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.

Strunk Announces Completion of 2024 SOC 2

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Strunk, LLC is pleased to share the news that we have recently completed our System and Organization Controls (SOC) 2 (Type II) Audit.

The SOC 2 audit is one the highest recognized standards of information security compliance in the world. It was developed by the American Institute of CPAs (AICPA) to allow a third-party auditor to validate a service company’s internal controls with respect to information security and has been something Strunk is proud to provide our clients for the past 13 years.

We obtained our audited SOC 2 Report by partnering with Johanson Group who respectively review our internal controls including policies, procedures, and infrastructure regarding data security, firewall configurations, change management, logical access, backup management, business continuity and disaster recovery, security incident response, and other critical areas of our business.

Thanks to a team effort here at Strunk, and with the help of our trusted partner Johanson Group, we successfully achieved SOC 2 compliance and received an Auditor’s Report, which we are happy to share with all clients via our secure due diligence portal. Strunk’s infrastructure was found to meet or exceed the SOC 2 criteria. In fact, by partnering with Johanson Group, we can confidently say we go above and beyond the minimum requirements for SOC 2 by integrating our critical infrastructure to monitor compliance to the SOC 2 framework 24/7/365, not just during the audit window.

We believe the relationship with our clients must be built on trust. The successful completion of our SOC 2 Report is one of many ways that we have planned to earn and retain that trust. SOC 2 is just one aspect of our growing security program. We are committed to continually improving our information security program and retaining an annual SOC 2 audit to ensure we keep supporting our clients’ needs.

Banking: Thinking Outside the Box?

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Consumers pay for almost everything they do in their daily lives but historically banks have been afraid to charge a monthly fee for their checking accounts. In 2011 we developed a strategy called Secure Checking to help banks charge fees while softening the fee with products and services consumers want and use. After 13 years and 900 financial institutions later here are the results:

Bank’s customers are used to paying for things like cell phone protection for as much as $15 per month per phone. They are used to paying that much or more for Identity Theft Protection. How about roadside assistance? Consumers use a variety of services and they pay $5 per month or more. Telehealth services is a relatively new service that allows someone to call a doctor, get diagnosed over the phone and receive prescription drugs. Consumers pay $25+ per month for that now. Why not bundle up several of these sought after services and make them part of your checking account…and of course charge a small fee so you can make some money.

On average our clients 1) generate $50 per checking account per year in net fee income; 2) they strengthen the relationship with their customers; 3) they provide services that consumers want and are willing to pay for and 4) in many cases they save their customers a lot of money for services they are paying for elsewhere today.

Secure Checking is not the old Club Account that started 50 years ago and it is something all financial institutions should consider. It is easy to implement and your customers will like the new services.

Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about fee income programs offered by Strunk.

 

Standard Reports Available in ODP Manager

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Strunk’s ODP Manager hosted software includes a standard suite of reports that summarize the information from the most recent extract file imported. These reports can be used by management and by daily users to analyze ODP Program performance and assist with program compliance.

The Summary Report includes totals for overdrawn and not overdrawn accounts, number of accounts by ODP Status Codes, and recommended totals for overdrawn accounts reserve by branch and product. A trend graph displays the accounts with limit, the used commitment, and aggregate privilege over time. NSF and OD Fees and Refunds are also displayed in bar charts. Additional overdrawn account information and reserve information is summarized in the Overdraft Detail Report and the Overdraft Aging Report.

The Overdraft Aging and New Accounts Reports show individual accounts that should be reviewed daily to determine the assignment and removal of overdraft limits. The Fresh Start Tracking Report allows users to monitor accounts with Fresh Start Repayment Plans. The Letters Printed YTD report allows your institution to track the total number of letters and which letter templates are generated by month and year.

The Status Tracking and Heavy OD Users Reports show accounts that do not currently have overdraft limits assigned. These accounts should be reviewed at least quarterly to determine if the accounts now meet the qualifying criteria to be assigned an OD Limit. Consistent review of these accounts will help maintain a high percentage of eligible accounts in the Overdraft Privilege Program.

The Utilization Analysis, Opt-In Impact Analysis, and LOC/Sweep Analysis reports focus on performance analysis.  These reports include a Branch Summary and Product Summary table. Monitoring the percent of accounts with overdraft limits and the percent of accounts opted in for Regulation E is very important to maintaining or improving ODP program performance. The LOC/Sweep Analysis Report allows comparison of the number of accounts with ODP to the number of accounts with other options to cover overdrafts, such as lines of credit or sweeps from other deposit accounts.

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

Highlight on the American Bankers Association’s Poll Regarding Overdrafts

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Legislators are continuing to push for changes in overdraft fees, which they describe as unnecessary and even predatory. They have dubbed these fees as “junk fees.” We know that overdraft fees are not “junk fees,” but rather a convenience for informed consumers. The American Bankers Association (ABA) has pushed back, stating, ‘The administration’s latest attempt to suggest that highly regulated bank fees already disclosed under federal law are ‘junk’-or even illegal- continues to mislead the American people’. According to a survey conducted by Morning Consult from March 8-10, 2024, for the ABA, most Americans have a positive view of the current banking and financial services available to them. The survey specifically revealed that a strong majority of Americans appreciate the value and convenience of bank overdraft programs.

Consumers are more knowledgeable than ever about their banking products. More than two-thirds of consumers (67%) find their bank’s overdraft protection valuable, compared to only 16% who do not per the survey. 8 in 10 consumers who have paid an overdraft fee in the past year were glad their bank covered their overdraft payment, rather than returning or declining payment. Consumers understand the immediate consequences of a returned payment, such as the embarrassment of not being able to pay at a restaurant or other places. They also understand the long-term repercussions, such as late fees, repossessions, tax penalties, or even evictions. If overdrafts are no longer allowed, banks will be able to make up for lost revenue through other means, but consumers may not be able to recover from a financial mistake. According to the Morning Consult survey, 64% of consumers find it reasonable for banks to charge fees for overdrafts, while only 23% don’t think it’s justified. Close to 75% of the participants consider overdraft fees reasonable when it comes to larger payments like mortgages or rent payments are covered and paid on time or protected from late fees or penalties. Overdraft protection provides seamless financial support when needed, making it important to preserve.

Policymakers continue to believe that consumers don’t understand how overdraft protection works or that they don’t have access to their account information. According to the survey, almost 90% of consumers find it easy to check their account balance to avoid overdrawing their accounts. Additionally, two-thirds of consumers are aware that they can opt-out of receiving overdraft protection at any time after they have accepted the service. This is in contrast to only 7% who mistakenly believe that customers are obliged to stay in the program after accepting the service. Approximately 80% of consumers who are currently utilizing overdraft protection have never given serious thought to discontinuing or opting out of the service. Almost 70% of them have expressed their preference that their bank offers overdraft protection as an option to their customers, whether or not a fee is involved, as opposed to only 13% who would rather their bank not offer overdraft protection at all. The ABA survey continues to show how policymakers seem to be out of touch with their constituents and what their true needs and wants are. Policymakers should ensure customers are given a full and fair opportunity to choose overdraft protection, and financial institutions should use it as an opportunity to help customers make better financial decisions in the future. Overdraft protection provides peace of mind, allowing consumers to make sound financial decisions without worrying about the consequences of overdrawing their accounts.

Strunk at ICBA LIVE 2024

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This year’s ICBA LIVE, hosted by the Independent Community Bankers Association, was held in sunny Orlando, Florida from March 14-17 at the Orlando World Center Marriott. In addition to various roundtable discussions, ThinkTECH presentations, and Learning Labs attendees enjoyed visiting with vendors in the Marketplace.

Strunk was excited to meet with so many bankers, discussing a variety of topics important to them today. Many banks are taking advantage of Strunk’s Pricing Manager solution, a full-featured loan and deposit pricing application. Banks are able to deploy a tool to all lenders to ensure they are armed to price loans profitably and consistently based on each bank’s target profitability objectives. It also provides the ability to understand the details of relationship profitability so that better pricing decisions can be made. Pricing Manager is affordable, easy to implement and use, and it will increase the bank’s net interest income by 25-50 basis points.

Many banks are understandably concerned about lost fee income, so another hot topic of conversation was Secure Checking. The program will allow banks to implement a monthly maintenance fee on each checking account and not worry about consumer backlash. It’s a tried and true program that works every time – at literally hundreds and hundreds of FIs across the country. Through the program, fee income increases at least $50 per account, per year. These consumer demanded features are supported by a company that has been in this business for 50 years and Strunk has been working with them for a decade.

Strunk continues to provide value-added SaaS solutions that help community banks increase profitability, while controlling operating expense. In addition to these offerings, Strunk discussed their overdraft service and best-in-class governance, risk and compliance solution, Risk Manager.

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

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.