Due Diligence

Over nearly twenty years ABA has provided due diligence services to banks and investors related to acquisitions of financial institutions or specific loan portfolios. In the current turbulent banking environment this activity has increased substantially, and ABA has been called on regularly to assist in determining the value of assets being purchased and identifying any potential gaps and weaknesses that the buyer needs to address.

While ABA has the resources to evaluate entire banking organizations, we are usually part of a team of professionals and our mandate is focused on the quality of the loan portfolio and credit risk management. The engagements generally are one of two different methodologies:

 
Full analysis of credit risk management and the loan portfolio to include evaluation of policy, processes, staffing, organization of lending effort, portfolio risk profile based on risk ratings, and potential credit losses in the loan portfolio.
  • Gaps and weaknesses are identified and recommendations for mitigation strategies are provided.
  • Significant specific credit file reviews based on information in credit files.
  • Interviews with personnel from executive level through all levels of staff.
  • Review of policies, procedures, strategic plan, marketing plans and business plans.
  • Review of personnel performance and incentive plans; loan review, audit and compliance examiner reviews; and all portfolio reports available for lending management, executive management and the Board of Directors

Specific credit file reviews based on information in credit files, examiner reports related to audit, compliance and loan review, and portfolio reports available to lending management, executive management and the Board of Directors.

  • While this type of engagement is more specific and focused it nevertheless will provide an evaluation of the lending process, gaps and weaknesses, and the ultimate risk and value in the loan portfolio.
The methodologies above are predicated on the buyer’s resources that can be applied to the effort, the intent of the acquisition (continued involvement by current management of the target or merely an acquisition of the portfolio) and can be modified and tailored to specific needs and desires of the buyer.
 

 

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