ORLANDO, Fla.-Interest rate risk is under tight control at FAIRWINDS Credit Union here, with the help of third-party analysts and an asset-liability management (ALM) system, according to Dan Bock, VP-finance at the $1.7-billion CU.
Likewise, an ALM system does "everything we need it to do" to manage interest rate risk (IRR) against investment, loan and share strategies at $120-million Fort Lee FCU in Prince George, Va., said Patsy Stuard, CEO.
"The tool meets the requirements set forth by the NCUA and helps us adhere to our ALM policy limits," she said. In particular, the tool imports core data so that the CU can review Net Economic Value (NEV) with built-in worksheets, she said.
Fort Lee FCU launched Wisdom ALM in 2002, said Stuard. The system is provided by Frisco, Texas-based Integrasys, a Fiserv company.
"In the event Wisdom would indicate exceptions to our stated policy limits, we may employ actions to eliminate exceptions-in effect, changing rates or selling securities," Stuard explained.
The "highly successful" process of sticking to IRR guidelines at FAIRWINDS starts with a quarterly scrutiny of the CU's balance sheet by WesCorp, the San Dimas, Calif.-based balance sheet and payment system solutions provider, said Bock.
"We send them all of the underlying data for our loans, deposits, investments and financial statements and they run an independent analysis," explained Mary Radley, SVP-risk management, FAIRWINDS.
FAIRWINDS also takes a look at the future by providing forecast data to Wescorp and FTN Financial, a provider of portfolio management services in Memphis, Tenn. The resulting analysis helps "determine the IRR associated with our growth strategies," said Radley.
"The results are reported to our ALM committee as well as the Board in order to provide complete transparency in how well we are managing to expectations," added Bock.
A quarterly analysis is "more than adequate," even in responding to the constant flux of today's markets, Bock said. "Typically, it takes a couple quarters of significant changes to the structure of the balance sheet before any material change in IRR is recognized. Anything more frequent would be extremely time consuming and expensive."
Still, anytime senior management wants to change IRR on the fly, Wescorp and FTN are at FAIRWINDS' beck and call to conduct analyses, said Bock.
In-house, the CU tosses around "what-if" scenarios using PROFITstar, an ALM and budgeting system provided by Allen, Texas-based ProfitStars, a Jack Henry company, said Radley. The system also automatically creates audit trails, analyzes risk against regulatory requirements and determines values for FAS107 reporting.
Executives hope to make better decisions about product pricing in relation to IRR by implementing ProfitEntrée in the first quarter next year, Radley continued. The profitability solution is provided by Profit Resources of Lakeland, Fla.
FAIRWINDS swears by the combination of in-house and outsourced analyses, said Bock. "We find the value of an independent analysis provides reassurance to our examiners, auditors, management team and Board. The investment in outsourcing is well worth the return." The CU also looks at loans from another angle of risk: credit risk, said Radley. Using its custom combination of spreadsheet, reporting and trending software, the lending department monitors each borrower's Beacon Score, current economic indicators and trend analyses, she said. "Lending uses this data to calculate the propensity to pay and the risk of default."
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For info on this story:
www.fairwinds.org
www.fortleecu.org
www.ftnfinancial.com
www.integrasys.fiserv.com
www.profitres.com
www.profitstars.com
www.wescorp.org
