Credit Unions: Size Matters When Making Loans

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When making auto loans most credit unions look at the term of the loan, the age of the car or truck, and the creditworthiness of the member when determining the rate for the loan. Most institutions look at loan to value, debt to income and/or the credit score of the member before deciding to make or decline the loan request. But, very few credit unions look at the size of the loan when setting rates and all of them are missing out on a huge opportunity.

The three main factors when trying to meet profitability goals from a consumer loan portfolio are: 1) creditworthiness of the borrower; 2) term of the loan and 3) SIZE of the loan. Most financial institutions consider the size of the loan by the age of the vehicle. Many years ago the age was a good substitute for the size of the loan but not anymore.

Small dollar car loans are not nearly as profitable as larger loans when factoring in the costs associated with underwriting and servicing these installment loans. Even if the credit report and term of the loan are equal when evaluating a loan, credit unions should not offer the same rate for a $10,000 loan vs. a $25,000 loan, or a $50,000 loan.

Strunk’s loan pricing solution factors in all drivers of profitability and we will help you set rates based on your credit union’s target return. The tool is very inexpensive, easy to use, and will increase your credit union’s bottom line. In a recent meeting with a 25 year tenured CEO of a credit union she said “I’ve never heard of looking at the size of a loan to determine the rate for a loan. When can we get signed up?”

Contact Strunk 800.728.3116 or at info@strunkaccess.com to learn more about our loan and deposit pricing solution.

Strunk’s Loan Pricing Solution Will Increase Income

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Over the past 30 years Strunk has helped over 1,800 community financial institutions increase income with a variety of innovative products and services. Their most recent solution is a loan and relationship pricing tool that will increase your bank’s net interest margin.

Starting in 1993, Strunk was the pioneer in overdraft privilege programs which turned out to be the best fee income idea in the history of our industry. Bankers would say “How can we increase fee income with a formal overdraft program without raising prices?” Our strategy substantially increased fee income while consumers benefited at the same time by not paying the retailer’s fee for returned checks.

Then in 2007, Strunk became an original investor in BancVue which later changed their name to Kasasa. Bankers would say “How can we afford to offer 6.5% on a checking account without cannibalizing all of our accounts and increase our debit card transactions at the same time?” Guess what, the reward checking program (Kasasa) doubled debit card transactions, increased the number of accounts using online statements, and new deposits far outweighed cannibalized accounts.

Prior to Dan Roderick’s, Strunk’s CEO, group purchasing Strunk in 2013 he ran the largest loan pricing solution in the market. It was very expensive yet very popular. Working with over 400 banks across the country, he helped them their net interest margin with very little effort.

Strunk’s loan pricing solution is very inexpensive, easy to use, and will increase your bank’s bottom line, just like what we have been doing for our industry since 1993.

Contact Strunk 800.728.3116 or at info@strunkaccess.com to learn more about our loan and relationship pricing solution.

Loan Pricing Tool That Will Increase Net Interest Margin

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Historically, loan pricing solutions for community banks were not affordable and only the larger or regional banks used them. The competition for lending generally dictates the rate offered to the customer. There are several factors that go into loan profitability but the three main drivers are the risk of the borrower, size of the loan, and term of the loan.

Here is an example of how a loan pricing solution can help your bank win more deals. A community bank shared a recent deal that they lost due to pricing/structure of the loan. The bank had a client that was purchasing a dump truck and wanted to borrow $100K. The bank offered Prime – 1% (7.5%) fixed with a five year amortization and a 1% upfront fee. The borrower who had $25K in deposits and no other relationship only wanted to pay 7.25% with no fee on the loan.

The bank did not have a pricing solution to determine the profitability of the loan/relationship so their line in the sand was Prime – 1% with a $1K fee. The borrower went elsewhere for the $100K loan (the $25K deposit hasn’t left the bank yet…as of this writing) and the bank lost out on the interest income.

After running the loan opportunity through Strunk’s Loan Pricing solution, the bank should have made the loan at 7.25% with no fee since it would result in a 17.95% annualized return…rather than let their customer go somewhere else. The net income from this one lost loan opportunity would more than pay for the Strunk loan solution for a whole year.

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.

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.

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.

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.

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.

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.

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.