NET DEFERRED TAX ASSETS AND INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

NET DEFERRED TAX ASSETS AND INCOME TAXES

NOTE 11 – NET DEFERRED TAX ASSET AND INCOME TAXES

Salisbury provides deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not. The components of the income tax provision were as follows:

Years ended December 31, (in thousands)		2013			2012			2011
Federal	$	940		$	1,076		$	739
State		103			112			81
Current provision		1,043			1,188			820
Federal		215			(199	)		130
State		—			—			—
Change in valuation allowance		(349	)		—			—
Deferred (benefit) expense		(134	)		(199	)		130
Income tax provision	$	909		$	989		$	950

The following is a reconciliation of the expected federal statutory tax to the income tax provision:

Years ended December 31,	2013		2012		2011
Income tax at statutory federal tax rate	34.0	%	34.0	%	34.0	%
State tax, net of federal tax benefit	1.35		1.47		1.10
Tax exempt income and dividends received deduction	(18.18	)	(16.25	)	(17.50	)
Expiration of capital loss carry forward	7.00		—		—
Other	1.04		0.27		1.20
Change in valuation allowance	(7.00	)	—		—
Effective income tax rates	18.21	%	19.49	%	18.80	%

The components of Salisbury's net deferred tax assets are as follows:

Years ended December 31, (in thousands)		2013			2012
Allowance for loan losses	$	1,369		$	1,259
Interest on non-performing loans		180			220
Accrued deferred compensation		62			46
Post-retirement benefits		16			15
Other real estate owned property write-down		35			7
Capital loss carry forward		—			349
Restricted stock awards		48			—
Unrecognized pension expense		—			242
Write-down of securities		1,388			1,388
Alternative minimum tax		528			591
Other		4			—
Gross deferred tax assets		3,630			4,117
Valuation allowance		—			(349	)
Gross deferred tax assets, net		3,630			3,768
Deferred loan costs, net		(402	)		(351	)
Goodwill and core deposit intangible asset		(746	)		(736	)
Accelerated depreciation		(1,114	)		(1,171	)
Mark-to-market purchase accounting adjustments		(6	)		(17	)
Mortgage servicing rights		(328	)		(353	)
Prepaid pension		(236	)		(234	)
Unrecognized pension benefit		(314	)		—
Net unrealized holding gain on available-for-sale securities		(224	)		(1,496	)
Gross deferred tax liabilities		(3,370	)		(4,358	)
Net deferred tax asset (liability)	$	260		$	(590	)

Salisbury will only recognize a deferred tax asset when, based upon available evidence, realization is more likely than not.

At December 31, 2012, a valuation allowance was maintained for the entire amount of the state deferred tax assets as a result of Connecticut legislation that permits banks to shelter certain mortgage income from the Connecticut corporation business tax through the use of a special purpose entity called a Passive Investment Company (“PIC”). In accordance with this legislation, in 2004, Salisbury formed a PIC, SBT Mortgage Service Corporation. Salisbury does not expect to pay state income tax in the foreseeable future unless there is a change in Connecticut law. Accordingly, Salisbury did not expect to be able to utilize the net operating losses generated by the PIC and established a valuation allowance. The capital loss carry-forwards generated by the PIC expired during 2013 and, as a result, the previously established valuation allowance was reversed.

Salisbury’s policy is to provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. As of December 31, 2013 and 2012, there were no material uncertain tax positions related to federal and state tax matters. Salisbury is currently open to audit under the statute of limitations by the Internal Revenue Service and state taxing authorities for the years ended December 31, 2010 through December 31, 2013.