Year-End ALM Checkup: Deposits, Liquidity, and Rate-Sensitive Earnings 

As banks move toward year-end planning, asset-liability management deserves a fresh look. Interest rate pressure, changing deposit behavior, funding costs, and securities positioning continue to shape earnings and liquidity conversations. The FDIC’s 2026 Risk Review points to funding, interest rates, liquidity, net interest margins, deposit growth, and wholesale funding as areas receiving continued attention across the banking industry. 

For boards and management teams, fall is a natural time to revisit assumptions before budgets, forecasts, and strategic plans are finalized. A thoughtful ALM review can help institutions better understand how rate-sensitive earnings may respond under different conditions and whether current reporting is giving decision-makers the right view of risk. 

Revisiting Deposit Assumptions 

Deposit behavior remains one of the most important variables in ALM modeling. Even when balances appear stable, pricing sensitivity, customer mix, uninsured balances, and competitive pressures can change quickly. The Federal Reserve reported that commercial bank deposits reached a historical high of $19.5 trillion by February 2026, while uninsured deposits had increased slightly from recent lows but remained below 2022 levels. 

That kind of environment calls for careful review of deposit betas, decay assumptions, surge balances, and concentration risks. Community banks in particular may benefit from asking whether historical assumptions still reflect current customer behavior. The goal is not simply to update a model, but to make sure the model still reflects how customers are likely to respond if rates, competition, or economic conditions shift. 

Connecting Liquidity, Funding, and Securities Strategy 

Liquidity planning should also be viewed alongside funding strategy and the investment portfolio. The Federal Reserve noted that aggregate liquidity levels were solid at year-end 2025, though liquid assets declined modestly, and reliance on wholesale funding remained above 2022 levels despite falling slightly in the second half of 2025. 

For individual institutions, the key question is whether available liquidity, borrowing capacity, cash flow from securities, and deposit plans are aligned. A securities portfolio may support liquidity and earnings, but it can also carry interest rate risk and unrealized loss considerations. Year-end is an ideal time to review whether portfolio cash flows, pledging capacity, and contingency funding plans tell a consistent story. 

Improving Board-Level ALM Reporting 

Strong ALM reporting should help the board understand both earnings sensitivity and liquidity readiness. Reports that are too technical may obscure the real issues, while reports that are too simplified may leave important questions unanswered. 

Useful board discussions often focus on a few clear questions: What assumptions changed? Where is margin most exposed? What funding sources are most reliable under stress? How would management respond if deposit pricing or runoff moves outside expectations? 

The FDIC reported that net interest margins improved modestly in 2025 as funding costs declined, while unrealized securities losses also declined. Even so, year-end ALM work should not be treated as a routine compliance exercise. It is a practical opportunity to confirm that strategy, assumptions, and governance remain aligned. 

Banks that approach ALM with discipline can enter the new year with clearer insight into deposits, liquidity, and rate-sensitive earnings. Brady Martz professionals work with financial institutions to support informed financial reporting, planning, and board-level conversations as market conditions continue to evolve.