High Performing Banks Look Outside the Box

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As interest rates rise and the cost of doing business increases, bankers are challenged to figure out where we go from here. Many community banks face a huge loss in their bond portfolio due to the substantial increase in rates on US Treasury securities. Liquidity can be a problem as we have seen in some mid-sized banks. Community banks haven’t seen a run on deposits although there is pressure to compete for deposits from non-bank competitors.

Service charge and fee income has increased some since the 2020 pandemic but still are near historical lows. As banking regulators continue to scrutinize “junk” fees including overdraft fees, what alternatives does a bank have? Large banks have a multitude of ways to create service charge or fee income but smaller community banks aren’t so lucky. Banks with assets over $10B have to report NSF/OD income on their quarterly call report. Any bank with a concentration of income from this source is being criticized by the CFPB. Now community banks in some states are being asked the same question. More, not less regulation is coming.

What can you do? Strunk was the pioneer for the Overdraft Privilege program beginning in 1993 and it was the best fee income idea in the history of our industry. We have several other fee income programs that many financial institutions have implemented. High performing bankers are always thinking outside the box.

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about fee income programs offered by Strunk. You will be glad you did.

 

Charge Off and Recovery Tracking and Reporting

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After an overdrawn account has been charged off, financial institutions may still need to track and report on the charge-off balances and recoveries related to the overdrawn accounts. ODP Manager includes a manual tracking process that may allow your users to manage the charge-off and recovery process after the deposit account had been closed.

Once the account has charged off, users can create a Charge-off Item with the date, charge-off principal, charge-off fees, charge-off reason, and item status. Users can also include notes at the time the item is created and throughout the recovery process. Updates and changes are logged as well. As recoveries are made, they should be entered in ODP Manager and they will reduce the overall charge-off balance tracked.

All Charge-off Items for the last year are displayed on the C/O Items and Recoveries summary page. If a longer or shorter reporting timeframe is desired, a different default timeframe can be requested by the financial institution. Also, users can change the start and end dates at any time to change the charge offs displayed. The summary displays basic account and charge-off information. When the summary information is exported as a PDF it will overall totals and adds additional totals by branch.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about using the Charge-off Items and Recoveries feature.

Strunk introduces Pricing Manager, a commercial loan, deposit pricing, and relationship profitability tool for CFIs

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Strunk is proud to announce its newest solution, Pricing Manager. Pricing Manager is a fully hosted, web-based solution that allows community financial institutions (CFIs) to deploy a tool to all lenders to ensure they are armed to price loans profitably and consistently based on target profitability objectives.  It also provides the ability to understand the details of relationship profitability so better pricing decisions can be made.

Pricing Manager offers lenders the ability to vary rate, fee, risk premium and term structure among other variables, to understand the drivers of profitability and develop pricing options for borrowers that all achieve the target ROE for all types of loans. Deposit relationships can be included to see how much ‘pricing power’ each brings to the loan or total relationship. The solution contains built in assumptions for loan origination, loan servicing and cost of funds which can all be customized.

According to Strunk’s Chief Executive Officer, Dan Roderick “Until about a year and a half ago, pricing was fairly straight forward for most community FIs, given historically low interest rates and record high liquidity. However, that has changed dramatically, as should an FI’s approach to pricing. Liquidity, which only several months back was far from a consideration, is now becoming a concern for many community FIs. Economists are beginning to predict tightening commercial credit largely due to a downturn in commercial real estate values – particularly for office space and retail properties. At no point in history has proper loan pricing been more important.”

With Pricing Manager, Strunk offers a full featured loan and deposit pricing tool that will:

  • Arm lenders with the tools needed in an increasingly competitive environment.
  • Include a relationship profitability module.
  • Allow instant adjustments to a shifting rate environment and ensure pricing consistency.
  • Increase profitability.
  • Produce rate sheets for consumer loans.
  • Provide clients with pricing offers that will win more deals.

Strunk is providing free demonstrations of the Pricing Manager solution for interested CFIs. Please visit https://strunkaccess.com/pricing-manager/ or contact Strunk at info@strunkaccess.com to learn more.

Why is vendor management a hot topic in the world of financial institutions today?

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Why is vendor management a hot topic in the world of financial institutions right now? It’s because regulatory organizations including the Federal Financial Institutions Examination Council, Office of Foreign Assets Control, and Federal Trade Commission are focusing on how financial institutions are managing the vendors they outsource to. The Federal Deposit Insurance Corporation (FDIC) has declared that an institution can “outsource a service, but cannot outsource the duty,” making it very apparent that the responsibility for compliance rests with the financial institutions. Various regulators refer to vendor management using various terms. Even though they all ultimately want the same thing, they approach it differently.  For regulators, third-party risk is a sensitive subject. There are many different types of risk that might be introduced when a bank outsources a task to a third-party. Assessing, evaluating, monitoring, and controlling those risks is the core of vendor management.

The importance of vendor management is something Strunk constantly think about, just like it is for the FIs we support. We take great pride in offering a vendor manager software and services that let our clients have an effective vendor management program.  Components of Strunk’s effective vendor management program:

  • Risk Assessments- Assist the financial institution in assess the risk level of the activity the vendor performs.
  • Surveys- Vendor questionnaires to elevate the controls that each vendor has for the emerging risk of the vendor.
  • Contract- Contract assessment, a place to capture and store the contract and its information.
  • Service-Level agreements (SLAs)- tracking SLAs to make sure that the vendor is sticking to the agreement and not being fraudulent.
  • Review- Reevaluating the risk the vendor has while also identify any concerns with the performance of the vendor.
  • Due Diligence- central location to store and evaluate due diligence material from the vendor.

In conclusion, a properly managed vendor relationship can result in greater quality, better service, lower costs, and happier clients.

Does Your Bank Need More Fee Income?

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Community bankers across the country are holding their breath hoping they won’t have to pay increased FDIC insurance premiums to pay for the recent $23B drain on the fund by the two large failed banks. A FDIC special assessment is coming but whether all banks will have to pay their proportionate share is still up in the air. Certainly it is not fair for community banks who are not “too big to fail” to share the responsibility of maintaining the FDIC Insurance fund at regulatory levels. Regardless, expenses at community banks are not going down.

Another concern that should be on community bankers’ minds is the percentage of service charge income they derive from non sufficient fund and overdraft fees. Since 2015, the CFPB has required banks with over $10B in assets to report their income from NSF/OD fees on their quarterly call report. Now, several states are asking smaller community banks for the same data. Banks that obtain over 50% of their fee income from NSF/OD fees are being criticized by the regulators. Some bankers are keenly aware of what is going on…others have not caught on to what they can do to mitigate this from happening. Bottom line is all bankers need to diversify their sources of fee income.

Strunk’s value added checking program will generate significant amounts of fee income while keeping free checking for those customers who want it. Since 2011, over 1,200 banks have offered the benefits added checking account to their offerings. You can expect fee income to go up by at least $40 per checking account per year. The program is easy to implement and easy to manage.

Contact us at 800.728.3116 or email at info@strunkaccess.com to learn more about fee income programs offered by Strunk. You will be glad you did.

2023 Potential Focus

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In 2023, what will regulators and auditors focus their attention on the most? How can we get ready for a change in any law or regulations? How can Strunk’s software better prepare you for your audits and examines.

To determine the top regulatory hot button problems for 2023, Strunk examined supervisory priorities, enforcement trends, rulemaking agendas, speeches, blogs, and more. Below is the list of the items that seems to be focused the most on is 2023.

  • Loan origination and servicing: The CFPB expects every regulated entity under its supervision and enforcement authority to have an effective compliance management system adapted to its business strategy and operations. Examiners should also use the compliance management system review procedures, to conduct review and testing of components of the supervised entity’s compliance management systems which is part of the 2023 Supervisory Highlights Junk Fees Special Edition from the CFPB.
  • Credit Reporting: Inaccurate information on credit reports is the most frequent complaint that the CFPB receives. The CFPB refers complaints to your regulator agency even if they do not regulate you in their 2022 Fall Supervisory Highlights. Congress has issues of its own. Make sure your financial institution train workers, test credit reporting systems, and update rules and procedures that deal with the accuracy of information reported. Financial Institutions should immediately look into and resolve customer complaints.
  • Lending practices & fair lending: Fair lending is expected to remain one of the major compliance issues, if not the main one. In its most recent annual report to Congress on fair lending, the Consumer Financial Protection Bureau (CFPB) highlighted in their 2022 Fall Supervisory Highlights, its efforts to oversee activities related to “mortgage origination and pricing, small business lending, student loan origination work, policies and procedures regarding geographic and other exclusions in underwriting, and on the use of artificial intelligence (AI) and machine learning models.” The agency has a solid track record of carrying out its obligations. There is no reason to believe that this will change in 2023 given the bureau’s track record of following through on its commitments.
  • UDAAP focus on fees: A CFPB press release and information request from January 2022 helped popularize the phrase “junk fees” in the banking sector. The definition of a “junk” fee was not clear because the agency included services for concerts and hotel resorts with other fees that banks typically charge. However, the bureau explicitly mentioned overdraft, NSF, and late fees for credit cards in their press release. The bureau declared that in order to “reduce these kinds of junk fees,” it will “craft rules, issue industry guidance, and focus supervision and enforcement resources to accomplish this objective.”, which is stated in the 2023 Supervisory Highlights Junk Fees Special Edition.
  • Deposit accounts: Ensure that you are abiding by both local and federal laws and educate your workers on policies and procedures. Making sure that each consumers gets full details regarding their accounts and understands it. This has been covered in several CFPB and FDIC reports around UDAAP.
  • Vendor Management: Regulators are still very interested in your relationships with vendors, service providers, and fintech partners, particularly those who assist you in providing Banking as a Service. Your financial institution will be held accountable if a vendor violated consumer protection rules or caused a breach involving your data. Based on CFPB Consumer Financial Protection Circular 2022.
  • BSA/AML/OFAC: Regulators have gone after BSA officers and management with individual fines per BankersOnline.com BSA/AML Civil Money Penalties. Worldwide instability creates new sanctions. Financial Institutions must implement rules, including beneficial ownership rules for the next few years.
  • AI, algorithms and big data: It’s obvious that we’re only at the starting of sorting this all out because this subject has recently grown quite popular with the agencies. There are many facets of this problem to investigate, but one of the buzzwords is “digital redlining,” which refers to a form of discrimination where lenders limit credit availability or give credit on unfair terms based on applicants’ digital footprints. These new technologies are usually used by banks for marketing, fraud detection, and credit standards. Director Chopra’s comments focused on the use of AI in lending decisions. He stated that the CFPB will be “watching for digital relining,” citing what he called “algorithmic bias” and the need for investigation of whether “discriminatory black box models are undermining the goal” of equal opportunity.

Strunk offers a variety of software solutions to assist financial institutions with their Enterprise Risk Management. Strunk’s Risk Manager, Policy Manager and Vendor Manager solution will help financial institutions be better prepared for their audits and examines, covering most of the hot topics for 2023. Also, Strunk’s overdraft privilege programs assist financial institutions grow their bottom line while also making sure they are fully compliance with regulatory issues.

 

Strunk at the ICBA’s Live 2023

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The Independent Community Bankers Association held this year’s ICBA LIVE event all the way out in Honolulu, Hawaii from March 12-16 at the Hilton Hawaiian Village. In addition to the beautiful location, attendees enjoyed visiting with vendors in the Marketplace, various Learning Labs and sessions with ThinkTECH presentations.

Strunk was pleased to meet with so many bankers, discussing necessary solutions for community banks. Strunk was thrilled to debut their newest solution, Pricing Manager. Pricing Manager is a full-featured loan and deposit pricing solution that will provide banks with the ability to set loan and deposit pricing consistently and profitably. Commercial loans can be priced consistently by every lender – creating options for customers that all achieve the bank’s profitability targets. Additionally, rate sheets for consumer loans, residential mortgage loans, and deposits can easily be created that are also based on established profit objectives. Not only will Pricing Manager drive consistent achievement of profitability targets – it will also help you win more quality deals!

Strunk’s goal is to continually provide value-added SaaS solutions that help community banks increase profitability, while controlling operating expense. In addition to their latest offering, Strunk highlighted their overdraft service and best-in-class governance, risk and compliance solution, Risk Manager.

For more information on Pricing Manager or Strunk’s other solutions, visit https://strunkaccess.com/ or contact Strunk at info@strunkaccess.com.

Communicating Alternatives to Overdraft Privilege

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Financial institutions are expected to monitor excessive consumer Overdraft Privilege activity in order to advise customers of alternative options to cover overdrafts.

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.

The hosted ODP Manager software includes a letter template which can be used to notify customers of the available alternatives to Overdraft Privilege. The alternatives, overdraft protection credit lines and/or overdraft protection transfers from a linked account, are both described in the letter including information about associated charges or fees and whether an application or request is needed to initiate coverage.

This Excessive Use Notification letter can be generated in ODP Manager based on criteria included in the daily extract file or as needed as an Ad Hoc letter. If the file imported daily into ODP Manager includes data from the core that indicates when an account has qualified for the letter by exceeding the threshold, the hosted software can automatically show when a letter is due. If the data is not available in the extract file, letters can be generated for each account identified using an existing core report or other method.

Whether the letter is generated based on criteria or as an Ad Hoc letter, the letter will be tracked for each account and retained within the hosted ODP Manager software.

Please contact Strunk Support at support@strunkaccess.com with any questions or to find out more details about ODP Manager’s Excessive Use Notification Letter.

Strunk Response to Recent Overdraft Headlines

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It is no secret that overdrafts and overdraft fees are making the news quite frequently these days. This increased attention often puts pressure on community financial institutions specifically, as the articles and reports are often unclear. Questions like, ‘is there something our FI is required to do?’ or more simply, ‘should we be doing something?’ arise.

Most recently, the Consumer Financial Protection Bureau (CFPB) has released a report stating that banks’ overdraft/NSF fee revenue has declined significantly compared to pre-pandemic levels. The CFPB stated that “Bank overdraft/NSF fee revenue was lower in 2020 and early 2021 than before the pandemic, which was likely largely due to pandemic-related stimulus checks pushing up average checking account balances. In the second half of 2021, as the pandemic stimulus wound down, overdraft/NSF fee revenue rebounded somewhat, but began decreasing again through the third quarter of 2022 – likely due to changes in bank policies.”

The CFPB states in their report that they ‘have not observed correlating increases in other listed checking account fees, which suggests that banks are not replacing overdraft/NSF fee revenue with other fees on checking accounts.’  The report identifies the largest banks in the United States, and while those banks can afford these changes, the report fails to review how this will affect community financial institutions.

It is important to understand that the comments in the report are a function of two primary things:

  1. Consumers have changed their behavior regarding overdrafts because of the pandemic.
  2. Mega banks chose on their own to drastically cut NSF and OD fees. Those banks have many revenue sources and can afford to be magnanimous, while community financial institutions do not have that opportunity.

Quite possibly the most critical message here is, there is no new regulation and nothing for the community FI to do, for now. Strunk will alert clients if any new rule making is introduced by the CFPB, and thus changes become necessary. Strunk’s overdraft program remains complaint by offering clear and appropriate disclosures, easily accessible reports and ongoing employee training.

Community FIs might still feel the strain of lost revenue and should explore new fee income strategies and profit improvement opportunities with Strunk to get out in front of this challenge. It has never been more important to shift focus and to diversify the ways fee income is produced for the community FI.

Banks see a Significant Drop in Fee Income

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Banks across the country saw a steep decline in fee income derived from overdrafts in 2020 likely due to pandemic related stimulus checks that pushed up consumer’s checking account balances. It bounced back somewhat in 2021 but there was another sharp decline in 2022.

Service charges that banks derive from overdrafts hit an all time high in the late 2000’s when the industry collected over $30B annually. In 2022 that number is less than $8B according to a recent report from the Consumer Financial Protection Bureau, a 75% drop in fee income. What happened and what can our industry do?

Consumer spending habits have changed and they are less likely to overdraw their account. Also, debit card regulations changed in 2010 which made banks get confirmation that a consumer wants their debit card paid at point of sale, even though they may not have enough money in their account. This was a great regulation and it gives the consumer a choice on how they want their account handled in the case of an overdraft. It also alleviated the problem for banks when they have to decide what to do in that situation. A win-win situation for consumers and banks.

Bankers for decades have been afraid to charge fees for services received by their customers. An example would be charging a fee for a checking account. Strunk’s Value Checking program has been around since 2011 and over 1,300 financial institutions have implemented it. Very simply, add benefits to all checking accounts and charge a small monthly fee on the account. ID theft protection, roadside assistance, and cell phone coverage are some examples of valuable benefits consumers are paying for elsewhere.

Contact Strunk at info@strunkaccess.com to learn more about Strunk’s Value Checking strategy. It is very simple to implement and consumers will like the service.

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.