The art of managing balance sheets has quickly turned into a guessing game, with many bankers erring on the side of caution.
Bankers have been scratching their heads trying to determine an appropriate amount of asset sensitivity, unsure when the Federal Reserve Board will start raising interest rates.
An economic forecasting panel at this year's American Bankers Association Conference for Community Bankers had the potential to shed some light on the issue, but that didn't happen.
So what's a banker to do?
While there's growing evidence of some lenders taking on more credit risk, most bankers are keen on playing it safe. The most conservative bankers are focusing more on liabilities by targeting low-cost deposits and purging short-term borrowings.
"We've assumed rates will remain low in all our planning for the sake of conservatism," Kevin Tylus, chief executive of Royal Bancshares in Narbeth, Pa., said in an interview Wednesday.
Funding costs are a major concern for Tylus, even though his $733 million-asset company had a 78% loan-to-deposit ratio at Dec. 31. And Royal's net interest margin expanded by 15 basis points last year, countering a trend among most banks its size.
Western Alliance Bancorp in Phoenix is also on the lookout for deposits, Robert Sarver, the $10.6 billion-asset company's chairman and chief executive, said during a conference call last month to discuss quarterly results.
"We've got a lot of loan growth," Sarver said. "We can make good loans at good yields, and we're going to focus more on the deposit side this year."
Why the intense focus on deposits?
The general consensus is that the economy will keep expanding, even if pundits disagree on the rate of growth. And there is hope that the Fed will start to raise rates within a year, which would undoubtedly spur more competition for deposits.
So now might be the optimal time to bulk on cheap funding sources.
Changing the liability mix, largely by purging shorter-term borrowings, should also help.
Webster Financial in Waterbury, Conn., has been making a play on transaction accounts, particurlarly in recent months. Such deposits are on pace to make up 42% of the $22.5 billion-asset company's liabilities this year, compared to just 16% a decade earlier.
"We've also taken actions to lengthen our time deposits and borrowings," Glenn MacInnes, Webster's chief financial officer, said during the company's latest quarterly conference call.
"In fact, after we pay down short-term borrowings in the first quarter, the remaining portfolio will have a duration of about two years," he added.
As for the economists? They aren't helping bankers very much.
Scott Anderson, chief economist of the $69 billion-asset Bank of the West, played the role of optimist at the American Bankers Association's conference, forecasting 3% economic growth this year, accompanied by a significant drop in unemployment and rate increases starting in June.
The panel's skeptic was Lindsey Piegza, chief economist at Sterne, Agee & Leach, who predicted that rates will stand pat until mid-2016. Piegza also forecast 2% economic expansion and lackluster employment growth.
"The Fed has been hoping to be able to raise rates for years now, but... I see the Fed on hold longer than expected," Piegza added.
Paul Davis contributed to this article.