Risk Adjusted Returns

We continually endeavor to assure that the interest rate charged to our commercial borrowers reflects the level of credit risk involved in each particular transaction. Our credit risk measurements include a consideration of the industry of the borrower and the risk inherent in their particular line of business within that industry. Other factors might include the structure of the loan type requested, and the strength or weakness of the associated collateral. Certainly, the customer’s payment history and prior credit experience are factors, as well.

We needed to take all of these factors into account along with the return expectations of our shareholders to arrive at competitive loan rates that would actual fly with our borrowers. We chose to implement a loan pricing system to assist our lenders and lending management in assuring that “risk adjusted return on capital” (RAROC, as it is known in the industry) is achieved without limiting the bank’s need to grow its loan portfolio.

LoanPricingPRO enables our lenders to precisely calculate the RAROC of any proposed loan deal, taking into account all of the important factors effecting loan pricing and customer relationship profitability, including all of the relevant risk measures currently employed by our bank.

Our lenders are now able to quickly and easily calculate the lowest possible rate capable of achieving our organization’s targeted rate of Risk Adjusted return, and simultaneously meet both the expectations of the loan customers, and our shareholders.

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