Community bank finds real value in RSM’s services during major merger
Experience with banks and transactions plays a key role
CASE STUDY |
Our client is a $1.3 billion community bank located in the central United States. The institution is growing quickly, and ownership is focused on continued growth within its geographic market.
To further its growth strategy, the institution sought to merge with another local community bank. However, management had key concerns regarding valuation and transaction issues. Therefore, the bank required assistance with several key processes, including:
- Performing due diligence on the target’s balance sheet and quality of earnings
- Obtaining a preliminary valuation to provide a clearer picture of the value of the assets and liabilities to be acquired and their projected impact on future capital and income
- Understanding purchase accounting issues, especially on the loan portfolio, including credit-impaired loans
- Updating valuation of assets and liabilities post-acquisition in preparing opening balance sheet
- Implementing post-acquisition integration
After considering proposals from several firms, the bank chose RSM based on the team’s industry experience and client-centric service approach.
As in any transaction, time mattered. The RSM team immediately began due diligence on the target bank, which included an analysis on key assets, liabilities and earnings, as well as a preliminary analysis of the fair value of loans, intangible assets, and other assets and liabilities. RSM addressed day-one and day-two purchase accounting issues with management and its effect on financial reporting.
After the deal closed, RSM updated the valuation for the opening balance sheet and purchase accounting requirements. RSM also performed a Rapid Assessment® on the new combined entity’s organizational structure and key integration challenges. As a result of this assessment, RSM identified telecommunications and technology issues, which were addressed in detail.
During the assessment, RSM determined that the bank had a lack of appropriate information technology (IT) staff, and its large user base and amount of applications led to frequent downtime and outages. To solve these challenges, the bank established an IT committee to direct future technology investments and strategies, and RSM suggested for an external resource to sit on the committee to bring a fresh perspective to the institution.
Ultimately, RSM implemented a comprehensive IT plan with measurable results to support the new combined institution. The bank added a chief information officer and information security officer to help manage the IT organization with a direct link to the chief financial officer. While the plan is relatively new and the institution is still in the process of improving, customer satisfaction and reliability have already increased significantly.
RSM also identified several concerns with the bank’s wide area network (WAN) and telecommunications investments. Following the acquisition, the bank had multiple carrier agreements and issues with connectivity between locations, no ability to transfer or record calls, and fee increases looming as the institution’s footprint continues to expand. A plan was developed to upgrade the phone network, with Voice over Internet Protocol (VOIP) options and a strategy to consolidate carriers and increase bandwidth.
To enhance the institution’s communication infrastructure, RSM created a business workflow, developed a call flow analysis and conducted a voice and data circuit analysis. RSM led a carrier services evaluation and selected a carrier with capabilities that aligned with the needs of the growing bank. The new communications strategy has resulted in overall network savings and the recovery of $120,000 in overpayments recovered from the bank’s internet service provider.
By providing the bank’s leadership with a clear valuation picture, and other due diligence services, they were able to promptly and confidently close the deal. RSM was able to assist management with complex purchase accounting matters and enabled the combined bank to meet financial reporting deadlines. In addition, RSM’s focus on post-acquisition integration helped the bank quickly address organizational issues and identify key opportunities for operational and strategic improvements in its telecommunications and technology.
Key benefits of RSM’s service to the financial institution included:
- Enhanced due diligence and asset analysis to help ensure a successful merger
- Strengthening the bank’s IT infrastructure, with enhanced oversight and reliability
- Streamlining and improving telecommunications capabilities
- Significant cost savings and user satisfaction with the new IT and telecommunications strategies