NOTE

— INCOME TAXES

The provision for income taxes consists of the following:

(in thousands)	YEARS ENDED DECEMBER 31,
	2018			2017
Current
Federal	$	2,711		$	3,185
State		1,927			1,447
		4,638			4,632
Deferred
Federal		(494	)		1,380
State		(334	)		135
		(828	)		1,515

	$	3,810		$	6,147

The components of the Company’s deferred tax assets and liabilities (included in accrued interest and other assets on the consolidated balance sheets, is shown below:

(in thousands)	DECEMBER 31,
	2018			2017
Deferred tax assets:
Allowance for loan losses	$	2,568		$	2,415
Restricted stock expense		95			1
Accrued vacation		80			72
Accrued salary continuation liability		1,035			901
Deferred compensation		76			77
Core deposit intangible		58			44
Merger Costs		95			103
Reserve for undisbursed commitments		117			90
OREO expenses		173			173
State income tax		405			304
Holding company organization fees		12			15
Unrealized loss on securities available for sale		183			0
		4,897			4,195
Deferred tax liabilities:
Prepaid expenses		(117	)		(418	)
FHLB dividends		(144	)		(158	)
Accumulated depreciation		(9	)		(102	)
Accrued bonus		(2	)		1
Deferred loan costs		(353	)		(330	)
Goodwill Amortization		(196	)		(131	)
Limited partner investment in small business equity fund		(9	)		0
Unrealized gain on securities available for sale		0			(415	)
		(830	)		(1,553	)

Net deferred income tax asset	$	4,067		$	2,642

Management has assessed the realizability of deferred tax assets and believes it is more likely than

not

that all deferred tax assets will be realized in the normal course of operations. Accordingly, these assets have

not

been reduced by a valuation allowance.

The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions.

The Company had

liabilities for unrecognized tax benefits as of

December 31, 2018

and

2017.

The effective tax rate for

2018

and

2017

differs from the current Federal statutory income tax rate as follows:

	YEARS ENDED DECEMBER 31,
	2018			2017

Federal statutory income tax rate		21.0	%		34.0	%
State taxes, net of federal tax benefit		8.6	%		7.2	%
Tax exempt interest on municipal securities and loans		-3.5	%		-5.2	%
Deferred tax asset re-measurement		0.0	%		6.5	%
Other		-1.3	%		-2.2	%
Effective tax rate		24.8	%		40.3	%

Oak Valley Bancorp files a consolidated return in the U.S. Federal tax jurisdiction and a combined report in the State of California tax jurisdiction.

None

of the entities are subject to examination by taxing authorities for years before

2015

for U.S. Federal or for years before

2014

for California.