Kevin Graff

Loan Portfolio Due Diligence: Leveraging the Opportunity for Acquisitions 

Loan Review Series: Part 3 of 3 

By: Kevin Graff, President

When acquiring a financial institution or purchasing a loan portfolio, thorough due diligence is critical. This process equips leadership with the insight needed to make informed decisions, manage risk, and integrate assets confidently. At Integrity Loan Review, we specialize in commercial loan review due diligence, providing clear, actionable insights that support a seamless acquisition process. 

The acquisition of a financial institution has many moving pieces which all need to be choreographed and closely managed in a discreet way, to efficiently and effectively complete the transaction.  Company resources may be spread thin to meet the acquisition benchmarks in a timely and meaningful way.  Focus can be drawn away from existing customers as staff work toward completing due diligence activities. 

Loan portfolio due diligence is a key aspect of executing an acquisition, as the loan portfolio is typically the highest risk area.  We can help alleviate some of the pressure and time constraints on your team by providing the loan portfolio due diligence necessary to deliver the critical information management needs to assist in negotiating the terms of an acquisition.  We can help your team develop a risk-based approach to the loan portfolio due diligence process to make best use of the resources available for the potential acquisition. 

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Beyond the Basics:
Unlocking the Power of Targeted Loan Reviews
Loan Review Series: Part 2 of 3 

By: Kevin Graff, President

When it comes to managing a loan portfolio, most financial institutions are well acquainted with full-scale loan reviews. But sometimes, the smartest move is not to audit everything—it’s to focus on what matters most. A targeted loan review offers a precise and cost-effective approach that zeroes in on specific segments of a loan portfolio, allowing institutions to proactively manage both growth and risk. 

What Is a Targeted Loan Review? 

Unlike a full-scope loan review, which encompasses a large segment of the entire loan portfolio, a targeted review focuses on specific loans, specific segments of the loan portfolio, borrower types, industries, geographic areas, watch and worse rated credit relationships or other risk segments. These reviews can be prompted by a variety of factors—not all of them negative.

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How to Maximize the Benefit of an External Loan Review
Loan Review Series: Part 1 of 3

By: Kevin Graff, President

Third-party loan reviews can be an excellent way to manage a variety of risks a financial institution is exposed to.  These can include credit underwriting, credit administration, and reputational risks.  A loan review should provide insights into the effectiveness of the risk rating process, credit underwriting and credit administration function. 

Leveraging the overall loan review process will result in a more effective loan review.  Up-front time preparing for the review will maximize the return on investment in the loan review process.   Every loan review firm has their own approach to a loan review engagement. While the specific steps and processes may differ, they all require timely access to the credit file information and the appropriate personnel from the financial institution. 

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ACL Model Validation

Part III: Qualitative Adjustments

By: Peter Warmenhoven, Consultant

As previously mentioned in Part 2 of this ACL Model Validation series, financial institutions have recently transitioned to the new Current Expected Credit Loss, or “CECL” method of estimating the Allowance for Credit Losses (“ACL”). While much about the CECL method is unfamiliar, and while ACL calculation models vary, there are a few basic similarities with the previous incurred-loss method. First, historical loss information still provides the starting point and figures heavily into the “quantitative” calculation of an institution’s ACL.

Further, the CECL method still incorporates adjustments for qualitative and environmental factors into the ACL calculation, to adjust for how current or forecasted conditions differ from historical loss experience. The purpose of qualitative factors is to adjust for what is not in the historical loss analysis. An important difference with CECL is that management should apply a forward-looking thought process when evaluating these criteria.  Q-factor adjustments should address the differences in the current environment, and the current or expected conditions that indicate that future loss rates will be different than losses incurred in the past.

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The Enduring Relevance: Exploring the Timelessness of the 5 C’s of Credit 

By: Kevin Graff

As we begin a new year, the financial landscape is evolving at an unprecedented pace. Despite the whirlwind of technological advancements and the ever-changing dynamics of the banking industry, there exists a set of principles that stand the test of time—The 5 C’s of Credit. In this blog, we delve into the enduring relevance of these timeless principles and their fundamental role in navigating the complexities of the financial realm. 

Timeless, as defined by Merriam-Webster, is not restricted to a certain time or date. The concept of timelessness can be applied to many factors involved in commercial lending. While technological advancements in credit underwriting can make complex and difficult financial analysis seem easy, the basic tenets of commercial lending remain steadfast. These central principles included within Character, Capacity, Collateral, Conditions, and Capital provide the foundation for nearly every lending decision.  

Character: The Foundation of Trust 
The first of the 5 C’s, Character, remains the bedrock of sound lending practices. In an era dominated by algorithms and data analytics, the assessment of an individual’s integrity, honesty, and reputation remains unparalleled. The timeless nature of character evaluation ensures that trust, a currency more valuable than ever, continues to be a cornerstone in lending decisions.  

Capacity: Navigating Financial Waters 
Capacity, the second C, addresses the borrower’s ability to repay a loan. Despite the advent of sophisticated financial models, the ability to understand and analyze an individual or business’s capacity to meet financial obligations remains a linchpin in prudent lending. This timeless principle involves both art and science as borrowers face a continuously evolving economic landscape, proving its relevance in diverse financial scenarios.  

Collateral: A Tangible Safety Net 
Collateral, the third C, provides a tangible safety net for lenders. While technological innovations have introduced new ways of assessing collateral value, the fundamental principle of understanding the various nuances of pledged assets remains steadfast. The ability to understand how collateral may be impacted by changing market conditions ensures that this timeless principle remains effective in mitigating risk.  

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