Entity information:
14.
INCOME TAXES
 
The provision for income taxes for the years ended
December 31,
201
7,
2016
and
2015
consisted of the following:
 
201
7
  
Federal
    
State
    
Total
  
Current
   $
5,170,000
     $
1,643,000
     $
6,813,000
  
Deferred tax asset adjustment for enacted change in tax rate
    
1,419,000
      
-
      
1,419,000
  
Deferred
    
(738,000
)
    
(178,000
)
    
(916,000
)
Provision for income taxes
   $
5,851,000
     $
1,465,000
     $
7,316,000
  
 
 
201
6
  
Federal
    
State
    
Total
  
Current
   $
4,156,000
     $
1,263,000
     $
5,419,000
  
Deferred
    
(575,000
)
    
(85,000
)
    
(660,000
)
Provision for income taxes
   $
3,581,000
     $
1,178,000
     $
4,759,000
  
 
201
5
  
Federal
    
State
    
Total
  
Current
   $
3,625,000
     $
631,000
     $
4,256,000
  
Deferred
    
(848,000
)
    
309,000
      
(539,000
)
Provision for income taxes
   $
2,777,000
     $
940,000
     $
3,717,000
  
 
 
Income tax expense for
2017
includes a downward adjustment of net deferred tax assets in the amount of
$1,419,000,
recorded as a result of the enactment of
H.R.1
Tax Cuts and Jobs Act on
December 22, 2017.
  The Act reduced the corporate Federal tax rate from
34%
to
21%
effective
January 1, 2018.
 
Deferred tax assets (liabilities) consisted of the following:
 
   
December 31,
  
   
201
7
    
201
6
  
Deferred tax assets:
                
                 
Allowance for loan losses
   $
1,927,000
     $
1,741,000
  
Deferred compensation
    
1,114,000
      
1,574,000
  
OREO valuation allowance
    
391,000
      
519,000
  
Premises and equipment
    
422,000
      
515,000
  
Unrealized loss on available-for-sale investment securities
    
239,000
      
682,000
  
Other
    
646,000
      
1,070,000
  
Total deferred tax assets
    
4,739,000
      
6,101,000
  
                 
Deferred tax liabilities:
                
                 
Deferred loan costs
    
(1,266,000
)
    
(1,628,000
)
Other
    
(184,000
)
    
(238,000
)
Total deferred tax liabilities
    
(1,450,000
)
    
(1,866,000
)
Net deferred tax assets
   $
3,289,000
     $
4,235,000
  
 
Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expect
ed to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The determination of the amount of deferred income tax assets which are more likely than
not
to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that
may
change given economic conditions and other factors. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is "more likely than
not"
that all or a portion of the deferred tax asset will
not
be realized. "More likely than
not"
is defined as greater than a
50%
chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed.
 
At
December 31,
201
7
total deferred tax assets were approximately
$4,739,000
and total deferred tax liabilities were approximately
$1,450,000
for a net deferred tax asset of
$3,289,000.
The Company’s deferred tax assets primarily relate timing differences in the tax deductibility of impairment charges on other real estate owned, deprecation on premises and equipment, the provision for loan losses and deferred compensation. Based upon our analysis of available evidence, management of the Company determined that it is "more likely than
not"
that all of our deferred income tax assets as of
December 31, 2017
and
2016
will be fully realized and therefore
no
valuation allowance was recorded. On the consolidated balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.
 
The provision for income taxes
differs from amounts computed by applying the statutory Federal income tax rate to operating income before income taxes. The significant items comprising these differences consisted of the following:
 
   
2017
   
2016
   
2015
  
Federal income
tax, at statutory rate
    
34.0
%
    
34.0
%
    
34.0
%
State franchise tax, net of Federal tax effect
    
6.2
%
    
6.9
%
    
6.9
%
Interest on obligations of states and political subdivisions
    
(1.5
)%
    
(1.5
)%
    
(1.3
)
%
Net increase in
cash surrender value of bank owned life insurance
    
(0.7
)%
    
(0.9
)%
    
(1.2
)
%
Deferred tax Federal rate adjustment
    
9.2
%
    
-
      
-
  
Other
    
0.0
%
    
0.4
%
    
0.6
%
Effective tax rate
    
47.2
%
    
38.9
%
    
39.0
%
 
The Company and its subsidiary file income tax returns in the U.S. federal and
applicable state jurisdictions. The Company conducts all of its business activities in the states of California, Nevada and Oregon. There are currently
no
pending U.S. federal, state, and local income tax or non-U.S. income tax examinations by tax authorities.
 
With few exceptions, the Company is
no
longer subject to tax examinations by U.S. Federal taxing authorities for years ended before
December 31,
2014,
and by state and local taxing authorities for years ended before
December 31, 2013.
 
The unrecognized tax benefits
and changes therein and the interest and penalties accrued by the Company as of or during the years ended
December 31, 2017
and
2016
were
not
significant. The Company does
not
expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next
twelve
months.