banks for sale

Critical Issues for understanding a Bank- Robin Trehan

There are multitudes of issues to work on while analyzing a bank. They can be broken down to Asset Quality, Liquidity, Earnings, Capital, Sensitivity to Market Risk, Management.

Asset Quality-

Distribution and Severity of Classified Assets. Substandard, Doubtful, or Loss. Asset Quality of adversely classified assets, nonaccruals, and concentration of risk inherent in the loan portfolio.

1- Level of nonaccrual loans to total loans

2- ALLL ( Allowances for loan and Lease losses)

3- Volume and Nature of special mention classification

4- Past Due and Nonaccrual loans to total loans

5- Lending policies and credit administration procedures

6- Asset Class and its concentration within an industry or segment


1- Volatility of deposits

2- Frequency and level of borrowing

3- Technical competence relative to structure of liabilities

4- Availability of assets readily convertible to cash.

5- Access to money markets or other ready source of funds

6- Overall effectiveness of asset liability management strategies

7- Net loans and leases to deposits and net non core dependence ratios


1- Ability o cover losses and provide adequate capital

2- Earning trends, and the quality and composition of net income

3- Reliance on interest sensitive funds

4- Adequacy of provisions to the ALLL

5- Net Income to Average Assets

6- Net Interest income to Average Assets. Net Interest Income can be adversely affected by increasing level non-accrual loans, loan modifications, declining yields on loans and higher cost of funds

7- Overhead Expense to Average Assets

8- Provisions to Average Assets


1- Class of Assets and its concentration within a business or segment

2- Exposure to market conditions and its concentration.

3- Volume of Severity of risk assets

4- Growth Experience and plans

5- Earning retention

6- Tier 1 Leverage capital to Average Total Assets

7- Tier 1 risk based capital

8- Total risk based capital

Sensitivity to Market Risk

1- Changes in social, economic and political condition

2- Sensitivity of earnings or the economic value of its capital to the adverse changes in interest rates

3- Ability of management to identify, measure, monitors, and control exposure to market risks

4- Nature and complexity of interest rate risk exposure arising from non trading positions


1- Education and experience

2- Technical competence.

3- Leadership and administrative ability

4- Compliance with banking regulation and statutes

5- Adequacy and compliance with internal policies

6- Depth and succession

7- Ability to plan and respond to changing circumstances

8- Quality of internal controls and operating procedures