Know the Importance of a Relationship’s Profitability

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Pricing can be a challenge for all community financial institutions. Most CFIs overprice their largest, most valuable customers and underprice their smaller, least profitable customers. This can be an alarming prospect, since as a result we end up giving the best deal to those who contribute the least to the bottom line and at the same time run the risk of losing our most profitable relationships.

Understanding the drivers of profitability on commercial customer relationships and making decisions based on that knowledge is of the utmost importance. Strunk’s Pricing Manager solution provides a robust relationship profitability feature to assist with determining the profitability of each customer quickly and easily.

The solution contains ROE targets that are used to determine the return on capital. ROE is what really matters most to our shareholders. These targets are customizable by product type and not only drive profitability, but also consistency across all loan types and lenders. Additionally, utilizing these drivers effectively will allow you to structure deals that work for the bank while at the same time, work for the borrower as well.

Strunk’s Pricing Manager also allows users to model the deposit relationship associated with each borrower and will illustrate whether that deposit brings any pricing power to the overall relationship. Positive profitable deposits add value for the bank and a pricing tool prevents lenders from using deposits as an excuse to price down a loan.

Pricing Manager is a powerful tool, it is affordable, and comes with a Money Back Guarantee! Contact us today at 800-728-3116 or info@strunkaccess.com for a demo of the all-new Pricing Manager or click here to learn more.

Viewing and Exporting Summary Information in ODP Manager

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Strunk’s hosted ODP Manager software utilizes the information contained in the daily extract file to assist users in the daily tasks of generating Collection and Custom letters and reviewing customer accounts for Overdraft Privilege limit assignment or removal. The software also includes a standard suite of Management Reports that can be used daily, monthly, or quarterly to monitor and review the data important to running a successful Overdraft Privilege program.

There are two important metrics to focus on related to ODP program performance: percent of accounts with an ODP limit and percent of accounts opted in for Regulation E ATM and everyday debit card coverage. When logging in to the hosted software, these metrics show on the Dashboard. There is a comparison between the institution’s benchmark values and other Strunk clients by the 25th, 50th, and 75TH percentiles. The trend for the Percent with Limit and the Percent Opt In is also updated monthly. Both the Dashboard benchmarks and the trend information can be exported as a PDF. More detailed summaries by branch and by product can be reviewed on the Utilization Analysis and the Opt-In Impact management reports.

Some of the management reports include account-level detail: Overdraft Aging, New Accounts, ODP Status Tracking, Fresh Start Tracking, and ODP Heavy Users. When ODP Manager shows a list of accounts in reports or in Account Inquiry, users have the option of using column filters or groups to limit displayed results to specified criteria. These reports can be exported to PDF in Reports or to Excel in Reports and Account Inquiry. The option to filter allows users to leverage the data included in the extract file to monitor a smaller group of accounts – even if there is not an existing report.

In addition to searching results at the account level, ODP Manager also allows users to search events records. Import events such as accounts becoming overdrawn or in good standing, OD Limits assigned or removed, or Reg E opt ins or opt outs can be searched using filter criteria or date ranges. Filtering by event details or date ranges can also be done for user events such as letters generated, comments, or reminders.

If you have any questions about options to view and export your data in hosted ODP Manager, please contact Strunk Support at support@strunkaccess.com to find out more.

Defining Continuous Overdraft Fees

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What exactly are continuous overdraft fees, and how could they potentially impact your Overdraft Privilege Program? It is important to be aware that certain financial institutions apply continuous overdraft fees, also known as daily overdraft fees. These fees are charged on a periodic or daily basis for as long as the account remains overdrawn. Currently, the financial service industry is actively discussing the problem of continuous overdraft fees. This is mainly due to the numerous lawsuits filed against financial institutions regarding their predatory overdraft practices.

Regulators have found that Overdraft programs which charge a fixed or periodic fee for not resolving a previous overdrawn balance can be unfair and deceptive, according to Section 5 of the FTC Act. This is especially true when the financial institution doesn’t disclose the situations in which customers could incur these fees accurately. These practices make it harder for consumers to avoid the fees by bringing their account balance back to positive if they’re facing cash flow issues.

If a financial institution intends to charge continuous overdraft fees, it must first review the information they provide to its consumers about overdraft services. According to the CFPB’s guidance, if a financial institution’s disclosures state that overdraft fees may be charged “after” a specific number of days, the financial institution should consider whether their system guarantees that such fees will not be charged on or before the indicated day. Therefore, testing transactions is crucial to ensure that the fees charged are clear and understandable to the average consumer. Additionally, the CFPB guidance advises financial institutions to consider how they handle continuous overdraft situations that occur over weekends or holiday periods where the final day to cure an overdraft falls on a non-business day. The guidance explains that if a financial institution assesses a fee based on calendar days but only allows overdrafts to be cured on business days, it could be problematic if the financial institution’s disclosures state that consumers have a certain number of days to cure an overdraft before a fee is assessed.

What happens when financial institutions charge continuous overdraft fees? This practice has faced regulatory scrutiny and lawsuits against financial institutions. Strunk acknowledges the potential risks involved in imposing such fees, and it’s crucial for all institutions to be aware of these issues. If your financial institution is still charging a continuous overdraft fee, it may be beneficial to contact Strunk at info@strunkaccess.com for assistance with our overdraft privilege program.

Time to Implement a Loan Pricing Solution

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When pricing commercial loans most bankers say they have to match the competition or they use some benchmark such as the prime rate. Others say they use the “flinch method”. They throw out a rate and see if the customer “flinches”.

Bank CEO’s often wonder if commercial lenders work for them or for their customers when it comes loan pricing. Lenders want to get the deal and many times they don’t consider the bank’s costs associated with making the loan when offering the rate/terms. Do lenders have the tools to offer a rate that meets both the borrower’s needs and bank’s profitability goals?

Many factors should be considered when making pricing decisions on commercial loans: Type of loan, amortization term, usage of a line of credit, fees, cost to underwrite and service the loan, risk, fixed, adjustable or floating rate, borrower’s other business with the bank and most importantly the size of the loan.

Relationships matter and we have to value that in the pricing equation. What other loans or business does the borrower have with the bank? Do they have a deposit relationship and is it in interest or non-interest bearing? What we typically find is banks over price their best customers and under price their smallest least profitable customers.

Now is a great time to look at an inexpensive, easy to use loan pricing tool to see if it is a fit for your financial institution. Increasing your Net Interest Margin is easy. Contact Strunk at 800.728.3116 or at info@strunkaccess.com to learn more about our loan and relationship pricing solution.

How Can Strunk Assist with Vendor Management

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When it comes to evaluating third-party risk management, financial institutions can use their own methods to determine the level of risk for each partnership. The regulators understand that not all relationships require the same level of scrutiny, and it is important to recognize vendors with high and critical risks. At Strunk, we have created a vendor risk assessment in our Vendor Manager software that provides financial institutions with a baseline risk level for each vendor. This assessment takes into account the criticality of the vendor’s product and services and the risk associated with them. By analyzing the risk associated with each third-party relationship, financial institutions can maintain consistent monitoring and remediation strategies to prevent risks from occurring.

To effectively manage vendor risk, it is crucial to assess the controls put in place by vendors. Strunk’s Vendor Manager software offers vendor surveys that capture the controls in place for their risk. This tool also helps identify any gaps in the controls, enabling financial institutions to determine the residual risk posed by the vendor to their organization.

Our software aligns with interagency guidance and provides valuable assistance to financial organizations in implementing third-party risk management. It covers planning, due diligence, contract negotiation, ongoing monitoring, and terminating the relationship. With Strunk’s Vendor Manager software, financial institutions can manage the operational, compliance, and strategic risks associated with third-party relationships. For more information on Vendor Manager visit Strunk’s site to request a demo.

Permit Customers to Make Regulation E Elections Online

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ODP Manager custom letter templates include the Consent Form for Overdraft Services for customers who have not already opted in for the Reg E ATM and everyday debit card coverage. These letter templates simplify the process for customers who choose to opt in by mail, but ODP Manager can also allow your customers to opt in for Regulation E electronically.

The hosted software can be set up to include a Reg E opt in form and Reg E opt out form that matches the content in your ODP Manager letter templates. The links are then added to the institution website to direct customers to the Reg E opt in and opt out forms. Email confirmations are generated when customers visit the website and complete the form to opt in or opt out of the ATM / everyday debit card coverage. The request is tracked in ODP Manager and can be emailed to a specified email address at your financial institution.

Once a customer request has been made, ODP Manager users perform the following steps: 1.) Review the new responses in ODP Manager, 2.) Export the list of accounts that need an update to the account’s Reg E election, and 3.) Perform the appropriate maintenance in the core system – the user will update the account record in the core to opt in or opt out the account as requested by the customer. The ODP Manager software displays by default any new responses that have not been reviewed and downloaded. Requests that have already been processed are also retained within ODP Manager to allow review of prior responses.

If you would like to implement the electronic consent to opt in for Overdraft Privilege coverage for ATM and everyday debit card transactions in ODP Manager, please contact Strunk Support at support@strunkaccess.com with any questions or to find out more.

How Does a Formal Overdraft Program Benefit Consumers

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Formal overdraft programs are prevalent in community banks and consumers have benefited from them for over 30 years. Many articles have been written about the pitfalls and risks that consumers face from overdrafts and some of them are true. In reality, providing a consistent methodology to paying items that create an overdraft benefit both banks and their customers.

Consumers create overdrafts…banks do not. Banks are faced with decisions each morning to either pay a customer’s non-sufficient fund item or return it to the merchant. They also have to decide whether or not to charge a fee or waive the fee. Thirty years ago when formal overdraft programs started, the NSF or Overdraft fee was $15-$20 nationwide. The idea was to charge a fee to deter consumers from writing a check that would overdraw their account. This was a time when debit cards were not used much and checks and ACH items dominated the payments system.

Beginning in 2010, debit card transactions that would overdraw an account could not be authorized at point of sale unless the consumer “opted in” for this service. This was a great idea that came from the Federal Reserve. So, how do formal overdraft programs benefit consumers?

• Allows consumers to decide how they want their bank account handled when it comes to overdrafts
• Reduces returned check charges from merchants
• Allows consumers to take home the groceries or prescription drugs when otherwise their debit card transaction would be denied
• Keeps a bank from discriminating on daily pay and don’t pay decisions
• Keeps a bank for discriminating on waives and refunds

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about setting up a formal overdraft process at your bank.

Update on Agencies Final Guidance on Third-Party Risk Management

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On Tuesday, June 6, 2023, Federal bank regulators issued final guidance outlining the guidelines and factors to consider when managing third-party relationships for financial institutions. The joint final guidance was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). Planning, due diligence and third-party selection, contract negotiation, ongoing monitoring, and termination are the steps in the life cycle of third-party relationships that are covered by the final guidance on risk management strategies. The final guidance was released to hopefully improve consistency in the agencies’ supervisory approaches to third-party risk management and replaces each agency’s previous general third-party guidance. Based on the agencies’ consideration of public comments on the proposed guidance announced in July 2021, the final guidance has been simplified and made clearer. The final guidance rescinds and replaces the FDIC’s Guidance for Managing Third-Party Risk issued in FIL-44-2008. The FDIC also withdraws the 2016 proposed guideline on Third Party Lending (FIL-50-2016), which was released for comment on July 29, 2016, because the final guideline covers all third-party interactions, including lending arrangements. The final guidelines want to make clear that business relationships with third parties engaging in lending, payment or deposit activities for the financial institution are evaluated by the financial institution using both the third-party risk management guidance and various risk management processes and rules that apply to the lending and deposit relationship.

The joint guidance was designed to assist financial institutions, especially community banks, in matching their risk management procedures with the type of risk profile of their third-party partnerships, while giving example scenarios. The agencies intend to start working with community banks right away and to create more tools soon to help them manage important third-party risks. Like previous guidance, the complexity, size and size of the financial institution, as well as the nature of the third-party relationship, are all factors considered in the third-party risk management. The final guidance continues to make it clear that if a financial institution uses a third-party, then the third-parties risk falls back to the organization and the financial institution is responsible that the third-party performs all activities in a safe and sound manner.

The guidance also states that the agencies’ routine supervisory procedures will include examining a financial institution’s third-party relationship risk management measures. Supervisors typically evaluate a financial institution’s management’s capacity to supervise and manage its third-party relationships, as well as the impact of those relationships on the bank’s risk profile. They also carry out transaction testing to assess the third party’s performance and compliance with applicable laws and regulations.

In creating and executing risk management procedures for all phases of the life cycle of third-party partnerships, financial institutions may consider the sound principles provided by the guideline, which supports a risk-based approach to third-party risk management. A vendor management software can help with that and also help a company operate more efficiently. A vendor management software assists financial institutions to build better vendor relationships by improving engagement and transparency while reducing risks. Having the most comprehensive solution like Strunk’s Vendor Manager software helps streamline your end-to-end vendor due diligence workflow.

 

Automatically Update ODP Manager Information

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The information in Strunk’s hosted ODP Manager software is updated daily when an extract file from the core processor is uploaded. This file can be committed each day by an ODP Manager user prior to generating letters and reviewing reports. Strunk also offers an Automatic Upload option for institutions that meet the criteria below.

If an institution is able to create the updated core extract file automatically to a specified location, the Automatic Upload process may be possible. There is a one-time setup process – the first step is to install the upload client. The second step is updating the configuration details with user and file variables specific to the institution. The final step is to create a scheduled task. The scheduled task will start the import overnight after the extract file update and before users start their workday.

Even if the daily import is usually performed by the Automatic Upload process, your users will still be able to manually import a file if the scheduled import does not complete as expected. Each day when the import process runs, specified individuals or a group email address will receive an email detailing whether the import completed successfully.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about this import option.

Bankers: It’s Time to look at a Loan Pricing Solution

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Pricing commercial loans for community banks can be daunting especially in areas where they compete for loans with larger institutions. With a yield curve that has changed dramatically over the past 18 months, isn’t it time your senior commercial lender looked at a loan pricing solution?

Commercial lending comes all shapes and sizes and borrowers are more sophisticated now more than ever. What should the interest rate be? For what term? Is there a fee involved? Is the rate floating or fixed? And lastly, will the borrower keep deposits with the bank?

Loan pricing solutions have been used by larger institutions for years and community banks sometimes just “throw a dart” to see what a borrower will pay. Generally, costs associated with underwriting and servicing the loan is not considered since it is hard to determine what they are. With interest rates at historically high numbers (last 15 years) maybe community bankers should look for an affordable loan pricing program.

Strunk’s loan and relationship pricing solution is designed to model all types of commercial loans factoring in costs associated with the loan, pricing for risk, and providing a return that is satisfactory to the bank. The program takes into account deposits the borrower may have with the bank as well as other loans.

The loan pricing model is easy to use and training the lending staff is paramount to getting buy-in for the solution. The goal is to increase net interest margin while also giving bankers a tool to understand why you may have lost a deal.

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about loan pricing solutions offered by Strunk. You will be glad you did.

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.