ALCO’s 2026 Fourth-Quarter Game Plan: Preparing for the Next Play
Summer is officially over, and while I am always reluctant to see it go, there is one thing that personally makes the transition a little easier: football season. There is something about the rhythm of the season – the anticipation of gameday, the adjustments teams make from one quarter to the next, and the fact that no matter how well a team prepares, the game rarely unfolds exactly as planned.
As it turns out, there are some natural parallels between football and the work of ALCO committees.
From the Editor
A rare early season Nor’easter storm pummeled the coastal regions of New England over this past weekend. What set this storm apart from others was its duration. The storm produced wind gusts up to 70MPH for over 48 hours straight and brought up to 8 inches of rain to several towns and cities. Add in the fact that it coincided with the elevated tides during the full moon phase, high water levels caused flooding as water was pinned against the shores of our coastal regions.
A sign from Mother Nature that the summer is over and time to get ready for the volatile weather that New Englanders brace for every winter.
Hard not to compare the sudden shift in weather to the recent Federal Reserve Interest Rate hike. Gone are the days of unchanged rate policy, and for the first time in over three years, the FOMC has again tightened monetary policy. On top of this, financial institutions are dealing with rapidly changing intermediate and long-term interest rates, the reignited battle for deposits and a variety of geopolitical concerns to boot.
Fortunately, for those trying to “weather the storm,” my DCG colleague Director Geof Kelly writes about how to approach the fourth quarter and beyond. Using a football game plan as an analogy, he encourages financial intuitions to “manage their field position,” “don’t leave points on the field,” “know your bench,” and finally, don’t be afraid to call an “audible.”
A timely read for all of those managing their business in what has turned out to be a rapidly changing economic climate.
Vinny Clevenger, Managing Director
A football team enters each game with a game plan, a clear understanding of its players and personnel, an assessment of the opponent, and a strategy for how it wants to manage the game. But the best teams recognize that circumstances change. The opponent adjusts, momentum shifts, unexpected injuries happen, and sometimes the plays simply don’t develop the way they were drawn up.
Today’s ALCOs face a similar challenge. Management may anticipate a well-reasoned interest rate forecast, but markets rarely follow suit. Funding behavior can change quickly, loan demand can shift, deposit competition can intensify, and the yield curve can move in ways that were not anticipated when developing budgets.
Uncertainty and volatility are always variables when planning, but today’s environment seems more unpredictable than ever. At its most recent meeting, the Federal Reserve increased the fed funds target range by 25 basis points to 3.75%-4.00%, noting that inflation remains elevated.
What happened to the three rate cuts most ALCOs planned for in 2026?!
The Fed’s latest projections versus market expectations also illustrate the range of possible outcomes ahead rather than a single predictable path.
As board and management ALCOs look to the fourth quarter of 2026 and begin planning and budgeting for 2027, four “football” related themes deserve particular attention.
1. Don’t Be Afraid to “Call an Audible”
Every football team develops a game plan for their opponent. The best teams also have adjustments ready when the game doesn’t go according to plan. The same principle applies to interest rate risk management. It is tempting to anchor ALCO discussions around an expected base case forecast: rates rise, rates fall, or rates remain higher for longer. But the value of ALCO is not in predicting the next Fed move, rather it is in understanding how the balance sheet performs across a range of plausible outcomes.
As evidenced by the most recent dot plot shown above, the median projection places the federal funds rate around 4.1% at year-end 2026 through 2027 before the next easing cycle begins. Meanwhile, “market expectations” diverge with the dot plot and have more rate hikes through the end of 2027. So, what should we do?
ALCOs should move beyond simply asking “Where will rates move next?” DCG believes forward-thinking ALCOs should probe on:
What happens to net interest income (NII) if rates remain elevated longer than expected?
What happens if the curve steepens further or flattens materially?
Fed hiking cycles end with inverted curves, if so, then what?
How quickly will deposit betas react in each scenario?
How will loan demand be impacted by higher rates? How will credit spreads respond?
What happens to EVE/NEV and capital under more severe rate movements?
How might the volatile rate environment impact operational and contingency liquidity?
A strong ALCO process resembles a well-prepared football team entering a game: it has a primary play but also has audibles to adjust as circumstances dictate.
2. Managing Field Position Matters
Over the course of a football game, managing field position determines how much room a team has to operate. Banks and credit unions should think about their balance sheets in much the same way.
A strong current Net Interest Margin (NIM) or favorable earnings results do not necessarily mean the balance sheet is optimally positioned.
Similarly, an institution can have a strong liquidity profile today while becoming increasingly dependent on more expensive funding tomorrow.
As we enter the fourth quarter of 2026, ALCOs should look closely at their institution’s field position: liquidity, wholesale funding capacity, securities portfolio positioning, loan and deposit make-up and duration, embedded options, and overall interest rate sensitivity. This is particularly important in today’s volatile market, where we are often one news headline away from significant sentiment shifts.
A balance sheet that performs well under base case scenarios but has limited flexibility under an adverse scenario may be less strategically valuable than one with slightly lower current earnings but better structured for multiple outcomes.
This leads to fundamental questions for financial institutions today: How much balance sheet flexibility do we have, and what are we willing to pay for more flexibility? Liquidity, optionality, duration, term funding, high cash levels, and excess liquidity all have a cost (to name a few). But markets change quickly, and if so, how does that impact flexibility and potential opportunity costs?
The objective should not necessarily be to eliminate risk. Rather, management should understand how much risk the institution is being compensated for and whether that compensation remains attractive as market conditions change.
3. Know Your Personnel and Continue to Develop Your Bench
Football coaches spend a great amount of time understanding the strengths of their roster. Who can they rely on for the game winning play? How have players developed as the season progresses? What happens if an important player becomes injured and unavailable?
For banks and credit unions, deposits are part of that personnel evaluation. The past several years have demonstrated that not all deposits behave the same way. A large NMD balance may appear inexpensive and stable until pricing pressure changes customer behavior. Conversely, a properly structured CD strategy today can provide valuable funding stability but may prove expensive if rates subsequently decline.
My colleague Billy Guthrie recently published an article highlighting the need to adjust deposit strategies when the market pivots (essentially calling an audible). He provides a number of strategic considerations for a shifting deposit landscape, including acquisition vs. retention strategies, repositioning the CD curve, managing the product suite as a whole rather than at the individual product level, and focusing on customer relationship growth and retention.
As ALCOs wind down 2026 and turn to 2027, I encourage institutions to take a fresh look at their deposit assumptions and “assess their roster.” Management teams should understand:
Which deposit relationships are genuinely relationship-driven?
How have short and longer term retention trends played out?
Where do our rate sensitive balances reside?
What happens to deposit runoff under stress?
Which customers are likely to migrate into higher-rate offerings?
How much pricing flexibility does our institution have?
This is where the depth of a financial institution’s liquidity “bench” matters. Banks and credit unions should maintain multiple funding options rather than relying excessively on any single source of liquidity or deposit channel. Collateral management and ensuring access to a diverse number of outlets are more important than ever. The goal is not simply to have the lowest funding cost today. It is to have enough flexibility to respond when the market, or the customer, changes the play.
4. Don’t Leave Points on the Field
Football teams can lose opportunities by playing too conservatively. A missed fourth-down opportunity, a failure to capitalize on a turnover, or a decision to settle for a field goal can matter just as much as an aggressive play or mistake. The same can be true for banks and credit unions in a volatile rate environment.
After several years of significant volatility and balance sheet repositioning, many institutions have spent considerable time focused on deposit pricing and retention, managing interest rate risk and balance sheet positioning to protect and grow margins, and navigating liquidity and funding pressures (among many others).
Those remain important priorities, but volatility can also create opportunities.
ALCOs should make sure their institutions are prepared to recognize, and act on, those opportunities as they emerge. That could mean reassessing loan pricing as competitive conditions change, selectively extending or shorting asset and liability duration, evaluating securities opportunities created by recent market changes, reconsidering funding structures, or using derivatives to reshape risk when the opportunity fits.
This is particularly important because the best opportunities often appear when uncertainty is highest. The objective is not to “predict the market,” but rather to understand the institution’s risk capacity, establish the triggers required to take action, and be ready to execute when those conditions arise. As the 2026 fourth quarter clock starts, ALCO committees should be asking:
Where could market volatility create opportunities for our balance sheet?
What pricing thresholds would justify taking additional risk?
Where does the institution have unused capacity (liquidity, capital, funding, and policy limits)?
Are there strategies that become attractive only under certain rate environments?
Is management nimble and ready to act quickly when those opportunities arise?
A high-performing football team does not treat every possession as a reason to take unnecessary risk. But it also does not want to see the clock strike “zero” and realize it left opportunities on the field.
Develop Your Gameplan
The best football coaches rarely win because they correctly predicted every play before kickoff. They win because they understand their players and personnel, know their team’s strengths and weaknesses, recognize when the game is changing, and have enough flexibility to adjust and take advantage of opportunities.
That may be the most useful ALCO mindset as we close out 2026 and begin planning for 2027 and beyond. The current environment requires preparation and flexibility. The Fed has moved rates higher again, inflation remains elevated, geopolitical tensions persist, and the range of potential outcomes remains meaningful.
The most important question may not be “Where do we think rates are going?” Instead, it may be “If the game develops differently than what we anticipated, are we positioned to adjust and call a different play?” The role of ALCOs is not to predict every play, but make sure the institution has a defined gameplan, sufficient operational “depth,” strong field positioning, and enough flexibility to execute as the game changes… as it always does.
For more insights from Darling Consulting Group, click here.
Geof Kelly is a Director at Darling Consulting Group. In his role, he works with banks and credit unions throughout the country to improve the effectiveness of their asset/liability management (ALM) process. He collaborates with management teams to craft institution-specific strategies designed to enhance financial performance, while navigating interest rate, liquidity, and capital risk management within the dynamic economic and regulatory landscape.
Geof joined Darling Consulting Group in 2024 with over a decade of industry experience in senior management capacities at banking and consulting institutions. He earned a B.S. in Accounting & Business Management and an M.S. in Accounting from the University of Massachusetts-Amherst.
© 2026 Darling Consulting Group, Inc.
