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The purpose of the model is to determine if the suggested lender rate is adequate to meet your Bank's return on allocated capital objectives. If not, the model will disclose fees, balances and rate increase to meet objectives. The Risk Based Loan Profitability Model is represented as an Income Statement for a loan transaction, showing revenue generated from the loan and the expenses of providing the loan.


Competition in today's banking environment is pressuring loan rates. Those banks that know and control their internal costs can meet profit objectives at very competitive rates. The John M. Floyd & Associates Risk Based Loan Profitability Model is bank specific and takes into consideration your specific costs and profit objectives and may allow you to price aggressively for high quality credits and receive a better return on lower rated credits. The model also allows evaluation of several related loans to determine relationship profitability. Income From Loan Income from the loan includes, interest, credit for various account balances and any fees paid by customer for the loan.


At the discretion of your Bank, you may use the Bank's cost of funds, Treasury Security rates or any other rates, which the Bank feels appropriate for pricing. An additional fee may be added for FDIC Insurance, Reserves and any other appropriate fees for funds generated.


This section is used to project the anticipated increases (inflation factor) in the cost of funds to fund fixed rate loans. This may be the intuitive projections developed by management in the long range planning process or could be the difference in rates of various treasury issues. This factor is computed for various maturities and is an addition to cost of funds for various fixed rate loan maturities.


This expense item reflects the cost of the lender's and analyst's time, not only to originate and close loans, but the time spent monitoring the loan to maturity. Hourly salary of lenders and loan administration personnel to write up loans are input per Bank's determination.


A percentage of face amount of loan, determined by Bank. Generally, the percentage declines as size of loan increases.


The percentage of loss provision assigned to each of eight risk rating multiplied by the projected average outstanding of the loan and term. This could be determined by migration analysis.


Interest is expected to be paid monthly on all loans. This computation gives the ability to earn interest on interest paid on other than a monthly basis to realize a return as if interest were paid monthly.