BAS Case Study - March 2023

Sunny State Bank Liquidity Contingency Funding Plan

One goal of the Liquidity Contingency Funding Plan is to ensure adequate resources from which to draw in the event that unanticipated and excessive funding demand exists. Another goal is to serve as an early warning system to monitor potential liquidity erosion and allow for appropriate Board of Director or Management response. The following strategies will be implemented to provide Sunny State Bank (the Bank) with the most efficient and cost-effective means of creating needed funding during critical periods. Authority and Responsibility The ultimate authority and responsibility for liquidity and funds management rests with the Bank’s Board of Directors (the Board). The Board delegates the responsibility for day-to-day liquidity and funds management to the Asset-Liability Committee (ALCO) in conjunction with Senior Management. Senior Management actively monitors the financial condition and performance of the Bank in relation to the approved budget and strategic goals and objectives. Purpose and Definition The Board recognizes that in the normal course of business there will be temporary needs for funding beyond the Bank’s core deposits. This plan is intended to address significant liquidity shortfalls and is not intended to cover the day-to-day, short term borrowing needs of the Bank. A significant liquidity shortfall is an event or series of events that reduce the deposits and/or availability of wholesale funding to levels which would impede the normal operation of the Bank. There are innumerable situations that could cause a significant liquidity shortfall; however, some examples are: • A loss of wholesale funding. • A significant run-off of deposits. • A sharp increase in funding costs. • A substantial increase in loan demand. Guidelines Environmental and Operational Considerations • Current and forecasted economic conditions – The Board and management review and various sources of economic data including, but not limited to, Bloomberg, First Tennessee, Raymond James, First Trust Advisors, and local news. The impact to the Bank of the economic data is analyzed and discussed. • Current liquidity position – The current liquidity position is monitored on a daily basis. An Available Liquidity Analysis report is presented to the Board of Directors. • Internal cost of funds – A Peer Point comparison report is obtained quarterly to monitor the Bank’s results to selected peer banks. Significant differences from selected banks are investigated and appropriate actions are taken. • Competitor deposit rates – Senior Management monitors competitor rates with a weekly study purchased from Rate Watch. Competitor rates are compared to the Bank’s current rates and resulting changes in deposit volumes. • Alternative funding sources – Alternate funding sources are listed on the Available Liquidity Analysis report. • Historical funding requirements – Cyclical loan demand and deposit outflows are considered based on knowledge of local rural business needs. • Anticipated, future funding requirements – Emphasis is placed on the High Depositor and Gap Analysis reports when evaluating the Bank’s future funding requirements. • Present and future earnings capacity – Management prepares an annual budget which is approved

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