Income Taxes

The current and deferred components of the income tax provision for each of the three years ended December 31 are as follows:



(in thousands)	2017		2016			2015
Current tax provision
Federal	$	5,379	$	9,710		$	7,097
State	2,623		3,794			2,931
Total current	8,002		13,504			10,028
Deferred tax provision (benefit)
Federal	4,444		(206		)	382
State	416		48			80
Total deferred	4,860		(158		)	462
Total income tax provision	$	12,862	$	13,346		$	10,490

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. The law reduces the federal corporate income tax rate to 21% for tax years beginning on or after January 1, 2018. Due to the enactment of the Tax Cuts and Jobs Act of 2017, the Bank has valued all of its deferred tax assets and liabilities at the 21% rate. The adjustment to the net deferred tax assets valuation as of December 22, 2017 was $3.0 million and has been recorded in the provision for income taxes in the fourth quarter of 2017.

The following table shows the tax effect of our cumulative temporary differences as of December 31:



(in thousands)	2017			2016
Deferred tax assets:
Allowance for loan losses and off-balance sheet credit commitments	$	4,945		$	6,871
Net operating loss carryforwards	2,629			3,582
Net unrealized loss on securities available-for-sale	1,405			2,543
Deferred compensation plan and salary continuation plan	1,744			1,773
State franchise tax	557			1,300
Accrued but unpaid expenses	212			1,251
Fair value adjustment on acquired loans	570			799
Deferred rent and other lease incentives	328			547
Depreciation and disposals on premises and equipment	632			528
Other real estate owned	—			448
Stock-based compensation	463			398
Interest received on non-accrual loans	130			185
Other	266			196
Total gross deferred tax assets	13,881			20,421
Deferred tax liabilities:
Deferred loan origination costs and fees	(2,153		)	(2,784		)
Unaccreted discount on subordinated debentures	(742		)	(1,119		)
Core deposit intangible asset	(1,919		)	(1,085		)
Accretion on investment securities	(56		)	(54		)
Other	(221		)	(42		)
Total gross deferred tax liabilities	(5,091		)	(5,084		)
Net deferred tax assets	$	8,790		$	15,337

As of December 31, 2017, federal and California net operating loss carryforwards ("NOLs") of $5.1 million and $18.1 million, respectively, corresponded to the total $2.6 million deferred tax asset above. If not fully utilized, the federal NOLs will begin to expire in 2030, and the California NOLs will begin to expire in 2028. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are expected to be deductible, Management believes it is more likely than not we will realize the benefit of the remaining deferred tax assets. Accordingly, no valuation allowance has been established as of December 31, 2017 or 2016.

The effective tax rate for 2017, 2016 and 2015 differs from the current federal statutory income tax rate as follows:



	2017		2016		2015
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) due to:
California franchise tax, net of federal tax benefit	6.9	%	6.8	%	6.8	%
Write down of federal deferred tax assets, net ¹	10.5	%	—	%	—	%
Tax exempt interest on municipal securities and loans	(6.1	)%	(4.0	)%	(4.2	)%
Tax exempt earnings on bank owned life insurance	(1.0	)%	(0.8	)%	(1.0	)%
Non-deductible acquisition related expenses	0.8	%	—	%	—	%
Low income housing and qualified zone academy bond tax credits	(0.4	)%	(0.3	)%	(0.2	)%
Stock-based compensation excess tax benefit ²	(0.3	)%	—	%	—	%
Other	(0.8	)%	(0.1	)%	(0.1	)%
Effective Tax Rate	44.6	%	36.6	%	36.3	%

¹ Due to the enactment of the Tax Cuts and Jobs Act of 2017, which reduces the federal corporate income tax rate to 21% for tax years beginning on or after January 1, 2018, we wrote down net deferred tax assets as of December 22, 2017 by $3.0 million and has been recorded in income tax expense in 2017.

² Due to the adoption of ASU 2016-09 in 2017, all excess (or deficient) tax benefits associated with stock-based compensation awards are recognized as income tax benefit (expense).

Bancorp and the Bank have entered into a tax allocation agreement, which provides that income taxes shall be allocated between the parties on a separate entity basis. The intent of this agreement is that each member of the consolidated group will incur no greater tax liability than it would have incurred on a stand-alone basis.

We file a consolidated return in the U.S. Federal tax jurisdiction and a combined return in the State of California tax jurisdiction. There were no ongoing federal or state income tax examinations at the issuance of this report. We are no longer subject to examinations by tax authorities for years before 2014 for federal income tax and before 2013 for California. At December 31, 2017 and 2016, there were no unrecognized tax benefits, and neither the Bank nor Bancorp had accruals for interest and penalties related to unrecognized tax benefits.