The Sub S Bank Report – June 2016 (Volume 19, Issue 2)

COUNTING FAMILY MEMBER SHAREHOLDERS
The IRS code permits members—potentially a large number of members—of a family to be counted as if they were one shareholder for purposes of the 100 shareholder limit for S corporations. This rule multiplies the actual number of shareholders that may purchase and hold an S corporation’s stock while remaining under the 100 shareholder limit. This rule also allows substantial leeway for estate planning for shareholders who wish to transfer S corporation stock to their descendants without exceeding limitations on the number of shareholders of the S corporation.

WHICH MEMBERS OF MY FAMILY CAN I COUNT AS ONE SHAREHOLDER?
To be counted as one shareholder, shareholders must be “Members of a Family.” “Members of a Family” include lineal descendants (e.g., children, grandchildren, great-grandchildren, etc.) of a “Common Ancestor” of the shareholders. The “Common Ancestor” is a lineal ancestor of the shareholders who is not more than six generations removed (great-great-grandfather or grandmother) from the youngest Member of the Family. As time passes, the Common Ancestor does not change. Instead, the Common Ancestor is identified based on the family member shareholders holding shares as of the latest of:

1.  the date the S corporation’s makes the election to be treated as an S corporation,
2. the earliest date that a Member of a Family owns stock in the S corporation, or
3. October 22, 2004.

Once a Common Ancestor is identified, all of the then living or future lineal descendants of the Common Ancestor are considered Members of the Family.5 It is not necessary to recalculate which shareholders are family members every time there is a stock transfer to a lineal descendant of a family member shareholder. An analysis may be necessary in the case that transfers are made to non-lineal descendants. However, instead of determining the Common Ancestor based on current shareholders, the analysis should look back to the applicable date described above to determine the Common Ancestor based on the family member shareholders holding shares at that time.

HOW ARE MEMBERS OF A FAMILY COUNTED IN THE CASE OF A DEATH, DIVORCE, OR ADOPTION?
S corporation holdings may be passed down through generations of children and grandchildren without exceeding the limit on the number of shareholders of an S corporation. If a shareholder is a Member of a Family, all of the lineal descendants of that shareholder will be family members for purposes of counting shareholders. This is true whether shares are eventually transferred to lineal descendants who are more than six generations removed from the original Common Ancestor.

Gifts or distributions may also be made to legally adopted children without increasing the number of shareholders. Adopted children and foster children, as defined by IRC 152(f)(1)(C), are considered to be blood related to their adoptive parents for purposes of determining who is a Member of a Family.

In many cases, transfers that occur in the event of a divorce or death will not increase the number of shareholders. Both the spouses and the former spouses of lineal descendants of the Common Ancestor may also be included as Members of the Family. Therefore, widows, widowers, and divorced spouses of lineal descendant shareholders are considered to be Members of the Family. This means that shares or joint ownership of the shares of an S corporation can be given to a spouse without increasing the number of shareholders. This also means that court ordered property divisions between spouses in a divorce will not increase the number of shareholders.

WHAT IF S CORPORATION STOCK IS HELD IN A TRUST OR BY A PERSONAL REPRESENTATIVE OF AN ESTATE?
The rules for counting Members of a Family also accommodate the administration of estates and transfers to so me types of trusts without increasing the number of shareholders. Opening a probate proceeding or administration of an estate does not increase the number of shareholders because the estate of a Family Member is counted as if it were the deceased Family Member.10 On the other hand, a trust must meet specific requirements to be an eligible S corporation shareholder. Typically, if the individual who is:

1. the deemed owner of the trust under Subpart E,
2. the deemed owner of a qualified subpart S trust (“QSST”), or
3. the deemed owner of an electing small business trust (“ESBT”) may be included as a Member of the

Family, the trust may be counted as if it were a Member of the Family.

POTENTIAL PROBLEMS
The Members of a Family rules may not capture transfers to individuals who are not lineal descendants of the Common Ancestor. If a shareholder wishes to transfer property to a cousin, niece, or close family friend, the transferee may or may not be a lineal descendant of the Common Ancestor. In addition, where an individual shareholder dies without a will and has no immediate family, state law might require shares to be transferred to more distant relatives who are not lineal descendants of the Common Ancestor. A transfer to an individual who cannot be counted as a Member of the Family increases the number of S corporation shareholders. Finally, if a shareholder has created an estate plan that includes transfers of shares to one or more trusts, each of the trusts receiving a transfer of S corporation stock must be an eligible S corporation shareholder.14 A transfer of S corporation stock to an ineligible trust will terminate the S corporation election.

A robust shareholder agreement can mitigate these risks by appropriately restricting share transfers, allowing the corporation to monitor share transfers, requiring shareholders to certify compliance with the shareholder agreement, and setting buy-out or buy-back provisions to address involuntary transfers.

Brent Farley is an Attorney with Kennedy Sutherland LLP where he focuses on regulatory, compliance, corporate and transactional matters for financial institutions. Brent can be reached at bfarley@kslawllp.com or 210-610-2753.

In the first sub s bank report for 2016 I discussed supervisory concerns related to shareholder protection arrangements. Our concern was whether SR 15-15 was intended in any way to restrict banks or bank holding companies who have made the S election from utilizing stock transfer restriction agreements commonly called shareholder agreements which restrict transferability of stock to limit the number and type of shareholders who may own stock of these entities to provide certainty that the rules governing S corporations are met. While conversations with the Board staff confirmed that SR 15-15 was not intended to restrict Subchapter S shareholder agreements but was directed at investors coming into situations in which they were making an investment and imposing restrictions, the Association sent the following letter on February 4th, 2016 asking for assurance:

February 4, 2016

Jonathan K. Rono
Senor Supervisory Financial Analyst
Board of Governors
Federal Reserve System
20th Street and Constitution Avenue N.W.
Washington, D.C. 20551

Dear Mr. Rono:

Thank you very much for speaking with us on Thursday January 28, 2016 regarding the recently issued SR 1515. As we indicated, our firm represents a number of banks and bank holding companies throughout the United States which have elected to be taxed under Subchapter S of the Internal Revenue Code (IRC). During our call we expressed our concern and the concern of a number of bank holding company clients about the meaning of SR 1515 and specifically whether it is intended in any way to restrict banks or bank holding companies who have made the S election from utilizing stock transfer restriction agreements commonly called shareholder agreements which restrict transferability of stock to limit the number and type of shareholders who may own stock of these entities to provide certainty that the rules governing S corporations are met.

The SR provides examples of the types of shareholder arrangements that would raise supervisory concerns and specifically identifies the following situation as one:

The holding company’s board of directors has the authority to nullify share purchases under certain circumstances, require the holding company to repurchase the shares of the company from a new owner of the shares, or take other actions that would significantly inhibit secondary market transactions in the shares of the holding company.

Footnote 5 provides:

These arrangements could include complete prohibitions on share transfers, as well as certain forms of buy-sell agreements, rights of first refusal, or similar arrangements that sufficiently restrict the transfer of shares as to effectively prohibit most, if not all, transfers. 

Specifically we asked whether this provision and particularly footnote 5 quoted above was in anyway intended to limit or affect the terms of the typical Subchapter S shareholder agreement since Subchapter S shareholder agreements fundamentally contain restrictions of share transfers and typically contain buy-sell provisions and rights of first refusal. During our conversation, you confirmed that the SR was not intended to restrict Subchapter S shareholder agreements but was directed at investors coming into situations in which they were making an investment and imposing restrictions. We specifically referenced the provisions in the SR noted above including footnote 5 and you indicated that the staff had specifically discussed the typical Subchapter S shareholder agreements in connection with this provision and footnote and confirmed that this provision and the guidance in general is not intended to affect or
limit these type of provisions in a subchapter S shareholder agreement.

We would appreciate your confirming this clarification in writing by either responding affirmatively to this letter or otherwise provide separate clarification that our clients can rely on. We note that supervisory personnel have requested copies of a shareholder agreement which we are drafting for a client in anticipation of making an S Election.

Thank you very much.

Richard Watkins, Deputy Associate Director for the Federal Reserve, replied to our letter on May 12, 2016 with the response found below. Subsequent to receiving Deputy Associate Director Watkins letter, we contacted him again and expressed our dismay over the “however clause” in his letter, which we viewed as a big exception to the oral assurance his staff had provided. He again assured us that the Board did not intend to suggest that typical Sub S shareholder agreements were covered by this guidance. He explained that his letter had to be reviewed by “legal” first and they always put something in that gives them room. Coincidentally, at about this same time we and other banking lawyers began having an issue raised relating to shareholder agreements which Director Watkins was not aware of but which we believed had arisen in connection with the SR 15-15 discussions.

http://subsbanks.wpengine.com/wp-content/uploads/2018/05/2016_5_12-Response-on-SR-15-15-1.pdf

Patrick J. Kennedy, Jr. is founder of the Subchapter S Bank Association and managing partner of Kennedy Sutherland LLP, which provides comprehensive legal services to banks, bank holding companies, and directors, officers and shareholders. He can be reached at pkennedy@kslawllp.com or 210-228-4431.

We have been extremely busy over the past 6 months moving HR 2789 and 3287 forward. The following is a brief summary of our activity.

January 4th: Correspondence to Sub S Banks in each Ways and Means Committee Members District soliciting their support;

January 5th: Meeting with Chairman Brady and Speaker Ryan in San Antonio to discuss the bills and the importance to community banks;

January 7th: Meeting with American Bankers Association Executives in Washington, DC to discuss bills;

March 31st: Second meeting with Speaker Ryan on the bills;

March 31st: Discuss bills with Congressman Hurd;

Aprils 6th: Discuss bills with Congressman Blaine Luetkemeyer in San Antonio;

April 21st: Chairman Brady indicates his intention to move several members bills through the Committee during the next 60 days; Rep. Marchant calls on us to get banker input, particularly from the Chairman’s District in Houston
area; and other Ways Membera nDdis tricts Means Committee Numerous calls are made to bankers in his District and Bankers respond, including banks that were C Corp and wanted to be S but did not want to eliminate shareholders;

April 27th: Follow up meetings with the Comptroller of Currency staff in Washington, DC on the bills;

April 28th: Meeting with Chairman Brady in the Capitol to discuss the bills in detail. He spent 45 minutes with us and brought his senior staff into the discussion; he expresses strong desire to help community banks and envisions these bills as a way to do that;

Additional follow up discussions are held between Ways and Means staff and Rep. Marchant’s staff following this meeting;

April 29th: Congressman Marchant asks for comments and support letters. 

May 3rd: Congresman Boustany Announces Tax Policy Subcommittee Member Day Hearing on TaxLegislation set for May 12th.

May 12th: Hearing is held in the Tax Policy Submcommittee on the bills and testimony is filed by the Sub S Bank Association, the ABA, ICBA and Independent Bankers Association of Texas, and several community banks;

May 10th: The Association sent requests for additional testimony and support to approximately 25 state bank associations and to task force members and other Sub S banks; some additional comment letters and testimony was filed before the expiration date on May 26, 2016;

Copies of some of the support letters can be found on the Subchapter S Bank Association website in the member’s only section. To view them you will need to log in with your member username and password. If you can’t remember your log in information contact atrevino@kslawllp.com and she will send you log in information to view the material;

May 17th: Joint Committee on Taxation (JCT) (www.jct.gov) is brought into the conversation and suggests the bills would have a high cost to the US Treasury if enacted; 

We provide initial responses to the contrary and seek a meetingwith the JCT and Committee staff; in the meantime we go to work developing the data to support our belief and disprove their concerns (A brief summary of the initial conclusions is included);

May 26th: D iscussions with ICBA on status of bills;

June 3rd: Meeting in Washington with Rep. Marchant's and Committee staff to discuss varing issues and prepare for JCT meeting the following week; Committee staff asks about eliminateing preferred stock authorization and possibly reducing the number of permissible shareholders in an attempt to bring down the anticipated cost of the bills and get them a path forward. We express our views that there should not be a cost based on numbers and that the preferred stock is a very important
element to the bills, but if it has to be eliminated, then it is still better to get a bill;

June 4th: Meeting in Washington with our data analyst to receive results of report and further prepare for meeting with JCT;

June 7th: Travel back to DC to meet with JCT; preparatory meeting with Curtis Davidson, Chairman of Oklahoma Bankers Association who is a member of ABA’s Tax Policy Committee and who attends JCT meeting as a representative Sub S community banker from Ardmore, Okahoma;

We presented results of our C vs S tax revenue contribution to US Treasury to JCT which documents that when using the highest margninal tax rates, S corp Banks are paying 60-80% more revenue to the US Treasury than C corps. on a per $1 of assets basis. JCT believes the tax rates are lower and expresses continued concern about preferred stock and seeks to limit its ownership to S corp qualified shareholders; JCT requests we modify our proposal before they come up with a score;

Further discussions with Committee staff initiated;

FUTURE PLAN
July 5th: Meeting scheduled with Assistant Secretary of Treasury for Domestic Financial Institutions to discuss bills and related community bank matters; additional congressional meetings scheduled;

July 15th: The House is set to adjourn on July 15 and not return until Sept. 6, according to the calendar. The House will then be in session until Sept. 30, and adjourn until Nov. 14, after the elections;

July 18th: The Senate is running on a similar summer schedule, with its recess formally running from July 18 through Sept. 5. Senators are scheduled to be in session during the fall a bit longer than the House, with the Senate’s target pre-election adjournment date set for Oct. 7. The chamber will also return Nov. 14 after the elections.

In connection with our discussions with the Joint Committee on Taxation about HR 2789 and the potential cost of the bill to the US Treasury, the Association engaged an academic who utilized the FDIC Call Report database to assist us in developing statistics and characteristics of C corp and S corp banks. He conducted a review of all S corp and C Corp banks for each quarter beginning Q1 2015 through Q1 2016.

He calculated the following:

C corp tax revenue per dollar of assets

• All C corp net income per dollar of assets (total C corp income divided by the total average assets of all Ccorps).
• Then he applied a 30% corporate tax rate on C corp banks’ net income per dollar of assets.
• He then calculated the amount of dividends paid by C corp banks per dollar of assets (total dividends paid divided by the total average assets of all C corps).
• Then he applied a 20% dividend tax rate per dollar of assets.

S corp tax revenue per dollar of assets

• All S corp net income per dollar of assets (total S corp income divided by the total average assets of all S corps
• Then he applied a 43.4% tax rate (which is the highest individual marginal federal income tax of 39.6% plus the net investment income tax of 3.8%).

The conclusions he reached are set forth in Table A below and reveal that S corp’s and their shareholders pay more tax, assuming the above rates, than C Corps by 60-80% depending on the quarter.

TABLE A

Using the same data, he assembled Table B below which reflects a range of assumed income tax rates on S corp income and C Corp income. The foregoing is a brief summary of the results. A more complete report of these conclusions is in process.

TABLE B

The last US troops were pulling out of Vietnam, the Watergate scandal broke, and Bobby Fischer beat Boris Spassky to become the World Chess Champion – the year was 1972. This was also the year that the Board of Governors of the Federal Reserve issued Federal Reserve Regulatory Service bulletin 4-185.5. This bulletin was issued because the Board had received a number of inquiries by staff of the Reserve Banks regarding whether a voting trust or buy-sell agreement relating to the voting shares of a bank constitutes a “company” as defined by section 2(b) of the Bank Holding Company Act. We have recently had this bulletin applied to S corp shareholder agreements by the Federal Reserve, despite our position that it is completely inapplicable. The test for determining if a voting trust or buy-sell agreement constitutes a “company” is provided below:

“…[T]he Board has determined that, under most circumstances, a voting trust agreement should not be considered a “company” as defined in section 2(b) of the act if it

1. relates only to the shares of a single bank,
2. terminatesDub Sutherlandwithin 25 years,
3. engages in no other activity except to hold and vote the shares of a single bank, and
4. involves parties who are not participants in any similar voting trust or related agreement with respect to any other bank or nonbank business.

Further, a buy-sell agreement which satisfies conditions 1, 2, and 4 above with respect to voting trust agreements should not, under most circumstances, be considered a “company” under section 2(b) of the act.”

The bulletin goes on to say that voting trust and stock-purchase agreements that don’t meet all of the conditions provided are not automatically required to register as a bank holding company, but they should continue to be “reviewed” in detail for elements of “company” status.

This bulletin resurfaced in several recent bank holding company formations and related S corp elections. The respective Reserve Banks have required us to submit our client’s shareholder agreement for review pursuant to SR 15-15 (see related article in this newsletter). And in our conversations with the Reserve Bank staff members as well as staff at the Board, we have been informed that the 25-year limitation needs to be included in order to assure that the shareholder group that is a party to the shareholder agreement is not treated as a “company.”

ANALYSIS
Despite having drafted hundreds of these agreements over the past 20 years, we have never heard of this concern until this year. Despite our disagreement with their position, we were informally advised that the Board’s opinion about
including the 25-year limitation is firm.

Here is the problem, all S corp bank shareholder agreements that we draft are binding on all of the shareholders of the holding company, which is already acknowledged as a “company.” S corp bank shareholder agreements do not provide much value if they don’t bind all shareholders in order to ensure shareholder limits and provide for other S corp status protective provisions. Looked at another way, S corp bank shareholder agreements are not limited to some subset of shareholders that could constitute a “company,” and therefore, should be excluded from being reviewed for purposes of determining if they establish a separate “company.”

In addition, most S corp shareholder agreements don’t speak to voting requirements other than those that relate to amending the shareholder agreement or terminating the S corp election and they also otherwise satisfy condition 1, 2, and 4 contained in the bulletin.

RECOMMENDATION
Given our analysis of the bulletin, we do not believe that S corp banks should revise their shareholder agreements to include the 25-year time limitation, unless the shareholder agreement is not applicable to all of the shareholders of the bank holding company, but, we intend to have some follow up with the General Counsel’s office to bring this to a satisfactory resolution when time allows – the open questions are:

• Should every bank holding company with such an agreement amend their agreement to limit its term to 24 years and 11 months?
• Should a shareholder agreement timeline begin from the day it was made effective or the day it was most recently amended?
• What should a bank holding company do with an agreement when it reaches the 25th year? Amend and extend for another 25 years?

If you would like to discuss further, please contact me at the phone number or email below.

William “Dub” Sutherland VI is a partner at Kennedy Sutherland LLP and advises the firm’s banking, business and not for profit clients on a range of corporate and strategic issues. He can be reached at 210-228-4444 or
dsutherland@kslawllp.com.

The New Markets Tax Credit (NMTC) was established in 2000 and provides a tax credit to investors who invest in distressed communities. By providing private capital, the amount of equity or traditional lending needed for projects is significantly reduced. Since 2003, the NMTC program has generated over $75 billion in private investment for lowincome communities.

In recent NMTC allocation rounds, the Community Development Financial Institutions Fund (CDFI Fund) has prioritized investment in identified States that receive less NMTC investment in proportion to their population. These high priority States have included Alabama, Florida, Georgia, Idaho, Kansas, Nebraska, Nevada, Tennessee, Texas and West Virginia. In addition, investors are particularly keen on investments in rural communities within these States and have current allocation ready to deploy for projects in these areas.

The next round of NMTC awards will be announced in late 2016 and will total $7 billion of investment authority. The targeted States will continue to be a priority for NMTC investors. Development projects in rural communities, healthcare projects, healthy food projects, projects supporting non-profits and projects that involve significant community engagement will all be in high demand.

NMTC investors generally are seeking a project that will create or retain a meaningful number of jobs and/or promote important community benefits such as healthy foods, health care access, educational or other special needs. The desired project size usually ranges from $6MM to $12MM or more. For profit and not for profit project owners/sponsors qualify but government entities do not unless the project is transferred to and and developed in an affiliated not for profit development entity.

Banking regulators particularly favor banks involvement in NMTC transactions and consider it "high value" CRA activity because of the community impact and the innovative and complex nature of the transactions. We are happy to discuss how your project may benefit from the powerful NMTC subsidy. For more information or if you have a project in a qualifying area contact Tim Miller at tmiller@kslawllp.com or 210-591-8090 or Patrick J. Kennedy, Jr.

Tim Miller is an associate at Kennedy Sutherland LLP. His practice focuses on business and corporate law with a specialemphasis on tax credit financing.

• Rep. French Hill, (R-AR)., has introduced legislation (H.R. 4831) that would address this problem. The legislation would amend the Internal Revenue Code so that shareholders who only acquired their shares via a crowdfunding offering or a Regulation A offering would not count towards the 100 shareholder S corporation limit. This legislation would eliminate an important impediment to capital formation for small S corporations and promote job creation, innovation and higher wages.
• On April, 20th the Association sent out an alert on H.R. 3791, by Congressman Mia Love (R-UT), after it passed the House with a vote of 247-171. The bill would require the Federal Reserve to raise the consolidated assets threshold under the Small Bank Holding Company Policy Statement to $5 billion from $1 billion. The bill curently is in the Senate and was referred to the Committee on Banking, Housing, and Urban Affairs committee.
• Chairman Vern Buchanan (R-FL), a member of the Committee on Ways and Means, introduced H.R. 5076 – the Main Street Fairness Act, which addresses current and future tax parity for pass-through entities as Congress debates tax reform. The maximum individual tax rate is currently 39.6 percent, versus a maximum corporate rate of 35 percent. H.R. 5076 would remedy the current disparity and ensure that the parity is preserved in future tax reform.
• Chairman Jeb Hensarling (R-TX) has laid out his plan to reduce the Dodd Frank Act. Hensarling’s comprehensive proposal, dubbed the Financial CHOICE Act, would include: Relief from key provisions of Dodd-Frank for any bank maintaining a simple leverage ratio of 10% and a CAMELS rating of 1 or 2; Key regulatory reform measures to grant QM status on all loans held in portfolio, tailor future regulations to institutions of varying risk profile and provide greater recourse to appeal a material supervisory determination; A requirement of financial regulators to conduct a detailed cost-benefit analysis of all proposed regulations; A repeal of the Durbin amendment; and A revised plan for oversight of so-called “too-big-to-fail” institutions.
• Chairman Paul Ryan (R-WI) last week gave a glimpse during his “Better Way” speech on comprehensive legislation that could be introduced during the next Congress. The plan included a number of similar proposals as Hensarling’s which aims at reducing regulatory burden on financial institutions. To read the Better Way Taskforce Report on the Economy visit: http://abetterway.speaker.gov/_assets/pdf/ABetterWay-Economy-PolicyPaper.pdf (Finanacial reform section begins on page 39.)

OCTOBER 27-28, 2016
THE WESTIN RIVERWALK, San Antonio, TX

Book your room: http://tinyurl.com/jyvt8sp
Register now at: http://tinyurl.com/j9d5h8s

If interested in becoming more involved or have topics you would likecovered email: atretvino@kslawllp.com

SCHEDULE AT A GLANCE
This year we are offering courses during our break out sessions that fit each of our registrants needs. Below, you will see Course Codes: (101-Beginner, 201-Intermediate & 301-Advanced). We encourage you to pick the session that best fits yours and your bank’s needs/knowledge. Full agenda with speakers to follow.

THURSDAY, OCTOBER 27, 2016
7:00 am to 8:0 0am Registration and Breakfast
8:00 am to 8:10 am Welcome / Opening Remarks
8:10 am to 9:00 am Legislative Update
9:00 am to 10:4am Economic Outlook
10:40 am to 10:5 am Break
10:50 am to 11:40 am Executive Compensation Structures (101)
11:40 am to 12:30 pm Break Outs:

1.  Holding Company Finance Tools (201)
2. Executive Comp Case Study (201)
3. Bank Marketing (101)

12:30 pm to 1:30 pm Lunch with Speaker
1:30 pm to 2:30 pm Break Outs:

1. ESOPs (101)
2. Mergers & Acquisitions Update (101)
3. Conversations with Sub S Specialist

2:30 pm to 3:30 pm Break Outs:

1. Vendor Management
2. Family Banking Succession Planning
3. Riches in Niches

3:30 pm to 3:40 pm Break
3:40 pm to 4:30 pm Accounting & Tax Update
4:30 pm to 6:00 pm Reception

FRIDAY, OCTOBER 28, 2016
7:00 am to 8:00 am Registration and Breakfast
8:00 am to 9:45 am Investment Portfolio Management
9:50 am to 10:50 am Board Matters, Corporate Governance & Shareholder Succession
11:00 am to 12:00 pm Break Outs

1. ESOP Compliance & Leveraged ESOPs (201)
2. Estate Planning (101)
3. Shareholder Management (101)

12:00 pm to 1:00 pm Lunch with Speaker
1:00 pm to 1:50 pm Break Outs:

1. Fintech
2. Accounting & Tax Update (201/301)
3. Benefits (and costs) of a Bank Holding Company (101)

2:00 pm to 2:50 pm Break Outs:

1. Implementing a Business Process Excellence Program (101)
2. Liquidating a BHC after Qsub Sale (301)
3. Preventing an Inadvetent Termination (201)

2:50 pm to 3:50 pm Fintech Demos & Exhibits