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Dodd-Frank

New Tax Act Disclosures, Explanations and Examples

by   |   January 1, 2018

Disclosures regarding the new tax act, often referred to as the Tax Cuts and Jobs Act or TCJA, continue to be prominent in SEC filings. Set forth blow is an explanation of the often obscure GAAP accounting driving many of the disclosures, followed by a compendium of recent disclosures.

Current disclosures included in the compendium have been sorted by the following subject matters:

  • Risk factors
  • MD&A
  • 8-K (by Item type)
  • Subsequent events (for those filings that have financial statements with periods ending prior to enactment of the TCJA)
  • Proxy statement/compensation disclosures (including provisions from a new plan)

Explanations

SEC disclosures regarding the TCJA can be roughly divided into two types.  One of the effect on a public company going forward in 2018 and thereafter– i.e., rates are going down and therefore company anticipates so will tax expenses.  The other type is the effect on existing tax assets and liabilities recorded on a public company balance sheet that will need to be adjusted to reflect the impact of the TCJA.  These latter adjustments to tax assets and liabilities appear to be the more frequent subject of SEC disclosures under the TCJA at this time. As time passes however, I expect the “go forward” disclosures will become more prevalent.

For many, it is difficult to understand the content of the disclosures to changes in existing tax assets and liabilities as a result of the TCJA.  The reason is the changes are rooted in obscure rules regarding tax accounting under GAAP that often are not material in the ordinary course of business.  However, the TCJA deals all corporate taxpayers a new hand, and the resulting changes from past practice can be material.

It’s long been understood that public companies can legally keep two sets of books.  One set is for GAAP and the other set is for income tax purposes.  The obscure GAAP rules however require companies to attempt to currently match amounts recognized earlier or later for tax accounting purposes on the tax books using a GAAP accrual concept with current financial accounting recognition.

For sake of an (arbitrary) example, assume Company A in 2016 is subject to a 35% corporate tax rate, and as permitted by tax law, took tax depreciation deductions totaling $100,000, but that for GAAP purposes only $40,000 in depreciation expenses was required.  Over time, in some point after 2016, book depreciation will exceed tax depreciation and eventually the same aggregate amount will be recorded for both GAAP and tax purposes.  GAAP tries to match these timing differences by adjusting tax expense.

The differences between Company A’s GAAP and tax depreciation of $60,000 ($100,000 minus $40,000) requires a deferred tax liability to be recorded under GAAP on Company A’s balance sheet in 2016 in the amount of $21,000 ($60,000 x 35%).  In addition, during 2016 GAAP income tax expense is increased by $21,000 over amounts that would otherwise be paid to the IRS in cash.

But along comes the TCJA at the end of 2017.  The maximum corporate tax rate is now 21%, not 35%, when the deferred tax liability was recorded. The deferred tax liability that Company A recorded in 2016 of $21,000 needs to be reduced to $12,600 (21% x $60,000) which requires income to be increased (tax expense to be reduced) by $8.400 ($21,000 – $12,600).  This is the sort of adjustment most of the SEC filings are currently explaining.

As a result of differences between GAAP and tax accounting, public companies have also recorded deferred tax assets, in addition to deferred tax liabilities which are explained in the foregoing example.  One of the reasons many companies are making SEC filings regarding changes in their deferred tax assets is the result of previously recording deferred tax assets associated with net operating losses, or NOLs.

Assume Company B loses $50,000 for tax purposes in 2016. Tax law permits this loss to be carried forward as an NOL and Company B expects to be profitable in future periods when the tax rate will be 35%. So in some future period when permitted by tax law it is anticipated Company B is going to take a deduction of up to $50,000 to reduce taxable income to reflect the benefit of the NOL carry forward.

The 2016 NOL is essentially a timing difference, like depreciation in the foregoing example, because it creates a deduction in a future period, and over time aggregate book and taxable income are the same.    Because GAAP attempts to match these timing differences in the current period, Company B in 2016 will record a deferred tax asset in 2016 of $17,500 ($50,000 x 35%) and reduce the book net loss (through a tax benefit from NOL line item) by the same amount. It does so because it expects taxable income during the carry forward period and therefor does not need to adjust the tax asset by a valuation allowance.

But again the TCJA was enacted at the end of 2017.  The maximum corporate tax rate is now 21%, not 35%, when the deferred tax asset was recorded.  The deferred tax asset that Company B recorded in 2016 as a result of the NOL of $17,500 needs to be reduced to $10,500 (21% x $50,000) which requires income to be decreased (or net loss to be increased) by $7,000 ($17,500 – $10,500).

Examples

Risk Factors

Increases in the after-tax costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

Significant expenses of owning a home, including mortgage interest expenses and real estate taxes, generally are, under current tax law, deductible expenses for an individual’s federal, and in some cases state, income taxes, subject to limitations under current tax law and policy. If the federal government or a state government changes its income tax laws to eliminate or substantially limit these income tax deductions, the after-tax cost of owning a new home would increase for many of our potential customers. The “Tax Cuts and Jobs Act” which was recently signed into law includes provisions which would impose significant limitations with respect to these income tax deductions. For instance, under the “Tax Cuts and Jobs Act”, the annual deduction for real estate taxes and state and local income or sales taxes would generally be limited to $10,000. Furthermore, through the end of 2025, the deduction for mortgage interest would generally only be available with respect to acquisition indebtedness that does not exceed $750,000. The loss or reduction of these homeowner tax deductions, if such tax law changes were enacted without any offsetting legislation, would adversely impact demand for and sales prices of new homes, including ours. In addition, increases in property tax rates or fees on developers by local governmental authorities, as experienced in response to reduced federal and state funding or to fund local initiatives, such as funding schools or road improvements, or increases in insurance premiums can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes, and can have an adverse impact on our business and financial results.

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U.S. federal income tax reform could adversely affect us.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (TCJA) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We do not expect tax reform to have a material impact to our projection of minimal cash taxes or to our net operating losses. Our net deferred tax assets and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in our tax expense in the year of enactment. We continue to examine the impact this tax reform legislation may have on our business. The impact of this tax reform on holders of our common stock is uncertain and could be adverse. This prospectus does not discuss any such tax legislation or the manner in which it might affect purchasers of our common stock. We urge our stockholders, including purchasers of common stock in this offering, to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.

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The effects of the Tax Cuts and Jobs Act on our business have not yet been fully analyzed and could have an adverse effect on our net income.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. We are in the process of analyzing the Act and its possible effects on the Company and the Bank. The Act reduces the corporate tax rate to 21 percent from 35 percent, among other things. It could also require us to write down our deferred tax assets, which would reduce our net income during the first quarter of fiscal 2018. We cannot determine at this time the amount of any such write down, or the full effects of the Act on our business and financial results.

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Certain U.S. federal income tax deductions currently available with respect to New Talos’s business may be eliminated or significantly changed as a result of recently enacted and future legislation.

On December 22, 2017, the President signed into law Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act, following its passage by the United States Congress. The Tax Cuts and Jobs Act will make significant changes to U.S. federal income tax laws. While past legislative proposals have included changes to certain key U.S. federal income tax provisions currently available to oil and gas companies including (i) the repeal of the percentage depletion allowance for oil and gas properties, (ii) the elimination of current deductions for intangible drilling and development costs, and (iii) an extension of the amortization period for certain geological and geophysical expenditures, these specific changes are not included in the Tax Cuts and Jobs Act. No accurate prediction can be made as to whether any such legislative changes will be proposed or enacted in the future or, if enacted, what the specific provisions or the effective date of any such legislation would be. However, the Tax Cuts and Jobs Act (i) eliminates the deduction for certain domestic production activities, (ii) imposes new limitations on the utilization of net operating losses, and (iii) provides for more general changes to the taxation of corporations, including changes to cost recovery rules and to the deductibility of interest expense, which may impact the taxation of oil and gas companies. This legislation or any future changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that currently are available with respect to oil and gas development, or increase costs, and any such changes could have an adverse effect on New Talos’s financial position, results of operations, and cash flows.

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Comprehensive tax reform could adversely affect the combined company’s business and financial condition.

On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”) was signed into law by President Trump. The Tax Act contains significant changes to corporate taxation, including reduction of the corporate tax rate from 35% to 21%, limitation of the tax deduction for interest expense to 30% of earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including eliminating the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”).  Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain, and the combined company’s business and financial condition could be adversely affected.  This proxy statement/prospectus/information statement does not discuss the Tax Act or the manner in which it might affect holders of the combined company’s common stock. Vaxart and Aviragen urge their stockholders to consult with their legal and tax advisors with respect to the Tax Act and the potential tax consequences of investing in the combined company’s common stock.

MD&A

On December 22, 2017, H.R.1 – An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted. The Company is currently reviewing the components of the Act and evaluating its impact, which could be material on the Company’s fiscal year 2017 consolidated financial statements and related disclosures, including a one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets.

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8-K — Results of Operation and Financial Condition

GAAP earnings per share exclude any potential income tax effects of the Tax Cuts and Jobs Act. Non-GAAP earnings per share exclude the effect of acquisition-related expenses, amortizations and adjustments, and stock compensation expense.

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8-K — Regulation FD Disclosure

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), that impact corporate taxation requirements, such as the reduction of the federal tax rate for corporations from 35% to 21% and changes or limitations to certain tax deductions.

SVB Financial Group (the “Company”) is currently assessing the extensive changes under the TCJ Act and its overall impact on the Company; however, based on its preliminary assessment of the reduction in the federal corporate tax rate from 35% to 21% to become effective on January 1, 2018, the Company currently expects that its effective tax rate for 2018 will be between 27% and 30%. Such estimated range is based on management’s current assumptions with respect to, among other things, the Company’s earnings, state income tax levels and tax deductions. The Company’s actual effective tax rate in 2018 may differ from management’s estimate. The reduced applicable tax rate is expected to result in overall lower tax expense beginning in 2018, which will provide the Company the opportunity to evaluate the potential utilization of a portion of the tax savings to increase or accelerate investments in its business, growth and employees.

The reduction in the corporate tax rate under the TCJ Act will also require a one-time revaluation of certain tax-related assets to reflect their value at the lower corporate tax rate of 21%. As such, the Company currently expects a reduction in the value of these assets of approximately $32 million to $37 million, which primarily relate to the Company’s net deferred tax assets and investments in low income housing tax credit funds. This estimated range of reduction in value is based on balances as of November 30, 2017, and the actual amount of reduction at the end of the fourth quarter of 2017 may differ, as it is dependent on, among other things, the final net deferred tax assets and low income housing tax credit fund investment balances as of December 31, 2017. Solely based on this estimated reduction in certain tax assets, the Company expects an increase in the provision for income taxes of approximately $32 million to $37 million to be recognized in its income statement for the fourth quarter of 2017.

Additionally, in connection with its ongoing treasury and tax management objectives, the Company sold during the fourth quarter of 2017 approximately $573 million of fixed income investment securities in its available-for-sale securities portfolio, which resulted in a loss on investment securities of approximately $9 million, on a pre-tax basis. The proceeds from these sales of securities were reinvested in higher-yielding investments.

The preliminary expected results for the fourth quarter of 2017 and the estimated 2018 effective tax rate discussed in this report are based on information available at this time and are subject to change due to a variety of factors, including among others: (i) finalization of the Company’s quarterly financial closing and reporting processes, and (ii) management’s further assessment of the TCJ Act and related regulatory guidance. Actual results may differ. The Company is expected to announce and discuss its quarterly and annual results, as well as its 2018 financial outlook, on January 25, 2018, through its quarterly Form 8-K filing and earnings call.

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8-K — Other Events Disclosure

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Legislation) was enacted. The Tax Legislation significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates, implementing the territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

The Goldman Sachs Group, Inc. (together with its consolidated subsidiaries, Goldman Sachs or the firm) estimates, based on currently available information, that the enactment of the Tax Legislation will result in a reduction of approximately $5 billion in the firm’s earnings for the fourth quarter and year ending December 31, 2017, approximately two-thirds of which is due to the repatriation tax. The remainder includes the effects of the implementation of the territorial tax system and the remeasurement of U.S. deferred tax assets at lower enacted corporate tax rates.

The impact of the Tax Legislation may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions the firm has made, guidance that may be issued and actions the firm may take as a result of the Tax Legislation.

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On December 22, 2017, H.R.1, formally known as the “Tax Cuts and Jobs Act” was enacted into law. This new tax legislation, among other changes, reduces the Federal corporate income tax rate from 35% to 21% effective January 1, 2018. At September 30, 2017, MB Financial, Inc. (the “Company”) had net deferred tax liabilities of $193 million and expects to remain in a net deferred tax liability position at December 31, 2017.

Under generally accepted accounting principles, these net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. The Company currently estimates that the revaluation will result in a one-time tax benefit of at least $85 million, or approximately $1.00 per diluted common share, based on September 30, 2017 data. Activity in the Company’s leasing segment during the fourth quarter of 2017 may increase this estimate significantly due to the retroactive application of the 100% bonus depreciation deduction under the new tax legislation, which applies to qualified property placed in service after September 27, 2017 and before January 1, 2023. The one-time tax benefit is expected to further strengthen the Company’s capital position and ratios. It is also estimated that the Company’s effective tax rate beginning in 2018 will be reduced by about 10% to 11% due to this new tax legislation.

As a result of the new tax legislation, the Company plans to contribute $7.5 million in the fourth quarter of 2017 to the MB Financial Charitable Foundation. The MB Financial Charitable Foundation supports nonprofit organizations serving low- and moderate-income communities and households within the Company’s service area. Priority giving areas include affordable housing, community service, economic development, and education.

Also as a result of the new tax legislation, the Company’s bank subsidiary, MB Financial Bank N.A. will raise its minimum wage to $15 per hour effective in January 2018 and pay one-time bonuses to eligible employees earning less than $100,000 annually. The aggregate amount of these bonuses is expected to be approximately $2.7 million.

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On December 22, 2017, H.R.1 – An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted. The Company is currently reviewing the components of the Act and evaluating its impact, which could be material on the Company’s fiscal year 2017 consolidated financial statements and related disclosures, including a one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets.

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On December 28, 2017, the Company announced that it expects to record an after-tax benefit of approximately $25 million during the fourth quarter of 2017 based on a re-valuation of its net deferred tax liability, which was necessitated by the recent passage of the Tax Cuts and Jobs Act. In addition, the Company announced that it expects an effective tax rate of about 27% during full-year 2018.

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Lamar Advertising Company (Nasdaq: LAMR), a leading owner and operator of outdoor advertising and logo sign displays, announces that as a result of changes in the tax code due to the recent passage of the Tax Cuts and Jobs Act of 2017, its board of directors approved changing the payment date of its fourth-quarter dividend on its Class A common stock and Class B common stock to January 2, 2018. The dividend was previously scheduled to be paid on December 29, 2017. Management and the board determined that, as a result of such changes to the tax code, it was prudent to delay payment of the dividend until calendar year 2018.

The record date of December 18, 2017 is unchanged. The dividend remains $0.83 per share on the Class A common stock and Class B common stock.

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On December 22, 2017, United States President Donald Trump signed into law “H.R.1”, formerly known as the “Tax Cuts and Jobs Act”, which among other items reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, National Bank Holdings Corporation (the “Company” or “NBHC”) will revalue its deferred tax asset. The Company performed an analysis to determine the impact of the revaluation of the deferred tax asset using the September 30, 2017 balance of $50.7 million. It is estimated that the value of the deferred tax asset will be reduced by a range of approximately $17.0 – $18.5 million and will be shown as an increase in fourth quarter income tax expense. This non-cash, one-time charge is expected to decrease fourth quarter’s earnings per share by $0.61 to $0.65, with a corresponding decrease to tangible book value per share of $0.63 to $0.67, based on estimated fourth quarter weighted average diluted shares and total shares outstanding.

On December 27, 2017, the Company issued a press release announcing that it plans to deliver a $1,000 bonus to all of its non-commissioned associates who earn a base salary of less than $50,000 annually as a result of the recently enacted tax legislation,  totaling approximately $525,000,  which will be accrued by the Company in the fourth quarter. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

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On December 22, 2017, President Donald Trump signed into law “H.R.1”, formerly known as the “Tax Cuts and Jobs Act”, which among other items reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, TriCo Bancshares (the “Company”) has concluded that this will cause the Company’s deferred tax assets to be revalued. The Company’s deferred tax assets represent a decrease in corporate taxes expected to be paid in the future. The Company performed a preliminary analysis to determine the impact of the revaluation of the deferred tax asset. Using the information available at this time, the Company estimated that the value of the deferred tax asset would be reduced by approximately $7.7 million. Under this methodology, the estimated fourth quarter earnings impact would be approximately ($0.33) per share and the estimated tangible book value impact would be approximately ($0.34) per share based on estimated fourth quarter weighted average diluted shares of approximately 23,290,000 and total shares outstanding of approximately 22,956,000 at year end.

The Company’s revaluation of its deferred tax asset is subject to further clarifications of the new law that cannot be estimated at this time, and the determination of certain accounting valuation adjustments, such as, valuation adjustments related to unrealized gain or loss on investment securities available for sale, mortgage servicing rights, pension liabilities, and allowance for loan losses that are in the process of being finalized at this time. As such, the Company is unable to make a final determination of the impact on the quarterly and year to date earnings for the period ending December 31, 2017 at this time. The Company does not anticipate future cash expenditures as a result of the reduction to the deferred tax asset.

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On December 22, 2017, H.R.1, known as the “Tax Cuts and Jobs Act,” was signed into law. Among other things, the Tax Cuts and Jobs Act permanently lowers the corporate tax rate to 21% from the existing maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, U.S. generally accepted accounting principles require companies to re-value their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment.

As of September 30, 2017,  WesBanco, Inc. (the “Company”) had  net deferred tax assets of $47.1 million, and the Company is expected to remain in a net deferred tax asset position as of December 31, 2017. WesBanco will record a re-valuation of its deferred tax assets and liabilities as of December 31, 2017, at the new rate of 21%, based upon balances in existence at date of enactment. Based upon preliminary estimates, it is currently expected that the Company’s net deferred tax assets will be written down by approximately $12 to $15 million in the fourth quarter of 2017. This estimate is based upon a review and analysis of the Company’s net deferred tax assets at September 30, 2017, as well as expected adjustments to various deferred tax assets and liabilities in the fourth quarter, including those accounted for in accumulated other comprehensive income. WesBanco’s actual write-down may vary materially from the estimated range due to a number of uncertainties and factors, including the completion of WesBanco’s consolidated financial statements as of and for the year ending December 31, 2017, and is subject to further clarification of the new law that cannot be reasonably estimated at this time.

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Kforce Inc. (NASDAQ: KFRC) today announced that it expects to record a one-time, non-cash charge in the fourth quarter of 2017 as a result of the recently enacted Tax Cuts and Jobs Act (TCJA). This charge results solely from the revaluation of our net deferred income tax assets as of December 31, 2017 and was not anticipated in our previously announced guidance of $0.41 to $0.43 per share. The negative impact to net income from the revaluation is estimated to be between $6 million to $7 million, or approximately $0.24 to $0.28 per share.

Kforce anticipates subsequent regulations and interpretations to be released associated with TCJA that will provide additional guidance on the application of the law; however, we currently estimate that Kforce’s effective income tax rate will be in the range of 25.5% to 27.5% for 2018 compared to approximately 38.0% for 2017.

Financial Statements – Subsequent Events

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act (H.R. 1) (the “Act”).  The Act includes a number of changes in existing tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 34% to 21%. The rate reduction would take effect on January 1, 2018.

As of September 30, 2017, the Bank had net deferred tax assets totaling $540,000. Under U.S. generally accepted accounting principles, the Bank uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Bank’s net deferred tax asset as of September 30, 2017 was determined based on the current enacted federal tax rate of 34% prior to the passage of the Act.  As a result of the reduction in the corporate income tax rate to 21% from 34% under the Act, the Bank will need to revalue its net deferred tax asset as of December 31, 2017.  The Bank estimates that this will result in a reduction in the value of its net deferred tax asset of approximately $203,000, which would be recorded as additional income tax expense in the Bank’s statement of operations in the fourth quarter of 2017.

The Bank’s revaluation of its deferred tax assets is subject to further clarification of the new law that cannot be estimated at this time. As such, the Bank is unable to make a final determination of the effect on quarterly and annual earnings for the period ending December 31, 2017, at this time. Additionally, the Bank is evaluating the other provisions of the Act and is unable to assess the effect on the Bank at this time.

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The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017 by President Donald J. Trump. The law includes significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. We are in the process of analyzing the final legislation and determining an estimate of the financial impact.

Proxy Statements/Compensation Disclosures

[Provision in description of new plan submitted for shareholder approval]

The Tax Cuts and Jobs Act eliminates the performance-based compensation exception beginning January 1, 2018. However, the Act provides a transition rule with respect to remuneration which is provided pursuant to a written binding contract which was in effect on November 2, 2017 and which was not materially modified after that date. The Compensation Committee shall administer any awards granted prior to November 2, 2017 which qualify as “performance-based compensation” under § 162(m) of the Code, as amended by the Act, in accordance with the transition rules applicable to binding contracts in effect on November 2, 2017, and shall have the sole discretion to revise the A&R Plan to conform with such Law Changes and the Compensation Committee’s administrative practices, all without obtaining further stockholder approval.

[Plan Provisions]

2.7    Committee—means the Compensation Committee of the Board or a subcommittee of such Compensation Committee, which committee or subcommittee shall have at least 2 members, each of whom shall be appointed by and shall serve at the pleasure of the Board and shall come within the definition of a “non-employee director” under Rule 16b-3 and, with respect to Stock Grants granted prior to November 2, 2017 which were intended to qualify as “performance-based compensation” under § 162(m) of the Code, as amended by the Tax Cuts and Jobs Act, an “outside director” under § 162(m) of the Code.

(d)    Changes in Law. The Committee shall administer any Stock Grants granted prior to November 2, 2017 which qualify as “performance-based compensation” under § 162(m) of the Code, as amended by the Tax Cuts and Jobs Act (the “Law Changes”), in accordance with the transition rules applicable to binding contracts on November 2, 2017, and shall have the sole discretion to revise this § 9.5 to conform with such Law Changes and the Committee’s administrative practices, all without obtaining further shareholder approval.

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The Compensation Committee has adopted, for fiscal year 2018, Company and individual performance goals, pursuant to which the Company’s executive officers may receive cash bonuses following the completion of fiscal year 2018 based on the extent to which such performance goals are achieved during the course of the fiscal year. The Compensation Committee adopted performance goals so that awards made pursuant to such goals that contributed to a named executive officer earning more than $1 million in annual compensation would qualify as tax deductible to the Company for U.S. federal income tax purposes under Section 162(m) of the U.S. Internal Revenue Code. However, on December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act, which substantially modifies the U.S. Internal Revenue Code and, among other things, eliminates the performance-based compensation exception under Section 162(m). As a result, the Company currently expects that, in respect of fiscal 2018 and beyond, any compensation amounts over $1 million paid to any named executive officer will no longer be deductible. See “—Tax Considerations Relating to Executive Compensation”. The Company’s expectation is that this change will not have a material effect on its operating results or financial condition.