December 29, 2017
Authored by: Robert Klingler
On the latest episode of The Bank Account, Jonathan and I analyzed the Rose Bowl, pitting Jonathan’s Georgia Bulldogs against Jonathan’s In-Laws’ Oklahoma Sooners. With critical generational analysis, Jonathan won me over to support Kirby Smart and the Georgia Bulldogs; I simply have to support Generation X over a Millennial. We then turned our focus to on-topic banking issues: the impact of tax reform on Subchapter S banks and a look in review at the 2017 banking m&a market.
For Subchapter S institutions, tax reform offers/requires a re-evaluation of the tax consequences of a Subchapter S tax election. While institutions regularly assess the overall tax difference involved in a Subchapter S tax election at the time of making the election, that analysis is often then put in the closet, and only rarely re-addressed upon future strategic decisions. However, with the decline in the corporate tax rate to 21%, it now behooves Subchapter S institutions, particularly those that retain a significant amount of their earnings to support future growth, to update that analysis. Jonathan and I discuss some of the factors affecting that analysis, as well as the timing implications to make effective for 2018.
Looking at the final M&A statistics for 2017, it looks like we’ll end the year with a slight uptick in the number of deals (259, up from 250 in 2016), but remain significantly below 2014 and 2015 levels. In addition, the average size of the selling banks in 2017 has declined significantly (almost 25% smaller, based on averages). Jonathan and I discuss these trends, and make a few predictions on M&A going forward.