INCOME TAXES

The provision for income taxes for the years ended December 31, 2017, 2016, and 2015 consisted of the following (in thousands):



	Federal			State		Total
2017
Current	$	1,188		$	1,224	$	2,412
Deferred	3,328			518		3,846
Re-measurement resulting from Tax Act	3,535			—		3,535
Provision for income taxes	$	8,051		$	1,742	$	9,793
2016
Current	$	3,720		$	605	$	4,325
Deferred	1,100			1,492		2,592
Provision for income taxes	$	4,820		$	2,097	$	6,917
2015
Current	$	2,945		$	570	$	3,515
Deferred	(1,208		)	275		(933		)
Provision for income taxes	$	1,737		$	845	$	2,582

The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is more likely than not that all or a portion of the deferred tax asset will not be realized. More likely than not is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of the evidence, a valuation allowance is needed. Thus, Management concludes no valuation allowance is necessary against deferred tax assets.

Deferred tax assets (liabilities) consisted of the following (in thousands):



	December 31,
	2017			2016
Deferred tax assets:
Allowance for credit losses	$	2,100		$	3,267
Deferred compensation	4,415			5,304
Unrealized loss on available-for-sale investment securities	—			375
Net operating loss carryovers	2,549			3,816
Mark-to-market adjustment	87			167
Other deferred	386			338
Other-than-temporary impairment	192			273
Loan and investment impairment	1,793			1,285
State Enterprise Zone credit carry-forward	—			209
Alternative minimum tax credit	—			2,438
Partnership income	68			114
State taxes	375			297
Total deferred tax assets	11,965			17,883
Deferred tax liabilities:
Finance leases	(365		)	(474		)
Unrealized gain on available-for-sale investment securities	(1,186		)	—
Core deposit intangible	(895		)	(582		)
FHLB stock	(234		)	(327		)
Loan origination costs	(783		)	(918		)
Bank premises and equipment	(478		)	(71		)
Total deferred tax liabilities	(3,941		)	(2,372		)
Net deferred tax assets	$	8,024		$	15,511

The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rates to operating income before income taxes. The significant items comprising these differences for the years ended December 31, 2017, 2016, and 2015 consisted of the following:



	2017		2016		2015
Federal income tax, at statutory rate	35.0	%	35.0	%	34.0	%
State taxes, net of Federal tax benefit	4.8	%	6.2	%	4.1	%
Tax exempt investment security income, net	(10.1	)%	(10.3	)%	(15.9	)%
Bank owned life insurance, net	(0.8	)%	(1.1	)%	(2.5	)%
Compensation - Stock Compensation	(2.8	)%	—	%	—	%
Re-measurement resulting from Tax Act	14.8	%	—	%	—	%
Change in uncertain tax positions	(0.9	)%	0.1	%	0.8	%
Other	1.1	%	1.4	%	(1.4	)%
Effective tax rate	41.1	%	31.3	%	19.1	%

As of December 31, 2017, the Company had Federal and California net operating loss (“NOL”) carry-forwards of $8,527,000 and $8,850,000, respectively. These NOLs were acquired through business combinations and are subject to IRC 382 and begin expiring in 2028, for federal and California purposes. While they are subject to IRC Section 382, management has determined that all of the NOLs are more than likely than not to be utilized.

As a result of the enactment of the Tax Cuts and Jobs Act (the “ Tax Act”) on December 22, 2017, the federal tax rate applied to the Company’s net deferred tax assets were re-measured to reflect the 2018 tax rates (the rates at which the deferred tax items are expected to reverse). The change to the tax rates (including the rate change applied to deferred taxes reflected in other comprehensive income and certain tax-advantaged investments as reflected in other assets) resulted in an increase to the Company’s tax provision of $3,535,000. As part of the Tax Act for tax years beginning after December 31, 2017, alternative minimum tax credit carryforwards are refundable and are expected to be fully refunded by 2022. As such, they are not dependent on future taxable income to be realized and have been classified as a current tax receivable. During the year ended December 31, 2017, the Company adopted ASU 2016-09 “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” which due to the exercise of stock options in the current period, resulted in the recognition of $853,000 in tax benefits.

The Company and its subsidiary file income tax returns in the U.S. federal and California jurisdictions. The Company conducts all of its business activities in the State of California. There are no pending U.S. federal or California Franchise Tax Board income tax examinations by those taxing authorities. The Company is no longer subject to the examination by U.S. federal taxing authorities for the years ended before December 31, 2014 and by the state and local taxing authorities for the years ended before December 31, 2013.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



	December 31,
	2017			2016
Balance, beginning of year	$	298		$	286
Additions based on tax positions related to prior years	—			44
Reductions for tax positions of prior years	(215		)	(32		)
Balance, end of year	$	83		$	298

This represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Company does expect the amount of unrecognized tax benefits to decrease in the next 12 months due to closure of statues of limitations in the taxing jurisdictions.

During the years ended December 31, 2017 and 2016, the Company recorded $0 and $44,000, respectively, in interest or penalties related to uncertain tax positions.