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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Taxes |
Income Taxes | Note 10 – Income Taxes The Company and its subsidiary are subject to U.S. federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax expense was as follows:
|  | 2016 |  | 2015 |
|  | (In thousands) |
Current |  |  |  |  |  |  |
Federal |  | $ | - |  | $ | - |
State |  |  | 11 |  |  | 20 |
Deferred |  |  |  |  |  |  |
Federal |  |  | 163 |  |  | 1,238 |
State |  |  | 128 |  |  | 505 |
Change in valuation allowance |  |  | (2,527 | ) |  | (6,337 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | $ | (2,225 | ) | $ | (4,574 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Effective tax rates differ from the federal statutory rate of 34% applied to income before income taxes due to the following:
|  | 2016 |  | 2015 |
|  | (In thousands) |
Federal statutory rate times financial statement net income |  | $ | 427 |  | $ | 1,529 |
Effect of: |  |  |  |  |  |  |
State taxes, net of federal benefit |  |  | 91 |  |  | 323 |
Earnings from bank owned life insurance |  |  | (24 | ) |  | (25 | )
Low income housing credits |  |  | (212 | ) |  | (212 | )
Change in valuation allowance |  |  | (2,527 | ) |  | (6,337 | )
Other, net |  |  | 20 |  |  | 148 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | $ | (2,225 | ) | $ | (4,574 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Year-end deferred tax assets and liabilities were due to the following:
|  | 2016 |  | 2015 |
|  | (In thousands) |
Deferred tax assets: |  |  |  |  |  |  |
Allowance for loan losses |  | $ | 84 |  | $ | 311 |
Accrued liabilities |  |  | 218 |  |  | 222 |
State income taxes |  |  | 46 |  |  | 51 |
Deferred compensation |  |  | 494 |  |  | 475 |
Stock compensation |  |  | 156 |  |  | 110 |
Net operating loss carryforward |  |  | 5,886 |  |  | 6,141 |
Non-accrual loan interest |  |  | 9 |  |  | 14 |
Partnership investment |  |  | 175 |  |  | 125 |
General business credit |  |  | 1,282 |  |  | 1,091 |
Alternative minimum tax credit |  |  | 209 |  |  | 185 |
Other |  |  | 37 |  |  | 531 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total deferred tax assets |  |  | 8,596 |  |  | 9,256 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Valuation allowance |  |  | - |  |  | (2,527 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred tax liabilities: |  |  |  |  |  |  |
Deferred loan fees/costs |  |  | (1,125 | ) |  | (1,246 | )
Real estate owned |  |  | - |  |  | (15 | )
Basis difference on fixed assets |  |  | (57 | ) |  | (59 | )
Net unrealized appreciation on available-for-sale securities |  |  | (90 | ) |  | (164 | )
FHLB stock dividends |  |  | (371 | ) |  | (574 | )
Mortgage servicing rights |  |  | (13 | ) |  | (17 | )
Prepaid expenses |  |  | (33 | ) |  | (60 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total deferred tax liabilities |  |  | (1,689 | ) |  | (2,135 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net deferred tax assets |  | $ | 6,907 |  | $ | 4,594 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluated both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies. Based on this analysis, the Company determined that as of December 31, 2016, no valuation allowance was required on its deferred tax assets, which totaled $6.9 million. The Company recorded a valuation allowance of $2.5 million and reported $4.6 million in net deferred tax assets as of December 31, 2015. As of December 31, 2016, the Company has federal net operating loss carryforwards of $11.3 million and California net operating loss carryforwards of $28.6 million, which begin expiring in 2031 through 2036 and 2029 through 2036, respectively. The Company also has federal general business credits of $1.3 million, expiring beginning in 2030 through 2036, and alternative minimum tax credit carryforwards of $192 thousand, which can be carried forward indefinitely. Federal income tax laws previously allowed the Company additional bad debt deductions based on the reserve method of computing the federal bad debt deduction. This method of computing the Company's federal bad debt deduction was permitted to be used by the Company until the end of 1987. As of December 31, 1987, the tax bad debt reserve balance totaled $3.0 million. Accounting standards do not require a deferred tax liability to be recorded on this amount, which otherwise would total approximately $1.0 million at year end 2016 and 2015. If the Bank were liquidated, or otherwise ceases to be a bank, the $3.0 million tax bad debt reserve may need to be recaptured into taxable income and income tax expense would need to be provided. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | 2016 |  | 2015 |
|  | (In thousands) |
Balance at beginning of year |  | $ | 475 |  | $ | 475 |
Additions based on tax positions related to the current year |  |  | - |  |  | - |
Additions for tax positions of prior year |  |  | - |  |  | - |
Reductions for tax positions of prior years |  |  | - |  |  | - |
Settlements |  |  | - |  |  | - |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance at end of year |  | $ | 475 |  | $ | 475 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
The $475 thousand balance at December 31, 2016 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the income tax provision in future periods. The Company expects that the total amount of unrecognized tax benefits may decrease significantly within the next twelve months due to expected settlement with the state taxing authorities. During 2016 and 2015, $4 thousand and $5 thousand were accrued during each period for potential interest related to these unrecognized tax benefits. Federal tax years 2013 through 2016 remain open for the assessment of Federal income tax. With the exception of the issues under protest for the years listed below, California tax years 2012 through 2016 remain open for the assessment of California income tax. The Company is currently under examination by the California Franchise Tax Board ("FTB") for the 2009, 2010, and 2011 tax years. The FTB has proposed adjustments to the Company's California net operating loss carryforwards for items which the Company has established an unrecognized tax benefit. The Company has protested the FTB's adjustments and does not expect that significant additional tax expense will result.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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