Income Taxes

12 Months Ended

Dec. 31, 2019

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



(in thousands)	2019			2018
Current tax provision
Federal	$	7,838		$	7,289
State	5,183			4,722
Total current	13,021			12,011
Deferred tax benefit
Federal	(907		)	(898		)
State	(461		)	(318		)
Total deferred	(1,368		)	(1,216		)
Total income tax provision	$	11,653		$	10,795

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



(in thousands)	2019			2018
Deferred tax assets:
Allowance for loan losses and off-balance sheet credit commitments	$	5,252		$	4,960
Operating and finance lease liabilities	3,792			—
Deferred compensation plan and salary continuation plan	2,188			1,940
Net operating loss carryforwards	1,914			2,271
Net unrealized losses on securities available-for-sale	—			1,800
Accrued but unpaid expenses	1,067			1,153
State franchise tax	1,015			993
Stock-based compensation	623			517
Depreciation and disposals on premises and equipment	562			584
Fair value adjustment on acquired loans	299			364
Deferred rent and lease incentives	—			224
Interest received on non-accrual loans	12			114
Other	154			215
Total gross deferred tax assets	16,878			15,135
Deferred tax liabilities:
Operating and finance lease right-of-use assets	(3,314		)	—
Net unrealized gains on securities available-for-sale	(1,738		)	—
Deferred loan origination costs and fees	(1,619		)	(2,360		)
Core deposit intangible assets	(1,385		)	(1,647		)
Unaccreted discount on subordinated debentures	(418		)	(439		)
Accretion on investment securities	(70		)	(67		)
Other	(172		)	(204		)
Total gross deferred tax liabilities	(8,716		)	(4,717		)
Net deferred tax assets	$	8,162		$	10,418

As of December 31, 2019, federal and California net operating loss carryforwards ("NOLs") of $2.7 million and $15.7 million, respectively, corresponded to the total $1.9 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, 2019 or 2018.

The effective tax rate for 2019 and 2018 differs from the current federal statutory income tax rate as follows:



	2019		2018
Federal statutory income tax rate	21.0	%	21.0	%
Increase (decrease) due to:
California franchise tax, net of federal tax benefit	8.2	%	8.0	%
Tax exempt interest on municipal securities and loans	(1.8	)%	(2.4	)%
Tax exempt earnings on bank owned life insurance	(0.6	)%	(0.4	)%
Low income housing and qualified zone academy bond tax credits	(0.4	)%	(0.5	)%
Stock-based compensation and excess tax benefits	(0.1	)%	(0.6	)%
Other	(0.9	)%	(0.2	)%
Effective Tax Rate	25.4	%	24.9	%

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 2016 for federal income tax and before 2015 for California. At December 31, 2019 and 2018, there were no unrecognized tax benefits, and neither the Bank nor Bancorp had accruals for interest and penalties related to unrecognized tax benefits.