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INCOME TAXES

12 Months Ended

Dec. 31, 2020

15. INCOME TAXES

Income tax expense for the dates indicated consisted of the following:


	Year Ended December 31,
	2020		2019		2018
Current income tax expense:
Federal	$	3,718	$	4,813	$	3,157
State		2,487		2,935		2,299
Total current tax expense		6,205		7,748		5,456
Deferred income tax (benefit) expense:
Federal		(895)		(938)		517
State		(807)		(437)		23
Total deferred tax (benefit) expense		(1,702)		(1,375)		540
Total income tax expense	$	4,503	$	6,373	$	5,996

Income tax expense results in effective tax rates that differ from the statutory federal income tax rate for the years indicated as follows:


	December 31, 2020				December 31, 2019				December 31, 2018
	Amount		Rate%		Amount		Rate%		Amount		Rate%
Federal statutory tax rate	$	3,828	21.00	%	$	5,000	21.00	%	$	4,303	21.00	%
State statutory tax rate, net of federal effective tax rate		1,327	7.28			1,963	8.29			1,835	8.95
Tax exempt interest		(81)	(0.44)			(76)	(0.32)			(51)	(0.25)
Bank owned life insurance		(137)	(0.75)			(132)	(0.56)			(190)	(0.93)
Acquisition expenses		67	0.37			147	0.62			30	0.14
Other		(501)	(2.75)			(529)	(2.23)			69	0.35
Total income tax expense	$	4,503	24.70	%	$	6,373	26.80	%	$	5,996	29.26	%

The Company is subject to federal income tax and state franchise tax. Federal income tax returns for the years ended on or after December 31, 2017 are open to audit by the federal authorities and California, Colorado and New Mexico returns for the years ended on or after December 31, 2016 are open to audit by state authorities.

Deferred tax assets at the dates indicated, included as a component of interest receivable and other assets in the consolidated balance sheets consisted of the following:


	December 31,		December 31,
	2020		2019
Deferred tax assets
Net operating loss carryforward	$	3,585	$	3,337
Salary continuation plan		1,153		1,066
Allowance for loan losses		5,032		2,157
Stock based compensation		449		377
Lease liability		3,545		4,546
Other liabilities		420		549
Other		1,218		1,205
Total deferred tax assets		15,402		13,237
Deferred tax liabilities
Mark to market adjustment		(1,953)		(1,036)
Depreciation		-		(169)
ROU assets		(3,465)		(4,456)
FHLB stock dividend		(248)		(247)
Unrealized gain on AFS securities		(1,087)		(512)
Other		(767)		(895)
Total deferred tax liability		(7,520)		(7,315)
Deferred tax assets, net	$	7,882	$	5,922

The utilization of the net operating losses (“NOLs”) is subject to an annual limit pursuant to Section 382 of the Internal Revenue Code. The amount of the annual limitations for Federal and California Franchise Tax purpose is $1.3 million and if not fully utilized, the 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, 2020 or 2019. At December 31, 2020, Federal, California and Colorado NOLs included in the deferred tax asset totaled $12.5 million, $9.9 million and $3.2 million, respectively.

The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company evaluated the impact of the CARES Act and determined that none of the changes would result in a material income tax benefit to the Company. On December 27, 2020, the CAA, 2021 was signed into law which extends several provisions of the CARES Act. As of December 31, 2020, the Company determined that neither the CAA, 2021 nor any other changes to income tax laws or regulations in other jurisdictions had a significant impact on the Company’s effective tax rate.

During the years ended December 31, 2020, 2019 and 2018, the Company did not recognize any interest and penalties. The Company had no unrecognized tax benefits as of December 31, 2020 and 2019.

- 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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