NET DEFERRED TAX ASSETS AND INCOME TAXES

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

NET DEFERRED TAX ASSETS AND INCOME TAXES

NOTE 12 – 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)		2014			2013			2012
Federal	$	1,057		$	940		$	1,076
State		226			103			112
Current provision		1,283			1,043			1,188
Federal		(553	)		215			(199	)
State		(120	)		—			—
Change in valuation allowance		—			(349	)		—
Deferred benefit		(673	)		(134	)		(199	)
Income tax provision	$	610		$	909		$	989

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

Years ended December 31,	2014		2013		2012
Income tax at statutory federal tax rate	34.00	%	34.00	%	34.00	%
State tax, net of federal tax benefit	2.23		1.35		1.47
Tax exempt income and dividends received deduction	(30.22	)	(18.18	)	(16.25	)
Expiration of capital loss carry forward	0.00		7.00		0.00
Merger/acquisition related costs	7.77		0.00		0.00
Other	5.71		1.04		0.27
Change in valuation allowance	0.00		(7.00	)	0.00
Effective income tax rates	19.49	%	18.21	%	19.49	%

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

Years ended December 31, (in thousands)		2014			2013
Allowance for loan losses	$	1,373		$	1,369
Interest on non-performing loans		236			180
Accrued deferred compensation		301			62
Post-retirement benefits		17			16
Other real estate owned write-downs		72			35
Restricted stock awards		111			48
Mark-to-market purchase accounting adjustments		2,180			—
Write-down of securities		1,497			1,388
Alternative minimum tax		540			528
Other		10			4
Gross deferred tax assets		6,337			3,630
Valuation allowance		—			—
Gross deferred tax assets, net		6,337			3,630
Deferred loan costs, net		(538	)		(402	)
Goodwill and core deposit intangible asset		(821	)		(746	)
Accelerated depreciation		(1,209	)		(1,114	)
Mark-to-market purchase accounting adjustments		—			(6	)
Mortgage servicing rights		(255	)		(328	)
Prepaid pension		—			(236	)
Unrecognized pension benefit		—			(314	)
Net unrealized holding gain on available-for-sale securities		(1,086	)		(224	)
Gross deferred tax liabilities		(3,909	)		(3,370	)
Net deferred tax asset	$	2,428		$	260

Deferred taxes were increased during 2014 by $809,000 as a result of the acquisition of Riverside Bank, and by $1,234,000 for the tax effect of related adjustments to goodwill.

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, 2014 and 2013, 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, 2011 through December 31, 2014.