How Strunk can assist you with Tiering your Vendors and applying the proper monitoring to them

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A vendor is a company or individual that supplies a product or service to your organization, irrespective of a formal contract. For financial institutions, some vendors may include technology partners, banking equipment providers, financial partners, legal and professional services, and office supplies vendors.

Financial institutions sometimes work with hundreds of relationships with third-party vendors that can pose potential risks, and those risks vary based on the nature of the business. This is why it is important to have a comprehensive third-party risk management program. Not all vendors are created equally. Some products, services, and relationships may be more important to our organization than others. Additionally, some vendors may have more robust risk management procedures than others. This is why it is important to categorize your vendors based on risk. By using third-party risk assessment and tiering to each vendor relationship, financial institutions may be able to determine the appropriate mix of risk management and modify them to the specific risk of the relationship with the vendor. This way, the financial institution can prioritize which vendors to focus on for reviewing controls, policies, and procedures. Strunk’s Vendor Manager software can ensure that higher-risk vendors are prioritized and that monitoring activities are created based on their risk rating. Following this approach, financial institutions can manage risk for each third party and integrate the property compliance controls for the risk. By using the monitoring section inside of Strunk’s Vendor Manager software, financial institutions are able to assess how hundreds of important, high-risk relationships are performing across the board and create a vendor summary that will provide a greater transparency into these relationships.

Regulatory scrutiny and compliance pressures provide strong reasons to carefully consider vendor risk. Financial Institution leaders should also recognize that establishing stronger and safer vendor relationships is crucial for business success. The current challenge is that many banks lack a comprehensive vendor risk and monitoring program that takes into account the different types of services provided and the associated risks. However, the good news is that Strunk’s Vendor Manager software can help address this issue and automate the process.

Regulation E Option to Opt In Online

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Strunk’s ODP Manager recommended custom letter templates include copies of the Consent Form for Overdraft Service. This allows consumers that have not already opted in the opportunity to opt in to authorize and pay overdrafts for ATM and everyday debit card transactions. Customers should have the option to opt in or opt out of Reg E by phone, by mail, or in person. If available, consumers should also be able to opt in to Reg E electronically.

If a financial institution’s online banking does not already offer customers the ability to choose to opt in or opt out, the hosted ODP Manager software can provide an electronic option. An online form will be created that matches the content in the ODP Manager letter templates. Once created, the form will be linked on the institution’s website. Customers can electronically complete the form to consent to opt in to or opt out of the ATM and everyday debit card coverage. After submitting the form, both the customer and a designated institution email address will receive a confirmation of the request.

After the request is submitted, ODP Manager users will regularly review new requests tracked in ODP Manager. The list of requests can be exported so that the accounts can be updated appropriately in the core system. The hosted software is able to identify new responses that have not yet been downloaded. Once downloaded, the software still retains the prior responses within the ODP Manager software.

If you have any questions about setting up online Reg E Opt-In and Reg E Opt-Out forms in hosted ODP Manager, please contact Strunk Support at support@strunkaccess.com for more details.

Should Lenders Price Their Own Loans?

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Bankers should consider several factors when pricing loans that meet the bank’s profitability target and also win the deal. Often times when asked what the rate is for commercial loan, a banker will give the same rate regardless if the loan is for $2M or for $250K. In other words many banks price their loans based on the type of loan and not the size. This is a mistake.

Size matters. So does the term, fees, risk, return to the bank and cost of funds. Does the customer have other loans or deposits with the bank and are they profitable? Do your lenders know what the cost to originate or service the loan is? How can they price the loan if they don’t know these things?

Competition is fierce especially for the A rated borrowers. Community banks saw finance companies and car dealerships steal installment lending from them in the 1990’s. Farm Credit is a huge competitor for Ag real estate loans. How can a bank possibly compete with rates they offer your customers? The short answer is you can.

With net interest margins narrowing, now is the time to look at a loan pricing solution that takes all of these factors into consideration. Don’t lose another deal due to price before you look at how you can compete and meet your profitability goals.

Contact Strunk at 800-728-3116 or email at info@strunkaccess.com to learn about how our loan pricing tool will increase net interest income by at least 25 bp.

Excessive ODP Use and Alternatives to ODP

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The hosted ODP Manager software includes a letter template that allows financial institutions to inform customers of alternatives to fee-based overdraft coverage. These letters are sent to customers that have demonstrated excessive consumer Overdraft Privilege activity.

FDIC regulated institutions are expected to give customers who overdraw their accounts on more than six occasions where a fee is charged in a rolling twelve-month period a reasonable opportunity to choose a less costly alternative and decide whether to continue with fee-based overdraft coverage. Strunk also recommends that institutions not regulated by the FDIC also communicate available alternatives to ODP on an annual basis to accounts with insufficient funds items.

Alternatives to ODP could include an Overdraft Protection credit line or an Overdraft Protection transfer from another account with the financial institution. The letter template includes details related to line amounts, charges, and fees so customers can make an informed decision about how best to cover overdrafts.

Letters can be generated based on information included in the extract file. If the file includes data that indicates when an account has met the qualifications for the letter, hosted ODP Manager can automatically show when the letter is due. If the data cannot be added to the extract file but accounts that qualify can be identified by an existing core report or other method, the letter can be generated as needed by account number as an Ad Hoc letter. Once generated, the letter is tracked and retained within ODP Manager.

If you have any questions about sending Excessive Use Notification letters in hosted ODP Manager, please contact Strunk Support at support@strunkaccess.com to find out more.

Why Vendor Monitoring is Important to the Vendor Management Process

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What is vendor monitoring, and why is it important to the vendor management process? Vendor monitoring, also known as ongoing monitoring, involves overseeing the vendor’s performance to determine if the vendor is performing as required by the service levels and contract terms.

The Third Party Risk Management Guidance states that ongoing monitoring enables a banking organization to:

  1. Confirm the quality and sustainability of a vendor’s controls and ability to meet contractual obligations.
  2. Escalate significant issues or concerns, such as material or repeat audit findings, deterioration in financial condition, security breaches, data loss, service interruptions, compliance lapses, or other indicators of increased risk.
  3. Respond to such significant issues or concerns when identified.

Strunk’s Vendor Manager software enables you to continuously monitor and manage your vendor relationships. The software allows you to configure ongoing monitoring activities based on the risk profile of each vendor. You can set reminders for when the ongoing monitoring item needs to take place.

Within the monitoring section of Vendor Manager, financial institutions can establish categories and metrics to document vendor performance findings and any necessary remediation measures. Strunk’s Vendor Manager’s monitoring section generates reports that highlight potential risks or significant issues requiring attention from senior management and the board of directors. This framework also provides feedback to your organization and ensures compliance with all regulatory expectations.

Bankers: You Have to Spend Money to Make Money

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Strunk, LLC was the pioneer in helping banks make more money without raising prices when they started their overdraft privilege program in 1993. Although most bankers hate to spend money when it comes to technology or new products, Strunk came up with a novel idea. We worked on a contingency fee basis so if our strategies made the bank more money than we succeeded as well. If they didn’t then the program didn’t cost the bank anything.

Net interest margin in community banks was down 26 basis points in the first quarter of 2024. For a bank with a $100M loan portfolio that equates to $260K in lost income; for a $500M loan portfolio it is $1.3M. Where does a bank make this up…in more volume OR by cutting overhead such as staff?

Strunk’s simple to use loan pricing tool will help banks increase net interest income by at least 25 bp. For a small fee of less than $10K a $500M bank will substantially increase income ($1.3M or more) for a small annual fee. In the old days Strunk would have participated in the lift in income for about 25% of the increase. That would equate to a fee of $325K for two years or $650K fee to Strunk. We did that with over 1,800 banks and no one hesitated.

Why wouldn’t a bank pay $10K to make $1.3M per year? You have to spend money to make money.

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn about how our loan pricing tool will increase net interest income by at least 25 bp.

 

ODP Manager: Import Events and User Events

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The information displayed in ODP Manager is provided by an extract file from an institution’s core system. This file is updated after close of business and is imported daily into ODP Manager. Once the import has occurred successfully, the letters due and reports are updated with the information for the current as of date.

A benefit of the hosted ODP Manager software is the advanced history tracking. This feature allows users to view and search for recorded events by account number or date. There are three main types of events that are stored within ODP Manager: import events, letter events, and user created events.

Import events are recorded at the time an import of the extract file is successfully processed. Events are identified by comparison of the current as of date’s file to the last file imported. Accounts are updated to note if accounts are now closed, are overdrawn, or now in good standing. If an overdraft limit is assigned or removed or if an account opts in or opts out for Regulation E, an event is also created in the account history.

As part of the daily tasks in ODP Manager, users will generate letters that are due. As letters are generated, a PDF of the letter is retained in the event history. The letter type, template name, and date are also recorded.

Users also can create events as needed. Comments allow users to make account notes that can be viewed by all hosted software users. Reminders allow not only notes to be added, but also allow a due date to be assigned to the item for future follow-up. Both notes and reminders can include attachments. Repayment plans can be added to generate Fresh Start agreements and to track payments made towards the repayment schedule. For accounts that have charged off, users can create a charge-off item to track recoveries and to streamline charge-off reporting. All user-created events can be viewed and updated by all users with access to ODP Manager.

Once events are tracked in ODP Manager, they can be searched by account number or by date or date range. Individual account information can be exported to PDF and events that occur in a specified date range can be exported to Excel.

If you have any questions about event information accessible in hosted ODP Manager, please contact Strunk Support at support@strunkaccess.com to find out more.

The importance of focusing on capital and ROE when pricing commercial loans

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Mega banks and major regional banks all have very advanced loan pricing solutions. Not only that, but they are also getting more and more sophisticated.

The complexity found within “big bank” pricing tools underscores the reason why community banks need to act and make progress toward adopting a more empirically based, formal pricing solution or they will ultimately risk getting relegated to the low end of the market. Just like the large consumer lenders ultimately pushed community banks out of the consumer lending business, large banks will do the same with commercial lending.

What does that mean?  Banks using pricing solutions are varying capital assumptions based on risk grade, and a variety of other considerations.  On top of this, they are also lowering ROE targets on the best credit grades. The ultimate result of that is the customers with the best risk characteristics are being offered more and more aggressive rates on commercial loans by these big lenders.

Why does that matter for the typical community bank?  The typical community bank is going to become less and less competitive in terms of the rates offered to their biggest and most profitable clients and prospects. Over time, the vast majority of these prime borrowers will migrate to the best offer.  The notion that service will make up the difference is a complete fallacy. We tell ourselves that is true, so we don’t lose as much sleep worrying about losing all of our prime business!  The reality is – of course service matters – but it isn’t going to offset 50, 100 or 200 basis points in price. This is particularly the case on larger loans because those basis points add up to a lot of dollars the bigger the loan gets.  We see this on the vast majority of demos we do at Strunk. Bankers are quoting rates today in the 8% range on loans larger banks are doing for 100 or more basis points less.

The math behind this notion is pretty simple, these large banks are allocating less capital to the best credits, which means the rate required to achieve their target ROE is lowered – i.e. if I lower my capital (the ‘E’) I don’t need as much return (the ‘R’) to achieve my target ROE percentage.  Then, if we lower the target ROE to boot, that’s kind of a double whammy for the community banks to be competitive.

Since the advent of credit cards and the expansion of large auto lenders, consumer lending has gradually declined to next to nothing for community banks. These big lenders found far more efficient ways to service consumer loans and to offer the most competitive risk-based rates to the consumer. As a result, community banks have been left with dribs and drabs of consumer loans – and for the most part they are sub-prime consumers. If community FIs allow the large banks to continue to get more and more technical with their approach to commercial lending without an appropriate response, the same thing will happen to their commercial business.

Pricing should be the number one priority over anything else, including exams and systems conversions. This is the portion of a community bank’s business that essentially generates all of their profit.  The time to implement a sophisticated pricing tool like Strunk’s Pricing Manager, is now!

A Loan Pricing Solution that will help banks make more money

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Loan pricing solutions were popular twenty years ago but they were too expensive for a lot of community banks. With banks looking for ways to make more money now might be the time to look at an affordable, easy to implement loan, relationship and deposit pricing tool.

Many banks don’t take the size of the loan into consideration when pricing commercial or commercial real estate loans. Size of the loan is one of the biggest contributing factors to the profitability to the bank. Most banks over price their biggest most profitable customers and under price their smallest least profitable customers.

Do you know which customers are the most profitable and which ones your lenders think are most profitable? A pricing tool that takes the loan and deposit relationship into consideration will give you a precise look at customer profitability. It will also tell you when to price up and when you can provide a better deal for the borrower…to win or keep the deal.

Some loan customers are fee averse. Although we never recommend not charging a fee for a loan, what rate provides the same return to the bank if there was no fee? Fees on all loans matter, but they really don’t contribute to the overall profitability of a customer on larger loans with a longer expected life of the loan.

Do you factor in deposits when pricing commercial loans? Are the deposits in interest bearing accounts or non–interest bearing? Does a large depositor necessarily warrant giving a lower rate on a commercial loan? The short answer is “no” but a pricing tool will help your lenders with that decision.

Do you price consumer loans based on the term of the loan? Do you consider the size of the loan when determining the rate? Do you collect fees on consumer loans and is it a driving factor to overall profitability?

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn about how our loan pricing tool will increase net interest income by at least 25bp. For a $200M loan portfolio that is $500K per year.

 

Strunk’s Issue Manager software simplifies issue resolution & improves risk management

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Managing issues can be a cumbersome task for financial institutions, whether it’s tracking incidents, customer complaints, or audit and exam findings. The issue management process involves maintaining an issue log with action items, due dates, and responsible team members, often blurring the lines between issue management and project management. Standardizing your financial institution’s issue management program can improve efficiency and strengthen your Enterprise Risk Management program. Strunk’s Issue Manager software can quickly and efficiently identify and resolve issues for financial institutions.

Strunk’s Issue Manager Software:

• Define the issue, the source it came from, and who reported it.
• Details of the issue and attach any supporting document that you would like to support your issue (ex: audit findings, issue report, incident report or customer compliant report).
• Ability to prioritize issues to address the highest priorities first, moving down the line to the less urgent ones.
• Create a corrective action plan to develop the action items management will take to correct the issue, along with due dates and responsible team members.
• Track the issue’s progress as it moves toward resolution while creating a due date for it.
• Receive notification as the progress in correcting the issue within the agreed-upon timeframe.
• Create reports for internal use, auditors, and external use to help ease the remediation process.

Strunk’s Issue Manager software simplifies issue resolution, improves risk management, and enhances business operations.

An independent certified public accountant has examined Strunk’s operations and found them to be in compliance with the AICPA’s Trust Service Principles. It was determined that Strunk meets the Security, Availability, Processing Integrity, Confidentiality, and Privacy criteria for SOC 2 established by the AICPA.