Income Taxes

At December 31, 2014 and 2013, the Company had $1.2 million and $1.5 million in total taxes receivable, respectively, included in other assets. The Company realized $1.3 million, $955,000, and $896,000 in tax credits related to its investments in low income housing tax credit partnerships for 2014, 2013, and 2012 respectively. Additionally, in 2014 and 2012, the Company purchased and utilized $59,000 and $398,000, respectively, in Alaska film tax credits from the State of Alaska.

Components of the provision for income taxes are as follows:



(In Thousands)	Current Tax Expense (Benefit)		Deferred Expense(Benefit)		Total Expense
2014:
Federal		$5,448		$39		$5,487
State	1,337		12		1,349
Total		$6,785		$51		$6,836
2013:
Federal		$3,227		$1,034		$4,261
State	835		181		1,016
Total		$4,062		$1,215		$5,277
2012:
Federal		$4,169		$750		$4,919
State	1,106		131		1,237
Total		$5,275		$881		$6,156

The actual expense for 2014, 2013, and 2012, differs from the “expected” tax expense (computed by applying the U.S. Federal Statutory Tax Rate of 35% for the year ended December 31, 2014, 2013, and 2012) as follows:



(In Thousands)	2014			2013			2012
Computed “expected” income tax expense		$8,646			$6,192			$6,864
State income taxes, net	886			660			803
Non-deductible merger expenses	130			—			—
Tax-exempt interest on investment securities	(415		)	(461		)	(476		)
Tax-exempt gain on purchase of mortgage affiliate	(1,050		)	—			—
Low income housing credits	(1,298		)	(955		)	(896		)
Other	(63		)	(159		)	(139		)
Total		$6,836			$5,277			$6,156

The components of the net deferred tax asset are as follows:



(In Thousands)	2014			2013			2012
Deferred Tax Asset:
Allowance for loan losses		$5,900			$6,543			$6,650
Loan fees, net of costs	1,871			1,653			1,411
Depreciation and amortization	(60		)	446			537
Other real estate owned	50			174			1,381
Deferred compensation	1,691			1,665			1,973
Net operating loss carryforwards	589			—			—
Equity compensation	502			507			502
Loan discount	1,003			—			—
Fair market value adjustment on certificates of deposit	321			—			—
Other	1,637			1,122			1,029
Total Deferred Tax Asset		$13,504			$12,110			$13,483

Deferred Tax Liability:
Unrealized gain on available-for-sale investment securities		($173	)		($451	)		($955	)
Intangible amortization	(2,206		)	(1,949		)	(1,807		)
Other	(1,036		)	(934		)	(730		)
Total Deferred Tax Liability		($3,415	)		($3,334	)		($3,492	)
Net Deferred Tax Asset		$10,089			$8,776			$9,991

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The primary source of recovery of the deferred tax asset will be future taxable income. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset. The deferred tax asset is included in other assets.

The Company acquired Alaska Pacific on April 1, 2014. Alaska Pacific was founded in 1935, and was originally operated as a mutual savings and loan association until 1999 when a mutual to stock conversion was completed. As a taxpayer with a thrift charter, Alaska Pacific was able to use the percentage of taxable income method of accounting for tax basis bad debts prior to August of 1996. In August 1996, the Small Business Job Protection Act of 1996 (“the Act”) was signed into law. Under the Act, the percentage of taxable income method of accounting for tax basis bad debts is no longer available effective for the years ending after December 31, 1995. As a result, Alaska Pacific was required to use the experience method of accounting for tax basis bad debts for 1998 and later years. In addition, the Act requires the recapture of post-1987 (the base year) additions to the tax bad debt reserves made pursuant to the percentage of taxable income method.

The Company merger with Alaska Pacific on April 1, 2014 qualifies as a tax-free reorganization under Internal Revenue Cost ("Code") Section 368(a)(1)(A). As such, the tax basis of all assets and liabilities that the Company acquired in the merger retain their original tax basis. The Company was not subject to this recapture in 2014, as the tax bad debt reserves acquired from Alaska Pacific do not exceed the base year reserve. As a result of the bad debt deductions, shareholders’ equity as of December 31, 2014, includes accumulated earnings of approximately $1.8 million for which federal income tax has not been provided. If, in the future, this portion of retained earnings is used for any purpose other than to absorb losses on loans or on property acquired through foreclosure, federal income tax may be imposed at the then-applicable rates. As a result of the acquisition of Alaska Pacific, the Company has federal and state net operating loss carryforwards of approximately $1.4 million at December 31, 2014, which will begin to expire in 2034. The annual use of these net operating loss carryforwards is limited under the provisions of Section 382.

As of December 31, 2014, the Company had no unrecognized tax benefits. Our policy is to recognize interest and penalties on unrecognized tax benefits in “Provision for income taxes” in the Consolidated Statements of Income. There were no amounts related to interest and penalties recognized for the years ended December 31, 2014, 2013, and 2012. The tax years subject to examination by federal and state taxing authorities are the years ending December 31, 2014, 2013, 2012, and 2011.