How one bank improved loan quality and earnings in 2011

make your own green shootsWhether you had a disappointing year or a good year in 2011, what will you do in 2012 to improve your bank’s performance?  Read below to learn what one bank did to significantly improve bank earnings and loan quality in 2011.

A New Bank President

“Bob” was hired as President of “Community Bank” in early 2011.  At one of his first loan committee meetings, he asked a senior lender, “Exactly how much money will we make on this loan at this rate?  What alternative pricing structures did you offer the borrower?  And how much would we make under the alternatives?”  No one could answer these questions.  Bob had used loan pricing software at his previous bank and suggested enhancing their loan pricing process with pricing software.  After sharing how quickly his lenders had come to rely on the software and actually become the biggest proponents of its use, he talked to his Board.  The Board agreed but warned that “it better pay off quickly.”

Saving an Important Relationship

Shortly after implementing PrecisionLender, one of the bank’s long-standing relationships called and said he had received an offer to move his $2 million loan (currently at 4.9%) to Bank of America under an interest-only loan at 3.8% (“I can’t pass up 3.8%!”).  Bob used PrecisionLender to generate multiple alternatives that kept the rate at 3.8%.  Ultimately, the Customer agreed to a 3 year fixed rate of 3.8% AND he brought over his entire investment portfolio as additional collateral.  The key for this particular deal was the lower capital needed to support the loan given its much lower loan to value.  Using PrecisionLender, Bob’s bank not only kept the relationship, but he also increased the relationship profitability while reducing risk.  Saving this one high quality loan paid for the PrecisionLender software for the entire year.

Pricing with Precision Allows You to Compete with Confidence

Without loan pricing software, it is difficult to know the profitability of each loan and nearly impossible to determine the relative profitability of multiple alternatives.  The key competitive advantage for Bob on this deal (and for all PrecisionLender clients) is the ability to quickly and easily find a way to identify the loan structure and pricing that works best for the borrower AND the bank.

Regardless of your local market, almost nothing can have as big of an impact on profitability (in both the short and long-run) as enhancing your bank’s loan pricing process.  In fact, most banks can improve their loan quality and increase Net Interest Margin by 10 – 50 basis points in the first year.

With less than 100 days remaining in 2011, now is the time to act.

This entry was posted in Loan Pricing, Loan Renewals, Relationship Pricing, Risk-based Loan Pricing on by .

About Carl Ryden

Carl Ryden, Chief Executive Officer of PrecisionLender, has deployed pricing management solutions in hundreds of financial institutions ranging in size from $50 million in assets to over $180 billion in assets. Not only the author and developer of PrecisionLender’s loan pricing system, Carl actively provides strategic consulting to PrecisionLender clients. His breadth of experience and passion for technology, finance, strategy, and software development enable him to address risk-based pricing from a unique perspective. Carl has an MBA from MIT Sloan School of Management, a Masters Degree in Electrical and Computer Engineering from MIT and a BS in Electrical Engineering from NC State University.

Have a question for Carl?

Carl loves speaking with bankers about the issues that really matter... from working through tricky pricing situations to building stronger relationships between lenders and borrowers. Please send him an email at and he'll get back to you right away.

About PrecisionLender

PrecisionLender is a web-based pricing management solution used by thousands of lenders every day to price billions of dollars in loans & deposits each month. With PrecisionLender, loan officers finally have a tool they can use, IN THE MOMENT, to have a constructive conversation that focuses on the borrower’s needs, and allows them to hand-craft a solution that works for both the borrower AND the bank.

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