CMS Case Study

Summary of Simulation Assumption Methodologies - 12/31/2020

The key to successful balance sheet management is to create an environment whereby the Asset/Liability Management Committee (ALCO) proactively focuses on strategy development and implementation based upon a clear understanding of its overall risk/return profile. Accordingly, we have described below our approach to building an A/L model to establish reasonable (not exact) expectations for net interest margin. All assumptions are provided or approved by Cloyd Bank and Trust. BALANCE SHEET INFORMATION Starting balances in the A/L model reflect actual balances on the "as of" date, adjusted for material and significant transactions. Pro-forma balances remain static unless otherwise noted. This enables interest rate risk embedded within the existing balance sheet structure to be isolated (growth assumptions can mask interest rate risk). All balance sheet carrying values are received from the Institution and utilized in the model as the basis for all financial calculations. In this regard it is important to note that DCG makes no representations as to the accuracy of book/carrying values for any of the Institution’s financial instruments reflected in the model INVESTMENTS Darling Consulting Group (DCG) utilizes The Yield Book®, Inc. system to analyze the investment portfolio. While The Yield Book® has a loss estimator feature based upon its proprietary algorithms, this functionality is not utilized by DCG. Cloyd Bank and Trust (through its investment portfolio accountant) provides DCG with the current par value, market value, book value, and ASC 320 classification for each bond in its portfolio on the as of date for the analysis. For each interest rate scenario tested, The Yield Book® produces CUSIP specific cash flow and repricing forecasts based upon Institution provided current par, book and market values. Each CUSIP is processed in The Yield Book® using the USD Swap Curve and The "Yield Book®" proprietary prepayment and term structure (the Monte Carlo simulation takes into account 200 rate paths) models. Market values in different rate environments are calculated by first deriving an Option Adjusted Spread (OAS) from the client provided base case market value and then, holding OAS constant, solving for market value. For callable bonds, holding OAS constant, market price is solved for at each call date and then compared to the scheduled call price in order to determine cash flows. Cash flow forecasts take into consideration assumptions for absolute rate movement (e.g. + / - 200 BP), the period over which rates are assumed to shift (e.g. yield curve shifts over 12 months), and assumed changes in yield curve shape (e.g. non-parallel yield curve shift analysis). While The Yield Book® database is very comprehensive, it may not cover every bond in the portfolio. In these instances, DCG will research each “extraordinary” bond with the assistance of client personnel and/or Bloomberg©. Securities not found in the The Yield Book® database are entered manually into BASIS. These categories (labeled accordingly as “manual” categories) are modeled using the book price and yield reported by the client, amortized to a weighted average remaining maturity, and prepaid in accordance with Bloomberg’s most current forecasts for each rate scenario. LOANS Current loan portfolio data is provided by Cloyd Bank and Trust's internal operating systems. Repricing information and cash flow replacement assumptions are detailed in the Detailed Simulation Assumption Table. All residential mortgage, home equity and auto loans take into account current prepayment estimations most recently published by Black Knight Financial Services (BKFS). All Commercial, Agriculture, and Construction loan types take into account the DCG standard prepayment speed estimates (10% flat, 12.5% down 100bp, and 5% up 200bp). All Installment loan types take into account the DCG standard prepayment speed estimates (20% flat, 25% down 100bp, and 10% up 200bp). DEPOSITS Current deposit data is provided by Cloyd Bank and Trust's internal operating systems. Repricing and maturity replacement assumptions are detailed in the Detailed Simulation Assumption Table. The Interest Rate Scenario section below outlines the deposit pricing assumptions for each scenario. BORROWINGS Current portfolio data on wholesale funding is provided by Cloyd Bank and Trust. Repricing and maturity replacement assumptions are detailed in the Detailed Simulation Assumption Table. DCG utilizes its own proprietary software, Balance Sheet Information System © (BASIS) to model the Institution’s assets and liabilities. The above-mentioned cash flow forecasts are uploaded directly into the BASIS system. A separate cash flow forecast is processed for each rate scenario. While DCG believes the information provided by the above referenced sources to be reliable,

DCG does not guarantee its accuracy or completeness. INTEREST RATE SCENARIOS

As per the 2010 Joint-Agency Advisory on Interest Rate Risk (IRR) Management, the Institution should “assess a range of alternative future interest rate scenarios in evaluating IRR exposure,” of which the “range should be sufficiently meaningful to fully identify basis risk, yield curve risk, and the risks of embedded options.” Additionally, the guidance states “institutions should

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