Taxes:

The tax rate on pass-through income for Sub S shareholders appears to be more complex under the new tax bill. There has been some confusion on how Sub S banks are affected, but some authoritative comment is now slowly coming out. There is an excellent article from BKD https://www.bkd.com/articles/2018/community-banking-tax-reform-update.htm that summarizes it pretty well.

My takeaway is that the value of S corp status is diminished overall by the lower corporate rate, and the avoidance of double taxation now provides a smaller benefit. The individual tax rate of 37 percent (40.8 percent if passive) is not much different than the C corp rate of 21% plus the highest C corp dividend distribution tax rate of 15%-20%.

Our bank is organized as an S corp, but we are reviewing our options at this time. In addition to tax costs, we are looking at other factors such as shareholder liquidity, ability to raise capital, and dividend policy effects.

Dwayne Kolly

Chief Financial Officer

Business Bank of Texas, N.A.

D. 512-835-6600 Office

F. 512-835-6614

dkolly@businessbankoftexas.com

http://www.businessbankoftexas.com

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