Note 18 – Income Taxes

The components of consolidated income tax expense are as follows (in thousands):


	Year Ended December 31,
	2018		2017		2016
Current tax expense
Federal	$	13,109	$	17,835	$	17,401
State		9,323		6,650		7,121

	$	22,432		24,485		24,522

Deferred tax expense
Federal		1,842		11,418		2,735
State		758		1,055		455

		2,600		12,473		3,190

Total tax expense	$	25,032	$	36,958	$	27,712

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense for financial and tax reporting purposes. The net change during the year in the deferred tax asset or liability results in a deferred tax expense or benefit.

On December 22, 2017, President Donald Trump signed into law “H.R.1”, commonly known as the “Tax Cuts and Jobs Act”, which among other items reduced the Federal corporate tax rate from 35% to 21%. The Company’s deferred tax expense as of December 31, 2017 included $7,416,000 from the re-measurement of deferred taxes and $226,000 from an acceleration of amortization expense on the low income housing tax credit investments.

The Company recognized, as components of tax expense, tax credits and other tax benefits, and amortization expense relating to our investments in Qualified Affordable Housing Projects as follows for the periods indicated (in thousands):


	Year Ended December 31,
	2018			2017			2016
Tax credits and other tax benefits – decrease in tax expense	$	(1,993	)	$	(1,753	)	$	(954	)
Amortization – increase in tax expense	$	1,814		$	1,611		$	757

The carrying value of Low Income Housing Tax Credit Funds was $23,885,000 and $16,854,000 as of December 31, 2018 and 2017, respectively. As of December 31, 2018, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $9,032,000, and these contributions are expected to be made over the next several years.

The provisions for income taxes applicable to income before taxes for the years ended December 31, 2018, 2017 and 2016 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory federal income tax rate are reconciled as follows:


	Year Ended December 31,
	2018			2017			2016
Federal statutory income tax rate		21.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		8.6			6.9			6.8
Tax Cuts and Jobs Act impact of federal rate change		—			9.6			—
Tax-exempt interest on municipal obligations		(1.0	)		(1.9	)		(1.8	)
Tax-exempt life insurance related income		(0.6	)		(1.3	)		(1.3	)
Low income housing tax credits		(2.2	)		(2.3	)		(1.3	)
Low income housing tax credit amortization		2.0			2.1			0.8
Equity compensation		(0.5	)		(1.2	)		—
Non-deductible joint beneficiary agreement expense		0.1			0.1			0.1
Non-deductible merger expenses		0.2			0.2			—
Other		(0.8	)		0.5			(0.1	)

Effective Tax Rate		26.8	%		47.7	%		38.2	%

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows as of December 31 for the years indicated (in thousands):


	December 31,
	2018			2017
Deferred tax assets:
Allowance for losses and reserve for unfunded commitments	$	10,394		$	9,900
Deferred compensation		2,780			1,953
Accrued pension liability		9,734			6,835
Accrued bonus		709			171
Other accrued expenses		466			522
Additional unfunded status of the supplemental retirement plans		1,420			1,582
State taxes		1,864			1,397
Share based compensation		1,132			1,322
Nonaccrual interest		814			282
OREO write downs		34			59
Acquisition cost basis		6,714			2,187
Unrealized loss on securities		6,201			1,008
Tax credits		623			581
Net operating loss carryforwards		2,442			1,801
Other		389			508

Total deferred tax assets		45,716			30,108

Deferred tax liabilities:
Securities income		(1,020	)		(958	)
Depreciation		(5,572	)		(1,987	)
Merger related fixed asset valuations		(26	)		(30	)
Securities accretion		(426	)		(315	)
Mortgage servicing rights valuation		(2,073	)		(1,943	)
Core deposit intangible		(8,234	)		(916	)
Junior subordinated debt		(1,729	)		(1,783	)
Prepaid expenses and other		(582	)		(479	)

Total deferred tax liability		(19,662	)		(8,411	)

Net deferred tax asset	$	26,054		$	21,697

As part of the merger with FNB Bancorp in 2018 and North Valley Bancorp in 2014, TriCo acquired federal and state net operating loss carryforwards, capital loss carryforwards, and tax credit carryforwards. These tax attribute carryforwards will be subject to provisions of the tax law that limit the use of such losses and credits generated by a company prior to the date certain ownership changes occur. The amount of the Company’s net operating loss carryforwards that would be subject to these limitations as of December 31, 2018 were $1,292,000 for federal and $23,877,000 for California. The amount of the Company’s tax credits that would be subject to these limitations as of December 31, 2018 are $123,000 and $648,000 for federal and California, respectively. Due to the limitation, a significant portion of the state tax credits will expire regardless of whether the Company generates future taxable income. As such, the Company has recorded the future benefit of these tax credits on the books at the value which is more likely than not to be realized. These tax loss and tax credit carryforwards expire at various dates beginning in 2019.

The Company believes that a valuation allowance is not needed to reduce the deferred tax assets as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, including the tax attribute carryforwards acquired as part of the FNB Bancorp and North Valley Bancorp merger.

Disclosure of unrecognized tax benefits at December 31, 2018 and 2017 were not considered significant for disclosure purposes. Management does not expect the unrecognized tax benefit will materially change in the next 12 months. During the years ended December 31, 2018 and December 31, 2017 the Company recognized no interest and penalties related to taxes. The Company files income tax returns in the U.S. federal jurisdiction, and California. With few exceptions, the Company is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years before 2015 and 2014, respectively.