NOTE

. INCOME TAXES

The following table presents components of income tax expense included in the

Consolidated Statements of Income

for each of the past

three

years.

(Amounts in thousands)	Current		Deferred			Total
Year ended December 31, 2016:
Federal	$	283	$	409		$	692
State		582		86			668
Affordable housing partnership amortization		598		—			598
	$	1,463	$	495		$	1,958
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
Total	$	1,911	$	(331	)	$	1,580

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,

2016,

2015,

and

2014.

	2016			2015			2014
Income tax at the federal statutory rate		34.00	%		34.00	%		34.00	%
Deferred tax asset write-off		5.02	%		—	%		—	%
State franchise tax, net of federal tax benefit		6.11	%		5.79	%		4.89	%
Amortization of affordable housing credit partnerships		8.11	%		5.91	%		11.04	%
Officer life insurance		(2.89	) %		(1.81	) %		(3.34	) %
Affordable housing credits and benefits		(11.69	) %		(6.42	) %		(11.67	) %
Tax-exempt interest		(10.85	) %		(8.02	) %		(13.46	) %
Other		(0.68	) %		(0.71	) %		0.16	%
Effective Tax Rate		27.13	%		28.74	%		21.62	%

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,

2016

and

2015.

(Amounts in thousands)	2016			2015
Deferred tax assets:
Loan and lease loss reserves	$	4,751		$	4,601
Deferred compensation		3,285			3,293
Unrealized losses other comprehensive income		553			973
Branch acquisition costs		366			—
Non accrued interest		341			349
State franchise taxes		260			428
Federal tax credits		525			684
Other		1,093			1,639
Total deferred tax assets		11,174			11,967

Deferred tax liabilities:
Deferred loan origination costs		(904	)		(675	)
Unrealized gains other comprehensive income		(92	)		(789	)
Basis difference in fixed assets		(164	)		(371	)
Other		(472	)		(372	)
Total deferred tax liabilities		(1,632	)		(2,207	)

Net deferred tax asset	$	9,542		$	9,760

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

$11.2

million and

$12.0

million at

December

31,

2016

and

2015,

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.

We have investments in Qualified Zone Academy Bonds (“QZAB”) of

$4.7

million at

December

31,

2016

and

$2.7

million at

December

31,

2015.

The investments provide funds for capital improvements at local schools and are repaid at maturity in

2031

and

2033.

In exchange for the investment we receive a federal tax credit at a rate determined at the settlement of the investment by the US Treasury. We account for the benefit for these tax credit investments using the deferred cost reduction method.

For the year ended

December

31,

2016

we expect to carryforward the following tax credits:

●	Qualified Affordable Housing Partnership credits of $525 thousand which will expire in 2035

●	Qualified Zone Academy Bond tax credits of $125 thousand with no expiration

See Note

Qualified Affordable Housing Partnership Investments

in these

Notes to Consolidated Financial Statements

, for further details on our affordable housing project investments.

Additionally, we have

unrecognized tax benefits at

December

31,

2016

and

2015.

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

2013

for federal tax returns and fiscal year

2012

for state and local tax returns.