8) Income Taxes

Some items of income and expense are recognized in different years for tax purposes than when applying generally accepted accounting principles, leading to timing differences between the Company's actual current tax liability and the amount accrued for this liability based on book income. These temporary differences comprise the "deferred" portion of the Company's tax expense or benefit, which is accumulated on the Company's books as a deferred tax asset or deferred tax liability until such time as they reverse.

Realization of the Company's deferred tax assets is primarily dependent upon the Company generating sufficient taxable income to obtain benefit from the reversal of net deductible temporary differences and utilization of tax credit carryforwards are as of December 31, 2014 for Federal and California state income tax purposes. The amount of deferred tax assets considered realizable is subject to adjustment in future periods based on estimates of future taxable income. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is "more likely than not" that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management's evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions. In accordance with Accounting for Uncertainty in Income Taxes, the Company estimated the need for a reserve for income taxes of $250,000 for uncertain state income tax positions of Bay View Funding. It is also estimated that a need for a reserve for uncertain tax positions of $82,000 for the Company.

The Company had net deferred tax assets of $20,111,000, and $18,527,000, at September 30, 2015, and December 31, 2014, respectively. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than not that the net deferred tax asset at September 30, 2015 and December 31, 2014 will be fully realized in future years.

The Company adopted the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014. The Company quantified the impact of adopting the proportional amortization method compared to the equity method to its current year and prior period financial statements. The Company determined that the adoption of the proportional amortization method did not have a material impact to its financial statements. As a result of the change in accounting method, the Company reclassified $353,000 of low income housing investment losses during the third quarter of 2014 that was previously reported as noninterest expense for the six months of 2014. The low income housing investment losses, net of the tax benefits received, are included in income tax expense for all periods reflected on the consolidated income statements. The following tables reflect noninterest expense, income tax expense, and the effective tax rate as originally reported and with the low income housing investment losses reclassified under the proportional amortization method of accounting for the periods indicated:

	For the Three Months Ended 09/30/14			For the Nine Months Ended 09/30/14
	(Dollars in thousands)
Noninterest expense as originally reported	$	10,139		$	31,807
Low income housing investment losses reclassified to income tax expense		353			—

Noninterest expense under the proportional method	$	10,492		$	31,807


Income tax expense as originally reported	$	2,322		$	5,545
Low income housing investment losses reclassified from noninterest expense		(353	)		—

Income tax expense under the proportional method	$	1,969		$	5,545


Effective tax rate as originally reported		40.4	%		36.1	%
Effective under the proportional method		36.5	%		36.1	%

The following table reflects the carry amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments as of September 30, 2015 and December 31, 2014:

	September 30, 2015		December 31, 2014
	(Dollars in thousands)
Low income housing investments	$	4,532	$	5,268
Future commitments	$	1,827	$	1,827

The Company expects $938,000 of the future commitments to be paid in 2015, $550,000 in 2016, and $339,000 in 2017 through 2023.

For tax purposes, the Company had low income housing tax credits of $175,000 and $198,000 for the three months ended September 30, 2015 and September 30, 2014, respectively, and low income housing investment losses of $230,000 and $272,000, respectively. For tax purposes, the Company had low income housing tax credits of $525,000 and $404,000 for the nine months ended September 30, 2015 and September 30, 2014, respectively, and low income housing investment losses of $687,000 and $624,000, respectively. The Company recognized low income housing investment expense as a component of income tax expense.