NOTE

— INCOME TAXES

The provision for income taxes consists of the following:

(in thousands)	2019			2018
Current
Federal	$	2,675		$	2,711
State		1,754			1,927
		4,429			4,638
Deferred
Federal		(109	)		(494	)
State		(120	)		(334	)
		(229	)		(828	)

	$	4,200		$	3,810

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,
	2019			2018
Deferred tax assets:
Allowance for loan losses	$	2,705		$	2,568
Restricted stock expense		105			95
Accrued vacation		100			80
Accrued salary continuation liability		1,176			1,035
Deferred compensation		75			76
Core deposit intangible		69			58
Merger Costs		87			95
Reserve for undisbursed commitments		149			117
OREO expenses		173			173
State income tax		386			405
Holding company organization fees		10			12
Unrealized loss on securities available for sale		0			183
		5,035			4,897
Deferred tax liabilities:
Prepaid expenses		(87	)		(117	)
FHLB dividends		(144	)		(144	)
Accumulated depreciation		(12	)		(9	)
Accrued bonus		(2	)		(2	)
Deferred loan costs		(378	)		(353	)
Goodwill Amortization		(261	)		(196	)
Limited partner investment in small business equity fund		(38	)		(9	)
Unrealized gain on securities available for sale		(1,006	)		0
		(1,928	)		(830	)

Net deferred income tax asset	$	3,107		$	4,067

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, 2019

and

2018.

The effective tax rate for

2019

and

2018

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

	YEARS ENDED DECEMBER 31,
	201 9			201 8

Federal statutory income tax rate		21.0	%		21.0	%
State taxes, net of federal tax benefit		8.6	%		8.6	%
Tax exempt interest on municipal securities and loans		-3.2	%		-3.5	%
Other		-1.2	%		-1.3	%
Effective tax rate		25.2	%		24.8	%

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

2016

for U.S. Federal or for years before

2015

for California.