The events in Q1 2023, coupled with decisions on new liability maturities, sowed the seeds for the coming Great Rollover (of liabilities) in 2024. Colorado banks will not be immune. Not only will maturing liabilities need to be replaced, but in addition, NMD balances are still a disproportionately large slice of total funding and are at historically wide — and likely unsustainable — funding advantages to wholesale. While there is no specific maturity on this outsized NMD hoard, some of it will also effectively “roll over” in 2024. This all sets up a problem: Unless the Fed eases materially, very few banks are set up with a plan that allows them to be a price setter rather than a price taker. The good news is it doesn’t have to be this way. Banks armed with discipline and objectivity can approach The Great Rollover from a position of strength, no matter what interest rates actually end up doing for the remainder of 2024. Awareness of and adherence to four simple principles can help strengthen your position: 1. All future cash flows matter, not just those over the next 12 months. 2. Ignore widely held rate biases; acknowledge that forecasting rates is impossible and perilous. 3. Consider and compare the full spectrum of choices across multiple future interest rate scenarios and over a reasonable time horizon that exceeds the next 12 months. 4. Remember that not everything that counts can be clearly counted. If your team keeps these principles at the forefront of your decision-making, you have the potential to become a price setter, not a price taker, and it is possible to achieve three beneficial outcomes at once: 1. Diminish your risk of NIM compression if rates rise instead of decline. 2. Avoid regret if rates do come crashing down in 2024, as is currently expected by many. 3. Maybe most importantly, reduce your exposure to potential acute liquidity risk in the future. Principles and processes are the backbone of wise decisionmaking around capital allocation. This is just as true in crafting liability structures as it is in asset selection. The better educated your team is in these matters, the better prepared you will be to thrive through this Great Rollover experience. The CBA is a resource, offering timely events and programs in the weeks to come. Perhaps we’ll see you there! Brian Leibfried is a partner and managing director of insights at Performance Trust Capital Partners. He can be reached at bleibfried@performancetrust.com. Performance Trust has been advising community banks for nearly 30 years and is a registered broker/dealer, member of FINRA/SIPC. This is intended for educational and informational purposes only and is not intended to be legal, tax, financial or accounting advice or a recommended course of action in any given situation. This is not an offer or solicitation to purchase or sell securities. The information is subject to change without notice. 17 Colorado Banker
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