
	Year Ended December 31,
($ in thousands)	2020		2019		2018
Current income taxes:
Federal	$	7,332	$	3,900	$	5,720
State	3,713		941		5,035
Total current income tax expense	11,045		4,841		10,755
Deferred income taxes:
Federal	(5,663)		(1,492)		(4,418)
State	(3,596)		870		(1,493)
Total deferred income tax benefit	(9,259)		(622)		(5,911)

Income tax expense	$	1,786	$	4,219	$	4,844

The following table presents a reconciliation of the recorded income tax expense of continuing operations to the amount of taxes computed by applying the applicable statutory Federal income tax rate of 21.0% to income from continuing operations before income taxes for the years ended December 31, 2020, 2019, and 2018:


	Year Ended December 31,
	2020		2019		2018
Computed expected income tax expense (benefit) at Federal statutory rate	21.0	%	21.0	%	21.0	%
Increase (decrease) resulting from:

Proportional amortization	24.1	%	12.6	%	4.3	%
Other permanent book-tax differences	1.9	%	(2.4)	%	0.4	%
State tax expense, net of federal benefit	0.6	%	5.1	%	5.9	%
Income tax credits (investment tax credits and other)	(30.6)	%	(20.0)	%	(23.2)	%


Bank owned life insurance policies	(3.6)	%	(1.7)	%	(1.0)	%
Equity compensation shortfall (windfall) tax impact	2.2	%	0.6	%	(0.5)	%

Reserve for uncertain tax positions	(0.9)	%	(1.0)	%	0.1	%


Other, net	(2.3)	%	0.9	%	3.3	%
Effective tax rates	12.4	%	15.1	%	10.3	%

Our effective tax rate for the year ended December 31, 2020 was lower than the effective tax rate of continuing operations for the year ended December 31, 2019 due mainly to (i) lower pre-tax income, (ii) lower state tax deductions, and (iii) the net tax effects of our qualified affordable housing partnerships and investments in alternative energy partnerships. During the year ended December 31, 2020, our qualified affordable housing partnerships resulted in a reduction of our effective tax rate as the tax deductions and credits outpaced the increase in the effective tax rate due to higher proportional amortization. This net decrease in effective tax rate due to qualified affordable housing projects was partially offset by a higher effective tax rate due to a reduction in tax credits from our investments in alternative energy partnerships.

The Company’s effective tax rate of continuing operations for the year ended December 31, 2019 was higher than the effective tax rate of continuing operations for the year ended December 31, 2018 due mainly to the reduction in the recognition of tax credits on investments in alternative energy partnerships to $3.4 million, partially offset by tax expense from tax basis reduction of $362 thousand related to investments in alternative energy partnerships for the year ended December 31, 2019, compared to $9.6 million of tax credits recognized, partially offset by tax expense from tax basis reduction of $1.0 million for the year ended December 31, 2018.

At December 31, 2020, we had available gross unused federal NOL carryforwards of $2.8 million that may be applied against future taxable income through 2031. At December 31, 2020, we had available gross unused state NOL carryforwards of $5.2 million that may be applied against future taxable income through 2032. Utilization of these NOL carryforwards are subject to annual limitations set forth in Section 382 of the U.S. Internal Revenue Code (IRC). The tax attributes acquired in the Gateway Bancorp acquisition are subject to an annual IRC Section 382 limitation of $474 thousand.


	December 31,
($ in thousands)	2020		2019
Deferred tax assets:
Allowance for loan losses	$	24,032	$	15,874

Stock-based compensation expense	2,182		2,222
Accrued expenses	4,168		3,831

Loan repurchase reserve	1,625		1,826
Federal net operating losses	272		372
State net operating losses	686		725
Federal income tax credits	30,225		30,661
Unrealized loss on securities available-for-sale	—		4,968
Deferred loan fees	1,998		2,104
Amortization of intangible assets	1,198		1,248
Prior year state tax deduction	443		85
Lease liability	6,082		6,978
Other deferred tax assets	2,824		2,835
Total deferred tax assets	75,735		73,729
Deferred tax liabilities:
Unrealized gain on securities available-for-sale	(3,236)		—

Investments in partnerships	(8,139)		(7,455)
Mortgage servicing rights	(167)		(341)


Deferred loan costs	(5,154)		(6,623)
Depreciation on premises and equipment	(5,618)		(5,796)

Right of use asset	(5,784)		(6,638)
Other deferred tax liabilities	(1,680)		(1,970)
Total deferred tax liabilities	(29,778)		(28,823)
Valuation allowance	—		—
Net deferred tax assets	$	45,957	$	44,906

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management will continue to evaluate both positive and negative evidence on a quarterly basis, including considering the four possible sources of future taxable income: (i) future reversal of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carryforwards, (iii) taxable income in prior carryback year(s), and (iv) future tax planning strategies. Based on this analysis, management determined, it was more likely than not, that all of the deferred tax assets would be realized; therefore, no valuation allowance was provided against the net deferred tax assets at December 31, 2020 and 2019.

During the year ended December 31, 2020, estimated taxable income before utilization of NOLs of $32.0 million allowed us to utilize $474 thousand of federal NOLs (representing approximately 5.9% of the total NOLs included in our deferred tax assets), $250 thousand of federal research credit, $4.7 million investment tax credit, $350 thousand of state research credits, and $151 thousand of state low income housing tax credits. We believe that the future reversing taxable temporary differences, the ability for the Company to utilize tax credits in 2020, and our projection of future taxable income should be considered significant positive evidence that the deferred tax assets for income tax credits will be realized in future periods prior to their expiration dates.

ASC 740-10-25 relates to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10-25 prescribes a threshold and a measurement process for recognizing in the financial statements a tax position taken or expected to be taken in a tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We had unrecognized tax benefits of $924 thousand and $977 thousand at December 31, 2020 and 2019. We do not believe that the unrecognized tax benefits will change materially within the next twelve months. As of December 31, 2020, the total unrecognized tax benefit that, if recognized, would impact the effective tax rate was $701 thousand.


	Year Ended December 31,
($ in thousands)	2020		2019		2018
Beginning balance	$	977	$	1,227	$	1,047
Increase related to prior year tax positions	—		—		—
Decrease related to prior year tax positions	(6)		(101)		—
Increase in current year tax positions	120		120		180
Decrease related to lapsing of statute of limitations	(167)		(269)		—
Ending balance	$	924	$	977	$	1,227

We are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. We are no longer subject to examination by U.S. federal taxing authorities for years before 2017. The statute of limitations for the assessment of California franchise taxes has expired for tax years before 2014 (other state income and franchise tax statutes of limitations vary by state).

We account for qualified affordable housing investments under the proportional amortization method. The aggregate funding commitment in these investments totaled $61.3 million and the unfunded portion was $18.3 million at December 31, 2020. The balances of these investments were $43.2 million and $36.5 million as of December 31, 2020 and 2019. The tax deduction from these investments totaled $7.2 million and $7.8 million in 2020 and 2019. The unused tax credit carryforwards for these investments totaled $9.0 million and $3.1 million as of December 31, 2020 and 2019. The proportional amortization of these investments amounted to $5.3 million, $3.5 million and $2.0 million for the years ended December 31, 2020, 2019 and 2018. For additional information on qualified affordable housing investments, see Note 21 — Variable Interest Entities.