Strunk

Community Banks Compete with “Non Banks” as Well

November 6, 2024/in Banks, Credit Unions, Financial Services, Markets, Pricing Manager, Sales/by Mike Sobba

For decades community banks have competed with credit unions for deposits and consumer loans and other “non banks” like the Farm Credit System for larger land and agricultural loans. Often times you hear bankers say they look down the street when pricing their loans but does that really provide a good way to determine what the interest rate should be?

The Federal Government has been “helping” farmers out for years on agricultural related lending and community banks have to compete for that business. Many times the interest rate on those types of loans seems unreasonably low and hard to compete with. Also, many times the “government” entity might waive fees or not require the borrower to open up a deposit account for the new loan.

Having a loan pricing tool that incorporates fees, rate, repayment term, and credit risk may give you a competitive advantage when competing with these entities. Can you lower the rate if the borrower brings deposits with them? Can you waive the fee and still receive a return that is competitive and meets your profitability target? What terms give both you and the borrower the best deal? How do you know that your lenders are working for the borrower and the bank?

These questions can easily be answered with a loan and deposit pricing tool that many regional and large banks have used for years. To gain a competitive advantage, contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn about how Strunk’s loan pricing tool will increase net interest income by at least 25bp.

Top 10 Reasons to Implement Strunk’s Pricing Manager

October 30, 2024/in Banks, Financial Services, Markets, Pricing Manager, Sales/by Kristi Daly

Is your financial institution using a pricing solution to consistently and more effectively price your commercial loans and deposits? If not, you should be and of the many reasons that your FI should consider implementing a pricing tool, here are the top ten:

Every community bank is over-pricing their largest, most profitable customers, and underpricing the smallest, least profitable customers. It is potentially the biggest challenge we face as an industry that keeps us from growing, achieving increased profitability and competing as effectively as we possibly can.
Do you know who your most profitable customers are? Do your lenders have easy access to that information in a form that helps them make better pricing decisions? When it comes to making better pricing decisions, it’s critical to look at profitability in the context of the rate environment that existed when pricing decisions were made for each relationship.
Banks that are ‘watching the competition’ are effectively allowing the competition to price their loans or making a rate concession to ‘match the competition’. If we are all paying attention to what our competitors are doing – we’re watching them, they’re watching us – how do we really know if the resulting price makes economic sense for us? Of course, competition is an important factor to consider – but there are other important factors as well… including your bottom line.
Institutions that employ a technology-based empirical pricing solution win more deals, enjoy higher net interest income, and achieve higher profitability. It’s an inescapable fact. Typically, the increase in net interest income equates to 25-50 basis points. That likely equates to a bigger annual impact than any other program you may currently be working on.
If given our preference, we always prefer to get fees on a loan. However, it’s also important to recognize that we are operating in a competitive world. Fees have a much greater impact on profitability for some loans than others. Make sure your lenders consider that fact when structuring pricing proposals – particularly for fee sensitive borrowers. Fees are critical on lines of credit, construction. development and small loans. They have far less impact on profitability of larger term loans.
Deposit balances can provide pricing power on a loan depending on the size of the deposit and rate. Be sure you are accurately reflecting the average balance of a deposit and the current interest rate when evaluating profitability.
Use the Rate Sheet feature in Pricing Manager to build consumer loan and deposit rate sheets that consider the main drivers of profitability to establish your pricing. On loans, size of loan, term and credit risk of the borrower are essential considerations. For deposits, size and term are also the main drivers. Too often we don’t consider the size which is critical to maximize net interest margin.
Run a Pricing Manager loan scenario on every commercial loan opportunity you consider and include the PDF of that scenario in your loan packet. Also, include the Relationship PDF so that you are able to consider the profitability of the customer when making your pricing decision.
Use the reporting feature in Pricing Manager to evaluate lender performance. Reports on average ROE, total loan amount, and loan count are available by product and by lender. Use this feature to make sure your lenders don’t just price to the target and are striving to beat your targets as often as they can by as much as they can.
Use Pricing Manager to ensure your adjustable-rate loans are priced appropriately – not only for the life of the loan, but for the initial fixed period as well as the adjustment periods. Too often, the rate for the initial period is inadvertently ‘discounted’, banking on the adjustment periods to achieve target profitability. But there is no guarantee the customer will keep the loan through those adjustment periods. Using the adjustable feature in Pricing Manager will allow you to ensure your loans are priced consistently and achieve your profitability targets.

Please contact Strunk at info@strunkaccess.com or 800.728.3116 to schedule a demo to learn more. Click here for more information.

Could Lenders use a Loan Pricing Tool?

October 2, 2024/in Banks, Financial Services, Markets, Pricing Manager, Sales/by Mike Sobba

Bank lenders need to know which customers are profitable and which ones are not. Does the type and size of the loan matter and how do you factor in the customer’s deposit relationship into the profitability equation? Do your bank’s lenders work for the customer or for the bank when it comes to loan pricing and whether or not to charge a fee?

These are all good questions and a loan and deposit pricing tool will help banks increase net interest income and win more deals when in a competitive situation. Even though getting fees on loans is always a good thing do they really matter to the profitability of the loan? Of course the answer is it depends on the type, size, and term of the loan. Not many banks factor this into the equation.

Relationship profitability many times comes down to does the customer have multiple loans and deposits with the bank? Or, could I get a deposit account if I make a loan to a new customer. All of this is relevant but the type and size of the loans/deposits are critical. Are the deposits interest bearing or in an operating account? Are the customer’s loans small or large and how many loans are there?

Loan pricing tools have been around for decades and many large and regional banks use them. Strunk’s loan, relationship and deposit pricing solution is easy to use, affordable and your lenders will like the tool. 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.

Can Community Banks Compete?

September 4, 2024/in Banks, Credit Unions, Financial Services, Markets, Sales, Secure Checking/by Mike Sobba

More than 10,000 banks have vanished in the last forty years and the trend is frightening as we get close to 4,000 banks left in our country.

Some of the reasons for this drop can easily be explained such as bank failures and mergers of multi-bank holding companies. Of course banks in rural markets have sold as bank owners get older and no family member is there to continue the family legacy. But, many banks sell because they think they no longer can compete with larger banks. This is nonsense!

Bank regulations are never ending and continue to hamper the ability to compete. Costs associated with running the bank such as core processing, compliance and employee expense seem to rise each year. What can be done about it? Have you turned over every rock to see what other banks are doing?

Strunk is an expert in delivering fee income and net interest income programs that hundreds of banks have implemented. We have a variety of services that have been time and market tested. Overdraft Privilege is the program we are best known for with over 1,800 bank clients.

Secure Checking is the “overdraft privilege” of the 2020’s. It will deliver similar fee income as ODP did in the 2000’s. Our loan and deposit pricing tool will deliver similar numbers to the bottom line in the way of net interest income.

Strunk is here to help banks make more money. Contact Strunk at 800.728.3116 or email at info@strunkaccess.com to learn more about income programs offered by Strunk. You will be glad you did.

How to Replace Lost Fee Income for Banks?

August 14, 2024/in Banks, Credit Unions, Financial Services, Markets, Overdraft Privilege, Pricing Manager, Sales, Secure Checking/by Mike Sobba

Strunk has helped over 2000 banks increase their bottom line from a variety of income producing programs that started in 1993 with their Overdraft Privilege program. The service benefited both consumers and banks and although income is down from NSF/OD fees it still remains popular even after tremendous regulatory scrutiny.

In 2010, banks were required to obtain consumer consent before charging an overdraft fee for a debit card transaction that overdrew the account. Service charge income went down significantly. In 2011 FDIC regulated banks had to notify consumers after every 6th overdraft charge in a rolling twelve month period. Service charge income went down again.

More recently banks have discontinued charging NSF fees if their core processor can’t determine if the item had already been presented. Some banks have discontinued allowing consumers to overdraw their account and they have eliminated overdraft fees. To total all of these changes up our industry has seen more than a 50% drop in service charge income in the past 15 years.

What can a bank do about it? Strunk’s Secure Checking program allows consumers to get highly sought after services from their bank while paying a small monthly fee for their checking account. Banks see a net increase in income per checking account of $50 per year. Strunk’s Loan and Deposit Pricing tool will help banks increase net interest income by at least 25bp. For a $100M loan portfolio that is $250K per year.

Strunk is here to help banks make more money. Contact Strunk at 800.728.3116 email at info@strunkaccess.com to learn more about income programs offered by Strunk. You will be glad you did.

Strunk is pleased to announce partnerships with several state banking associations across the country

August 7, 2024/in Banks, Markets, Pricing Manager, Sales/by Kristi Daly

Strunk is pleased to announce partnerships with several state banking associations across the country. The Community Bankers Association of Georgia, Kansas Bankers Association, Kentucky Bankers Association, Missouri Bankers Association, Nebraska Bankers Association, Tennessee Bankers Association, and the Independent Bankers Association of Texas have all provided endorsement of Strunk’s latest offering, Pricing Manager.

Pricing Manager is a fully hosted, web-based solution that allows banks 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 will increase your bank’s net interest income by 25-50 basis points.

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 two years ago, pricing was fairly straight forward for most banks, given historically low interest rates and record high liquidity. However, that has changed dramatically, as should a bank’s approach to pricing. Liquidity, which not long ago was far from a consideration, is now becoming a concern for many banks. Also, 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 – which will impact the risk profile of these loans and should have a corresponding impact on pricing. At no point in history has proper loan pricing been more important.”

Pricing Manager will:

Arm lenders with the tools needed in an increasingly competitive environment.
Provide clients with pricing offers that will win more deals.
Increase net interest income by 25-50 basis points.
Allow you to factor relationship profitability into pricing decisions.
Allow instant pricing strategy adjustments in a shifting rate environment and ensure pricing consistency.
Produce rate sheets for consumer loans and interest-bearing deposits.

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

Should Lenders Price Their Own Loans?

July 3, 2024/in Banks, Credit Unions, Financial Services, Markets, Pricing Manager, Sales/by Mike Sobba

Bankers should consider several factors when pricing loans that meet the bank’s profitability target and also win the deal. Often times when asked what the rate is for commercial loan, a banker will give the same rate regardless if the loan is for $2M or for $250K. In other words many banks price their loans based on the type of loan and not the size. This is a mistake.

Size matters. So does the term, fees, risk, return to the bank and cost of funds. Does the customer have other loans or deposits with the bank and are they profitable? Do your lenders know what the cost to originate or service the loan is? How can they price the loan if they don’t know these things?

Competition is fierce especially for the A rated borrowers. Community banks saw finance companies and car dealerships steal installment lending from them in the 1990’s. Farm Credit is a huge competitor for Ag real estate loans. How can a bank possibly compete with rates they offer your customers? The short answer is you can.

With net interest margins narrowing, now is the time to look at a loan pricing solution that takes all of these factors into consideration. Don’t lose another deal due to price before you look at how you can compete and meet your profitability goals.

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.

Why Vendor Monitoring is Important to the Vendor Management Process

June 12, 2024/in Financial Services, Markets, Sales, Vendor Manager/by Joel Lawrence

What is vendor monitoring, and why is it important to the vendor management process? Vendor monitoring, also known as ongoing monitoring, involves overseeing the vendor’s performance to determine if the vendor is performing as required by the service levels and contract terms.

The Third Party Risk Management Guidance states that ongoing monitoring enables a banking organization to:

Confirm the quality and sustainability of a vendor’s controls and ability to meet contractual obligations.
Escalate significant issues or concerns, such as material or repeat audit findings, deterioration in financial condition, security breaches, data loss, service interruptions, compliance lapses, or other indicators of increased risk.
Respond to such significant issues or concerns when identified.

Strunk’s Vendor Manager software enables you to continuously monitor and manage your vendor relationships. The software allows you to configure ongoing monitoring activities based on the risk profile of each vendor. You can set reminders for when the ongoing monitoring item needs to take place.

Within the monitoring section of Vendor Manager, financial institutions can establish categories and metrics to document vendor performance findings and any necessary remediation measures. Strunk’s Vendor Manager’s monitoring section generates reports that highlight potential risks or significant issues requiring attention from senior management and the board of directors. This framework also provides feedback to your organization and ensures compliance with all regulatory expectations.

Bankers: You Have to Spend Money to Make Money

June 5, 2024/in Banks, Financial Services, Markets, Pricing Manager, Sales/by Mike Sobba

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.

The importance of focusing on capital and ROE when pricing commercial loans

May 22, 2024/in Banks, Financial Services, Markets, Pricing Manager, Sales/by Dan Roderick

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!