NET DEFERRED TAX ASSET AND INCOME TAXES

12 Months Ended

Dec. 31, 2018

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)		2018			2017		2016
Federal	$	1,986		$	1,831	$	1,344
State		217			195		288
Current provision		2,203			2,026		1,632
Federal		(455	)		840		852
State		(39	)		48		105
Deferred (benefit) expense		(494	)		888		957
Income tax provision	$	1,709		$	2,914	$	2,589

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

Years ended December 31,	2018		2017		2016
Income tax at statutory federal tax rate	21.00	%	34.00	%	34.00	%
State tax, net of federal tax benefit	1.37		1.74		2.80
Tax exempt income and dividends received deduction	(3.84	)	(7.00	)	(9.07	)
Remeasurement of net deferred tax assets	—		4.85		—
BOLI interest and gain	(1.35	)	(1.34	)	(1.29	)
Other	(0.95	)	(0.47	)	1.48
Change in valuation allowance	—		—		—
Effective income tax rates	16.23	%	31.78	%	27.92	%

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

December 31, (in thousands)		2018			2017
Allowance for loan losses	$	1,916		$	1,499
Interest on non-performing loans		233			210
Accrued deferred compensation		334			248
Post-retirement benefits		11			11
Other real estate owned write-downs		—			6
Restricted stock awards		162			77
Mark-to-market purchase accounting adjustments		—			122
Net unrealized holding loss on available for sale securities		58			—
Write-down of securities		4			154
Other		282			51
Gross deferred tax assets		3,000			2,378
Deferred loan costs, net		(344	)		(312	)
Mark-to-market purchase accounting adjustments		(37	)		—
Goodwill and core deposit intangible asset		(545	)		(534	)
Accelerated depreciation		(698	)		(752	)
Other real estate owned write-downs		(45	)		—
Mortgage servicing rights		(55	)		(56	)
Net unrealized holding gain on available-for-sale securities		—			(47	)
Gross deferred tax liabilities		(1,724	)		(1,701	)
Net deferred tax asset	$	1,276		$	677

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 Tax Cuts and Job Act 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 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, 2018 and 2017, 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, 2015 through December 31, 2018.