Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXES

The provision for income taxes for the years ended December 31, 2020, 2019, and 2018 consisted of the following (in thousands):


	Federal		State		Total
2020
Current	$	4,915	$	3,050	$	7,965
Deferred	(656)		(395)		(1,051)

Provision for income taxes	$	4,259	$	2,655	$	6,914
2019
Current	$	5,747	$	3,351	$	9,098
Deferred	(387)		(202)		(589)

Provision for income taxes	$	5,360	$	3,149	$	8,509
2018
Current	$	3,995	$	2,689	$	6,684
Deferred	(140)		76		(64)

Provision for income taxes	$	3,855	$	2,765	$	6,620

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


	December 31,
	2020		2019
Deferred tax assets:
Allowance for credit losses	$	3,818	$	2,638
Deferred compensation	4,729		4,490

Net operating loss carryovers	2,148		2,266

Mark-to-market adjustment	21		58
Other deferred tax assets	303		374
Other-than-temporary impairment	192		192

Loan and investment impairment	851		1,158


Operating lease liabilities	2,625		3,080
Partnership income	105		200
State taxes	674		692

Total deferred tax assets	15,466		15,148


Deferred tax liabilities:
Operating lease right-of-use assets	(2,423)		(2,878)
Finance leases	(275)		(175)
Unrealized gain on available-for-sale investment securities	(6,235)		(1,182)
Core deposit intangible	(350)		(555)
FHLB stock	(191)		(234)
Loan origination costs	(849)		(925)
Bank premises and equipment	(405)		(459)
Total deferred tax liabilities	(10,728)		(6,408)
Net deferred tax assets	$	4,738	$	8,740

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 as of December 31, 2020 and 2019.

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, 2020, 2019, and 2018 consisted of the following:


	2020		2019		2018
Federal income tax, at statutory rate	21.0	%	21.0	%	21.0	%
State taxes, net of Federal tax benefit	7.7	%	8.3	%	7.8	%
Tax exempt investment security income, net	(1.5)	%	(0.9)	%	(2.7)	%
Bank owned life insurance, net	(1.2)	%	(0.4)	%	(0.6)	%
Compensation - Stock Compensation	(0.2)	%	(0.2)	%	(0.6)	%

Change in uncertain tax positions	—	%	—	%	(0.3)	%

Other	(0.4)	%	0.6	%	(0.9)	%
Effective tax rate	25.4	%	28.4	%	23.7	%

As of December 31, 2020, the Company had Federal and California net operating loss (“NOL”) carry-forwards of $7,093,000 and $7,692,000, respectively. These NOLs were acquired through business combinations and are subject to IRC 382 will begin expiring at various dates between 2029 and 2035, for federal purposes and various dates between 2029 and 2036 for 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 before they expire.

The Company and its subsidiary file income tax returns in the U.S. federal, California, and Georgia jurisdictions. The Company conducts all of its business activities in the State of California. There are no pending U.S. federal or state 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, 2017 and by the state taxing authorities for the years ended before December 31, 2016.

As of December 31, 2020, the Company has no unrecognized tax benefits and does not expect any material changes in the next 12 months.

During the years ended December 31, 2020 and 2019, the Company recorded no interest or penalties related to uncertain tax positions.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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