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Challenge
A publicly-traded commercial bank in the southeastern United States acquired a community bank, paying a high premium of book value. Much of the profitability of the community bank was attributable to its retail customer deposit base: more than 50 percent of total deposits resided in non-interest bearing accounts. With plans for a significant account rationalization program and rising market interest rates, VRC was retained to value the acquired core deposit intangible (“CDI”) asset and advise on likely future attrition rates by account product.
Solution
The breadth of our experience in the banking industry allowed us to analyze the post-acquisition customer attrition experienced by several other community banks contained in our data warehouse. Combined with the acquired bank’s historical attrition data, we were able to project likely attrition in the year of product rationalization and subsequently for five years based on a product’s interest-bearing features. Similar data from past banking industry assignments enabled us to provide key cost information to estimate a value of the CDI for financial statement purposes. The analysis and documentation we provided on the acquired bank’s customer deposit base allowed management to refine its asset/liability model assumptions. In addition, our analysis served as appropriate documentation on the value of the CDI for its independent audit firm.
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