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Music City, U.S.A.
 ALM Services

Overview: Sound asset/liability management (ALM) is vital to maintaining consistent earnings and managing interest rate risk. Weaknesses in your credit union’s asset/liability structure can cause significant declines in profitability, adversely impact the market value of assets and lead to material deterioration of net worth. VolCorp’s ALM consultants offer seasoned expertise to support the management of your credit union’s balance sheet regardless of size or complexity. This is crucial given regulators’ increased scrutiny of the fundamental knowledge of credit union management teams regarding the dynamics of the ALM process and associated risk management processes. In other words, simply obtaining compliance reports is no longer sufficient in the view of regulators; you must be able to demonstrate your understanding of the ALM process, the implications of the modeling results, and the ramifications of making informed management decisions.

Benefits of choosing VolCorp for your ALM support requirements:
  • Full-simulation modeling services offered on quarterly, semi-annual and annual schedules using state-of-the-art ALM software
  • Comprehensive ALM Report packages that enable you to monitor interest rate risk under current and hypothetical future interest rate scenarios
  • ALM consultants available to provide interpretation of the ALM Report and in-depth guidance for intelligent management decision-making and policy formulation
  • Supplemental services available to provide targeted “what-if” simulation modeling; policy-based risk limit stress testing; and assistance with financial planning and analysis tasks (e.g. budgeting and forecasting)

ALM Modeling
VolCorp’s ALM consultants can provide you with the quantification and evaluation of several types of risk residing in your credit union’s financial structure. Specifically, our consultants will illustrate the risk profile embedded in your balance sheet and how it relates to applicable NCUA risk limit guidelines. Further, they will examine and explain the causes of changes in your balance sheet’s risk profile from one measurement date to another. You will then receive a full report encompassing Executive Summary; Net Economic Value (NEV); Net Interest Income (NII); Duration; and Repricing Gap. The contents of each major ALM Report section are highlighted as follows:

  • NEV (Net Economic Value) – NEV analysis measures the difference between the net present values of the credit union’s assets and liabilities under regulatorily-defined interest rate shock scenarios. NEV takes into account the optionality inherent in each asset and liability carried on your balance sheet – such as caps, floors, call features, and uncertain cash flows – when calculating their present value.
  • NII (Net Interest Income) – a one-year snap shot of your credit union’s NII after the balance sheet has been subjected to regulatorily stipulated interest rate shock scenarios (all other variables remain static).
  • NCUA Interest Rate Guidelines – a tabulation of your credit union’s interest rate risk compliance position with regard to NCUA guidelines.
  • NEV and NII Trends – a comparison of the results between the current and prior modeling reports and extrapolated trends.
  • NMS (Non-Maturity Shares) – a graphic representation of NEV volatility profiles of NMS modeled at par; at par with rate sensitivities; and at final maturity.
  • Peer-to-Peer Comparison – a summary of the key ratios and graphs that show your credit union’s position relative to its peers.
  • Most Likely Scenario – a one-year projection of an approximated income statement based on your credit union’s current book of business and basic growth assumptions for loans, shares, and investments.



ALM Validation Service
VolCorp’s ALM consultants can conduct a thorough assessment of your credit union’s ALM processes and provide recommendations to your ALCO. Using our ALM software, we will simulate your balance sheet according to your ALM Policy stipulations and compare critical risk measures extracted from both models. We will then examine the causes of material discrepancies between the output of both models and provide recommendations for modifying key assumptions within your model.


Investment Portfolio Consultation
Based on your credit union’s internal ALM review or your VolCorp ALM Report, our investment consultants can provide recommendations with regard to which investment types best suit your yield requirements while staying within your risk tolerance parameters. Our investment consultants can also serve as an independent third party any time you require information on a security, whether it pertains to ratings, yield analysis or other data. In addition, our consultants can test individual securities to simulate their impact on your NEV risk profile. The insights gained can be applied to formulate investment strategies that will result in an optimal portfolio mix for your credit union.


ALM & Investment Policy Design and Review
VolCorp consultants will provide a professional review of your credit union’s existing ALM & Investment Policies. We will draft any revisions necessary to keep your policies up-to-date with real-world risk management requirements and in compliance with changing NCUA regulations. If no policies currently exist, VolCorp consultants will assist your management with drafting complete policy documents. These policies will provide the foundation for formulating appropriate financial risk and portfolio management strategies specific and unique to your credit union.


ALM & Investment Seminars
VolCorp consultants provide ALM and investment seminars to credit unions. These seminars are free of charge, and attendance does not require that member credit unions subscribe to any particular services. Please visit the VolCorp website regularly to check on upcoming seminar dates.


ALM & Investment Training
VolCorp consultants are available to visit your credit union to train not only your management staff, but also your Board of Directors on the fundamentals of asset/liability management and investment portfolio management. Training includes, but is not limited to:

  • A thorough review of types of investments approved for credit unions and the rules and regulations that govern credit union investments
  • An overview of the impact various types of loan and share products as well as investment instruments can have on your balance sheet and income statement
  • A thorough overview of your ALCO & Investment Policies and their implications regarding practical application to balance sheet management



For more information on any of our ALM Services, please contact Chris Hartung, Vice President of Risk Management, at extension 7907 or e-mail marketing@volcorp.org.

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