First Midwest Bank: The Power of a Chief Pricing Officer

The Power of the Chief Pricing Officer

When Rich Padula was listening to a recent Purposeful Banker podcast, about the concept of creating a Chief Pricing Officer position at the bank, he felt like he was listening to a kindred spirit.

“I said, ‘Geez, I’ve been preaching this for years,’” Padula said.

What is a CPO?

Padula had also arrived at a point in his career, as Director of Finance at First Midwest Bank, where he could put his ideas into action. Padula’s career at the bank has been diverse; he’s worked in a number of areas – treasury, finance, cost accounting, credit, etc. That wide range of experiences was one of the reasons why pricing ended up one of his responsibilities. It also gave him a nuanced view of pricing – both its potential and its problems.

“You realize, ‘Hey all these different disciplines are involved here, but they’re not all coordinated in one point,”

“You realize, ‘Hey all these different disciplines are involved here, but they’re not all coordinated in one point,” Padula said. Padula began to think about how that coordination could take place, and what it would look like. He put into practice what he – and PrecisionLender – had been preaching, and created a position specifically designed for the task of unifying the pricing process.

The Man for the Job

The position at FMB is called the Profitability and Pricing Systems manager. The person FMB wanted to fill it would be someone with a broad-based background, who could talk the talk in finance as well as lending. They found that man in Dennis Powers. “He was a lending specialist and he had 16 or 17 years in leasing as program manager,” Padula said. “He could understand all aspects, not just the sales but also the profitability side and the support side and what it takes to keep the program up and running.”

Powers sees his job as “getting pricing into the conversation at all points throughout the bank.”

That means getting the “back of the bank” areas, such as finance and accounting, on the same page with the “front of the bank” groups, such as lending. It means creating transparency within the bank, so that the lenders can understand why certain targets are set at particular levels and where things stand with the overall portfolio – the areas where the bank’s profits are strong, as well as the ones where the margins are tighter.

“As lenders negotiate, they know where they can hit the hot buttons and when to kind of draw the line.”

“As lenders negotiate, they know where they can hit the hot buttons and when to kind of draw the line,” Powers said.

But it’s also Powers’ job to make sure the information flow is a two-way street between lending and finance/credit, so that the back of the bank understands how their numbers are faring when mixed with the softer science of in-person negotiations. That’s where his experience as a lender has proven invaluable.

“I understand the customers’ questions and their concerns,” he said. “I understand where they’re coming from.”

Educating and Empowering

PrecisionLender has played a central role in helping Powers to carry out his CPO duties, from setting FMB’s pricing strategy to educating and empowering its lenders.

“It’s an incredible tool for my role,” he said. “It’s really brought forth the understanding of how risk-adjusted assets play into the pricing and how our return on those assets is different than the way we’ve been looking at transactions in the past … Now we’re factoring in the risk of due credits, the migration path over a long tenure of time, or the collateral that’s behind the transaction.”

Creating that understanding among lenders, and then showing them the different variables they can use to alter deal structures to achieve the right risk and return, has led to better deals and improved efficiency.

“We’re outpacing what we’re doing on the credit side,”

“We’re outpacing what we’re doing on the credit side,” Powers said. “We already know what their answer is going to be based on the PrecisionLender software.”

The ripple effects have gone well beyond just increasing the likelihood that deals will get credit approval.

“It helps the lenders have smarter conversations with the customers so they can come up with a product that does work for both parties,” Powers said. “We’ll get more profitable and the customer will be taken care of.”

Learn more about First Midwest Bank.

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