NOTE

. INCOME TAXES

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

Consolidated Statements of Income

for each of the past

two

years.

(Amounts in thousands)	Current		Deferred		Total
Year ended December 31, 2019:
Federal	$	2,732	$	47	$	2,779
State		2,126		107		2,233
Affordable housing partnership amortization		491		—		491
Total	$	5,349	$	154	$	5,503

Year ended December 31, 2018:
Federal	$	773	$	292	$	1,065
State		1,733		303		2,036
Affordable housing partnership amortization		528		—		528
Total	$	3,034	$	595	$	3,629

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

2019

and

2018

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, 2019

and

2018.

	2019			2018
Income tax at the federal statutory rate		21.0	%		21.0	%
State franchise tax, net of federal tax benefit		8.6	%		8.3	%
Amortization of affordable housing credit partnerships		2.4	%		2.7	%
Officer life insurance		(0.5	)%		(0.6	)%
Tax-exempt interest		(1.3	)%		(1.8	)%
Affordable housing credits and benefits		(3.5	)%		(3.8	)%
Accelerated depreciation - cost segregation study		—	%		(2.5	)%
Reversal of uncertain tax position		—	%		(5.1	)%
Other		0.2	%		0.5	%
Effective Tax Rate		26.9	%		18.7	%

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, 2019

and

2018.

(Amounts in thousands)	2019			2018
Deferred tax assets:
Allowance for loan and lease losses	$	3,616		$	3,634
Deferred compensation plan and salary continuation plan		2,773			2,385
Acquired loan fair value		494			—
State franchise tax		457			474
Acquisition costs		274			274
Unrealized loss on securities available-for-sale		—			1,262
Interest received on non-accrual loans		92			86
Lease liability		1,024			—
Other		700			403
Total deferred tax assets		9,430			8,518

Deferred tax liabilities:
Deferred loan origination costs and fees		(568	)		(579	)
Unrealized gains on securities available-for-sale		(582	)		—
Core deposit intangible		(1,139	)		—
Basis difference in fixed assets		(1,336	)		(874	)
Lease asset		(1,024	)		—
Other		(228	)		(26	)
Total deferred tax liabilities		(4,877	)		(1,479	)

Net deferred tax asset	$	4,553		$	7,039

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

$9.4

million and

$8.5

million at

December 31, 2019

and

2018,

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, 2019

and

2018

recorded in

Other Assets

in the

Consolidated Balance Sheets.

We also have investments in QZAB of

$1.0

million at

December 31, 2019

and

2018

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.

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, 2019

2018.

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

2016

for federal tax returns and fiscal year

2015

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.

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