Income Taxes

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



(in thousands)	2018			2017
Current tax provision
Federal	$	7,289		$	5,379
State	4,722			2,623
Total current	12,011			8,002
Deferred tax (benefit) provision
Federal	(898		)	4,444
State	(318		)	416
Total deferred	(1,216		)	4,860
Total income tax provision	$	10,795		$	12,862

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law. The law reduced 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 federal deferred tax assets and liabilities at the 21% rate. As a result, a $3.0 million adjustment to the net deferred tax assets valuation as of December 22, 2017 was recorded in the provision for income taxes in 2017.

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



(in thousands)	2018			2017
Deferred tax assets:
Allowance for loan losses and off-balance sheet credit commitments	$	4,960		$	4,945
Net operating loss carryforwards	2,271			2,629
Net unrealized loss on securities available-for-sale	1,800			1,405
Deferred compensation plan and salary continuation plan	1,940			1,744
State franchise tax	993			557
Accrued but unpaid expenses	1,153			212
Fair value adjustment on acquired loans	364			570
Deferred rent and other lease incentives	224			328
Depreciation and disposals on premises and equipment	584			632
Stock-based compensation	517			463
Interest received on non-accrual loans	114			130
Other	215			266
Total gross deferred tax assets	15,135			13,881
Deferred tax liabilities:
Deferred loan origination costs and fees	(2,360		)	(2,153		)
Unaccreted discount on subordinated debentures	(439		)	(742		)
Core deposit intangible assets	(1,647		)	(1,919		)
Accretion on investment securities	(67		)	(56		)
Other	(204		)	(221		)
Total gross deferred tax liabilities	(4,717		)	(5,091		)
Net deferred tax assets	$	10,418		$	8,790

As of December 31, 2018, federal and California net operating loss carryforwards ("NOLs") of $3.9 million and $16.9 million, respectively, corresponded to the total $2.3 million deferred tax asset above. If not fully utilized, the federal NOLs will begin to expire in 2031, 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, 2018 or 2017.

The effective tax rate for 2018 and 2017 differs from the current federal statutory income tax rate as follows:



	2018		2017
Federal statutory income tax rate	21.0	%	35.0	%
Increase (decrease) due to:
California franchise tax, net of federal tax benefit	8.0	%	6.9	%
Write down of federal deferred tax assets, net ¹	—	%	10.5	%
Tax exempt interest on municipal securities and loans	(2.4	)%	(6.1	)%
Tax exempt earnings on bank owned life insurance	(0.4	)%	(1.0	)%
Non-deductible acquisition related expenses	—	%	0.8	%
Low income housing and qualified zone academy bond tax credits	(0.5	)%	(0.4	)%
Stock-based compensation excess tax benefit	(0.6	)%	(0.3	)%
Other	(0.2	)%	(0.8	)%
Effective Tax Rate	24.9	%	44.6	%

¹ Due to the enactment of the Tax Cuts and Jobs Act of 2017, which reduced 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 recorded in income tax expense in 2017.

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 2015 for federal income tax and before 2014 for California. At December 31, 2018 and 2017, there were no unrecognized tax benefits, and neither the Bank nor Bancorp had accruals for interest and penalties related to unrecognized tax benefits.