NET DEFERRED TAX ASSETS AND INCOME TAXES

12 Months Ended

Dec. 31, 2015

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)		2015		2014			2013
Federal	$	2,186	$	1,057		$	940
State		432		226			103
Current provision		2,618		1,283			1,043
Federal		896		(553	)		215
State		49		(120	)		—
Change in valuation allowance		—		—			(349	)
Deferred expense (benefit)		945		(673	)		(134	)
Income tax provision	$	3,563	$	610		$	909

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

Years ended December 31,	2015		2014		2013
Income tax at statutory federal tax rate	34.00	%	34.00	%	34.00	%
State tax, net of federal tax benefit	2.63		2.23		1.35
Tax exempt income and dividends received deduction	(7.38	)	(30.22	)	(18.18	)
Expiration of capital loss carry forward	0.00		0.00		7.00
Merger/acquisition related costs	0.00		7.77		0.00
Other	0.39		5.71		1.04
Change in valuation allowance	0.00		0.00		(7.00	)
Effective income tax rates	29.64	%	19.49	%	18.21	%

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

Years ended December 31, (in thousands)		2015			2014
Allowance for loan losses	$	1,877		$	1,373
Interest on non-performing loans		343			236
Accrued deferred compensation		153			301
Post-retirement benefits		17			17
Other real estate owned write-downs		—			72
Restricted stock awards		147			111
Mark-to-market purchase accounting adjustments		1,109			2,180
Write-down of securities		1,497			1,497
Alternative minimum tax		—			540
Other		22			10
Gross deferred tax assets		5,165			6,337
Deferred loan costs, net		(436	)		(538	)
Goodwill and core deposit intangible asset		(853	)		(821	)
Accelerated depreciation		(1,130	)		(1,209	)
Mortgage servicing rights		(177	)		(255	)
Net unrealized holding gain on available-for-sale securities		(580	)		(1,086	)
Gross deferred tax liabilities		(3,176	)		(3,909	)
Net deferred tax asset	$	1,989		$	2,428

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 (recorded as a component of income tax expense, if any) 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, 2015 and 2014, 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, 2012 through December 31, 2015.