Due Diligence Portfolio Evaluation
All transactions carry risk — especially the large and strategic. We specialize in revealing the exposures and liabilities of your most critical pursuits.
CRM_A delivers market-proven due-diligence solutions to a range of clients – banks, investment bankers, equity investors.
- M&A portfolio assessments — single client and multilateral
- Internal assessments to support capital raising
- External assessments for private equity groups, prior to capital investment
- Loss-sharing arrangements — assessing troubled banks for deals with federal regulators.
Core Methodology for Impaired Loan Analysis
Successful loan-portfolio due diligence rests on accurate predictions of potential capital needs, and thus Allowances for Loan and Lease Losses (ALLL). We identify which loans meet the regulatory definition of impaired, and determine the most realistic reserve estimate (required for Individual Loans ASC 310-10-35, Receivables — Overall — Subsequent Measurement [formerly FAS-114]).
CRM_A calculates the adequacy of any Loan Loss Reserve using our proprietary ALLL Model – an estimating tool that integrates two decades of experience with the most recent comprehensive federal regulatory guidance (issued Dec. 2006):
Taking an appropriate due diligence sample, CRM_A extrapolates an overall ASC 450 – Contingencies (formerly FAS-5 ) Formula Loan Loss Reserve estimate to complement the Individual Loan Loss Reserve estimates. This is true for any credit that is:
- Designated Impaired by the bank being evaluated, or
- Identified as Impaired by CRM_A following reviews of:
- The majority of Watch List Loans
- A reasonable sample of other suspect categories
Again, CRM_A’s Loan Loss Reserve sufficiency evaluation is the core of our loan portfolio due diligence, but far from the end. Other analyses include:
- Degree of overall regulatory concerns; adherence to specific consumer compliance requirements.
- Credit-risk culture and practices; thoroughness of underwriting and approval processes.
- Quality of Loan Documentation; organization of collateral files (paper or imaged files).
- General risk levels and concentrations; evaluation of bank risk management systems and reporting.
- Accuracy and timeliness of OREO valuations.