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, 2018:
Federal	$	773	$	292		$	1,065
State		1,733		303			2,036
Affordable housing partnership amortization		528		—			528
	$	3,034	$	595		$	3,629
Year ended December 31, 2017:
Federal	$	2,005	$	2,837		$	4,842
State		1,474		(76	)		1,398
Affordable housing partnership amortization		688		—			688
	$	4,167	$	2,761		$	6,928
Year ended December 31, 2016:
Federal	$	283	$	409		$	692
State		582		86			668
Affordable housing partnership amortization		598		—			598
Total	$	1,463	$	495		$	1,958

Our effective tax rate is calculated as our 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

21%

for

2018

and

34%

for

2017

and

2016

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, 2018,

2017,

and

2016.

	2018			2017			2016
Income tax at the federal statutory rate		21.0	%		34.0	%		34.0	%
Deferred tax asset write-down		—	%		17.5	%		5.0	%
State franchise tax, net of federal tax benefit		8.3	%		6.5	%		6.1	%
Amortization of affordable housing credit partnerships		2.7	%		4.8	%		8.1	%
Officer life insurance		(0.6	%)		(2.5	%)		(2.9	%)
Tax-exempt interest		(1.8	%)		(5.2	%)		(10.9	%)
Affordable housing credits and benefits		(3.8	%)		(5.7	%)		(11.7	%)
Accelerated depreciation - cost segregation study		(2.5	%)		—	%		—	%
Reversal of uncertain tax position		(5.1	%)		—	%		—	%
Other		0.5	%		(0.8	%)		(0.7	%)
Effective Tax Rate		18.7	%		48.5	%		27.1	%

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, 2018

and

2017.

(Amounts in thousands)	2018			2017
Deferred tax assets:
Allowance for loan and lease losses	$	3,634		$	3,526
Deferred compensation plan and salary continuation plan		2,385			2,365
State franchise tax		474			291
Acquisition costs		274			274
Net unrealized loss on securities available-for-sale		1,262			134
Interest received on non-accrual loans		86			105
Other		403			484
Total deferred tax assets		8,518			7,179

Deferred tax liabilities:
Deferred loan origination costs and fees		(579	)		(619	)
Basis difference in fixed assets		(874	)		—
Other		(26	)		(55	)
Total deferred tax liabilities		(1,479	)		(674	)

Net deferred tax asset	$	7,039		$	6,505

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

$8.5

million and

$7.2

million at

December 31, 2018

and

2017,

respectively 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, 2018

and

2017

recorded in

Other Assets

in the

Consolidated Balance Sheets

We also have investments in QZAB of

$1.0

million at

December 31, 2018

and

2017

recorded in

Securities available-for-sale

in the

Consolidated Balance Sheets

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

2031,

2033

and

2046.

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 years ended

December 31, 2018

and

2017,

we expect to carryforward a California capital loss in the amount of

$53

thousand which will expire in

2020.

See Note

Qualified

Affordable Housing Partnership Investments

in these

Notes to Consolidated Financial Statements

, for further details on our affordable housing project investments.

We have

unrecognized tax benefits at

December 31, 2018

compared to

$988

thousand at

December 31, 2017.

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

income tax returns are currently being examined, we are

longer subject to tax examination by tax authorities for years prior to fiscal year

2015

for federal tax returns and fiscal year

2014

for state and local tax returns.

During

2018,

we completed a cost segregation study and a tangible property review, to shorten the depreciable lives of certain assets and accelerate the tax depreciation deduction on our

2017

federal income tax return. As a result, we recorded a benefit to our

2018

book provision for income taxes of

$484

thousand.

September

2016,

we filed amended federal and state tax returns for tax years

2011,

2012,

2013,

and

2014.

The amendments were filed to properly recognize tax events in years

2011

and

2013

that were improperly recognized in years

2011

through

2014.

The IRS rejected the

2011

amended tax return citing the statute for assessment had expired. Accordingly,

$988

thousand of taxes due to the taxing authorities pursuant to the

2011

amended federal tax return was returned to us. The statute of limitations on the

2014

amended federal tax return passed in

2018

and we reversed our uncertain tax position and recognized the

$988

thousand benefit in our provision for income taxes.

The following table presents our uncertain tax position at

December 31, 2018

and

2017.

(Amounts in thousands)	2018			2017
Balance, beginning of period	$	988		$	988
Tax positions resolved during the year		(988	)		—
Balance, end of period	$	—		$	988