CBTX, Inc.

NOTE 15: INCOME TAXES

The components of the provision for income tax expense for the years ended December 31, 2017, 2016 and 2015 are as follows:


	For the Years Ended December 31,
(Dollars in thousands)	2017		2016		2015
Current federal income tax	$	13,364	$	11,269	$	12,353
Current state income tax		157		140		102
Deferred income tax		2,932		601		(1,664)
Total income tax expense	$	16,453	$	12,010	$	10,791

Income tax expense for the years ended December 31, 2017, 2016 and 2015 differs from the applicable statutory rate of 35% as follows:


	For the Years Ended December 31,
(Dollars in thousands)	2017			2016			2015
Tax expense calculated at statutory rate	$	15,408		$	13,726		$	12,225
Increase (decrease) resulting from:
State income tax		102			140			102
Tax exempt interest income		(1,504)			(1,585)			(1,349)
Life insurance		(553)			(485)			(464)
Impact of tax law rate change		3,857			—			—
Other		(857)			214			277
Total income tax expense	$	16,453		$	12,010		$	10,791
Effective tax rate		37.4	%		30.7	%		30.9	%

The Tax Cuts and Jobs Act of 2017 was enacted December 22, 2017 and lowered the corporate federal income tax rate in the U.S. from 35% to 21%. Based upon this tax law enactment, the Company analyzed and remeasured its deferred tax positions to the new tax rate and recorded a $3.9 million adjustment to income tax expense in the consolidated income statement for the year ended December 31, 2017. While the Company believes its analysis to be complete, it will continue to evaluate the tax reform impacts noting that the ultimate impact of tax reform may differ from the amounts recorded due to changes in our interpretations and assumptions, as well as additional regulatory guidance that may be issued.

Deferred income taxes are provided for differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis. The components of the net deferred tax asset at December 31, 2017 and 2016 are as follows:


		December 31,
(Dollars in thousands)		2017		2016
Deferred tax assets:
	Allowance for possible credit losses	$	5,203	$	8,752
	Compensation related		2,228		1,334
	Deferred loan origination fees and loan costs		988		1,512
	Loan related		423		1,037
	Unrealized loss on securities available for sale		103		496
	Other		215		788
	Total deferred tax assets		9,160		13,919
Deferred tax liabilities:
	Accumulated depreciation		(1,228)		(2,205)
	Compensation 481(a) adjustment		(713)		—
	Core deposit intangibles		(1,378)		(2,662)
	Other		(61)		(21)
	Total deferred tax liabilities		(3,380)		(4,888)
Net Deferred Tax Asset		$	5,780	$	9,031

With its acquisition of MCBI in 2015, the Company had approximately $1.5 million tax‑effected federal net operating loss carryforwards. The utilization of these carryforwards as an available offset to future taxable income is subject to limitations under U.S. federal income tax laws. The net operating loss carryforwards were fully utilized during the year ended December 31, 2017.

As of December 31, 2017, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are from the year 2013 forward for the State of Texas and from the year 2014 forward for federal. When necessary, the Company would include interest expense assessed by taxing authorities in interest expense and penalties related to income taxes in other expense on its consolidated statements of income. The Company did not record any interest or penalties related to income tax for the years ended December 31, 2017, 2016 and 2015.