Hoosier Banker 35 do the balances of your non-maturing liabilities have? Financial institutions should perform an analysis of non-maturing liability behavior and identify those funds which can be considered volatile versus core funding. Once separated, more volatile balances should be assigned shorter average lives versus core funding, which typically carries a longer average life. Asset prepayment/liability decay. Asset prepayments and liability decay rates are important to capture optionality on certain accounts. For assets, loans and mortgage-related securities have the ability to prepay principal. On the liability side, non-maturing liabilities incorporate decay rates to simulate the effect of depositors withdrawing balances in certain interest rate environments. A higher prepayment or decay rate would usually imply a shorter average life of the particular account. Stress testing assumptions. One approach is to routinely stress test the assumptions in the model. Management may find this helpful as it identifies which items have the most significant impact on model results. An example of stressing an assumption would be removing time lags on non-maturing liabilities and doubling rate sensitivities. This adjustment would highlight the potential increase in interest expense if the institution would have to be more competitive from a pricing standpoint for those particular products. Conclusion. Assumptions, by definition, are accepted as true without proof; therefore, there isn’t necessarily a right and wrong way to model them. Also, while back testing is necessary and history may be insightful, it can’t predict the future. Prudent risk managers are aware of these limitations and will strive to maintain reasonable and supportable modeling assumptions. They will also consistently tweak and adjust their assumptions to better understand the implications those assumptions have on their model output and, ultimately, asset/liability management strategy. HB Michelle R. Altobella, chief privacy officer of IU Health and vice president and general counsel of IU Health East Central Region, has been elected to the boards of directors of MutualFirst Financial Inc. and MutualBank, Muncie. She also serves on the boards of Open Door Health Services Inc. and Muncie Boys & Girls Club Inc., and she is a past board member of the Muncie chapter of the Red Cross. Altobella earned a bachelor’s degree from the University of Kentucky and a JD from the Salmon P. Chase College of Law. Mark L. Barkley, former chairman and CEO of Universal Bancorp and BloomBank, has been appointed as a director of MutualFirst Financial Inc. and MutualBank, Muncie, in connection with MutualFirst’s acquisition of Universal Bancorp in February. He is a member of the Vision-Tech Angel Investment Network, the Heritage Society member of the Bloomington Hospital Foundation, and Heritage Society member of the YMCA of greater Bloomington and Monroe County. Barkley also has served as a board member of the Indiana Bankers Association and of Big Brothers Big Sisters of South Central Indiana Bloomington. He is a past president of the Bloomfield Chamber of Commerce and the Bloomfield Rotary Club and a past council member of the SE YMCA of greater Bloomington and Monroe County. Barkley is a graduate of Ball State University and of the Graduate School of Banking at the University of Wisconsin. James M. Bernard, senior vice president and director of fixed-income portfolio management for Ancora Advisors LLC, has been elected to the boards of directors of MutualFirst Financial Inc. and MutualBank, Muncie. He is a member of the Cleveland Society of Financial Analysts; a former board chair of New Life Community Inc., Cleveland; and a former board chair of Solutions Behavior Health Inc., Medina, Ohio. Bernard earned a bachelor’s degree from Xavier University and an MBA from Ball State University. Additionally he is a chartered financial analyst and holds the FINRA Series 7 and Series 24 licenses. Brian C. Hewitt, owner of Hewitt Law & Mediation LLC, and a former director of Universal Bancorp and BloomBank, has been appointed as a director of MutualFirst Financial Inc. and MutualBank, Muncie, in connection with MutualFirst’s acquisition of Universal Bancorp in February. He is a board member of the Olivet Foundation, the Benjamin Harrison Presidential Site, the Indianapolis Children’s Choir, the American College of Trust and Estate Counsel and the Fiduciary Litigation Committee. Hewitt holds a bachelor’s degree from Purdue University and earned a JD from the Indiana University School of Law. J. Anthony Firmani has joined the board of directors of Logansport Savings Bank. He is executive vice president and chief financial officer, treasurer and corporate secretary of MPI Corp., Indianapolis, which he joined in 2002. Previously Firmani was a senior tax manager with Arthur Andersen and Ernst & Young in Indianapolis and in Kansas City, Missouri. He has served on the boards of organizations including Lutheran Child & Family Services and the Precision Metalforming Association. A certified public accountant, Firmani is a graduate of Purdue University and the Purdue Krannert School of Management. HB FROM THE BOARD ROOM
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