CMS Case Study

Summary of Potential Strategies - 12/31/2020

STRATEGY

EXPECTED RESULTS

RISKS

2. Investment portfolio management: Assess outlook for NII in static modeling scenario (size/mix/rates). Tradeoffs: credit risk, option/prepay/call risk, duration/term risk, secondary market liquidity risk?

 Higher levels of NII and earnings if invest cash.

 Opportunity cost if rates rise.

 Yield variability given premiums.

 Discuss @ ALCO.

 Price risk of bonds.

 Cash flow uncertainty of mortgage collateral.

 Credit risk of munis and corporates.

 Discuss @ ALCO.

3. Interest Rate Swaps: Revisit the merits of utilizing last of layer swaps if warranted to hedge long term asset growth ahead.

 Modest reduction in NII/Spread income.

 Counterparty risk?

 Accounting risk.

 Increase in asset sensitivity.

 Discuss @ ALCO.

 Discuss @ ALCO.

4. Deposit Stability: Since the Q2 2020 deposit surge deposit levels on average continue to increase with possible acceleration and resurgence given CARES Act 2.0. Revisit monitoring and forecasting to help identify potential deposit balances 12-24 months forward? Also discuss related contingency liquidity strategies.

 Discuss @ ALCO.

 Discuss @ ALCO.

5. Review Stress Tests for EVE (see methodology and results

(OTHER STRATEGIES MODELED FOLLOWING DISCUSSION W/ ALCO AS APPROPRIATE.)

Cloyd Bank & Trust - Page 38