We believe that modeling interest rate and credit risk in a holistic way under varying macroeconomic conditions leads to more effective loan pricing and increased profitability. We utilize discounted cash flow models, which we run at a granular level under multiple macroeconomic forecasts. Our credit loss estimates are in full accordance with the current expected credit losses (CECL) model.

We often find that financial institutions underprice for the interest rate and credit risk they take, particularly in the lower credit bands, and that the total return, considering interest income earned and credit losses incurred, is negative.