Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

    Components of the provision for income taxes are as follows: 

(In Thousands)	Current Tax Expense (Benefit)	Deferred Expense (Benefit)	Total Expense
2020:
Federal	$3,607	$371	$3,978
State	1,891	184	2,075
Amortization of investment in low income housing tax credit partnerships	3,506	—	3,506
Total	$9,004	$555	$9,559
2019:
Federal	$1,078	$476	$1,554
State	977	235	1,212
Amortization of investment in low income housing tax credit partnerships	2,668	—	2,668
Total	$4,723	$711	$5,434
2018:
Federal	($1,549)	$2,017	$468
State	(85)	997	912
Amortization of investment in low income housing tax credit partnerships	2,691	—	2,691
Total	$1,057	$3,014	$4,071

    The actual expense for 2020, 2019, and 2018, differs from the “expected” tax expense (computed by applying the U.S. Federal Statutory Tax Rate of 21% for the years ended December 31, 2020, 2019 and 2018) as follows: 

(In  Thousands)	2020	2019	2018
Computed “expected” income tax expense	$8,914	$5,486	$5,056
State income taxes, net	1,639	957	720
Tax-exempt interest on investment securities and loans	(256)	(300)	(307)
Amortization of investment in low income housing tax credit partnerships	3,506	2,668	2,691
Low income housing credits	(3,168)	(2,721)	(2,821)
Revaluation of deferred tax assets	—	—	(470)
Other	(1,076)	(656)	(798)
Total	$9,559	$5,434	$4,071

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

(In  Thousands)	2020	2019	2018
Deferred Tax Asset:
Allowance for loan losses	$5,772	$5,190	$5,313
Other real estate owned	69	58	160
Deferred compensation	1,130	1,224	1,121
Equity compensation	481	429	435
Loan discount	93	98	79
Fair market value adjustment on certificates of deposit	76	100	123
Operating lease liabilities	3,519	4,045	—
Other	2,330	1,866	1,069
Total Deferred Tax Asset	$13,470	$13,010	$8,300
Deferred Tax Liability:
Intangible amortization	($1,022)	($587)	($288)
Mortgage servicing rights	(3,530)	(3,767)	(3,424)
Depreciation and amortization	(2,066)	(1,848)	(1,873)
FHLB stock repurchase and dividends	(30)	(174)	(178)
Operating lease right-of-use assets	(3,537)	(4,067)	—
Loan fees, net of costs	(635)	741	818
Unrealized loss on available for sale investment securities, net	(187)	(384)	270
Other	(483)	(389)	(379)
Total Deferred Tax Liability	($11,490)	($10,475)	($5,054)
Net Deferred Tax Asset	$1,980	$2,535	$3,246

    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" in the Consolidated Balance Sheets.

    As of December 31, 2020, the Company had no unrecognized tax benefits. In 2020 the Company reversed an accrual of $454,000 for a potential increase in tax expense related to an audit that was performed in 2018 by the State of Alaska for tax years 2014-2016. The Company has appealed the State of Alaska's decision on this matter and reversed this accrual in the second quarter of 2020 because the Company believes that it is more likely than not that the court will rule in the Company's favor. In 2019 the Company reversed an accrual of $250,000 related to interest and penalties that was recognized in 2018.

The tax years subject to examination by federal taxing authorities are the years ending December 31, 2020, 2019, 2018, and 2017. The tax years subject to examination by the State of Alaska are the years ending December 31, 2020, 2019, 2018, 2017, 2016 and 2015.