The presentation will explain how and when to realize the maximum value for your business in a sale or corporate finance transaction and will provide a step by step overview of the process of preparing your company for either event. Topics included in the presentation are as follows:

• How to value your business
• The main difference between a financial buyer and a strategic buyer, and which one will put more money in your pocket
• The steps in negotiating a business sale, and deal structures that can maximize your proceeds
• How to plan the business sale

Bob McDonald, Tax Shareholder at B&V and Rick Hunter, Managing Director of B&V │ Lexbridge will be presenting at the seminar.

Whether you are currently in the process of selling your company or just beginning the planning stage, this informative seminar will provide you and your management team with invaluable information. The sale or refinance of your business will probably be the largest financial transaction of your business career, and should be professionally planned and carefully executed.

For more information on the seminar, or if you are interested in registering for the event, please call us at 713.667.9147 or email RSVP@bvccpa.com.

Bob McDonald

Rick Hunter

Briggs & Veselka Co. was recently invited to present to these two scholarly institutions and educate the international students on U.S. tax reporting requirements that affect them.

Many international students receive scholarships or stipends or decide to work part-time, and once IRS forms are issued in the spring, most students are unaware of what to do with these forms.  For this purpose, Briggs & Veselka (“B&V) was asked to provide a tax workshop to discuss applicable U.S. tax requirements and U.S. tax forms required to be filed with the IRS.

B&V provides these tax workshops on the campuses of these universities on an annual basis in the spring.

At the specific tax workshop B&V recently presented, students were encouraged to bring their IRS forms to the workshop. Crystal Gates, Senior Tax Manager at B&V and Kelley Heng, Senior Tax Associate at B&V discussed U.S. tax reporting requirements and specifically Form 8843, which is an informational form that declares to the IRS that an international student is attending school in the U.S. on a student visa.  This form must be filed every year with the IRS regardless if any income was earned.

Students at Rice University and the University of St. Thomas were appreciative of this tax workshop, and many waited after the presentation to ask Crystal and Kelley questions.

Current college students are our future leaders in business, chemistry, engineering, medicine and literature to name just a few industries, and the Office of International Students & Scholars at these universities ensures international students are getting the best education in the U.S. as well as meeting their U.S. tax compliance.

Briggs and Veselka Co. is proud to be able to provide information and guidance in this area.

Crystal Gates                                                                   Kelley Heng
Senior Tax Manager                                                         Senior Tax Associate

This year’s annual event honours Johnny & Linda Veselka for their continuing participation and involvement with the Society for approximately four decades. Johnny has served on various committees with the CPA Society, both locally and state wide throughout his expansive career.

“I appreciate the honour bestowed on me by the Houston Chapter and would like to say that it would not have been possible to achieve without the support of everyone I have been associated with at Briggs & Veselka Co., family and friends,” said Johnny Veselka, one of the founders and past Managing Shareholder of Briggs & Veselka Co.

“I cherish the memories of my activities in the accounting and civic area during my career in Accounting and especially seeing how the Firm has grown and continues to grow as a major force in the Houston area,” Johnny concluded.

To find out more information about this event, you can visit the Houston CPA Society’s website at: www.houstoncpa.org.

Terms of the agreement are confidential, but CPAs and shareholders James “Jim” O. White, Jr. and Brenda G. White will join Briggs & Veselka along with former White Garrison & Hill staff. To support a seamless transition, staff took advantage of the holiday break to relocate to Briggs & Veselka offices. The acquisition was effective December 31, 2012.

“White Garrison & Hill shared similarities with Briggs & Veselka in both their culture and ideal client base, and we are happy to have them on our team,” noted Briggs & Veselka Managing Shareholder John Flatowicz. “In addition to our goals of hiring experienced professionals and attracting new clients, we are looking for similarly aligned and reputable public accounting firms to acquire — all of which support increased market share in the Houston area.”

Brenda White shared similar sentiments: “We believe that this move will not only provide opportunities for our staff, but also expand services and resources to our loyal and valued clients. We know that Briggs & Veselka will uphold the quality and reputation that White Garrison & Hill has embodied since our founding in 1990.”

Briggs & Veselka Co. CPAs and Business Advisors is the 8th largest Houston-area public accounting firm, providing reliable business and financial services to individuals and emerging middle-market businesses in the greater Houston area since 1973. The firm has more than 150 employees and 18 shareholders, offering tax, audit and a wide range of business advisory services, from fraud examination and business valuations to M&A support and international tax services. B&V is a member of BKR International, a leading association of independent accounting and business advisory firms, representing the expertise of more than 150 firms in 300 offices in over 70 countries around the world. For more information, visit www.bvccpa.com or call 713-667-9147. Trust Counts.

Federal Income Tax:

The current income tax rates for individuals will stay in place for most Americans, leaving taxpayers making more than $400,000 for single filers and $450,000 for joint filers to carry most of the burden. They will see their maximum tax rates increase from 35% to 39.6%.

Personal Exemption Phaseout (PEP):

This provision reduces or eliminates the benefit of personal exemptions for both taxpayers and their dependents by 2% for each $2,500 that their adjusted gross income (AGI) exceeds the threshold for the relevant filing status. The starting threshold will be for those making $250,000 for single filers and $300,000 for joint filers.

Itemized Deductions:

This provision reduces the amount of allowable itemized deductions for higher-income taxpayers. Those making $250,000 for single filers and $300,000 for joint filers, will see their itemized deductions reduced by 3% of the their adjusted gross income in excess of the threshold amount. The reduction cannot exceed 80% of otherwise allowable itemized deductions.

Capital Gains and Dividend Tax Rates:

The top rate for capital gains and dividends will permanently rise from 15% to 20% for taxpayers $400,000 for single filers and $450,000 for married taxpayers. When adding the 3.8% surtax effective January 1, 2013, due to the Health care act, the overall rate for high-income taxpayers will be 23.8%. The base 15% rate will continue to apply to taxpayers in the 25%, 28%, 33% and 35% income tax brackets.

Estate & Gift Taxes:

The new law extends the $5 million (adjusted by inflation) lifetime exclusion for estate & gift tax purposes.
The maximum tax rate for both was increased from 35% to 40%.

Social Security Tax:

Americans at all income levels will see a 2% jump in their employee portion of the Social Security tax. It will return to the 6.2% level in 2013 after the stimulus rate of 4.2% expired on 12.31.2012.

Other:

The law also permanently increased the Alternative Minimum Tax exemption to allow many taxpayers to avoid becoming subject to that tax. Provisions that were extended for 2012 that had previously expired were the sales tax deduction and many individual tax credits.

Click here to read CCH’s Tax Briefing entitled, “Fiscal Cliff Tax Legislation”.

For more information on how this act will affect you, please feel free to contact us at 713.667.9147.

Please click here to read further information about this award.

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Stress Testing: Understanding Your Loan Portfolio

By: David Munn
Business Advisory Services Director

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is considered by many analysts to be the most comprehensive financial regulatory reform measure taken since the great depression. That is a considerable statement if you consider that the Garn-St. Germain Act of 1982 deregulated the mortgage industry which may have precipitated the crisis that Dodd-Frank is trying to prevent from recurring.

By most measures, Dodd-Frank is a complicated piece of legislation. While pundits will argue that it targets only the largest financial institutions, many community bankers are not readily convinced. Whether it is the rules affecting mortgages, the “agenda” being offered by the newly established Consumer Financial Protection Bureau or that the rules being drafted to accompany the law will eventually trickle down to community banks – community bankers feel that there is much about Dodd-Frank to be concerned about.

The FDIC is responsible for implementing a number of initiatives under the Dodd-Frank Act. Within the Act are the parameters dealing with stress testing. Dodd-Frank provides that banks over $10 billion will be required to conduct annual stress tests. Since adoption, the various Federal regulators have been working to adopt consistent “stress test” parameters including a uniform definition. That definition was finalized when the FDIC released its Summer 2012 edition of Supervisory Insights. By definition, “Stress testing is a forward-looking quantitative evaluation of stress scenarios that could impact a banking institution’s financial condition and
capital adequacy”. The publication goes on to say that stress testing expectations for the institutions in excess of $10 billion are not required for community banks. So what do the regulators expect of banks less than $10 billion?

In a statement released jointly by three Federal regulators on May 14, 2012 , the statement reiterated that community banks are not required to conduct the types of stress testing directed at larger institutions.

However, “the agencies continue to emphasize that all banking organizations, regardless of size, should have the capacity to analyze the potential impact of adverse outcomes…”. Read – all banks should incorporate stress testing.

Stress testing is not new and does not have to be complicated. However, it does require a more familiar understanding of your loan portfolio. The Department of Banking has been stress testing loan portfolios for over ten years as part of the examination process. Essentially there are two methods for stress testing loan portfolios. I refer to them as Macroeconomic and Microeconomic methods.

Stress testing on a Macroeconomic scale occurs when risk assessments are based upon assumptions about potential adverse external events that could adversely affect entire portfolios. Examples include changing market conditions or a sudden and dramatic increase in interest rates. Free markets change continually, so for testing purposes the key word is “stress”. What would severe and extended drought conditions mean to farmers & ranchers? What would $40 oil for an extended time frame mean to the numerous oil field support service firms? What would happen to the East Texas poultry industry if a natural disaster wreaked havoc over an extended time frame? These are examples of market changes that can devastate select loan portfolios.

Stress testing a credit portfolio on a microeconomic basis means subjecting individual credits to extreme conditions. The risk factors employed can be unique to the borrower or they can be unique to the area. Factors again can include changes in interest rate and changes in market conditions. An extended drought will have a direct impact on a bank’s farming customers, but it will also have an indirect effect on other businesses in the community. But on a microeconomic level we are in a better position to understand customers and their ability to adapt. Do they have the capital, liquidity, experience and customer diversification to withstand calamity and, if so, for how long?

Stress testing, if done properly and adequately, is nothing more than information or an informative tool. Texas bankers went through stressful times from the mid-1980’s to the early 1990’s. Texas bankers, those that survived, emerged stronger and wiser and now the Texas economy is the envy of most states. If some of the banks that didn’t survive would have had a better understanding of their loan portfolios would they be around today? I don’t know, but it’s safe to say if they had known what was coming they would have reacted differently.

Welcome David Munn to the B&V Team

David Munn is Briggs & Veselka Co.’s Business Advisory Services Director. We would like to welcome David to the team and provide you with information on his expansive professional background.

David had over 28 years of continuing service with the Texas Department of Banking. During his career, David assumed an escalating degree of responsibility in the examination of state chartered or licensed financial institutions including commercial banks, trust companies, foreign bank agencies and money service businesses. As a result, David has an excellent understanding of bank operations, credit administration and the unique rules and regulations made applicable to these institutions.

Throughout his career with the Banking Department, David served as a Senior Bank Examiner and was responsible for directing the examination of state chartered financial institutions. He has a thorough background in evaluating the condition of institutions
through assessing capital, asset quality, earnings, liquidity, sensitivity to market risk and all aspects of management.

David’s professional career includes:

• Participating in over 550 examinations of institutions ranging in size from small community banks to regional banks with assets in excess of $60 billion.

• Serving as Examiner In Charge of over 125 examinations of smaller community banks to larger regional institutions with assets in excess of $10 billion.

• Working independently, or with federal law enforcement officers, in performing approximately 100 bank fraud investigations resulting in numerous convictions or Prohibition Orders issued by the Banking Commissioner.

David graduated from Texas State University in San Marcos with a Bachelor’s Degree in Business Administration. He also graduated from the Colorado School of Banking in Boulder, Colorado. He is a member of the Association of Certified Fraud Examiners.

If you would like to contact David Munn, you can reach him at DMunn@bvccpa.com or by calling 713.667.9147.

Basel III – Are regulatory capital increases coming soon?

By: Dan St. Clair, CPA
Audit Principal

Over the past few months the most frequently asked questions at Board and Audit Committee meetings have been about Basil III. There appears to be a great deal of uncertainty related to this new guidance and how it will affect Community Banking. What appears clear is, whether through Basil III or other means, there has been steady pressure to increase the level of regulatory capital required for financial institutions. The underlying goals of Basel III include strengthening the quality of regulatory capital, improving loss-absorbance safeguards and enhancing banks’ ability to continue functioning as financial intermediaries, especially during periods of financial stress.

Key changes noted in the new guidance include an increase in Tier 1 capital ratio from the current 4.0% level

up to 6.0%, with a new “Common equity Tier 1 capital ratio.” This new ratio, proposed at 4.5%, would exclude non-cumulative perpetual preferred stock which currently qualifies as tier 1 capital. Also new are Capital Conservation Buffers that would need to be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments.

Perhaps the most significant changes relate to risk-weighted assets, as the guidance will introduce more sensitive treatment on multiple credit exposures. There are new or increased risk weights proposed related to exposure to foreign sectors, residential mortgages, volatile commercial real estate such as development or construction, past due exposures and several other areas.

For example, 1-4 Residential Mortgages are currently set as a 50% risk weighting. Under Basil III, the risk weighting can range from 35% to 200% depending on several factors. The new guidance provides for two categories of 1-4 family loans. Characteristics for a category 1 loan would include terms not to exceed 30 years, fully amortizing loans with no balloon payment and not more than 90 days past due, with all loans not meeting these criteria being classified as category 2 loans. Within both categories, the risk weighting will range based on initial loan-to-value (LTV) with category 1 from 35% to 100% and category 2 from 100% to 200%. It is important to note that these risk percentages are based on initial LTV, which means the banks must now store information on the original loan-to-value and that the risk weightings will not decrease as the risk of loss decreases with improved LTV.

The Basel Committee on Baking Supervision published the Basel III proposal in December 2009 and noted that banking organizations “will need to hold more capital to meet the new minimum requirements.” The Federal Reserve has proposed applying this regulation to all U.S. banks and would phase in beginning January 2013. This proposal was open for comments until September 7, 2012, which was extended until October 22, 2012, and we now wait for any updates related to consideration of those comments. Due to the significant response from the public and industry sectors during the comment period, it is expected that the Federal Reserve will take another look at the situation to make any changes in the rules less complicated. Look for additional information on the effects of Basil III coming soon. Whether adopted or not it appears very clear that regulatory capital increases are coming soon.

Upcoming Liquidity & Interest Rate Disclosure

By: Travis Williams
Audit Manager

The Financial Accounting Standards Board (FASB) has proposed the Accounting Standard Update (ASU), Disclosures about Liquidity Risk and Interest Rate Risk, as there is a strong demand by users of financial statements for improved disclosures in the liquidity risk and interest rate risk disclosure. This is follow-up to the ASU No. 2010-20 issued in July 2010 which addressed the credit risk disclosures. The ASU was issued in June 2012 with a focus on improving disclosures around liquidity and interest rate risk. This ASU is open for comments and all comments for this proposed ASU are due by September 25, 2012. The following is a brief overview of the ASU:

Liquidity Disclosures
The liquidity disclosures, which will apply to all entities, will provide information about the risks that the reporting entity will encounter difficulty when meeting its financial obligations. For this disclosure the following is required:

1. Liquidity Gap Maturity Analysis – This will disclose the expected maturities of financials assets and liabilities.
2. Available Liquid Funds – This will disclose all available liquid funds.
3. Issuance of time deposits (for depositary institution) – This will disclose the cost of funding from the issuance of time deposits and acquisition of brokered deposits.

Interest Rate Risk Disclosures
The interest rate risk disclosures, which will apply to only financial institutions, will provide information about the reporting entity’s exposure to fluctuations in market interest rates on its financial assets and liabilities. For this disclosure the following is required:

1. Repricing Gap Analysis – This will disclose disaggregated classes of assets and liabilities based on the repricing dates of classes of financial instruments.
2. Sensitivity Analysis – This will disclose the interest rate sensitivity that presents the effects of hypothetical, instantaneous interest rate changes on earnings and equity.

The proposed ASU brings the convergence of US GAAP closer to International Financial Reporting Standards (IFRS). The proposed ASU does not have an effective date; it will however be effective as of the beginning of the period of adoption. The ASU also has illustrative disclosures and tables for the required information. We suggest discussing the update with your third party vendors in order to have these disclosures ready as of the financial statement date. A copy of the exposure draft can be found on the FASB’s website.

For more information on how Briggs & Veselka Co. can be of assistance, please contact us directly. For accounting assistance, contact Dan St. Clair or Travis Williams. For internal controls, compliance and regulatory assistance, contact David Phelps or Terry Sherrill. For loan review and portfolio stress testing, contact David Munn. All can be reached at 713.667.9147.

Click here to read more information about the event and register to attend.