Our Services
ALM Validation
Mark H. Smith, Inc. offers a comprehensive Third-Party IRR/ALM Model and Management Process Validation to evaluate and improve your current practices. Through detailed assessments, expert recommendations, and actionable insights, we help you strengthen your IRR modeling and management framework to confidently manage your ALM balance sheet risks.
Enhance Your IRR Management Program with An Expert Third Party Review
ALM Validation by Mark H. Smith, Inc. offers credit unions an independent evaluation of their IRR modeling and management practices, ensuring regulatory compliance and an effective IRR management program.
01
IRR Management Program Assessment
The review assesses the completeness and effectiveness of your IRR management policy and tests adherence to the established IRR management framework. It also includes an assessment of the board’s oversight and the program’s overall governance structure.
02
Model Integrity & Output Review
This includes an in-depth check of the data input integrity and accuracy in coordination with a review of the model setup. Following this examination, model processing and output report testing is conducted, followed by an assessment of monitoring output reports.
03
Modeling Assumption Review
Assumptions will be reviewed for reasonableness and supportability. This includes an analysis of assumption behaviors, peer/industry comparisons, and testing. Major assumptions are reviewed in greater depth to assess their reflection of the associated balance sheet behavior and industry best practices.
04
Controls & Decision-Making Compliance
The review examines internal controls at governance and operational levels to ensure accuracy and consistency. It also evaluates decision-making and IRR measurement within management. Includes a back-test analyzing rate and volume variances with a written summary.
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What’s Included with Your ALM Validation Report?
The IRR/ALM Validation examines the areas below for regulatory compliance and program completeness and makes recommendations and best practice considerations where needed. This includes an additional consultative aspect to the engagement at no additional cost.
ALM/IRR Polices
A thorough and in-depth review of the interest rate risk policy is performed to ensure regulatory adherence and completeness of the IRR modeling and management program. This includes reviewing other related policies where they relate to interest rate risk management. This review is performed in consideration of the credit union’s asset size, complexity, and balance sheet interest rate risk profile.
Oversight & Management
The overall interest rate risk management governance framework is reviewed, including roles and responsibilities of the board, ALCO, and senior management. This coincides with testing governance requirements as identified through policy.
IRR/ALM Modeling & Monitoring Review
A review of the IRR measurement process, including a detailed evaluation of modeling inputs (data capture, integrity, and accuracy), model setup (chart of account level of disaggregation and a review of chart of account characteristics), model processing (including a review of IRR characteristic behaviors and measurement calculation), and outputs (a review of measurement output results relative to expected balance sheet characteristics and interest rate risk measurement monitoring), is completed. This review also incorporates overall modeling functional adequacy relative to balance sheet complexity. This includes a review of interest rate risk measurements utilized and their associated calculations, output reporting, and monitoring.
IRR/ALM Model Assumptions Review
A review of the modeling assumptions utilized, including how well they reflect balance sheet behaviors, their derivations, and industry/peer expectations and comparisons. These generally include, but are not limited to, forecasted volumes, forecasted new/repricing rates, prepayments, rate sensitivities, indeterminate account average life estimates, lagging behaviors, rate drivers and spreads, and implied cap/floor behaviors. Major assumptions will be evaluated relative to their origin and industry/peer comparisons. Their periodic review, sensitivity/stress testing, change control management, and support will also be evaluated.
IRR Modeling & Management Controls
Controls are essential to a consistent and effective program. This review will include both operational and governance controls in the IRR modeling and management process. An evaluation of controls adequacy and consistency and aspects of operational and governance controls will be tested. Governance control evaluations will include reviewing and testing the reporting framework process to management, the ALCO, and the board. This will be tested through historical committee meeting documentation. Operational controls will be evaluated by reviewing the modeling process, including a review of procedures and a reconciliation of input data, particularly current position data accuracy. This will also include a review of how well the reports are utilized in managerial decision-making.
NII Simulation Back Test
A back test will be performed on the NII simulation results from a previous period. This will include a major balance sheet category comparison of model results to actual results and a rate/volume variance analysis of the differences. This will also include reasonable explanations of the variances or modeling aspects that may need to be reviewed due to unexplainable and unreasonable variances.
Report Deliverable
A preliminary written and graphical report detailing the review conducted for each subsection will be delivered for the credit union’s review. Subsections are taken from regulatory guidance for an IRR management program review. Subsections may include either Recommendations, Considerations, or Comments. Recommendations tend to be more material or regulatory-driven to the program’s effectiveness. Considerations are suggestions to adhere to the industry’s best practices. Comments are generally consultative in nature and may pertain to the current regulatory or interest rate environment.
Preliminary and Final Report
A preliminary report will be provided to allow the credit union the opportunity to address items and discuss them with a consultant. Credit union input is welcome as the goal of the engagement is to not only check the regulatory box but also provide value-added benefits to the credit union. The credit union will generally have the final review/edit to achieve a final report as the engagement is viewed as a collaborative effort with the credit union. We are here to work with you and provide support, not against you!
Why Credit Unions Trust Us
Personalized Service & Support
Think of us as your dedicated ALM specialist, always just a call away. We understand every credit union is unique, which is why we tailor our solutions to your specific needs, providing personalized support as if you had an expert on staff.
Results-Driven Solutions
Our approach delivers measurable value through customized solutions, not one-size-fits-all services. We're known industry-wide for going beyond expectations to help credit unions achieve their financial management goals.
Your Credit Union Specialists
We've exclusively served credit unions for over 40 years, giving us unmatched understanding of your unique challenges. Our ALM validation acknowledges that your IRR management program should match your size, complexity, and risk profile.
Ready to Strengthen Your Credit Union’s Financial Strategy?
Gain clarity and confidence with expert ALM insights, regulatory support, and data-driven decision-making. Let’s discuss how our solutions can support your institution’s success.
FAQ
Questions? We’ve got answers.
Looking for more information? Visit our FAQ page for answers to common questions, or feel free to contact us below if you need further assistance. We’re here to help!
