~~set ~~“Codification~~for ~~Improvements~~December ~~to Topic 326~~31, ~~Financial~~2022—12 ~~Instruments~~months ~~– Credit Losses”~~after ~~which~~the ~~clarifies~~expected orcessation ~~addresses~~date ~~specific~~of ~~issues~~all ~~about~~currencies ~~certain~~and ~~aspects~~tenors of ~~the amendments in ASU 2016-13~~LIBOR. ~~The~~In ~~amendments~~March in2021, ~~ASU 2019-11 clarify~~ the ~~following:~~FCA ~~(1)~~announced ~~The~~that ~~allowance for credit losses (ACL) for purchased financial assets with credit deterioration should include expected recoveries of amounts previously written off and expected to be written off by~~ the ~~entity~~intended ~~and~~cessation ~~should~~date ~~not exceed the aggregate~~ of ~~amounts~~ of the ~~amortized~~overnight ~~cost~~1-, ~~basis previously written off and expected to be written off by an entity. In addition~~3-, ~~the amendments clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses~~6-, ~~expected~~and ~~recoveries~~12-month ~~should~~tenors ~~not include any amounts that result in an acceleration~~ of ~~the~~USD ~~noncredit~~LIBOR ~~discount.~~would ~~An entity may include increases in expected cashflows after acquisition; (2) Transition relief will~~ be ~~provided~~June by30, ~~permitting~~2023, ~~entities~~which anis ~~accounting~~beyond ~~policy election to adjust~~ the ~~effective~~current ~~interest~~sunset ~~rate on existing troubled debt restructurings using prepayment assumptions on the~~ date of ~~adoption of~~ Topic ~~326 rather than the prepayment assumptions~~848. inBecause ~~effect immediately before~~ the ~~restructuring;~~current ~~(3) Disclosure~~ relief ~~will~~in beTopic ~~extended~~848 ~~for~~may ~~accrued~~not ~~interest~~cover ~~receivable~~a ~~balances~~period to additional relevant disclosures involving amortized cost basis; (4) An entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient. The amendments clarify that an entity applying the practical expedient should estimate expected credit losses for any difference between the amount of ~~the~~time ~~amortized~~during ~~cost~~which ~~basis that~~a issignificant ~~greater~~number ~~than the fair value~~ of ~~the~~modifications ~~collateral~~may ~~securing~~take ~~the financial asset (that is~~place, ~~the unsecured portion of the amortized cost~~ ~~basis). An entity may determine that~~ the ~~expectation~~amendments ofin ~~nonpayment~~this ~~for~~Update ~~the~~defer ~~amount of~~ the ~~amortized~~sunset ~~cost~~date ~~basis equal to the fair value~~ of ~~the~~Topic ~~collateral~~848 ~~securing~~from ~~the~~December ~~financial asset is zero. In March 2022~~31, ~~the FASB issued ASU~~ 2022~~-02~~, ~~which~~to ~~clarifies~~December ~~the treatment of accrued interest when measuring credit losses. The amendments in this Update eliminate the TDR recognition and measurement guidance and~~31, ~~instead~~2024, ~~require~~ ~~that~~after anwhich ~~entity~~entities ~~evaluate~~will no ~~(consistent~~longer ~~with~~be ~~the~~permitted ~~accounting~~to ~~for~~apply ~~other loan modifications) whether~~ the ~~modification~~relief ~~represents~~in aTopic ~~new loan or a continuation of an existing loan~~848. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For public business entities, the amendments in this ~~Update~~ASU ~~require~~were ~~that~~effective anupon ~~entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20~~issuance.

~~Upon adoption,~~NOTE ~~Salisbury~~2 ~~will~~– ~~apply~~ACQUISITIONS ~~the~~AND standards’ provisions as a cumulative effect adjustment to retained earnings as of the first reporting period in which the guidance is effective. Salisbury anticipates that the adoption of ASU 2016-13 and related updates will impact the consolidated financial statements as it relates to the balance in the allowance for loan losses. Salisbury has engaged a third-party software vendor to model the allowance for loan losses in conformance with this ASU. Salisbury will continue to refine this model and assess the impact to its consolidated financial statements. 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.

~~The~~NOTE ~~Bank~~3 ~~is working towards the completion of its ACL methodology. To estimate the ACL for loans and off~~-~~balance sheet credit exposures, such as unfunded loan commitments, Salisbury will~~ utilize a discounted cash flow model that contains additional assumptions to calculate credit losses over the estimated life of financial assets and off-balance sheet credit exposures and will include the impact of forecasted economic conditions. The estimate is expected to include a one-year reasonable and supportable forecast period and thereafter a one-year reversion period to the historical mean of its macroeconomic assumption. The estimate will also include qualitative factors that may not be reflected in quantitatively derived results to ensure that the ACL reflects a reasonable estimate of current expected credit losses.SECURITIES

The Bank is currently refining various ACL assumptions and running parallel calculations on a monthly basis. Salisbury estimates that under the CECL framework, the ACL would be $14.2 million compared with the allowance for loan losses of $14.3 million reported on the consolidated balance sheet at September 30, 2022. In addition, Salisbury estimates that the ACL for unfunded commitments would be approximately $1.1 million compared with the allowance of $0.2 million recorded on its consolidated balance sheet as of September 30, 2022. Salisbury will continue to refine its ACL methodology prior to implementation of CECL on January 1, 2023. In addition, the estimated ACL and allowance for unfunded commitments under both the Incurred Loss method and CECL will be affected by various factors, which include but are not limited to, changes in the composition and balance of Salisbury’s loan portfolio and unfunded commitments, changes to internal risk ratings of borrowers, changes to the risk-profile of the loan portfolio, changes in various macro-economic indicators, the impact of geo-political events on the business environment, and other factors.

Based on the credit quality of Salisbury’s existing available for sale debt securities portfolio, which primarily consists of obligations of U.S. government agency and U.S. government-sponsored enterprise securities, including mortgage-backed securities, Salisbury does not expect the adoption of ASU 2016-13, as it relates to debt securities, to be significant. For available for sale debt securities with unrealized losses, credit losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. As a result, improvements to estimated credit losses will be recognized immediately in earnings rather than as interest income over time.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815) Fair Value Hedging – Portfolio Layer Method.” The amendments in this update clarified the following: (1) The current last-of-layer method that permits only one hedged layer has been expanded to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method; (2) The scope of the portfolio layer method has been expanded to include non-pre-payable financial assets; (3) Eligible hedging instruments in a single-layer hedge may include spot-starting or forward-starting constant-notional swaps, or spot-or forward-starting amortizing-notional swaps and that the number of hedged layers (that is, single or multiple) corresponds with the number of hedges designated; (4) Additional guidance is provided on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method whether a single hedged layer or multiple hedged layers are designated; and (5) How hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. Salisbury does not expect the implementation of ASU 2022-01 to have a material impact on its consolidated financial statements.

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)

Amortized cost basis

Gross un-realized gains

Gross un-realized losses

Fair value

September 30, 2022

March 31, 2023

Available-for-sale

U.S. Treasury

19,~~266~~299

—

21,~~289~~820

1617,~~977~~479

U.S. Government Agency notes

3029,~~552~~017

~~114~~58

2,~~742~~231

2726,~~924~~844

Municipal bonds

55,~~260~~099

—

106,~~650~~900

4448,~~610~~199

Mortgage-backed securities:

U.S. Government agencies and U.S. Government- sponsored enterprises

7267,~~163~~804

3019

87,~~713~~273

6360,~~480~~550

Collateralized mortgage obligations:

U.S. Government agencies

2524,~~925~~954

—

3,~~334~~039

2221,~~591~~915

Corporate bonds

14,250

—

~~671~~1,639

1312,~~579~~611

Total securities available-for-sale

~~217~~210,~~416~~423

~~144~~77

2822,~~399~~902

~~189~~187,~~161~~598

Mutual fund

1,882

Mutual funds

2,068

Non-marketable securities

Federal Home Loan Bank of Boston stock

15,~~487~~030

—

15,~~487~~030

(in thousands)

Amortized cost basis

Gross un-realized gains

Gross un-realized losses

Fair value

December 31, 2021

December 31, 2022

Available-for-sale

U.S. Treasury

1519,~~301~~283

12—

~~182~~2,150

1517,~~131~~133

U.S. Government Agency notes

3129,~~623~~696

~~237~~94

~~256~~2,636

3127,~~604~~154

Municipal bonds

4655,~~469~~179

~~1,557~~—

~~204~~8,641

4746,~~822~~538

Mortgage-backed securities:

U.S. Government agencies and U.S. Government- sponsored enterprises

7469,~~703~~866

~~643~~20

~~805~~8,011

7461,~~541~~875

Collateralized mortgage obligations:

U.S. Government agencies

2025,~~948~~370

~~135~~—

~~185~~3,434

2021,~~898~~936

Corporate bonds

1214,250

~~158~~—

81,476

12,~~400~~774

Total securities available-for-sale

~~201~~213,~~294~~644

~~2,742~~114

126,~~640~~348

~~202~~187,~~396~~410

Mutual fund

901

Mutual Funds

1,933

Non-marketable securities

Federal Home Loan Bank of Boston stock

1,~~397~~285

—

1,~~397~~285

Salisbury did not sell any available-for-sale securities during the three -month periods ended ~~September~~March 3031, ~~2022 and September 30, 2021~~2023. Salisbury sold $2217.07 million of available-for-sale securities during the ~~nine~~ three-month period ended ~~September~~March 3031, 2022 realizing agains ~~pre-tax gain~~ of $~~165~~451 thousand and alosses ~~related tax expense~~ of $35241 thousand. ~~Salisbury~~resulting ~~sold $3.3 million of available-for-sale securities during the nine month~~in ~~period ended September 30, 2021 realizing~~ a ~~pre-tax~~net ~~loss~~gain of $2210 thousand and a related tax ~~benefit~~expense of $~~0.4~~44 thousand.

11The following tables summarize the aggregate fair value and gross unrealized losses of securities that have been in a continuous unrealized loss position as of the date presented:

The following table summarizes the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:


	Less than 12 Months				12 Months or Longer				Total
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
September 30, 2022 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	8,091	$	763	$	8,886	$	1,526	$	16,977	$	2,289
U.S. Government Agency notes		4,804		589		15,151		2,153		19,955		2,742
Municipal bonds		37,026		8,290		7,584		2,360		44,610		10,650
Mortgage- backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		28,503		3,960		29,335		4,753		57,838		8,713
Collateralized mortgage obligations		21,173		3,056		1,418		278		22,591		3,334
Corporate bonds		8,579		671		—		—		8,579		671
Total temporarily impaired securities	$	108,176	$	17,329	$	62,374	$	11,070	$	170,550	$	28,399

	Less than 12 Months				12 Months or Longer				Total
December 31, 2021 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
December 31, 2022 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	126,~~155~~435	$	~~182~~484	$	—10,698	$	—1,666	$	1217,~~155~~133	$	~~182~~2,150
U.S. Government Agency notes		223,~~137~~106		~~235~~158		217,~~019~~467		212,478		2420,~~156~~573		~~256~~2,636
Municipal bonds		1237,~~496~~277		~~204~~5,950		~~552~~9,261		—2,691		1346,~~048~~538		~~204~~8,641
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		52,619		740		3,195		65		55,814		805
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		1114,~~554~~333		~~185~~1,782		—7,603		—1,652		1121,~~554~~936		~~185~~3,434
Corporate bonds		111,~~742~~251		81,249		—1,523		—227		112,~~742~~774		81,476
Total temporarily impaired securities	$	~~112~~91,~~703~~263	$	111,~~554~~182	$	586,~~766~~461	$	8615,166	$	~~118~~177,~~469~~724	$	126,~~640~~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 dates.

September 30, 2022 (in thousands)

Maturity

Amortized cost

Fair value

Yield(1)

March 31, 2023 (in thousands)

Maturity

Amortized cost

Fair value

Yield(1)

U.S. Treasury

After 1 year but within 5 years

710,~~871~~814

710,~~239~~005

1.3229

After 5 year but within 10 years

118,~~395~~485

97,~~738~~474

1.1817

Total

19,~~266~~299

1617,~~977~~479

1.24

U.S. Government Agency notes

After 1 year but within 5 years

47,~~979~~964

47,~~319~~100

01.9705

After 5 year but within 10 years

107,~~938~~960

96,~~189~~863

1.3542

Total

15,~~917~~924

13,~~508~~963

1.23

Municipal bonds

After 1 year but within 5 years

~~511~~1,486

~~459~~1,343

12.7411

After 5 year but within 10 years

1514,~~282~~308

12,~~445~~054

2.31

After 10 years but within 15 years

1215,~~842~~458

1013,~~382~~580

2.5333

After 15 years

2623,~~625~~847

21,~~324~~222

2.8473

Total

55,~~260~~099

4448,~~610~~199

2.6149

Mortgage-backed securities and Collateralized mortgage obligations

Securities not due at a single maturity date

112,723

100,487

2.29

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

~~112~~105,~~723~~851

~~100~~95,~~487~~346

2.2995

Corporate bonds

After 5 years but within 10 years

1314,250

12,~~596~~611

4.3246

After 10 years but within 15 years

~~1,000~~—

~~983~~—

~~6.25~~

Total

14,250

1312,~~579~~611

4.46

Securities available-for-sale

~~217~~210,~~416~~423

~~189~~187,~~161~~598

2.4579

⁽¹⁾ Yield is based on amortized cost.

~~Salisbury evaluates~~For ~~debt securities for OTTI where~~ the ~~fair~~three ~~value~~months ofended aMarch ~~security~~31, is2023 ~~less~~and ~~than~~2022, ~~its~~the ~~amortized~~unrealized ~~cost~~losses ~~basis~~on at the ~~balance~~Company’s ~~sheet~~available-for-sale ~~date.~~debt Assecurities ~~part~~have ofnot ~~this~~been ~~process,~~recognized ~~Salisbury~~into ~~considers~~income ~~whether~~because itmanagement ~~has~~does ~~the~~not ~~intent~~intend to sell ~~each debt security~~ and ~~whether~~ it is ~~more~~not more-likely -than -not ~~that~~ it will be required to sell any of the ~~security~~available-for-sale debt securities before recovery of its ~~anticipated~~amortized ~~recovery~~cost basis. IfFurthermore, ~~either~~the ofunrealized ~~these~~losses were due to changes in interest rates and other market conditions isand ~~met,~~were ~~Salisbury~~not ~~recognizes~~reflective anof ~~OTTI charge~~credit toevents. ~~earnings~~The ~~equal~~issuers continue to make timely principal and interest payments on the ~~entire~~bonds. ~~difference~~Agency-backed ~~between~~and government sponsored have a long 40 year history with no credit losses, including during times of severe stress such as the ~~security’s~~2007-2008 ~~amortized~~financial ~~cost~~crisis. ~~basis~~The principal and ~~its~~interest ~~fair~~payments ~~value~~on atagency guaranteed debt is backed by the ~~balance sheet~~U.S. ~~date~~government. ~~For~~Government-sponsored ~~securities~~enterprises ~~that~~similarly ~~meet~~guarantee ~~neither~~principal ofand ~~these~~interest ~~conditions,~~payments and carry an ~~analysis~~implicit isguarantee ~~performed~~from tothe ~~determine~~U.S. ifDepartment ~~any~~ of ~~these~~the Treasury. Additionally, government-sponsored enterprise securities are exceptionally atliquid, ~~risk~~readily ~~for~~marketable, ~~OTTI~~and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses.

~~The following~~At ~~summarizes~~March 31, by2023 ~~security~~and ~~type~~December 31, ~~the~~2022, ~~basis~~total accrued interest receivable on available-for-sale ~~evaluating~~debt ifsecurities, which has been excluded from the ~~applicable~~reported amortized cost basis on available-for-sale debt securities, ~~were~~was ~~OTTI~~$0.62 atmillion ~~September~~and 30$0.56 million, ~~2022~~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.

~~U.S. Treasury notes: The contractual cash flows are guaranteed by the U.S. government. Ten securities had unrealized losses at September 30, 2022, which approximated~~ 11.88% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality since time of purchase. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at September 30, 2022.

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.

~~U.S. Government~~At ~~Agency~~March ~~notes:~~31, ~~The~~2023, ~~contractual~~the ~~cash~~allowance ~~flows~~for ~~are~~off-balance-sheet ~~guaranteed~~credit bylosses ~~the~~was U$1.S.2 ~~government.~~million ~~Twenty~~compared ~~two~~with ~~securities~~$0.2 ~~had~~million ~~unrealized losses~~ at ~~September 30,~~December ~~2022~~31, ~~which approximated 12~~2022.~~08%~~ ofThis balance ~~their~~is ~~amortized~~included ~~cost. Changes~~ in ~~fair~~“other ~~values~~liabilities” ~~are~~on aSalisbury’s ~~function~~consolidated ofbalance ~~changes~~sheet. inDuring ~~investment~~first ~~spreads~~quarter ~~and~~2023, the ~~interest~~Bank ~~rate~~recorded ~~movements~~$92 ~~and~~thousand ~~not changes~~ in credit ~~quality~~loss ~~since~~expense ~~time~~for ofoff-balance-sheet ~~purchase.~~items ~~Management~~compared ~~expects~~with ~~to recover the entire amortized cost basis of these securities~~$0.2 ~~Furthermore,~~million ~~Salisbury evaluates these securities~~ for ~~strategic~~first ~~fit~~quarter ~~and~~2022. ~~may~~These balances ~~reduce~~are ~~its~~included ~~position~~ in ~~these~~the ~~securities, although~~“provision itfor iscredit ~~not~~losses” ~~more~~for ~~likely~~2023 ~~than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity,~~ and ~~does~~“other ~~not~~non-interest ~~intend~~expense” ~~to sell these securities. Management evaluated the impairment status of these debt securities and concluded that the gross unrealized losses were temporary~~ in ~~nature.~~2022 ~~Therefore, management does not consider these investments to~~on beSalisbury’s ~~other-than~~Consolidated ~~temporarily~~Income ~~impaired at September 30, 2022~~Statement.

Municipal bonds: Salisbury performed a detailed analysis of the municipal bond portfolio. Sixty six securities had unrealized losses at September 30, 2022, which approximated 19.27% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and spread movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at September 30, 2022.

U.S. Government agency and U.S. Government-sponsored enterprise securities and collateralized mortgage obligations: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Ninety two securities had unrealized losses at September 30, 2022, which approximated 13.03% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Therefore, management does not consider these investments to be other-than-temporarily impaired at September 30, 2022.

Corporate bonds: Salisbury regularly monitors and analyzes its corporate bond portfolio for credit quality. Eleven securities had unrealized losses at September 30, 2022, which approximated 7.26% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and spread movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at September 30, 2022.

The Federal Home Loan Bank of Boston (FHLBB) is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of September 30, 2022. Deterioration of the FHLBB’s capital levels may require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment in FHLBB stock.

NOTE 3 – LOANS

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

(In thousands)		September 30, 2022			December 31, 2021
Residential 1-4 family	$	414,957		$	373,131
Residential 5+ multifamily		70,459			52,325
Construction of residential 1-4 family		21,527			19,738
Home equity lines of credit		24,895			23,270
Residential real estate		531,838			468,464
Commercial		367,257			310,923
Construction of commercial		45,762			58,838
Commercial real estate		413,019			369,761
Farm land		4,225			2,807
Vacant land		14,796			14,182
Real estate secured		963,878			855,214
Commercial and industrial ex PPP Loans		186,527			169,543
PPP Loans		469			25,589
Total Commercial and industrial		186,996			195,132
Municipal		18,607			16,534
Consumer		20,344			12,547
Loans receivable, gross		1,189,825			1,079,427
Deferred loan origination costs, net		1,002			285
Allowance for loan losses		(14,334	)		(12,962	)
Loans receivable, net	$	1,176,493		$	1,066,750
Loans held-for-sale
Residential 1-4 family	$	—		$	2,684

Salisbury has entered into loan participation agreements with other banks and transferred a portion of its originated loans to the participating banks. Transferred amounts are accounted for as sales and excluded from Salisbury’s loans receivable. Salisbury and its participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. Salisbury services the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties.

Salisbury also has entered into loan participation agreements with other banks and purchased a portion of the other banks’ originated loans. Purchased amounts are accounted for as loans without recourse to the originating bank. Salisbury and its originating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The originating banks service the loans on behalf of the participating lenders and, as such, collect cash payments from the borrowers, remit payments (net of servicing fees) to participating lenders and disburse required escrow funds to relevant parties.

At ~~September~~ 30March 31, ~~2022~~2023 and December 31, ~~2021~~2022, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $5866.5 million and $7764.51 million, respectively.

Concentrations of Credit Risk

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

Salisbury’s commercial loan portfolio is comprised of loans to diverse industries, several of which may experience operating challenges due to the COVID-19 virus pandemic (“virus”). Approximately 3632% 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 910% 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 ~~192~~209% as of ~~September~~March 3031, ~~2022~~2023 and ~~179~~198% at December 31, ~~2021~~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.

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. Rising interest rates, unemployment and an economic recession may cause the Bank to experience higher loan payment delinquencies and higher loan charge-offs, which could warrant increased provisions for loan losses.

At September 30, 2022 Salisbury had PPP loan balances, net of deferred fees, of $0.4 million on its consolidated balance sheet compared with approximately $25 million at December 31, 2021. The PPP loans are reported on Salisbury’s balance sheet at their outstanding principal balance, net of unamortized deferred loan origination fees and costs on originated loans. Interest income is accrued on the unpaid principal balance. Deferred loan origination fees and costs on the loans are amortized as an adjustment to yield over the lives of the related loans, which is predominately five years. For the three months ended September 30, 2022, Salisbury recorded interest income and net origination fees of $3 thousand and $69 thousand, respectively, on PPP loans compared with $133 thousand and $711 thousand, respectively, for the three months ended September 30, 2021. For the nine months ended September 30, 2022, Salisbury recorded interest income and net origination fees of $71 thousand and $740 thousand, respectively, on PPP loans compared with $569 thousand and $2.5 million, respectively, for the comparable period ended September 30, 2021. As of September 30, 2022, Salisbury has substantially recognized all of the origination fees on PPP loans.

Credit Quality

Salisbury uses credit risk ratings as part of its determination of 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. 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 ~~ratings~~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~~ 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 ~~Federal Deposit Insurance Corporation (“~~FDIC”) and the ~~Connecticut Department of Banking (“~~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	)

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
September 30, 2022
December 31, 2022
Residential 1-4 family	$	410,458	$	3,030	$	1,469	$	—	$	—	$	414,957
Commercial & industrial	$	232,259	$	6,195	$	1,543	$	—	$	—	$	239,997
Residential 5+ multifamily		70,308		72		79		—		—		70,459
Commercial real estate		477,006		8,798		5,855		—		—		491,659
Construction of residential 1-4 family		21,527		—		—		—		—		21,527
Residential real estate		444,778		2,995		1,879		—		—		449,652
Home equity lines of credit		24,730		165		—		—		—		24,895
Consumer		46,041		162		5		—		—		46,208
Residential real estate		527,023		3,267		1,548		—		—		531,838
Loans receivable, gross	$	1,200,084	$	18,150	$	9,282	$	—	$	—	$	1,227,516
Commercial		348,824		13,079		5,354		—		—		367,257
Construction of commercial		45,762		—		—		—		—		45,762
Commercial real estate		394,586		13,079		5,354		—		—		413,019
Farm land		2,402		1,426		397		—		—		4,225
Vacant land		14,764		32		—		—		—		14,796
Real estate secured		938,775		17,804		7,299		—		—		963,878
Commercial and industrial		184,584		696		1,716		—		—		186,996
Municipal		18,607		—		—		—		—		18,607
Consumer		20,344		—		—		—		—		20,344
Loans receivable, gross	$	1,162,310	$	18,500	$	9,015	$	—	$	—	$	1,189,825

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2021
Residential 1-4 family	$	367,225	$	3,543	$	2,363	$	—	$	—	$	373,131
Residential 5+ multifamily		50,588		79		1,658		—		—		52,325
Construction of residential 1-4 family		19,738		—		—		—		—		19,738
Home equity lines of credit		23,037		212		21		—		—		23,270
Residential real estate		460,588		3,834		4,042		—		—		468,464
Commercial		271,821		16,034		23,068		—		—		310,923
Construction of commercial		58,838		—		—		—		—		58,838
Commercial real estate		330,659		16,034		23,068		—		—		369,761
Farm land		1,162		1,214		431		—		—		2,807
Vacant land		14,143		39		—		—		—		14,182
Real estate secured		806,552		21,121		27,541		—		—		855,214
Commercial and industrial		191,857		688		2,587		—		—		195,132
Municipal		16,534		—		—		—		—		16,534
Consumer		12,547		—		—		—		—		12,547
Loans receivable, gross	$	1,027,490	$	21,809	$	30,128	$	—	$	—	$	1,079,427

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:

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.


		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	$	—

The ~~composition~~following is a summary of ~~loans receivable~~the byamortized ~~delinquency~~cost ~~status~~basis isof asloans on ~~follows:~~non-accrual status.

			Past due
		March 31, 2023						December 31, 2022
									180		30		Accruing
(in thousands)		Non-Accrual Loans with an Allowance		Non-Accrual Loans without an Allowance		Total Non-Accrual Loans		Total Non-Accrual Loans
(in thousands)									days		days		90 days
Commercial & industrial	$	—	$	144	$	144	$	189
			30-59		60-89		90-179		and		and		and		Non-
Commercial real estate		—		1,222		1,222		1,648
	Current		days		days		days		over		over		over		accrual
Residential real estate		—		858		858		820
September 30, 2022
Consumer		9		8		17		5
Residential 1-4 family	$	414,910	$	20	$	12	$	—	$	15	$	47	$	—	$	137
Total	$	9	$	2,232	$	2,241	$	2,662
Residential 5+ multifamily		70,459		—		—		—		—		—		—		—
Construction of residential 1-4 family		21,527		—		—		—		—		—		—		—
Home equity lines of credit		24,778		117		—		—		—		117		—		—
Residential real estate		531,674		137		12		—		15		164		—		137
Commercial		367,172		—		85		—		—		85		—		1,199
Construction of commercial		45,762		—		—		—		—		—		—		—
Commercial real estate		412,934		—		85		—		—		85		—		1,199
Farm land		4,225		—		—		—		—		—		—		397
Vacant land		14,796		—		—		—		—		—		—		—
Real estate secured		963,629		137		97		—		15		249		—		1,733
Commercial and industrial		186,861		23		12		100		—		135		100		27
Municipal		18,607		—		—		—		—		—		—		—
Consumer		20,223		116		5		—		—		121		—		—
Loans receivable, gross	$	1,189,320	$	276	$	114	$	100	$	15	$	505	$	100	$	1,760

			Past due
									180		30		Accruing
(in thousands)									days		days		90 days
			30-59		60-89		90-179		and		and		and		Non-
	Current		days		days		days		over		over		over		accrual
December 31, 2021
December 31, 2022
Residential 1-4 family	$	372,620	$	223	$	135	$	63	$	90	$	511	$	—	$	750
Commercial & industrial	$	239,847	$	149	$	1	$	—	$	—	$	150	$	—	$	189
Residential 5+ multifamily		51,464		—		—		—		861		861		—		861
Commercial real estate		491,574		—		—		85		—		85		—		1,648
Construction of residential 1-4 family		19,668		—		70		—		—		70		—		—
Residential real estate		448,935		672		30		—		15		717		—		820
Home equity lines of credit		23,000		165		98		—		7		270		—		21
Consumer		45,677		442		84		5		—		531		—		5
Residential real estate		466,752		388		303		63		958		1,712		—		1,632
Loans receivable, gross	$	1,226,033	$	1,263	$	115	$	90	$	15	$	1,483	$	—	$	2,662
Commercial		310,331		87		251		—		254		592		—		1,924
Construction of commercial		58,838		—		—		—		—		—		—		—
Commercial real estate		369,169		87		251		—		254		592		—		1,924
Farm land		2,807		—		—		—		—		—		—		432
Vacant land		14,182		—		—		—		—		—		—		—
Real estate secured		852,910		475		554		63		1,212		2,304		—		3,988
Commercial and industrial		194,838		250		32		1		11		294		11		200
Municipal		16,534		—		—		—		—		—		—		—
Consumer		12,503		40		4		—		—		44		—		—
Loans receivable, gross	$	1,076,785	$	765	$	590	$	64	$	1,223	$	2,642	$	11	$	4,188

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

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

~~Troubled~~Allowance ~~Debt~~for ~~Restructurings~~Credit ~~(TDRs)~~Losses for Loans

~~For~~The ~~the~~ACL ~~three~~on ~~and nine~~loans ~~month~~at ~~periods~~March ~~ended~~31, ~~September~~2023, 30was $16.0 million, an ~~2022~~increase of $1.2 million, ~~there~~or ~~were~~7.8%, nosince ~~troubled~~December ~~debt~~31, ~~restructurings~~2022. ~~For~~The increase was driven by the ~~three~~adoption ~~and~~of ~~nine~~CECL, ~~month~~effective ~~periods~~January ~~ended~~1, ~~September~~2023, 30and the estimate of expected credit losses based on certain macro-economic factors. At March 31, ~~2021~~2023, the ACL on loans estimate used a reasonable and supportable forecast period of one ~~residential~~year across all of its loan ~~with~~segments. aAt March 31, 2023, the reasonable and supportable forecast used to estimate the ACL on loans used the following loss drivers by loan ~~balance~~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 ~~$74~~the ~~thousand~~level ~~was~~of ~~modified~~uncertainty insurrounding 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 ~~troubled~~reversion ~~debt~~period ~~restructuring~~of two years for ~~term~~each ~~extension~~loan segment.

~~Allowance~~The increase in the ACL on loans at March 31, 2023 compared with March 31, 2022, for ~~Loan~~the commercial & industrial and commercial real estate loan segments was primarily driven by changes ~~Losses~~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.

~~Changes~~The activity in ~~the~~Salisbury’s allowance for ~~loan~~ credit losses ~~are~~for asloans ~~follows:~~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 September 30, 2022														Three months ended September 30, 2021
	Three Months Ended March 31, 2023
		Beginning balance		Provision (Benefit)			Charge- offs			Reco- veries			Ending balance			Beginning balance		Provision (Benefit)			Charge- offs			Reco- veries		Ending balance
(in thousands)	Beginning balance		Impact of Adopting ASC 326			Subtotal			Provision for Credit Losses			Charge-offs			Recoveries		Ending balance
Residential 1-4 family	$	3,286	$	127		$	(45	)	$	25		$	3,393		$	2,377	$	393		$	(35	)	$	5	$	2,740
Commercial & industrial	$	1,921	$	2,447		$	4,368		$	(89	)	$	—		$	—	$	4,279
Residential 5+ multifamily		1,157		71			—			—			1,228			545		156			—			—		701
Commercial real estate		8,425		(3,236	)		5,189			705			—			—		5,894
Construction of residential 1-4 family		333		(103	)		(25	)		—			205			95		41			—			—		136
Residential real estate		4,108		831			4,939			287			—			—		5,226
Home equity lines of credit		205		14			—			—			219			190		26			(20	)		—		196
Consumer		392		229			621			21			(35	)		3		610
Residential real estate		4,981		109			(70	)		25			5,045			3,207		616			(55	)		5		3,773
Total allowance for credit losses	$	14,846	$	271		$	15,117		$	924		$	(35	)	$	3	$	16,009
Commercial		5,169		598			—			—			5,767			6,212		(165	)		—			119		6,166
Construction of commercial		872		(115	)		—			—			757			668		118			—			—		786
Commercial real estate		6,041		483			—			—			6,524			6,880		(47	)		—			119		6,952
Farm land		27		11			—			—			38			32		(1	)		—			—		31
Vacant land		108		4			—			—			112			87		(1	)		—			—		87
Real estate secured		11,157		607			(70	)		25			11,719			10,206		567			(55	)		125		10,843
Commercial and industrial		1,480		5			—			—			1,485			1,256		73			—			3		1,332
Municipal		35		4			—			—			39			32		(1	)		—			—		31
Consumer		130		11			(25	)		6			122			66		62			(19	)		6		115
Unallocated		901		68			—			—			969			1,148		(301	)		—			—		847
Totals	$	13,703	$	695		$	(95	)	$	31		$	14,334		$	12,708	$	400		$	(74	)	$	134	$	13,168

		Nine months ended September 30, 2022												Nine months ended September 30, 2021
	Three months ended March 31, 2022
		Beginning balance		Provision (Benefit)			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision (Benefit)			Charge- offs			Reco- veries			Ending balance
(in thousands)	Beginning balance		Provision			Charge-offs			Recoveries		Ending balance
Residential 1-4 family	$	2,846	$	595		$	(73	)	$	25	$	3,393	$	2,646	$	129		$	(44	)	$	9		$	2,740
Commercial & industrial	$	1,811	$	(173	)	$	(46	)	$	1	$	1,593
Residential 5+ multifamily		817		642			(231	)		—		1,228		686		15			—			—			701
Commercial real estate		6,973		261			(334	)		—		6,900
Construction of residential 1-4 family		186		44			(25	)		—		205		65		71			—			—			136
Residential real estate		3,020		252			(16	)		—		3,253
Home equity lines of credit		198		32			(11	)		—		219		252		(36	)		(20	)		—			196
Consumer		277		37			(17	)		5		302
Residential real estate		4,047		1,313			(340	)		25		5,045		3,649		179			(64	)		9			3,773
Unallocated		881		(14	)		—			—		867
Commercial		5,416		722			(372	)		1		5,767		6,546		(509	)		(7	)		136			6,166
Totals	$	12,962	$	363		$	(416	)	$	6	$	12,915
Construction of commercial		1,025		(268	)		—			—		757		596		208			(18	)		—			786
Commercial real estate		6,441		454			(372	)		1		6,524		7,142		(301	)		(25	)		136			6,952
Farm land		21		17			—			—		38		59		(28	)		—			—			31
Vacant land		95		17			—			—		112		180		(94	)		—			1			87
Real estate secured		10,604		1,801			(712	)		26		11,719		11,030		(244	)		(89	)		146			10,843
Commercial and industrial		1,364		166			(46	)		1		1,485		1,397		17			(131	)		49			1,332
Municipal		31		8			—			—		39		43		(12	)		—			—			31
Consumer		82		95			(70	)		15		122		77		82			(34	)		(10	)		115
Unallocated		881		88			—			—		969		1,207		(360	)		—			—			847
Totals	$	12,962	$	2,158		$	(828	)	$	42	$	14,334	$	13,754	$	(517	)	$	(254	)	$	185		$	13,168

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:

	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

	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

The composition of loans receivable and the allowance for ~~loan~~credit losses is aspresented ~~follows:~~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
September 30, 2022
March 31, 2023
Residential 1-4 family	$	413,456	$	3,393	$	1,501	$	—	$	414,957	$	3,393
Commercial & industrial	$	231,889	$	4,279	$	144	$	—	$	232,033	$	4,279
Residential 5+ multifamily		70,380		1,228		79		—		70,459		1,228
Commercial real estate		514,044		5,894		1,222		—		515,266		5,894
Construction of residential 1-4 family		21,527		205		—		—		21,527		205
Residential real estate		456,648		5,226		858		—		457,506		5,226
Home equity lines of credit		24,895		219		—		—		24,895		219
Consumer		44,953		610		8		—		44,961		610
Residential real estate		530,258		5,045		1,580		—		531,838		5,045
Totals	$	1,247,534	$	16,009	$	2,232	$	—	$	1,249,766	$	16,009
Commercial		364,729		5,745		2,528		22		367,257		5,767
Construction of commercial		45,762		757		—		—		45,762		757
Commercial real estate		410,491		6,502		2,528		22		413,019		6,524
Farm land		3,828		38		397		—		4,225		38
Vacant land		14,796		112		—		—		14,796		112
Real estate secured		959,373		11,697		4,505		22		963,878		11,719
Commercial and industrial		186,969		1,485		27		—		186,996		1,485
Municipal		18,607		39		—		—		18,607		39
Consumer		20,344		122		—		—		20,344		122
Unallocated allowance		—		969		—		—		—		969
Totals	$	1,185,293	$	14,312	$	4,532	$	22	$	1,189,825	$	14,334

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2021
December 31, 2022
Residential 1-4 family	$	370,558	$	2,845	$	2,573	$	1	$	373,131	$	2,846
Commercial & industrial	$	239,808	$	1,780	$	189	$	—	$	239,997	$	1,780
Residential 5+ multifamily		51,376		817		949		—		52,325		817
Commercial real estate		488,630		7,781		3,029		22		491,659		7,803
Construction of residential 1-4 family		19,738		186		—		—		19,738		186
Residential real estate		447,543		3,805		2,109		—		449,652		3,805
Home equity lines of credit		23,249		198		21		—		23,270		198
Consumer		46,203		363		5		—		46,208		363
Residential real estate		464,921		4,046		3,543		1		468,464		4,047
Unallocated allowance		—		1,095		—		—		—		1,095
Commercial		307,377		5,388		3,546		28		310,923		5,416
Totals	$	1,222,184	$	14,824	$	5,332	$	22	$	1,227,516	$	14,846
Construction of commercial		58,838		1,025		—		—		58,838		1,025
Commercial real estate		366,215		6,413		3,546		28		369,761		6,441
Farm land		2,375		21		432		—		2,807		21
Vacant land		14,182		95		—		—		14,182		95
Real estate secured		847,694		10,575		7,520		29		855,214		10,604
Commercial and industrial		194,856		1,297		276		67		195,132		1,364
Municipal		16,534		31		—		—		16,534		31
Consumer		12,547		82		—		—		12,547		82
Unallocated allowance		—		881		—		—		—		881
Totals	$	1,071,630	$	12,866	$	7,797	$	96	$	1,079,427	$	12,962

~~The~~Certain data ~~credit~~with ~~quality~~respect ~~segments~~to of loans ~~receivable~~ ~~and~~individually evaluated for impairment is presented in the ~~allowance~~tables ~~for~~below. The loan ~~losses~~categories ~~are~~for aspreviously reported ~~follows:~~periods have been updated to conform to the current presentation.

September 30, 2022 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
	Loans with no specific allowance
		Loans		Allowance		Loans		Allowance		Loans		Allowance
	Loan balance						Income
Performing loans	$	1,178,589	$	12,928	$	—	$	—	$	1,178,589	$	12,928
	Book		Note		Average		Recognized
Potential problem loans 1		6,704		415		—		—		6,704		415
March 31, 2023
Impaired loans		—		—		4,532		22		4,532		22
Commercial & industrial	$	144	$	244	$	165	$	—
Unallocated allowance		—		969		—		—		—		969
Commercial real estate		1,222		1,748		1,619		14
Totals	$	1,185,293	$	14,312	$	4,532	$	22	$	1,189,825	$	14,334
Residential real estate		858		941		1,170		—
Consumer		8		8		31		—
Totals	$	2,232	$	2,941	$	2,985	$	14

December 31, 2021 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
Performing loans	$	1,046,614	$	10,456	$	—	$	—	$	1,046,614	$	10,456
Potential problem loans 1		25,016		1,529		—		—		25,016		1,529
Impaired loans		—		—		7,797		96		7,797		96
Unallocated allowance		—		881		—		—		—		881
Totals	$	1,071,630	$	12,866	$	7,797	$	96	$	1,079,427	$	12,962

Certain data with respect to loans individually evaluated for impairment is as follows as of and for the three months ended March 31, 2022:

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


	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

ANOTE ~~specific~~5 ~~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:LEASES

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Recorded Investment		Note		Average		allowance		recognized		Recorded Investment		Note		Average		recognized
September 30, 2022
Residential	$	—	$	—	$	398	$	—	$	—	$	1,580	$	1,677	$	2,321	$	40
Home equity lines of credit		—		—		—		—		—		—		—		11		—
Residential real estate		—		—		398		—		—		1,580		1,677		2,332		40
Commercial		572		572		616		22		22		1,956		2,467		2,397		32
Construction of commercial		—		—		—		—		—		—		—		—		—
Farm land		—		—		—		—		—		397		447		415		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		572		572		1,014		22		22		3,933		4,591		5,144		72
Commercial and industrial		—		—		84		—		—		27		30		55		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	572	$	572	$	1,098	$	22	$	22	$	3,960	$	4,621	$	5,199	$	72

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

Note: The income recognized is for the nine month period ended September 30, 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

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Recorded Investment		Note		Average		allowance		recognized		Recorded Investment		Note		Average		recognized
September 30, 2021
Residential	$	45	$	47	$	1,120	$	3	$	2	$	3,989	$	4,404	$	3,642	$	52
Home equity lines of credit		—		—		22		—		—		86		127		156		—
Residential real estate		45		47		1,142		3		2		4,075		4,531		3,798		52
Commercial		1,007		1,033		1,921		43		33		2,866		3,377		3,002		47
Construction of commercial		—		—		—		—		—		—		—		—		—
Farm land		—		—		—		—		—		576		756		415		—
Vacant land		—		—		73		—		—		35		39		52		—
Real estate secured		1,052		1,080		3,136		46		35		7,552		8,703		7,267		99
Commercial and industrial		221		228		336		44		3		100		270		91		—
Consumer		—		—		8		—		—		18		18		15		1
Totals	$	1,273	$	1,308	$	3,480	$	90	$	38	$	7,670	$	8,991	$	7,373	$	100

¹ Net of accumulated depreciation of $776 thousand and $720 thousand, respectively.

Note: The income recognized is for the nine month period ended September 30, 2021.

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

Certain data with respect to loans individually evaluated for impairment is as follows as of and for the year ended December 31, 2021:

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.

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Recorded Investment		Note		Average		allowance		recognized		Recorded Investment		Note		Average		recognized
December 31, 2021
Residential	$	43	$	44	$	872	$	1	$	3	$	3,480	$	3,817	$	3,689	$	75
Home equity lines of credit		—		—		17		—		—		21		23		131		—
Residential real estate		43		44		889		1		3		3,501		3,840		3,820		75
Commercial		608		608		1,678		28		32		2,938		3,493		2,974		62
Construction of commercial		—		—		—		—		—		—		—		—		—
Farm land		—		—		—		—		—		431		447		440		—
Vacant land		—		—		56		—		—		—		—		45		—
Real estate secured		651		652		2,623		29		35		6,870		7,780		7,279		137
Commercial and industrial		216		224		309		67		3		60		72		90		—
Consumer		—		—		6		—		—		—		—		13		—
Totals	$	867	$	876	$	2,938	$	96	$	38	$	6,930	$	7,852	$	7,382	$	137

The following is a schedule by years of the present value of the net minimum lease payments as of March 31, 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 –- ~~LEASES~~MORTGAGE SERVICING RIGHTS

The Bank leases facilities and equipment with various expiration dates. The facilities leases have varying renewal options, generally require fixed annual rent, and provide that real estate taxes, insurance, and maintenance expenses are to be paid by Salisbury. The following table provides the assets and liabilities as of September 30, 2022 and December 31, 2021, as well as the costs of operating and financial leases, which are included in the Bank’s consolidated income statement for the nine months ended September 30, 2022 and 2021.

(in thousands)		March 31, 2023		December 31, 2022
Residential mortgage loans serviced for others	$	130,275	$	133,100
Fair value of mortgage servicing rights		1,309		1,376

($ in thousands, except lease term and discount rate)	Classification		September 30, 2022		December 31, 2021
Assets
Operating	Other assets	$	1,231	$	1,021
Finance	Bank premises and equipment 1		3,912		3,791
Total Leased Assets		$	5,143	$	4,812
Liabilities
Operating	Other liabilities	$	1,231	$	1,021
Finance	Finance lease		4,296		4,107
Total Lease Liabilities		$	5,527	$	5,128
1 Net of accumulated depreciation of $664 thousand and $496 thousand, respectively.

Lease cost	Classification		Nine months ended		Three months ended
			September 30, 2022		September 30, 2022
Operating leases	Premises and equipment	$	218	$	72
Finance leases:
Amortization of leased assets	Premises and equipment		167		55
Interest on finance leases	Interest expense		41		41
Total lease cost		$	426	$	168

Lease cost	Classification		Nine months ended		Three months ended
			September 30, 2021		September 30, 2021
Operating leases	Premises and equipment	$	221	$	74
Finance leases:
Amortization of leased assets	Premises and equipment		76		25
Interest on finance leases	Interest expense		103		36
Total lease cost		$	400	$	135

Weighted Average Remaining Lease Term	September 30, 2022		December 31, 2021
Operating leases	6.1 years		6.9 years
Financing leases	21.7 years		23.5 years
Weighted Average Discount Rate 1
Operating leases	3.6	%	3.6	%
Financing leases	3.7	%	5.0	%
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 September 30, 2022.

Future minimum lease payments (in thousands)		Operating Leases			Finance Leases
2022	$	80		$	74
2023		241			304
2024		204			314
2025		213			324
2026		137			334
Thereafter		507			4,968
Total future minimum lease payments		1,382			6,317
Less amount representing interest		(151	)		(2,022	)
Total present value of net future minimum lease payments	$	1,231		$	4,295

NOTE 5 - MORTGAGE SERVICING RIGHTS

(in thousands)		September 30, 2022		December 31, 2021
Residential mortgage loans serviced for others	$	135,656	$	140,623
Fair value of mortgage servicing rights		1,401		1,043

Changes in mortgage servicing rights are as follows:

		Three months ended						Nine months ended
Three months ended March 31, (in thousands)		2023			2022
Periods ended September 30, (in thousands)		2022			2021			2022			2021
Mortgage Servicing Rights
Mortgage Servicing Rights
Balance, beginning of period	$	630		$	700
Balance, beginning of period	$	694		$	748		$	700		$	621
Originated		—			55
Originated		—			18			72			276
Amortization (1)		(26	)		(39	)
Amortization (1)		(39	)		(36	)		(117	)		(167	)
Balance, end of period	$	604		$	716
Balance, end of period	$	655		$	730		$	655		$	730
Valuation Allowance
Valuation Allowance
Balance, beginning of period		—			—
Balance, beginning of period		—			—			—			(9	)
Decrease in impairment reserve (1)		—			—
Decrease in impairment reserve (1)		—			—			—			9
Balance, end of period		—			—
Balance, end of period		—			—			—			—
Mortgage servicing rights, net	$	604		$	716
Mortgage servicing rights, net	$	655		$	730		$	655		$	730

(1) Amortization expense and changes in the impairment reserve are recorded in mortgage ~~banking activities~~servicing, net.

NOTE 67 - PLEDGED ASSETS

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

(in thousands)		~~September~~March 3031, ~~2022~~2023		December 31, ~~2021~~2022
Securities available-for-sale (at fair value)	$	7880,~~001~~456	$	7574,~~737~~303
Loans receivable (at book value)		~~375~~381,~~645~~740		~~378~~380,~~845~~787
Total pledged assets	$	~~453~~462,~~646~~196	$	~~454~~455,~~582~~090

At ~~September~~March 3031, ~~2022~~2023, securities were pledged as follows: $7077.883 million to secure public deposits, and $73.102 million to secure repurchase agreements ~~and $0~~.02 ~~million to secure FHLBB advances.~~ In addition to securities, loans receivable were pledged to secure FHLBB advances and credit facilities.

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

Salisbury is exposed to certain risk arising from both its business operations and economic conditions. The Bank principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Bank manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Bank enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Bank uses derivative financial instruments to manage differences in the amount, timing, and duration of the Bank’s known or expected cash receipts and its known or expected cash payments principally related to its portfolio of loans to first-time home buyers.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain pools of its pre-payable fixed-rate assets due to changes in benchmark interest rates. Salisbury uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, Federal Funds. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for Salisbury receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

Salisbury’s fair value hedge matured in third quarter 2022. As of December 31, 2021, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges:

Line Item in the Statement of Financial Position in Which the Hedged Item is Included	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(in thousands)	December 31, 2021		December 31, 2021
Loans receivable(1)	$	9,982	$	(18	)
Total	$	9,982	$	(18	)

(1) These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship.

The table below presents the fair value of Salisbury’s derivative financial instrument and its classification on the Balance Sheet as of December 31, 2021.

	As of December 31, 2021
(in thousands)	Notional Amount		Balance Sheet Location
Derivatives designated as hedge instruments
Interest Rate Products	$	10,000	Other assets	$	18
Total Derivatives designated as hedge instruments				$	18

The tables below present the effect of the Company’s derivative financial instruments on the Income Statement for the three and nine months ended September 30, 2022 and 2021.

		Three months ended September 30, 2022				Nine months ended September 30, 2022
(in thousands)		Interest Income		Interest Expense		Interest Income		Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded	$	45	$	—	$	64	$	—
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items		45		—		18		—
Derivatives designated as hedging instruments	$	—	$	—	$	46	$	—

		Three months ended September 30, 2021					Nine months ended September 30, 2021
(in thousands)		Interest Income			Interest Expense		Interest Income			Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded	$	1		$	—	$	—		$	—
Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items		4			—		3			—
Derivatives designated as hedging instruments	$	(3	)	$	—	$	(3	)	$	—

NOTE 8 – EARNINGS PER SHARE

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

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

The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated~~. All per share data has been adjusted to reflect the two-for-one forward common stock split, which was effective on June 30, 2022.~~:

		Three months ended						Nine months ended
Three months ended March 31, (in thousands, except per share data)		2023			2022
Periods ended September 30, (in thousands, except per share data)		2022			2021			2022			2021
Net income	$	3,018		$	3,568
Net income	$	4,336		$	3,453		$	11,750		$	12,332
Less: Undistributed earnings allocated to participating securities		(50	)		(60	)
Less: Undistributed earnings allocated to participating securities		(72	)		(53	)		(207	)		(184	)
Net income allocated to common stock	$	2,968		$	3,508
Net income allocated to common stock	$	4,264		$	3,400		$	11,543		$	12,148
Weighted-average common shares issued		5,799			5,734
Weighted-average common shares issued		5,784			5,724			5,765			5,706
Less: Unvested restricted stock awards		(97	)		(98	)
Less: Unvested restricted stock awards		(97	)		(90	)		(101	)		(85	)
Weighted average common shares outstanding used to calculate basic earnings per common share		5,702			5,636
Weighted average common shares outstanding used to calculate basic earnings per common share		5,687			5,634			5,663			5,621
Add: Dilutive effect of stock options and restricted stock units		12			58
Add: Dilutive effect of stock options		26			52			33			39
Weighted-average common shares outstanding used to calculate diluted earnings per common share		5,714			5,694
Weighted-average common shares outstanding used to calculate diluted earnings per common share		5,713			5,686			5,696			5,660
Earnings per common share (basic)	$	0.52		$	0.62
Earnings per common share (basic)	$	0.75		$	0.60		$	2.04		$	2.16
Earnings per common share (diluted)	$	0.52		$	0.62
Earnings per common share (diluted)	$	0.75		$	0.60		$	2.03		$	2.15

2220

NOTE 9 – ~~CONTINGENCIES~~SHAREHOLDERS’ EQUITY

In July 2022, Salisbury management discovered that the Bank’s trust department terminated a trust account in May 2020 and distributed approximately $1.0 million that should have been retained in continuance of the trust account. Salisbury has engaged legal counsel and is currently evaluating the Company’s potential financial exposure. At this time, management believes that Salisbury’s exposure is not yet known or knowable and could potentially range from zero to approximately $1.0 million depending upon the facts and circumstances and the scope of Salisbury’s insurance coverage.

NOTE 10 – SHAREHOLDERS’ EQUITY

Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. ~~As of September 30, 2022, the Company and the Bank met each of their capital requirements.~~

The ~~Company and the~~ Bank ~~became~~is subject to capital regulations adopted by the Board of Governors of the Federal Reserve System (FRB) and the FDIC, which implemented the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. The required minimum regulatory capital ratios to which the Bank is subject, and the minimum ratios required for the Bank to be categorized as “well capitalized” under the prompt corrective action framework are noted in the table below. In addition, the regulations established a capital conservation buffer of 2.5% effective January 1, 2019. ~~Failure~~ Failure to maintain the capital conservation buffer will limit the ability of the Company and the Bank to pay discretionary bonuses and dividends. At ~~September~~March 3031, ~~2022~~2023, the Bank exceeded the minimum requirement for the capital conservation buffer. As of ~~September~~March 3031,~~2022~~ 2023, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed that categorization.

OnIn March 312022, ~~2021,~~ Salisbury ~~issued~~announced ~~$25~~that ~~million~~its Board of ~~subordinated~~Directors ~~debt~~renewed ~~that~~a ~~matures~~share inrepurchase ~~2031.~~program, ~~During~~which ~~the~~provides ~~first~~for ~~five years,~~ the ~~debt~~repurchase isof ~~non-callable,~~Salisbury’s ~~and~~common ~~the~~stock ~~coupon~~in isamounts ~~fixed~~up atto an ~~3.50%.~~aggregate ~~After year~~of five, ~~the~~percent ~~coupon~~(5%) ~~will~~of ~~float at~~ the ~~then~~outstanding ~~three-month~~shares ~~Secured Overnight Financing Rate plus 280 basis points. At March 31, 2021, $15 million~~ of ~~the~~Salisbury’s ~~net~~common ~~proceeds~~stock ~~was~~from ~~retained~~time atto ~~the~~time ~~holding~~over ~~company level and~~ the ~~remainder~~next ~~was~~twelve ~~allocated to the Bank~~months. ~~On May 28, 2021, Salisbury~~ ~~redeemed~~Salisbury indid ~~full~~not ~~the~~repurchase ~~$10~~any ~~million~~shares ofpursuant ~~subordinated~~to ~~debt~~such ~~that was issued in 2015 and retained at the holding company~~program.

AsThe ofBank’s ~~September~~risk-weighted 30assets at March 31, 2023 and December 31, 2022 were $1,280.9 ~~Salisbury~~million ~~did~~and ~~not~~$1,256.6 million, respectively. Actual regulatory capital position and minimum capital ~~repurchase~~requirements ~~any~~as ofdefined ~~its~~"To ~~common~~Be ~~shares~~Well ~~pursuant~~Capitalized toUnder ~~the~~Prompt ~~Common~~Corrective ~~Stock~~Action ~~Repurchase~~Provisions" ~~Plan~~and ~~approved~~"For byCapital ~~the~~Adequacy ~~Board~~Purposes" for ofthe ~~Directors~~Bank inare ~~March~~as ~~2021.~~follows:

The Bank’s risk-weighted assets at September 30, 2022 and December 31, 2021 were $1,241.1 million and $1,085.4 million, respectively. Actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" for the Bank are as follows:


	Actual					Minimum Capital Required For Capital Adequacy					Minimum Capital Required For Capital Adequacy Plus Required Capital Conservation Buffer					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
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

	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
December 31, 2022
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk-weighted assets)	$	168,786		13.43	%	$	100,525		8.0	%	$	131,939		10.5	%	$	125,656		10.0	%
September 30, 2022
Tier 1 Capital (to risk-weighted assets)		153,762		12.24			75,394		6.0			106,808		8.5			100,525		8.0
Total Capital (to risk-weighted assets)	$	164,325		13.24	%	$	99,290		8.0	%	$	130,318		10.5	%	$	124,112		10.0	%
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 risk-weighted assets)		149,805		12.07			74,467		6.0			105,495		8.5			99,290		8.0
Tier 1 Capital (to average assets)	$	153,762		9.99		$	61,540		4.0		$	61,540		4.0		$	76,925		5.0
Common Equity Tier 1 Capital (to risk-weighted assets)		149,805		12.07			55,850		4.5			86,878		7.0			80,673		6.5
Tier 1 Capital (to average assets)	$	149,805		9.83		$	60,933		4.0		$	60,933		4.0		$	76,166		5.0
December 31, 2021
Total Capital (to risk-weighted assets)	$	152,789		14.08	%	$	86,832		8.0	%	$	113,968		10.5	%	$	108,541		10.0	%
Tier 1 Capital (to risk-weighted assets)		139,681		12.87			65,124		6.0			92,259		8.5			86,832		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)		139,681		12.87			48,843		4.5			75,978		7.0			70,551		6.5
Tier 1 Capital (to average assets)	$	139,681		9.42		$	59,285		4.0		$	59,285		4.0		$	74,106		5.0

Restrictions on Cash Dividends to Common Shareholders

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

FRB Supervisory Letter SR 09-4, February 24, 2009, revised 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 11 – BENEFITS~~21

~~401(k)~~NOTE 10 – BENEFITS

Salisbury’s offers a 401(k) Plan ~~expense~~to eligible employees. ~~was~~Under ~~$311~~the ~~thousand~~401(k) ~~and~~Plan, ~~$253~~eligible ~~thousand~~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, ~~respectively~~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 ~~three~~401(k) ~~month~~Plan’s ~~periods~~qualifying ~~ended~~requirements ~~September~~for 30such a match. This discretionary matching percentage, ~~2022~~if any, is also subject to review under the provisions of the 401(k) Plan. Both the safe harbor and additional ~~2021~~discretionary match, ~~and~~if any, vest immediately. Salisbury’s 401(k) Plan expense was $~~862~~328 thousand and $~~847~~294 thousand, respectively, for the ~~nine~~ three-month periods ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022.

ESOP

Salisbury offers an ESOP to eligible employees. Under the ~~ESOP~~Plan, Salisbury may make discretionary contributions to the ~~ESOP~~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 $8598 thousand and $5535 thousand, respectively, for the three -month periods ended ~~September~~March 3031, ~~2022~~2023 and ~~2021,~~2022. ~~and~~On ~~$168~~December ~~thousand~~21, ~~and~~2022, ~~$184~~the ~~thousand,~~Board ~~respectively,~~of ~~for~~Directors of the ~~nine~~Company ~~month~~adopted ~~periods~~resolutions ~~ended~~to ~~September~~terminate 30the Plan effective on the date immediately preceding the closing date of the pending merger with NBT (see Note 2). Upon termination, the ~~2022~~employees ~~and~~participating ~~2021~~in the Plan will become fully vested in the Company’s contributions to the Plan.

Other Retirement Plans

~~Salisbury adopted ASC 715~~Split-~~60, “Compensation - Retirement Benefits - Defined Benefit Plans - Other Postretirement" and recognized a liability~~Dollar ~~for~~Life Salisbury’s future postretirement benefit obligations under endorsement split-dollar life insurance arrangements. The total liability for the arrangements included in other liabilities was $702 thousand and $779 thousand at September 30, 2022, and December 31, 2021, respectively. The Bank realized a credit of $69 thousand for the three months ended September 30, 2022 and recorded an expense of $86 thousand for the three months ended September 30, 2021. The Bank realized a credit of $77 thousand for the nine months ended September 30, 2022 and an expense of $259 thousand for the nine months ended September 30, 2021. Insurance

~~A Non-Qualified~~Salisbury ~~Deferred Compensation Plan (the "Plan") was~~ adopted ~~effective~~ASC ~~January 1~~715-60, ~~2013.~~“Compensation ~~This~~- ~~Plan~~Retirement ~~was~~Benefits ~~adopted~~- byDefined ~~the~~Benefit ~~Bank~~Plans ~~for~~- ~~the~~Other ~~benefit of certain key employees (~~Postretirement"~~Executive"~~ ~~or "Executives") who have been selected~~ and ~~approved~~recognized bya ~~the Bank to participate~~liability infor ~~this~~Salisbury’s ~~Plan~~future ~~and~~postretirement ~~who~~benefit ~~have~~obligations ~~evidenced~~under ~~their~~endorsement ~~participation by execution of a Non~~split-~~Qualified~~dollar ~~Deferred~~life ~~Compensation~~insurance ~~Plan~~arrangements. ~~Participation~~The ~~Agreement~~total ~~("Participation~~liability ~~Agreement")~~for inthe aarrangements ~~form~~included ~~provided~~in byother ~~the~~liabilities ~~Bank.~~was ~~This~~$694 ~~Plan~~thousand isand ~~intended~~$702 tothousand ~~comply~~at ~~with~~March ~~Internal~~31, ~~Revenue~~2023, ~~Code ("Code") Section 409A~~ and ~~any~~December ~~regulatory~~31, or2022, respectively. ~~other~~The ~~guidance~~Bank ~~issued~~realized ~~under~~a ~~such~~credit ~~Section.~~of In$8 ~~2022~~thousand ~~and~~for ~~2021,~~ the ~~Bank~~three ~~awarded~~months ~~seven~~ended ~~(7)~~March ~~Executives~~31, ~~with discretionary~~2023 ~~contributions~~and ~~to the plan~~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 presented.

Non-Qualified Deferred Compensation Plan

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

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

The amended and restated Plan allows participant deferrals and provides greater flexibility in participant elections and investment options. The amended and restated Plan also provides additional distribution options, including distributions in the event of an unforeseeable emergency and on the occurrence of a specified date before separation from service, and allows a participant to elect for each year’s contributions the manner in which such distributions will be paid. Installment distributions can be made in monthly, quarterly or annual installments. Payment of benefits under the Plan, other than benefits payable as a result of base salary deferrals, are conditioned on the participant’s covenant to comply with non-compete, non-solicitation and non-disclosure provisions for a period of one year following the participant’s separation from service. The Bank has established a grantor trust to hold the assets of the Plan. Until distributed, the assets of the Plan are not legally owned by the participants. In ~~second~~first quarter ~~2022~~2023, ~~Salisbury contributed $100 thousand to~~ the ~~amended~~Bank ~~and~~awarded ~~restated~~one ~~Plan~~(1) ~~for~~Executive ~~Mr.~~with ~~Cantele,~~a ~~President~~discretionary ~~and~~contribution ~~Chief~~to ~~Executive~~the ~~Officer~~plan. ~~Salisbury’s~~In ~~expense~~first ~~for~~quarter ~~this~~2022, ~~plan~~the ~~was~~Bank ~~$47~~awarded ~~thousand~~seven ~~and~~(7) ~~$29~~Executives ~~thousand,~~with ~~respectively,~~discretionary ~~for~~contributions to the ~~three-month~~plan. Salisbury’s ~~periods~~expense ~~ended~~for ~~September~~this ~~30,~~plan ~~2022~~was ~~and 2021, and~~ $~~141~~145 thousand and $8647 thousand, respectively, for the ~~nine~~three-month periods ended ~~September 30~~March 31, ~~2022~~2023 and ~~2021~~2022.

Management Agreements

Management Agreements: Salisbury or the Bank has entered into various management agreements with its named executive officers (“NEOs”), including a severance agreement with Mr. Cantele, President and Chief Executive Officer, a change in control agreement with Mr. Albero, Executive Vice President and Chief Financial Officer, and a severance agreement with Mr. Davies, President of the New York Region and Chief Lending Officer. In addition to these agreements, Salisbury has change in control agreements or a severance agreement, with change in control provisions, with ten other executives with payouts ranging from 0.5 to 1.0 times base salary, annual cash bonus and other benefits. Such agreements, and their subsequent amendments, are designed to allow Salisbury to retain the services of the designated executives while reducing, to the extent possible, unnecessary disruptions to Salisbury’s operations.

2422

NOTE 1211 – LONG TERM INCENTIVE PLANS

Restricted stock

~~Restricted~~Salisbury ~~stock~~did ~~expense~~not ~~was~~grant ~~$184~~restricted ~~thousand~~stock ~~and $149~~awards ~~thousand,~~in ~~respectively,~~first ~~for~~quarter ~~the~~2023. ~~three~~Expense ~~month~~in ~~periods~~first ~~ended~~quarter ~~September~~2023 ~~30,~~and 2022 ~~and~~related ~~2021,~~to employee and directors’ stock-based compensation totaled $~~615~~183 thousand and $~~449~~188 thousand, respectively~~, for the nine month periods ended September 30, 2022 and 2021~~. ~~The~~Unrecognized ~~tax~~compensation ~~benefit~~cost ~~from~~relating ~~restricted~~to ~~stock expense was $33 thousand and $27 thousand, respectively, for~~ the ~~three~~awards ~~month~~as ~~periods~~of ~~ended~~March ~~September 30~~31, ~~2022~~2023 and ~~2021;~~2022 ~~and~~ totaled $~~111~~961 thousand and $811.6 ~~thousand~~million, respectively,. ~~for~~There ~~the nine~~were ~~month~~no ~~periods~~forfeitures ~~ended~~in ~~September~~the ~~30,~~first ~~2022~~quarter ~~and~~of ~~2021~~2023 or 2022.

In second quarter 2022, Salisbury granted a total of 18,340 shares of restricted stock to certain employees and Directors pursuant to its 2017 Long Term Incentive Plan. The fair value of the stock at grant date was approximately $1.0 million. The restricted stock will vest three years from the grant date. Unrecognized compensation cost relating to the awards as of September 30, 2022 and 2021 totaled $1,328 thousand and $1,075 thousand, respectively. There were no forfeitures in the third quarter or year to date for 2022 or 2021.

Performance-based restricted stock units

On ~~March~~July 29, ~~2019~~2020, the Compensation Committee granted ~~performance-based~~an ~~restricted~~additional ~~stock~~14,500 units ~~(RSU)~~under ~~pursuant to~~ the ~~2017 Long-Term Incentive Plan to further align compensation with the Bank’s performance. This~~ RSU plan ~~replaced the Bank’s Phantom Stock Appreciation Units plan (Phantom)~~. ~~Salisbury paid out the final tranche of these awards in January 2021.~~ The performance goal for ~~awards~~this ~~granted~~tranche ~~under~~is ~~the RSU plan in 2019 was~~ based on the relative increase in the Bank’s tangible book value bycompared ~~$3.50~~with ~~per~~a ~~share~~pre-determined group of peer banks over the performance period for threshold performance. ~~The~~Vesting will ~~vesting~~range ~~ranged~~ from 7550% of target for achieving threshold performance, to 100% of target for achieving ~~target~~tangible ~~payout~~book ~~performance~~value ~~($5.00~~growth ~~increase~~of inat ~~tangible~~least 50% ~~book~~but ~~value~~less ~~per share)~~than 55% of the peer group, to 150% of target for achieving in excess of target payout performance ~~This~~and, ~~tranche~~if ofthe performance goal is achieved. These awards vested in ~~second~~first quarter ~~2022~~2023 at ~~150~~ 94% of target for achieving ~~tangible~~below ~~book value per share growth in excess of~~ target payout performance. ~~The vesting of these awards occurred prior to June 30, 2022 and was not affected by the two-for-one forward stock split.~~

On July 29, 2020, the Compensation Committee granted an additional 14,500 units under the RSU plan. The performance goal for this tranche is based on the relative increase in the Bank’s tangible book value compared with a pre-determined group of peer banks over the performance period for threshold performance. Vesting will range from 50% of target for achieving threshold performance, to 100% of target for achieving tangible book value growth of at least 50% but less than 55% of the peer group, to 150% of target for achieving in excess of target payout performance and, if the performance goal is achieved, vesting will occur no later than March 15, 2023. The number of units awarded for this tranche has been adjusted to reflect the two-for-one forward stock split, which was effective on June 30, 2022.

On June 23, 2021, the Compensation Committee granted an additional 14,800 units under the RSU plan. The performance goal for this tranche is based on the increase in the Bank’s tangible book value by $3.50 per share over the performance period for threshold performance. Vesting will range from 75% of target for achieving threshold performance, to 100% of target for achieving target payout performance ($4.50 increase in tangible book value per share) to 150% of target for achieving in excess of target payout performance and, if the performance goals are achieved, vesting will occur no later than March 15, 2024. The number of units awarded and the performance goals for this tranche have been adjusted to reflect the two-for-one forward stock split, which was effective on June 30, 2022.

On February 28, 2022, the Compensation Committee granted an additional 13,900 units under the RSU plan. The performance goal for this tranche is based on the increase in the Bank’s tangible book value by $3.50 per share over the performance period for threshold performance. Vesting will range from 75% of target for achieving threshold performance, to 100% of target for achieving target payout performance ($4.50 increase in tangible book value per share) to 150% of target for achieving in excess of target payout performance and, if the performance goals are achieved, vesting will occur no later than March 15, 2025. The number of units awarded and the performance goals for this tranche have been adjusted to reflect the two-for-one forward stock split, which was effective on June 30, 2022.

The fair value of the awards granted under the ~~RSU~~ RSU plan at the grant date was $~~462~~394 thousand and $~~622~~354 thousand, respectively, for those grants awarded in 2022 and 2021. Compensation ~~expense~~ expense of $4742 thousand and $6197 thousand was recorded with respect to ~~these~~all RSUs ~~for~~granted ~~the~~to ~~three~~date ~~months ended September 2022 and 2021, and $240 thousand and $235 thousand~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively. ~~No performance-based restricted stock units were awarded prior to 2019.~~ The shares noted above are contingently issuable only upon attainment of the minimum performance goal.

Short Term Incentive Plan (STIP)

Salisbury offers a short-term discretionary compensation plan to eligible employees on an annual basis. Under this incentive plan, Salisbury may reward employees with cash compensation if certain pre-determined Bank and individual performance goals have been achieved. The STIP expense, which is included in compensation expenses, totaled $~~276~~315 thousand and $~~210~~267 thousand for the three months ended ~~September~~March 3031, ~~2022~~ ~~and 2021, and expenses of $814 thousand and $757 thousand for the first nine months of 2022 and 2021, respectively. The tax~~2023 ~~benefit from (STIP) expense was $50 thousand~~ and ~~$38 thousand, respectively, for the three-month periods ended September 30,~~ 2022 ~~and 2021; and $147 thousand and $136 thousand~~, respectively~~, for the nine month periods ended September 30, 2022 and 2021~~.

~~Options~~NOTE 12 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses ~~issued~~fair ~~stock~~value ~~options~~measurements into ~~conjunction~~record ~~with~~fair value adjustments to certain assets and liabilities and to determine fair value disclosures. ~~its~~Securities ~~acquisition~~available-for-sale ofand ~~Riverside~~mutual ~~Bank~~funds inare ~~2014~~recorded at fair value on a recurring basis. InAdditionally, ~~third~~from ~~quarter~~time ~~2022~~to ~~and~~time, ~~third~~other assets ~~quarter~~are ~~2021~~recorded at fair value on a nonrecurring basis, nosuch ~~stock~~as ~~options~~loans ~~were~~held ~~exercised~~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.

NOTE 13 – FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

•

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

•

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

•

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

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

• Securities available-for-sale and ~~the CRA~~ mutual ~~fund~~funds. Securities available-for-sale and ~~the CRA~~ mutual ~~fund~~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.

• Derivative financial instruments. The fair value of the interest rate swap is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

•

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

•

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

• Assets held for sale. The fair value of assets held for sale is based on independent market prices, appraised values or the contractual selling price.

Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair ~~value~~
September 30, 2022
							value
March 31, 2023
Assets at fair value on a recurring basis
U.S. Treasury	$	—	$	1617,~~977~~479	$	—	$	1617,~~977~~479
U.S. Government Agency notes		—		2726,~~924~~844		—		2726,~~924~~844
Municipal bonds		—		4448,~~610~~199		—		4448,~~610~~199
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		6360,~~480~~550		—		6360,~~480~~550
Collateralized mortgage obligations:
U.S. Government agencies		—		2221,~~591~~915		—		2221,~~591~~915
Corporate bonds		—834		1311,~~579~~777		—		1312,~~579~~611
Securities available-for-sale	$	—834	$	~~189~~186,~~161~~764	$	—	$	~~189~~187,~~161~~598
Mutual funds		12,~~882~~068		—		—		12,~~882~~068
Derivative financial instruments		—		—		—		—

December 31, 2021
December 31, 2022
Assets at fair value on a recurring basis
U.S. Treasury	$	—	$	1517,~~131~~133	$	—	$	~~$ 15~~17,~~131~~133
U.S. Government Agency notes		—		3127,~~604~~154		—		3127,~~604~~154
Municipal bonds		—		4746,~~822~~538		—		4746,~~822~~538
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		7461,~~541~~875		—		7461,~~541~~875
Collateralized mortgage obligations:
U.S. Government agencies		—		2021,~~898~~936		—		2021,~~898~~936
Corporate bonds		—833		1211,~~400~~941		—		12,~~400~~744
Securities available-for-sale	$	—833	$	~~202~~186,~~396~~577	$	—	$	~~202~~187,~~396~~410
Mutual fund		901		—		—		901
Mutual funds		1,933		—		—		1,933
Derivative financial instruments		—		18		—		18
Assets at fair value on a non-recurring basis
Assets held for sale 1	$	700	$	—	$	—	$	700

1At ~~Prior~~March ~~to December~~ 31, ~~2021,~~2023 ~~the Bank entered into an agreement with a third party to sell the building that housed its Poughkeepsie, New York retail branch~~ and ~~relocate~~December ~~the branch to leased space nearby. This sale was completed in January 2022. At September 30~~31, 2022, Salisbury did not have any assets measured at fair value on a non-recurring basis.

2724

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

(in thousands)	Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3
September 30, 2022
March 31, 2023
Financial Assets
Cash and cash equivalents	$	5649,~~297~~844	$	5649,~~297~~844	$	5649,~~297~~844	$	—	$	—
Securities available-for-sale, net		~~189~~187,~~161~~598		~~189~~187,~~161~~598		—834		~~189~~186,~~161~~764		—
Mutual funds		12,~~882~~068		12,~~882~~068		12,~~882~~068		—		—
Federal Home Loan Bank of Boston stock		15,~~487~~030		15,~~487~~030		—		15,~~487~~030		—
Loans receivable, net		1,176,493		1,154,834		—		—		1,154,834
Loans held-for-sale		—		—		—		—		—
Accrued interest receivable		6,012		6,012		—		6,012		—
Loans receivable, net		1,234,632		1,193,272		—		—		1,193,272
Cash surrender value of life insurance policies		30,187		30,187		—		30,187		—
Accrued interest receivable		6,383		6,383		—		6,383		—
Cash surrender value of life insurance policies		30,571		30,571		—		30,571		—
Financial Liabilities
Demand (non-interest-bearing)	$	~~413~~370,~~584~~049	$	~~413~~370,~~584~~049	$	—	$	~~413~~370,~~584~~049	$	—
Demand (interest-bearing)		~~241~~218,~~236~~902		~~241~~218,~~236~~902		—		~~241~~218,~~236~~902		—
Money market		~~313~~296,~~987~~974		~~313~~296,~~987~~974		—		~~313~~296,~~987~~974		—
Savings and other		~~246~~236,~~538~~755		~~246~~236,~~538~~755		—		~~246~~236,~~538~~755		—
Certificates of deposit		~~109~~170,~~859~~362		~~109~~170,~~536~~806		—		~~109~~170,~~536~~806		—
Deposits		1,~~325~~293,~~204~~042		1,~~324~~293,~~881~~486		—		1,~~324~~293,~~881~~486		—
Repurchase agreements		73,~~109~~230		73,~~109~~230		—		73,~~109~~230		—
FHLBB advances		20100,000		2099,~~000~~999		—		2099,~~000~~999		—
Subordinated debt		24,~~517~~545		21,~~514~~022		—		21,~~517~~022		—
Note payable		~~139~~117		~~135~~114		—		~~135~~114		—
Finance lease obligation		4,~~296~~225		3,~~916~~449		—		—		3,~~916~~449
Accrued interest payable		18425		18425		—		18425		—

December 31, 2021
December 31, 2022
Financial Assets
Cash and cash equivalents	$	~~175~~50,~~335~~539	$	~~175~~50,~~335~~539	$	~~175~~50,~~335~~539	$	—	$	—
Interest bearing time deposits with financial institutions		750		750		750		—		—
Securities available-for-sale		187,410		187,410		833		186,577		—
Securities available-for-sale		202,396		202,396		—		202,396		—
Mutual fund		1,933		1,933		1,933		—		—
Mutual funds		901		901		901		—		—
Federal Home Loan Bank of Boston stock		1,285		1,285		—		1,285		—
Federal Home Loan Bank of Boston stock		1,397		1,397		—		1,397		—
Loans held-for-sale		—		—		—		—		—
Loans held-for-sale		2,684		2,721		—		—		2,721
Loans receivable, net		1,213,671		1,172,416		—		—		1,172,416
Loans receivable, net		1,066,750		1,066,733		—		—		1,066,733
Accrued interest receivable		6,797		6,797		—		6,797		—
Accrued interest receivable		6,260		6,260		—		6,260		—
Cash surrender value of life insurance policies		30,379		30,379		—		30,379		—
Cash surrender value of life insurance policies		27,738		27,738		—		27,738		—
Derivative financial instruments		18		18		—		18		—
Financial Liabilities
Demand (non-interest-bearing)	$	~~416~~395,~~073~~994	$	~~416~~395,~~073~~994	$	—	$	~~416~~395,~~073~~994	$	—
Demand (interest-bearing)		~~233~~231,~~600~~486		~~233~~231,~~600~~486		—		~~233~~231,~~600~~486		—
Money market		~~330~~343,~~436~~965		~~330~~343,~~436~~965		—		~~330~~343,~~436~~965		—
Savings and other		~~237~~233,~~075~~578		~~237~~233,~~075~~578		—		~~237~~233,~~075~~578		—
Certificates of deposit		~~119~~153,~~009~~370		~~119~~153,~~716~~411		—		~~119~~153,~~716~~411		—
Deposits		1,~~336~~358,~~193~~393		1,~~336~~358,~~900~~434		—		1,~~336~~358,~~900~~434		—
Repurchase agreements		117,~~430~~228		117,~~430~~228		—		117,~~430~~228		—
FHLBB advances		710,~~656~~000		710,~~714~~000		—		710,~~714~~000		—
Subordinated debt		24,~~474~~531		2421,~~409~~670		—		2421,~~409~~670		—
Note payable		~~170~~128		~~171~~125		—		~~171~~125		—
Finance lease liability		4,~~107~~262		43,~~223~~546		—		—		43,~~223~~546
Accrued interest payable		49210		49210		—		49210		—

~~The~~NOTE ~~carrying~~13 ~~amounts~~– ofSUBSEQUENT ~~financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions or are included in accrued interest and other liabilities.~~EVENTS

~~NOTE~~On 14April –12, ~~SUBSEQUENT~~2023, ~~EVENTS~~Salisbury shareholders approved the merger with NBT. The merger is expected to close in second quarter 2023 subject to regulatory approval.

On ~~October~~April 1926, ~~2022~~2023 the Board of Directors declared a quarterly dividend of $0.16 per common share payable on ~~November~~May 2526, ~~2022~~2023 to shareholders of record as of ~~November~~May 1112, ~~2022~~2023.

2825

Item 2.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations of Salisbury Bancorp, Inc. (“Salisbury” or the “Company”) and its subsidiary should be read in conjunction with Salisbury's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022. Readers should also review other disclosures Salisbury files from time to time with the Securities and Exchange Commission (the “SEC”).

BUSINESS

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

The Bank, formed in 1848, currently provides commercial banking, consumer financing, retail banking and trust and wealth advisory services through a network of fourteen banking offices and ten ATMs located in: Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New York; and Berkshire County, Massachusetts and through its internet website (salisburybank.com).

Critical Accounting Policies and Estimates

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

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

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

~~The~~Effective ~~allowance~~January ~~for~~1, ~~loan~~2023, ~~losses~~the ~~represents~~Company ~~management’s~~adopted ~~estimate~~the ofnew ~~credit~~accounting ~~losses~~standard ~~inherent~~for incredit ~~the~~losses, ~~loan~~ASU ~~portfolio~~No. ~~Determining~~2016-13, ~~the~~Financial ~~amount~~Instruments of- ~~the allowance~~Credit ~~for~~Losses ~~loan~~(Topic 326): ~~losses~~Measurement isof ~~considered~~Credit aLosses ~~critical~~on ~~accounting~~Financial ~~estimate~~Instruments, ~~because~~as itamended ~~requires~~(ASU ~~significant~~2016-13). ~~judgment~~This ~~and~~new ~~the~~accounting ~~use~~standard, ofcommonly ~~estimates~~referred ~~related~~ to ~~the~~as ~~amount~~"CECL," ~~and~~significantly ~~timing~~changed ofour ~~expected~~methodology ~~future~~for ~~cash~~accounting ~~flows~~for reserves on ~~impaired~~ loans, ~~estimated~~unfunded ~~losses~~off-balance onsheet ~~pools~~credit exposures, ofincluding ~~homogeneous~~certain ~~loans~~unfunded ~~based on~~loan ~~historical~~commitments ~~loss~~and ~~experience,~~standby ~~and~~guarantees. ~~consideration~~ASU of2016-13 ~~current~~replaced ~~economic~~the ~~trends~~"incurred ~~and~~loss" ~~conditions,~~methodology used ~~all~~to ofestablish ~~which~~an ~~may~~allowance beon ~~susceptible~~loans toand ~~significant change.~~off-balance ~~The~~sheet ~~loan~~credit ~~portfolio~~exposures, ~~also~~with ~~represents~~an "expected loss" approach. Under CECL, the ~~largest~~ACL ~~asset~~at ~~type~~each onreporting ~~the~~period ~~balance~~serves ~~sheet.~~as Aour ~~discussion~~best estimate of ~~the~~projected ~~factors~~credit ~~driving~~losses ~~changes~~over in the ~~amount~~contractual life of ~~the~~certain ~~allowance~~assets, adjusted for ~~loan~~expected ~~losses~~prepayments, isgiven ~~included~~an inexpectation ~~the~~of ~~“Provision~~economic conditions and ~~Allowance~~forecasts ~~for~~as ~~Loan Losses” section~~ of ~~Management’s Discussion~~the ~~and~~valuation ~~Analysis~~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 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 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 above is true, but the fair value of the investment is below its amortized cost basis at the reporting date, then an allowance is established on the AFS investment for the portion of the 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 the fair value of the investment is below its amortized cost basis as of the reporting date. If the fair value of 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 adoption of ASU 2016-13.

Management considers the ACL on loans 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 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 credit losses represents management’s estimate of credit losses inherent in the loan portfolio. Determining the amount of the allowance for 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 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.

The significant key assumptions used with the ACL calculation at March 31, 2023 using the CECL methodology, 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 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 credit losses is included in the “Provision and Allowance for Credit Losses” section of Management’s Discussion and Analysis.

Refer to Note 1 of the consolidated financial statements for further details on the Company's policies and accounting elections made.

Salisbury considers the ACL for 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 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 is the expected funding rate. The expected funding rate is derived using historical loan-level data for credit line usage, and is applied to total off-balance sheet credit exposures at each reporting date, excluding any that are unconditionally cancellable by the Company, to determine the 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 any other key assumption used is not reasonable, then this could have 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 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.

FINANCIAL CONDITION

Securities and Short Term Funds

~~The~~As ~~fair~~of ~~market~~March 31, 2023, the market value of Salisbury’s available-for-sale (AFS) investment portfolio ~~decreased~~was $12187.26 million ~~from~~or ~~year end 2021 to $192~~12.50% ~~million~~of attotal ~~September 30, 2022~~assets. ~~The~~ ~~fair~~compared ~~market~~with ~~value included net unrealized pre-tax losses of~~ $28187.34 million ~~at September 30~~, ~~2022~~or ~~compared~~12.2% ~~with net unrealized pre-tax gains~~ of ~~$1.1~~total ~~million~~assets at December 31, ~~2021~~2022. ~~The net unrealized losses reflected the sharp increase in market interest rates that has occurred in the last nine months.~~ Cash and cash equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds sold) ~~decreased~~of $~~119~~49.08 million, orat ~~67.9%~~March 31, to2023 decreased $560.37 million ~~at September 30~~, ~~2022~~or 1.4% ~~This~~from ~~decrease was driven by strong loan growth~~December ~~and normal customer activity during the nine-month period ended September 30~~31, 2022.

The decline in market interest rates in first quarter 2023 resulted in inception-to-date after-tax unrealized losses in Salisbury’s ~~evaluates~~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~~impairment ~~where~~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. Management does not consider any of its securities to be ~~OTTI~~impaired at ~~September~~March 3031, ~~2022~~2023.

Loans

Net loans receivable of ~~increased~~ $~~109.7 million, or 10.3%, to $~~1.18235 billion at ~~September~~March 3031, ~~2022,~~2023 ~~compared~~increased ~~with~~from $1.07214 billion at December 31, ~~2021~~2022. ~~PPP~~ ~~loan~~At ~~balances~~March ~~declined~~31, ~~from~~2023 ~~$25.6~~and ~~million at~~ December 31, ~~2021~~2022, toSalisbury had approximately $0.42 million ~~at September 30, 2022 due to the forgiveness~~ of ~~such loans by the SBA. Excluding~~ PPP loans, ~~net~~on ~~loans~~its ~~receivable~~balance ~~increased by $136~~sheet.2 ~~million, or 12.9%, compared with December 31, 2021.~~ The increase in net ~~loans~~loan receivable ~~was~~balances ~~broad-based~~primarily ~~and~~ reflected growth in residential, ~~consumer~~mortgage, commercial real estate and commercial construction balances, partially offset by lower commercial & industrial, ~~loans.~~consumer ~~The~~and ~~allowance~~municipal ~~for~~ loan ~~losses~~balances. ~~increased~~Salisbury bydid ~~$1.4~~not ~~million~~sell ~~from~~any ~~December~~residential ~~2021~~loans ~~primarily~~to ~~due~~FHLB toBoston ~~significant~~in ~~loan~~first ~~growth,~~quarter ~~management’s~~2023 or fourth quarter ~~current~~2022. ~~assessment~~The ratio of ~~certain~~gross ~~qualitative~~loans ~~and~~to ~~environmental~~deposits ~~factors~~for ~~and~~first ~~charge-off~~quarter ~~activity~~2023 ~~during~~was ~~the~~96.7% ~~nine-month~~compared ~~period~~with ~~ending~~90.4% ~~September 30,~~for fourth quarter 2022.

Asset Quality

During ~~the~~ the first ~~nine~~three months of ~~2022~~2023, overall asset quality ~~continued~~remained ~~to improve~~strong. Non-performing assets ofdecreased $0.4 million to $12.92 million, or 0.1614% of ~~gross~~assets ~~loans receivable~~at ~~declined~~March 31, 2023, from $2.37 million, or 550.717% ~~from~~of ~~year~~assets ~~end~~at ~~2021~~December 31, 2022. InSalisbury has ~~addition,~~cooperative ~~total~~relationships ~~impaired~~with ~~and~~the ~~potential~~vast ~~problem~~majority ~~loans~~of ~~declined~~its ~~$21~~non-performing loan customers.6 ~~million,~~Substantially all non-performing loans are orcollateralized ~~65.8%,~~with ~~from~~real ~~$32.8~~estate ~~million,~~and orthe ~~3.04%~~repayment of ~~gross~~such loans ~~receivable~~is tolargely ~~$11.2~~dependent ~~million,~~on orthe ~~0.9%~~return of ~~gross~~such loans ~~receivable~~to atperforming ~~September 30,~~status ~~2022.~~or ~~The~~the ~~decrease~~liquidation inof the ~~balance~~underlying ~~from~~real ~~year~~estate ~~end~~collateral. ~~2021~~Salisbury ~~primarily~~pursues ~~reflected~~the ~~management’s~~resolution ~~upgrade~~ of ~~the~~all ~~internal~~non-performing ~~risk~~loans ~~rating~~through ~~on loans~~collections, torestructures, ~~businesses~~voluntary inliquidation ~~the~~of ~~hospitality~~collateral ~~and~~by ~~entertainment~~the borrower and, ~~recreation~~where ~~industries~~necessary, ~~which~~legal ~~were~~action. ~~previously~~When ~~downgraded~~attempts ~~due~~ to ~~concerns~~work ~~over~~with ~~COVID-19.~~a customer ~~Such~~to ~~businesses~~return ~~have demonstrated~~ a ~~return~~loan to ~~pre-pandemic~~performing ~~levels~~status, ofincluding ~~activity~~restructuring ~~and~~the ~~liquidity.~~loan, ~~As of~~are ~~September 30~~unsuccessful, ~~2022,~~ Salisbury ~~did~~will ~~not~~initiate ~~have~~appropriate ~~any~~legal ~~outstanding~~action seeking ~~loan~~to ~~payment~~acquire ~~deferrals~~property ~~and~~by ~~the~~deed ~~Bank~~in ~~had~~lieu ~~approximately $0.4 million~~ of ~~PPP loans~~foreclosure onor ~~its~~through ~~balance~~foreclosure, ~~sheet~~or ~~compared~~to ~~with~~liquidate ~~approximately~~business ~~$26 million at December 31, 2021~~assets.

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

Past Due Loans

Loans past due 30 days or more ~~decreased~~increased ~~$2.1~~during ~~million~~first ~~for~~quarter ~~the~~2023 ~~nine months ended September 30, 2022~~ to $02.54 million, or 0.0419% of gross loans receivable ~~compared~~ at March 31, 2023 compared with $21.65 million, or 0.2412% of gross loans receivable at December 31, ~~2021. The decline in past due loans from year end 2021 primarily reflected the sale and charge-off of certain non-performing loans during the nine-month period ending September 30,~~ 2022.

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

(in thousands)		~~September~~March 3031, ~~2022~~2023		December 31, ~~2021~~2022
Past due 30-59 days	$	~~276~~2,156	$	~~751~~1,195
Past due 60-89 days		~~114~~78		~~590~~115
Past due 90-179 days		~~100~~—		1—
Past due 180 days and over		—		10—
Accruing loans		~~490~~2,234		1,~~352~~310
Past due 30-59 days		—		1468
Past due 60-89 days		—48		—
Past due 90-179 days		—16		6390
Past due 180 days and over		15100		~~1,213~~15
Non-accrual loans		15164		~~1,290~~173
Total loans past due 30 days or greater	$	~~505~~2,398	$	21,~~642~~483

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 regulatory agencies, the FDIC and CTDOB. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

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

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

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

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

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

Credit Quality Segments

Salisbury categorizes loans receivable into the following credit quality segments:

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

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

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

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

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

Impaired Loans

Impaired loans include all modified loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components of impaired loans are as follows:

(in thousands)		September 30, 2022		December 31, 2021
Non-accrual loans, excluding troubled debt restructured loans	$	1,692	$	2,838
Non-accrual troubled debt restructured loans		68		1,350
Accruing troubled debt restructured loans		2,772		3,609
Total impaired loans	$	4,532	$	7,797

Non-Performing Assets

Non-performing assets decreased $2.3 million to $1.9 million, or 0.12% of assets for the nine months ended September 30, 2022, from $4.2 million, or 0.27% of assets at December 31, 2021. The 55.7% decrease in non-performing assets in the first nine months 2022 resulted primarily from the sale and charge-off of certain non-performing loans during the period.

The components of non-performing assets are as follows:

(in thousands)		September 30, 2022		December 31, 2021
Residential 1-4 family	$	137	$	750
Residential 5+ multifamily		—		861
Home equity lines of credit		—		21
Commercial		1,199		1,924
Farm land		397		432
Vacant land		—		—
Real estate secured		1,733		3,988
Commercial and industrial		27		200
Consumer		—		—
Non-accrual loans		1,760		4,188
Accruing loans past due 90 days and over		100		11
Non-performing loans		1,860		4,199
Foreclosed assets		—		—
Non-performing assets	$	1,860	$	4,199

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

(in thousands)		September 30, 2022		December 31, 2021
Current	$	1,745	$	2,898
Past due 30-59 days		—		14
Past due 60-89 days		—		—
Past due 90-179 days		100		64
Past due 180 days and over		15		1,223
Total non-performing loans	$	1,860	$	4,199

At September 30, 2022, 93.82% of non-performing loans were current with respect to loan payments, compared with 69.02% at December 31, 2021.

Total Outstanding Troubled Debt Restructured Loans

Total outstanding troubled debt restructured loans decreased $2.1 million, or 42.7%, during the first nine months of 2022 to $2.8 million, or 0.24% of gross loans receivable at September 30, 2022, compared to $5.0 million, or 0.46% of gross loans receivable at December 31, 2021. The reduction in loan balance from year end 2021 primarily reflected the sale and charge-off of loans during the nine month period ended September 30, 2022.

The components of troubled debt restructured loans are as follows:

(in thousands)		September 30, 2022		December 31, 2021
Residential 1-4 family	$	1,364	$	1,824
Residential 5+ multifamily		79		87
Commercial		1,329		1,622
Real estate secured		2,772		3,533
Commercial and industrial		—		76
Accruing troubled debt restructured loans		2,772		3,609
Residential 1-4 family		68		256
Residential 5+ multifamily		—		861
Commercial		—		233
Real estate secured	$	68	$	1,350
Non-accrual troubled debt restructured loans		68		1,350
Troubled debt restructured loans	$	2,840	$	4,959

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

(in thousands)		September 30, 2022		December 31, 2021
Current	$	2,772	$	3,540
Past due 30-59 days		—		37
Past due 60-89 days		—		32
Accruing troubled debt restructured loans		2,772		3,609
Current		68		414
Past due 180 days and over		—		936
Non-accrual troubled debt restructured loans		68		1,350
Total troubled debt restructured loans	$	2,840	$	4,959

At September 30, 2022, 100.00% of troubled debt restructured loans were current with respect to loan payments, as compared with 79.73% at December 31, 2021.

Potential Problem Loans

Potential problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired. Potential problem loans decreased $18.3 million during the first nine months of 2022 to $6.7 million, or 0.56% of gross loans receivable at September 30, 2022, compared with $25.0 million, or 2.32% of gross loans receivable at December 31, 2021. The decrease primarily reflected internal credit risk rating upgrades on loans to businesses primarily in the hospitality, health care and entertainment and recreation industries which were previously downgraded due to concerns over the impact of COVID-19. These businesses have demonstrated a return to pre-pandemic levels of activity and liquidity, warranting the improvement in risk rating.

The components of potential problem loans are as follows:

(in thousands)		September 30, 2022		December 31, 2021
Residential 1-4 family	$	858	$	999
Residential 5+ multifamily		—		709
Residential real estate		858		1,708
Commercial		4,156		20,998
Construction of commercial		—		—
Commercial real estate		4,156		20,998
Farm land		—		—
Real estate secured		5,014		22,706
Commercial and industrial		1,690		2,310
Consumer		—		—
Total potential problem loans	$	6,704	$	25,016

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

(in thousands)		September 30, 2022		December 31, 2021
Current	$	6,672	$	24,977
Past due 30-59 days		20		23
Past due 60-89 days		12		16
Total potential problem loans	$	6,704	$	25,016

At September 30, 2022, 99.52% of potential problem loans were current with respect to loan payments, as compared with 99.84% at December 31, 2021. Management cannot predict the extent to which economic or other factors may impact such borrowers’ future payment capacity, and there can be no assurance that such loans will not be placed on nonaccrual status, restructured, or require increased provisions for loan losses.

Deposits and Borrowings

~~Deposits~~Total deposits of $1.3 billion at March 31, 2023 decreased $1165.04 million, or 04.18%, tofrom ~~$1.325~~December ~~billion at September 30~~31, 2022 ~~compared~~and ~~with~~increased $12.~~336~~6 ~~billion~~million, ator ~~December~~0.2%, from March 31, ~~2021~~2022. ~~The~~Salisbury ~~decrease reflected~~accumulates ~~normal~~deposits from a diverse customer ~~activity~~base. asAt March 31, 2023, the composition of Salisbury’s deposit balances ~~levels~~was ~~returned~~as tofollows: ~~pre-pandemic~~retail: ~~levels.~~45%; ~~Retail~~commercial: ~~repurchase~~39%; ~~agreements~~municipalities: ~~decreased~~8%; $brokered funds: 4.3%; ~~million during~~Wealth ~~2022~~Advisory: to3%; ~~$7.1~~and ~~million~~educational atinstitutions: 1%. ~~September~~At 30March 31, ~~2022~~2023, ~~from~~the balance of Salisbury’s deposits that were not insured by the FDIC and not collateralized by marketable securities owned by Salisbury was approximately $~~11.4~~344 million, ator ~~December 31~~27%, ~~2021.~~of total deposits.

~~The~~At ~~distribution~~March 31, 2023, Salisbury had outstanding brokered deposits balances of ~~average~~$53.2 ~~total~~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 byare ~~account~~included ~~type~~in isthe certificates of deposit balances on Salisbury’s consolidated balance sheet. Management utilized brokered deposits in first quarter 2023 to fund loan growth and as ~~follows:~~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 first quarter 2023, fourth quarter 2022 and first quarter 2022. Average total deposits for 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.

	September 30, 2022								December 31, 2021
(in thousands)	Average Balance		Percent			Weighted Average Interest Rate			Average Balance		Percent			Weighted Average Interest Rate
Demand deposits	$	391,492		29.58	%		0.00	%	$	366,953		29.28	%		0.00	%
Interest-bearing checking accounts		233,547		17.64			0.18			224,763		17.93			0.19
Regular savings accounts		246,101		18.59			0.29			315,469		25.17			0.17
Money market savings		320,552		24.22			0.44			215,300		17.18			0.11
Certificates of deposit (CD’s)1		131,918		9.97			0.73			130,879		10.44			0.72
Total deposits	$	1,323,610		100.00	%		0.26	%	$	1,253,364		100.00	%		0.17	%

Salisbury 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 borrowed funds under this program.

1Salisbury has CDan Irrevocable Letter of Credit Reimbursement Agreement with the FHLBB, whereby upon the Bank’s request an irrevocable letter ~~also~~of ~~include~~credit ~~brokered~~is ~~certificates~~issued to secure municipal and ~~there~~certain ~~were~~other ~~none~~transactional atdeposit ~~September~~accounts. 30These letters of credit are secured primarily by residential mortgage loans. The amount of funds available from the FHLBB to the Bank is reduced by any letters of credit outstanding. At March 31, ~~2022~~2023, ~~and~~$20.0 million of letters of credit were outstanding compared with $720.9 0 million at December 31, ~~2021~~2022.

The distribution of 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 classification of certificates of deposit by interest rates is as follows:

Interest rates (in thousands)		September 30, 2022		December 31, 2021
Interest rates		March 31, 2023		December 31, 2022
Less than 1.00%	$	7948,~~245~~809	$	97104,~~099~~261
1.00% to 1.99%		1410,~~589~~437		1411,~~919~~739
2.00% to 2.99%		1518,~~787~~734		619,~~493~~907
3.00% to 3.99%		~~238~~29,781		~~498~~17,463
Total	$	109,859	$	119,009
4.00% to 4.99%		62,601		—
Total	$	170,362	$	153,370

The distribution of certificates of deposit by interest rate and maturity is as follows:

	At September 30, 2022
	At March 31, 2023
Interest rates (in thousands)	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
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%	$	5832,~~315~~823	$	117,~~841~~998	$	34,~~764~~329	$	53,~~325~~659	$	7948,~~245~~809		7228.1365	%
1.00% to 1.99%		86,~~530~~041		34,~~814~~301		~~2,245~~95		—		1410,~~589~~437		136.2812
2.00% to 2.99%		814,~~274~~501		51,~~016~~735		2,~~497~~498		—		1518,~~787~~734		1411.370
3.00% to 3.99%		~~238~~29,781		—		—		—		~~238~~29,781		017.2248
Total	$	75,357	$	20,671	$	8,506	$	5,325	$	109,859		100.00	%
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:

September 30, 2022 (in thousands)

Within 3 months

3-6 months

6-12 months

Over 1 year

Total

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

2362,~~015~~218

69,~~479~~819

1836,~~252~~930

1915,~~351~~960

67124,~~097~~926

Salisbury had $20.0 million of outstanding FHLBB advances at September 30, 2022 compared with an outstanding balance of $7.7 million at December 31, 2021. Salisbury has an Irrevocable Letter of Credit Reimbursement Agreement with the FHLBB, whereby upon the Bank’s request an irrevocable letter of credit is issued to secure municipal and certain other transactional deposit accounts. These letters of credit are secured primarily by residential mortgage loans. The amount of funds available from the FHLBB to the Bank is reduced by any letters of credit outstanding. At September 30, 2022, $20.0 million of letters of credit were outstanding.

Liquidity

Salisbury manages its liquidity position to ensure that there is sufficient funding availability at all times to meet both anticipated and unanticipated deposit withdrawals, loan originations and advances, securities purchases and other operating cash outflows. Salisbury's primary sources of liquidity are principal payments and maturities of securities and loans, short-term borrowings through repurchase agreements and FHLBB advances, net deposit growth and funds provided by operations. Liquidity can also be provided through sales of loans and available-for-sale securities. 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 ~~September~~March 3031, ~~2022~~2023, Salisbury’s outstanding borrowings and excess borrowing capacity at FHLBB ~~was~~were ~~approximately~~$100 million and $~~233.0~~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 aan ~~deterioration~~extended in economic ~~conditions~~shutdown orcauses ~~other factors cause~~ depositors to withdraw their funds, Salisbury could become more dependent on more expensive sources of funding.

~~Operating~~Salisbury ~~activities~~manages ~~for~~its ~~the~~liquidity ~~nine-month~~in ~~period~~accordance ~~ended~~with ~~September~~a ~~30,~~liquidity ~~2022~~funding ~~provided net cash of $22.3 million. Investing activities utilized net cash of $135.2 million principally from $115.1 million of net loan originations and principal collections~~policy, ~~$52.2 million of purchases of securities available-for-sale, $2.5 million in purchase of Bank Owned Life Insurance (BOLI)~~ and ~~$0.8~~also ~~million~~maintains ofa ~~capital~~contingency ~~expenditures,~~funding ~~partly~~plan ~~offset~~that byprovides ~~proceeds of $13.1 million from calls, maturities and principle payments on securities available-~~for~~-sale,~~ ~~and $22.0 million from~~ the ~~sale of available-for-sale-securities.~~prompt ~~Financing~~and ~~activities~~comprehensive ~~utilized~~response ~~net cash of $6.1million principally due~~ to aunexpected ~~decrease~~demands ~~in deposit transaction accounts of $1.8 million, a decrease of $9.2 million in time deposits, a decrease of $4.3 million~~ for ~~securities sold under repurchase agreements, payments of $6~~liquidity.~~0 million~~ ~~for~~Management ~~long-term~~believes ~~FHLB~~Salisbury’s ~~borrowings,~~funding ~~payments~~sources ofwill ~~$1.7~~meet ~~million on amortizing FHLBB advances, and the payment of common stock dividends~~anticipated offunding $2needs.~~8 million, partially offset by $20.0 million in FHLB short term advances.~~

AtOperating ~~September~~activities ~~30,~~for ~~2022~~the three-month period ended March 31, ~~Salisbury~~2023 ~~had~~provided ~~outstanding~~net ~~commitments~~cash of $3.0 million. Investing activities utilized net cash of $23.2 million due to ~~fund~~the ~~new~~net loan originations of $5722.63 million, ~~and~~net ~~unused~~purchases ~~lines~~of FHLB stock of ~~credit~~$3.7 million and other activity of $~~250~~0.2 million., partly ~~Salisbury~~offset ~~believes~~by ~~that~~$3.0 ~~these~~million ~~commitments~~from ~~can~~the bematurities/principal ~~met~~paydowns inof ~~the~~available-for-sale ~~normal~~(AFS) ~~course~~securities. Financing activities provided net cash of ~~business~~$19.6 ~~Salisbury~~million ~~believes~~primarily ~~that~~due ~~its~~to ~~liquidity~~the ~~sources~~increase of short-term FHLB borrowings of $90 million, increase in time deposits $17.0 million ~~will~~partly ~~continue~~off-set toby ~~provide~~the ~~funding~~decrease ~~sufficient~~of tosavings ~~support~~deposits ~~operating~~of ~~activities~~$82.4 million, ~~loan~~a ~~originations~~decrease ~~and~~of ~~commitments,~~$4.0 million in securities sold under agreements to repurchase and ~~deposit~~$1.0 ~~withdrawals~~million in dividends paid.

33At March 31, 2023, Salisbury had outstanding commitments to fund new loan originations of $42.6 million and unused lines of credit of $253.0 million. Salisbury believes that these commitments can be met in the normal course of business. Salisbury believes that its liquidity sources will continue to provide funding sufficient to support operating activities, loan originations and commitments, and deposit withdrawals.

RESULTS OF OPERATIONS

For the three- month periods ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022

OVERVIEW

Net income allocated to common ~~stock~~shareholders was $4.3.0 million, or $0.7552 ~~per~~ basic earnings per common share, for the ~~third~~first quarter ended ~~September~~March 3031, ~~2022~~2023 (~~third~~first quarter ~~2022~~2023), compared with $3.4.1 million, or $0.~~60 per~~71 basic earnings per common share, for the ~~third~~fourth quarter ended ~~September~~December 3031, ~~2021~~2022 (~~third~~fourth quarter ~~2021~~2022), and $3.8 5 million, or $0.6762 ~~per~~ basic earnings per common share, for the ~~second~~first quarter ended ~~June~~March 3031, 2022 (~~second~~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 ~~of $12.1 million~~ for ~~the~~first ~~third~~ quarter ~~2022~~2023 increased $~~1.7~~834 ~~million~~thousand, or 168.50%, versus ~~third~~first quarter ~~2021~~2022. Average total earning assets for the first quarter 2023 increased $5382.85 million, or 35.8%, versus ~~third~~first quarter ~~2021~~2022. Average total interest bearing deposits for the first quarter 2023 increased $3319.64 million, or 32.71%, versus ~~third~~first quarter ~~2021~~2022. The tax equivalent net interest margin for the ~~third~~ first quarter ~~2022~~2023 was 32.2799% compared with 2.9295% for the ~~third~~first quarter ~~2021~~2022. Excluding PPP ~~loan~~loans, the tax equivalent net interest margin for the ~~third~~first quarter ~~2022~~2023 was 32.2599% compared with 2.7886% for ~~the~~first ~~third~~ quarter ~~2021~~2022. The increase in net interest margin from third quarter 2021 primarily reflected a $111.7 million, or 10.6%, increase in average loans and an increase of 5 basis points in average loan yields as well as a $70.7 million, or 46.9% increase in average securities balances and an increase of 24 basis points in average yields.

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
Three months ended March 31,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		~~2022~~2023		~~2021~~2022		~~2022~~2023		~~2021~~2022		~~2022~~2023		~~2021~~2022
Loans (a)(d)	$	1,~~168~~236,~~037~~778	$	1,~~056~~079,~~266~~610	$	1113,~~675~~367	$	10,~~382~~277		34.9529	%	3.9079	%
Securities (c)(d)		~~221~~214,~~620~~246		~~150~~208,~~841~~140		1,~~192~~353		~~720~~962		2.1553		1.9185
FHLBB stock		13,~~191~~436		1,~~743~~434		819		67		2.9229		12.3805
Short term funds (b)		6840,~~818~~689		~~196~~123,~~997~~454		~~344~~375		7350		13.9872		0.1516
Total earning assets		1,459,666		1,405,847		13,219		11,181		3.58		3.15
Total interest-earning assets		1,495,149		1,412,638		15,114		11,296		4.02		3.19
Other assets		6055,~~283~~022		7274,~~547~~795
Total assets	$	1,~~519~~550,~~949~~171	$	1,~~478~~487,~~394~~433
Interest-bearing demand deposits	$	~~233~~223,~~547~~742	$	~~227~~232,~~291~~464		~~106~~119		~~111~~99		0.1822		0.1917
Money market accounts		320,~~552~~015		~~327~~321,~~861~~198		~~356~~1,270		~~140~~126		01.4461		0.1716
Savings and other		~~246~~232,~~101~~162		~~217~~233,~~541~~092		~~179~~402		5864		0.2970		0.11
Certificates of deposit		~~131~~161,~~918~~300		~~125~~131,~~768~~059		~~242~~1,027		~~223~~189		02.7358		0.7059
Total interest-bearing deposits		~~932~~937,~~118~~219		~~898~~917,~~461~~813		~~883~~2,818		~~532~~478		01.3822		0.2321
Repurchase agreements		93,~~684~~961		147,~~296~~146		416		53		01.1865		0.1514
Finance lease		5,~~318~~397		25,~~685~~097		4140		3341		32.0596		43.9823
Note payable		~~142~~121		~~183~~163		2		32		6.1517		6.1112
Subordinated debt (net of issuance costs)		24,~~508~~536		24,~~452~~480		233		233		3.80		3.8281
FHLBB advances		~~217~~57,056		92,~~329~~974		2687		3055		34.1582		17.2846
Total interest-bearing liabilities		~~971~~1,~~987~~028,290		~~949~~957,~~406~~673		13,~~165~~796		~~836~~812		01.4849		0.3534
Demand deposits		~~410~~382,~~861~~601		~~388~~386,~~557~~884
Other liabilities		78,~~065~~427		67,~~965~~036
Shareholders’ equity		130,~~036~~853		~~133~~135,~~466~~840
Total liabilities & shareholders’ equity	$	1,~~519~~550,~~949~~171	$	1,~~478~~487,~~394~~433
Net interest income					$	12,054	$	10,345
Net interest income (d)					$	11,318	$	10,484
Spread on interest-bearing funds										32.1154		2.8084
Net interest margin (e)										32.2799		2.9295

(a) Includes non-~~accrual~~accural loans. (b) Includes interest-bearing deposits in other banks and federal funds sold.

(bc) ~~Includes~~Average ~~interest-bearing~~balances ~~deposits~~of insecurities ~~other~~are ~~banks~~based ~~and~~on ~~federal funds sold~~cost.

(cd) ~~Average~~Includes ~~balances~~tax exempt income benefit of $190,000 and $178,000, respectively, for 2023 and 2022 on tax-exempt securities and loans whose income and yields are ~~based~~calculated on ~~historical~~a ~~cost~~tax-equivalent basis.

(d) Includes tax exempt income benefit of $211,000 and $180,000, respectively, for 2022 and 2021 on tax-exempt securities and loans whose income and yields are calculated on a tax-equivalent basis. The income benefit reflected the U.S. federal statutory tax rate of 21.0% for 2022 and 2021.

(e)

Net interest income divided by average interest-earning assets.

3431

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

Three months ended September 30, (in thousands)	2022 versus 2021
Three months ended March 31, (in thousands)	2023 versus 2022
Change in interest due to		Volume			Rate			Net
Loans	$	1,~~159~~633		$	~~134~~1,457		$	13,~~293~~090
Securities		~~360~~34			~~112~~357			~~472~~391
FHLBB stock		(411	)		61			212
Short term funds		(~~337~~405	)		~~608~~730			~~271~~325
Interest-earning assets		1,~~178~~273			~~860~~2,545			23,~~038~~818
Deposits		10(7	)		~~341~~2,347			~~351~~2,340
Repurchase agreements		(28	)		121			(113	)
Finance lease		272			(193	)		8(1	)
Note Payable		(1	)		—			(1	)
Subordinated debt and notes payable		1			(1	)		—
Subordinated Debt		1			(1	)		—
FHLBB advances		830			(198	)		632
FHLBB advances		(50	)		22			(28	)
Interest-bearing liabilities		818			2,166			2,984
Interest-bearing liabilities		(15	)		344			329
Net change in net interest income	$	455		$	379		$	834
Net change in net interest income	$	1,193		$	516		$	1,709

Interest Income

Tax equivalent interest income ofincreased $133.28 million ~~for~~, ~~third~~or ~~quarter~~33.8%, ~~2022~~to ~~increased~~ $215.01 million, orfor ~~18.2%~~first ~~from~~quarter ~~third~~2023 compared with first quarter ~~2021~~2022. Loan income compared with first quarter 2022 increased $1.3.1 million, or 1230.50%, ~~compared to~~primarily ~~third quarter 2021~~ due to a 50 basis point increase in ~~yield~~the ofaverage ~~5bps,~~loan yield and a $~~111~~157.72 million, or 1014.6%, increase in average ~~loan balances~~loans. Tax equivalent securities income increased $~~472~~391 thousand, or 6540.6%, for first quarter 2023 compared towith ~~third~~first quarter ~~2021~~2022, primarily due to a $706.71 million, or 462.9%, increase in average balances and a 2468 basis point increase in average yield. Income on short-term funds compared with first quarter 2022 increased $~~271~~325 thousand, or ~~371~~650.20%, ~~compared with third quarter 2021~~ primarily due to a ~~183~~356 basis point increase in the average ~~yield~~short-term funds yields, partially offset by aan ~~decrease of~~ $~~128~~82.17 million, or 6567.0%, decrease in average ~~short-term funds due to the funding of loans and normal customer activity~~ balances.

Interest Expense

Interest expense increased of $13.20 million, ~~for~~or ~~third~~367.5%, ~~quarter 2022~~to ~~increased~~ $~~329~~3.8 ~~thousand,~~million orfor ~~39.4%,~~first quarter 2023 compared with ~~third~~first quarter ~~2021~~2022. Interest on deposit accounts increased $~~351~~2.3 ~~thousand~~million, or 66489.05%, ~~from~~ ~~third quarter 2021~~ as a result of a 15101 basis ~~points~~point increase in average deposit rates and a $3319.74 million, or 32.71%, increase in the average balances compared with first quarter 2022. Interest expense on FHLBB borrowings ~~decreased~~increased $28632 thousand, or 931,149.31%, compared ~~from~~with ~~third~~first quarter ~~2021~~2022 ~~primarily~~due asto aan ~~result of a decrease in the~~ average balance increase of $954.1 million, or 971,818.65%, ~~partly~~partially offset by ana ~~increase~~264 basis point decrease in the average ~~borrowing~~borrowings rate ~~of 187 basis points~~. Interest expense on ~~subordinated~~FHLBB ~~debt~~borrowings ~~remained~~for ~~unchanged~~first atquarter 2022 included a non-recurring expense of approximately $~~233~~30 thousand, ~~for~~to ~~third~~pay ~~quarter~~off ~~2022~~a ~~and~~$6.0 ~~third~~million ~~quarter~~advance ~~2021~~due in December 2022.

Provision and Allowance for ~~Loan~~ Credit Losses

ADuring ~~provision~~first quarter 2023, the allowance for credit ~~expense~~losses on loans increased by the provision for credit losses on loans of $0.79 million ~~was~~compared ~~recorded~~with a provision expense of $0.5 million for ~~third~~fourth quarter 2022, ~~compared~~and ~~with~~a provision expense of $0.4 million for ~~third~~first quarter ~~2021~~2022. The provision expense for ~~third~~first quarter ~~2022~~2023 primarily reflected loan growth during the quarter as well as ~~adjustments~~changes toin ~~certain~~the ~~qualitative~~forecast ~~factors~~of ~~due~~certain ~~to rising~~macro-economic ~~interest rates~~factors, ~~persistent~~which ~~inflation~~underpin ~~and~~ the ~~increased~~Bank’s CECL ~~risk of an economic recession~~model. Net loan charge-offs ~~(recoveries)~~ were $64 32 thousand for ~~third~~the first quarter ~~2022~~2023, ~~compared~~$13 ~~with~~thousand (for fourth quarter 2022 and $~~60)~~410 thousand for ~~third~~the first quarter ~~2021~~2022. ~~Management~~Charge-offs ~~will~~for ~~continue~~first quarter 2022 included a write-down of $374 thousand to ~~evaluate~~reduce ~~credit~~the ~~risk~~carrying value on in$3.8 ~~the~~million ~~loan~~of ~~portfolio~~non-performing and under-performing residential and commercial loans, which Salisbury sold during the quarter, to ~~ensure~~the initial abid ~~commensurate~~prices. ~~level~~Upon the adoption of ~~loan~~ASU ~~loss~~326, ~~reserves.~~Salisbury Aincreased ~~deterioration~~its inACL ~~economic~~for ~~conditions~~off-balance ~~may~~sheet ~~result~~credit inexposures anby ~~increase~~$0.9 million. inIn ~~delinquencies~~first quarter 2023, ~~which~~Salisbury ~~may~~increased ~~subsequently~~the ~~necessitate~~ACL anfor ~~increase~~this inexposure ~~loan~~by ~~loss~~$92 ~~reserves~~thousand.

The reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans excluding PPP loans, was 1.20% for third quarter 2022, versus 1.20% for second quarter 2022 and 1.28% for third quarter 2021. Similarly, reserve coverage, as measured by the ratio of the allowance for loan losses to non-performing loans was 770% for third quarter of 2022, versus 324% for second quarter of 2022 and 263% for third quarter of 2021.

(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

Filing Compare · SALISBURY BANCORP, INC.