Oak Valley Bancorp

NOTE

— INCOME TAXES

The provision for income taxes consists of the following:

(in thousands)	YEARS ENDED DECEMBER 31,
	2017		2016
Current
Federal	$	3,185	$	3,117
State		1,447		1,044
		4,632		4,161
Deferred
Federal		1,380		(568	)
State		135		(119	)
		1,515		(687	)

	$	6,147	$	3,474

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,
	2017			2016
Deferred tax assets:
Allowance for loan losses	$	2,415		$	3,222
Restricted stock expense		1			49
Accrued vacation		72			88
Accrued salary continuation liability		901			1,137
Deferred compensation		77			108
Accrued bonus		1			14
Core deposit intangible		44			37
Merger Costs		103			153
Nonaccrual loans		0			218
Reserve for undisbursed commitments		90			111
OREO expenses		173			241
State income tax		304			409
Holding company organization fees		15			25
Unrealized loss on securities available for sale		0			157
		4,196			5,969
Deferred tax liabilities:
Prepaid expenses		(418	)		(107	)
FHLB dividends		(158	)		(220	)
Accumulated depreciation		(102	)		(396	)
Deferred loan costs		(330	)		(419	)
Goodwill Amortization		(131	)		(98	)
Unrealized gain on securities available for sale		(415	)		0
		(1,554	)		(1,240	)

Net deferred income tax asset	$	2,642		$	4,729

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, if any, and the overall tax environment.

he Company had

liabilities for unrecognized tax benefits as of

December 31, 2017

and

2016.

The effective tax rate for

201

and

2016

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

	YEARS ENDED DECEMBER 31,
	2017			2016

Federal statutory income tax rate		34.0	%		34.0	%
State taxes, net of federal tax benefit		7.2	%		7.2	%
Tax exempt interest on municipal securities and loans		-5.2	%		-6.2	%
Tax exempt earnings on bank owned life insurance		-1.4	%		-1.6	%
Low income housing tax credit		-0.3	%		-0.6	%
Adjustment of non-deductible merger expenses		0.0	%		-1.5	%
Deferred tax asset re -measurement		6.5	%		0.0	%
Other		-0.4	%		-0.1	%
Effective tax rate		40.3	%		31.2	%

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

f California tax jurisdiction.

None

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

2014

for U.S. Federal or for years before

2013

for California.