NET DEFERRED TAX ASSET AND INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

NET DEFERRED TAX ASSET 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)		2017		2016		2015
Federal	$	1,831	$	1,344	$	2,186
State		195		288		432
Current provision		2,026		1,632		2,618
Federal		840		852		896
State		48		105		49
Deferred expense		888		957		945
Income tax provision	$	2,914	$	2,589	$	3,563

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

Years ended December 31, (in thousands)	2017		2016		2015
Income tax at statutory federal tax rate	34.00	%	34.00	%	34.00	%
State tax, net of federal tax benefit	1.74		2.80		2.63
Tax exempt income and dividends received deduction	(7.00	)	(9.07	)	(7.38	)
Remeasurement of net deferred tax assets	4.85		—		—
Other	(1.81	)	0.19		0.39
Change in valuation allowance	—		—		—
Effective income tax rates	31.78	%	27.92	%	29.64	%

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

December 31, (dollars in thousands)		2017			2016
Allowance for loan losses	$	1,499		$	2,023
Interest on non-performing loans		210			362
Accrued deferred compensation		248			268
Post-retirement benefits		11			17
Other real estate owned write-downs		6			184
Restricted stock awards		77			62
Mark-to-market purchase accounting adjustments		122			513
Write-down of securities		154			588
Other		51			64
Gross deferred tax assets		2,378			4,081
Deferred loan costs, net		(312	)		(457	)
Goodwill and core deposit intangible asset		(534	)		(848	)
Accelerated depreciation		(752	)		(1,048	)
Mortgage servicing rights		(56	)		(116	)
Net unrealized holding gain on available-for-sale securities		(47	)		(245	)
Gross deferred tax liabilities		(1,701	)		(2,714	)
Net deferred tax asset	$	677		$	1,367

Salisbury will only recognize a deferred tax asset when, based upon available evidence, realization is more likely than not. Salisbury remeasured its net deferred tax asset as of December 31, 2017 due to the enactment of the new U.S. tax law during the fourth quarter of 2017. This remeasurement resulted in a $445,000 increase in the tax provision for 2017 and a related reduction in the net deferred tax asset.

In accordance with Connecticut legislation, in 2004, Salisbury formed a Passive Investment Company (“PIC”), SBT Mortgage Service Corporation. Salisbury does not expect to pay Connecticut state income tax in the foreseeable future unless there is a change in Connecticut law.

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, 2017 and 2016, 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, 2014 through December 31, 2017.