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Make the ALCO Process Meaningful, Not a Checkbox!

By Lonnie Harris

We are fortunate enough to work with many community banks in several states. We lead or participate in asset/liability committee meetings almost every single day and are constantly working with bankers to prepare and respond to examiners’ very detailed questions. While helping bankers meet their regulatory requirements is satisfying, it is far more rewarding to help bankers efficiently manage their banks.

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Managing the Simulation Model

By Dennis Zimmerman Jr.

While decision making at the community bank level relies on management’s experience, reason and careful deliberation, analysis derived from the use of financial models play an important role in proper decisioning. Models turn information into analysis, which then is used to make better decisions. While financial institutions use models in a wide range of applications, today’s focus is on the asset/liability simulation model — the tool that best measures the possible adverse effects on earnings and equity precipitated by movements in interest rates. Recent shifts in the Treasury yield curve have elevated the importance of an effective asset/ liability management program. As such, management should consider, not just as best practices but as regulatory expectations, incorporating the following items into this year’s deliverables:

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Mortgage-Backed Securities and ‘True’ Yield

Do the Math.

By Jeff Goble

Many banks throughout the Midwest have been overweighting mortgage-backed agency securities issues for their portfolios during the period when the Federal Reserve has been conducting historic amounts of quantitative easing. These bonds have nearly replaced the traditional agency and Treasury holdings held in most bank bond portfolios since the Fed has been purposely driving up their prices in order to lower mortgage rates.

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Will the Fed Be Able to Stay the Course?

The one thing that almost everyone agreed on over the past two years is that after almost a decade, the Fed needed to gradually increase rates from the near zero rate level. Now that the Fed is completing its second year of increases and overnight rates have eclipsed 2 percent, there is an increased feeling of angst in the world of business.

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Managing Earnings: Keeping Score

By Dennis Zimmerman

A common goal for nearly all financial institutions is to increase earnings via an improved margin, but how do you know if the bank’s current asset/liability management strategies are aligned with its earnings expectations? Equally important, how do you know if/when adjustments are needed to current balance sheet strategies? Finding the right answer to these types of questions is key to ensuring that your institution hits its 2019 earnings forecast.

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