A Loan Pricing Solution that will help banks make more money

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

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.

Banking: Thinking Outside the Box?

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.


Strunk at ICBA LIVE 2024

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.

Is it Time to Rethink Free Checking?

The banking industry has lost nearly $20B in service charge income over the past 15 years and it has affected banks across the country regardless of size. Free Checking was offered by most every bank between 1990 and 2020 but now fewer banks give away anything for free. Why should they? What other service provider gives anything away for free?

In the early 1990s banks offered overdraft payment programs that provided a much needed customer service while increasing the bottom line at the same time. When checks were the primary source of payment no one wanted their overdrawn check sent back to the merchant. Free Checking flourished and banks still made a profit.

Then came debit cards. The regulators jumped (for a good reason) and protected consumers from overdraft fees unless the consumer consented to the debit card caused overdraft. Some people opted in and others just had their debit card denied at the point of sale to avoid overdrawing their account.

Now the CFPB wants to curtail what a bank can charge for an overdraft…equal to what it costs a bank to process the item. President Biden refers to these as “junk fees” and wants the regulators to significantly reduce them. So, why would a bank continue to offer Free Checking now as new government proposed regulations will curtail service charge income even more? Banking has changed and we need to change our product offerings as well.

Strunk’s Secure Checking program will generate significant amounts of service charge 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 income to go up by at least $50 per checking account per year. The program is easy to implement and easy to manage.

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.


Over Pricing Your Largest Most Profitable Customers

One of the biggest mistakes many FIs make when setting pricing strategy is to establish a ‘base lending rate’. Often this ‘base rate’ is applied regardless of the type, size, or term of the loan, and worse, is often set to Prime. For example, when considering a five-year fixed rate on a commercial real estate loan, from time to time we come across a client or prospect that applies their ‘base rate’ of Prime which today would be 8.5%. The problem with that approach is we are ignoring a fundamental principle of finance – we’re ignoring interest rate risk and the term structure of rates.

The Prime lending rate is an overnight rate – technically Prime can change any day. Obviously a 5-year rate is a much longer-term rate. Comparing Prime to a five-year fixed rate is really comparing apples and oranges. Let’s dig into this a little further. Today, Prime is 8.5% and a five-year fixed rate advance from the FHLB is 4.25% – a difference of 4.25%. In February of 2022 Prime was 3.25% and a five-year FHLB advance was 2.25% – a difference of only 1.00%. In February of 2020 Prime was 4.75% and a five-year FHLB advance was 1.50% – a difference of 3.25%. And in February of 2018 Prime was 4.50% and a five-year FHLB advance was 3.00% – a difference of only 1.50%. As you can see, the relationship between five-year rates and Prime is highly inconsistent. Over the past 6 years Prime has been as much as 4.25% and as little as 1.00% above a five-year rate. So, we have to ask ourselves, why would I tie the rate on a five-year fixed rate loan to Prime?

The other challenge this practice can lead to in the current environment is over-pricing some of our largest, most profitable customers or prospects – which could lead to losing existing relationships or get in the way of winning new relationships. We model loan scenarios for FIs all across the country many times each day so we see a large number of loan opportunities and how they are being priced in the market. Particularly on larger deals – say $1,500,000 and above – we often see rates in the mid to low 7% range. However, we also see rates as high as 8.5% on the exact same scenarios – particularly when the FI currently follows the ‘base lending rate’ philosophy. One of the ways Pricing Manager can help your FI earn more net interest income is by helping win more larger, profitable deals by pricing more competitively.

If you would like to learn more about Pricing Manager, please contact Strunk at info@strunkaccess.com or 800-728-3116.

Strunk at the ABA’s Conference for Community Bankers 2024

This year, the American Bankers Association hosted the Conference for Community Bankers in San Antonio, Texas at the beautiful JW Marriott San Antonio Hill Country from February 11-14. Attendees kicked the event off with a golf tournament, some educational sessions and once again, celebrated the Super Bowl with a Big Game Tailgate Party!

Speakers discussed topics such as how the FHLBs and the ABA work together most effectively, strategies for retaining customers, how to outperform peers and the state of our commercial lending markets. The highlight of the general sessions was quite possibly James Olson, a former Chief of Counterintelligence for the CIA who shared insights into his undercover career. Bankers and vendors alike enjoyed a reception on Monday evening celebrating Willy Wonka’s Chocolate Factory.

Strunk was excited to have the opportunity to show their newest solution, Pricing Manager, to clients as well as many new faces. 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 were introduced. These rate sheets can easily be created also based on established profit objectives. Not only will Pricing Manager drive consistent achievement of profitability targets – it will also help banks 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 any of Strunk’s other solutions, visit https://strunkaccess.com/ or contact Strunk at info@strunkaccess.com.

Setting Rates for Loans and Deposits

When setting rates for loans or deposits many factors come into consideration. The credit risk of the borrower; collateral for the loan; ability to repay the loan; the term of the loan; and competition are all factors that most banks look at when determining the interest rate. One big factor that many financial institutions don’t consider is the size of the loan. That is a critical misstep when it comes to the profitability of that loan to the bank.

Similarly, banks set rates on deposits on market factors such as liquidity, borrowing capacity from the Federal Reserve or FHLB, and what the competition is offering. Money market rates are sometimes tiered based on the amount in the account but rarely do we see rates tiered on certificate of deposits or other interest bearing accounts. Occasionally banks will have a jumbo CD rate for accounts over $100K.

Most community banks lack the ability to determine costs associated with making loans or handling deposit accounts. With Strunk’s Loan, Relationship and Deposit pricing tool you can set target goals for profitability such as return in equity. Our solution will determine what rate you need to achieve on loans and what rate you can offer on deposits to meet that goal.

Give your loan officers a simple program to use to win more deals while meeting your profitability goals. Size matters when it comes to loans and deposits. Strunk’s loan and deposit pricing tool can make your bank a lot of money. Contact Strunk at 800.728.3116 or info@strunkaccess.com to see how it works.


Time to Consider a Loan and Deposit Pricing Tool?

Many community bankers “look down the street” when pricing commercial loans to see what the competition is doing. Ironically, those bankers are looking at your bank as well to see what rate to offer! What if neither bank knows how to ensure the loan nor the borrower’s relationship is profitable?

In the mid 2000’s large and regional banks used pricing tools to help them win more deals and to ensure the loan/relationship met their profitability target. Community bankers were left out due to the complexity and cost of the pricing solutions.

Then from late 2008 until March 2022 the prime rate was so low that any loan a bank would make was better than investing in Fed Funds. Therefore, loan pricing tools weren’t much of a benefit to community banks. However, in the past two years rates have risen due to inflationary concerns and we are now faced with a prime rate of 8.5%.

There are many factors that go into a pricing decision and an inexpensive, simple to use loan pricing tool will give your bank an advantage in today’s interest rate environment. Size, term, fees, fixed or floating rate, balloon, collateral, and of course the borrower’s creditworthiness are all important factors.

2024 is the year to look at giving your loan officers a simple program to use to win more deals while meeting your profitability goals. Just like loans, size matters when it comes to deposits as well. Strunk’s loan and deposit pricing tool can make your bank a lot of money. Contact Strunk at 800.728.3116 or info@strunkaccess.com to see how it works.

Strunk’s Loan and Deposit Pricing Solution

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. Banks will typically see a 25-50bp increase in NIM after implementing Strunk’s solution.

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.

Does your bank consider the size of the deposit when pricing CD’s or money market accounts? Just like loans, size matters when it comes to deposits. Strunk’s loan and deposit pricing tool can make your bank a lot of money. Contact Strunk at 800.728.3116 or info@strunkaccess.com to see how it works.