Note 23 - Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 23. INCOME TAXES

The following table presents components of income tax expense included in the Consolidated Statements of Operations for the years ended December 31, for each of the past three years.

(Amounts in thousands)	Current		Deferred			Total
Year ended December 31, 2015:
Federal	$	1,183	$	509		$	1,692
State		981		75			1,056
Affordable housing partnership amortization		714		—			714
	$	2,878	$	584		$	3,462
Year ended December 31, 2014:
Federal	$	617	$	(414	)	$	203
State		391		83			474
Affordable housing partnership amortization		903		—			903
	$	1,911	$	(331	)	$	1,580
Year ended December 31, 2013:
Federal	$	4,107	$	(809	)	$	3,298
State		1,422		(321	)		1,101
Affordable housing partnership amortization		452		—			452
Total	$	5,981	$	(1,130	)	$	4,851

Our effective tax rate is derived from provision for income taxes divided by income before provision for income taxes. Income tax expense attributable to income before income taxes differed from the amounts computed by applying the U.S. federal income tax rate of 34% to income before income taxes.

The following table presents a reconciliation of income taxes computed at the federal statutory rate to the actual effective rate for the years ended December 31, 2015, 2014, and 2013.

	2015			2014			2013
Income tax at the federal statutory rate		34.00	%		34.00	%		34.00	%
Return to provision adjustment for 2012 taxable gain on sale of subsidiary		—	%		—	%		6.34	%
State franchise tax, net of federal tax benefit		5.79	%		4.89	%		5.89	%
Amortization of affordable housing credit partnerships		5.91	%		11.04	%		2.27	%
Officer life insurance		(1.81	)%		(3.34	)%		(1.47	)%
Affordable housing credits		(6.42	)%		(11.67	)%		(1.80	)%
Tax-exempt interest		(8.02	)%		(13.46	)%		(7.02	)%
Other		(0.71	)%		0.16	%		(0.27	)%
Effective Tax Rate		28.74	%		21.62	%		37.94	%

While pre-tax income increased during 2015, our anticipated tax credits (from qualified low income housing investments) and tax exempt income (from municipal bonds and BOLI) have not increased. As these items comprise an ever decreasing percentage of pre-tax income, the Company’s income tax provision as a percent of pre-tax income increases.

During 2014, we experienced a significant decline in the effective tax rate. During 2014, tax exempt interest derived from the Company's municipal securities portfolio represented a significant portion of the Company’s pre-tax income. Furthermore, we benefited from tax credits derived from investments in affordable housing partnerships.

The following table reflects the effects of temporary differences that give rise to the components of the net deferred tax asset as of December 31, 2015 and 2014.

(Amounts in thousands)	2015			2014
Deferred tax assets:
Loan and lease loss reserves	$	4,601		$	4,865
Deferred compensation		3,293			3,590
Unrealized losses other comprehensive income		973			1,327
OREO accrued selling costs		—			1,179
Non accrued interest		349			360
State franchise taxes		428			184
Federal tax credits		684			747
Other		1,639			644
Total deferred tax assets		11,967			12,896
Deferred tax liabilities:
Deferred state taxes		—			(856	)
Deferred loan origination costs		(675	)		(427	)
Unrealized gains other comprehensive income		(789	)		(1,256	)
Basis difference in fixed assets		(371	)		(70	)
Other		(372	)		(56	)
Total deferred tax liabilities		(2,207	)		(2,665	)
Net deferred tax asset	$	9,760		$	10,231

We have determined that we are not required to establish a valuation allowance for the deferred tax assets as management believes it is more likely than not that the deferred tax assets of $12.0 million and $12.9 million at December 31, 2015 and 2014, will be realized principally through future reversals of existing taxable temporary differences. We further believe that future taxable income will be sufficient to realize the benefits of temporary deductible differences that cannot be realized through the reversal of future temporary taxable differences.

For the year ended December 31, 2015 we expect to carryforward the following tax credits:

● Qualified Affordable Housing Partnership credits of $81 thousand which will expire in 2035;

● Qualified Zone Academy Bond tax credits of $159 thousand with no expiration and

● Alternative minimum tax credits of $443 thousand with no expiration.

See Note 24 Qualified Affordable Housing Partnership Investments in these Notes to Consolidated Financial Statements, for further details on our affordable housing project investments.

Additionally, we have no unrecognized tax benefits at December 31, 2015 and 2014. We recognize interest accrued and penalties related to unrecognized tax benefits in tax expense.

We file income tax returns in the U.S. federal jurisdiction, and the State of California. Income tax returns filed are subject to examination by the U.S. federal, state, and local income tax authorities. While no income tax returns are currently being examined, we are no longer subject to tax examination by tax authorities for years prior to fiscal year 2012 for federal tax returns and fiscal year 2011 for state and local tax returns.