Veritex Holdings, Inc.

Income Taxes

The Tax Act, enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35% to 21%. Also on December 22, 2017, the SEC issued SAB 118, which provides guidance on accounting for tax effects of the Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Based on the information available and current interpretation of the rules, the Company has made reasonable estimates of the impact of the reduction in the corporate tax rate and re-measurement of certain deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future. The Company is still analyzing certain provisional estimates for the Sovereign and Liberty acquisitions as specified in Note 24 - Business Combinations. Any changes to these provisional estimates and re-measurement of deferred taxes could potentially have an impact on our future earnings and effective tax rate. The provisional amount recorded related to the re-measurement of the Company's deferred tax balance was $3,051 for the year ended December 31, 2017.

The provision for income taxes is summarized as follows:



	Year Ended December 31,
	2017		2016			2015
Income tax expense (benefit):
Current	$	7,886	$	7,833		$	4,492
Deferred	5,143		(1,366		)	(375		)
	$	13,029	$	6,467		$	4,117

The table below reconciles income tax expense for the years ended December 31, 2017, 2016 and 2015 computed by applying the applicable U.S. Federal statutory income tax rate, reconciled to the tax expense computed at the effective income tax rate:



	Year Ended December 31,
	2017			2016			2015
Federal income tax expense rate at 35% for December 31, 2017 and 2016 and 34% for December 31, 2015	$	9,863		$	6,656		$	4,388
Bank-owned life insurance	(206		)	(216		)	(208		)
Non-deductible dues and memberships	132			59			56
Non-deductible meals and entertainment	80			49			46
Excess tax benefit from stock compensation⁽¹⁾	(268		)	—			—
Deferred tax asset re-measurement due to the Tax Act⁽¹⁾	3,051			—			—
Other	377			(81		)	(165		)
Total income tax expense	$	13,029		$	6,467		$	4,117
Effective tax rate	46.2		%	34.0		%	31.9		%

⁽¹⁾Discrete tax item.

Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes, and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:



	December 31,		December 31,
	2017		2016
Deferred tax assets:
Net operating loss	$	—	$	165
Organizational costs	64		405
Allowance for loan losses	2,592		2,918
Capital loss carryforward	57		95
FHLB Borrowing	28		57
Deferred rent expenses	302		90
Restricted stock	201		182
Stock options	334		399
Accrued bonuses	22		437
Loan discounts	4,805		211
Deferred compensation	115		—
Other real estate owned	219		—
Net unrealized gain on securities available for sale	340		643
Other	137		214
Total deferred tax assets	9,216		5,816
Deferred tax liabilities:
Core deposit intangibles	3,034		541
Partnership investments	497		—
Bank premises and equipment	912		1,795
Other	163		13
Total deferred tax liabilities	4,606		2,349
Net deferred tax asset	$	4,610	$	3,467

Included within other assets in the accompanying consolidated balance sheets as of December 31, 2017 is a current tax receivable of $7,085 and a deferred tax asset of $4,937. The Company also has a deferred tax liability of $327 classified as branch liabilities held for sale in the accompany consolidated balance sheets as of December 31, 2017. See Note 25 - Branch Assets and Liabilities Held for Sale for additional information. Included in the accompanying consolidated balance sheets as of December 31, 2016 is a current tax receivable of $91 and a net deferred tax asset of $3,467 in other assets.