CMS Case Study

Investment/ALCO Committee Meeting Minutes 05/27/21

ALCO Committee Meeting May 27, 2021

The ALCO/Investment Committee meeting was held on May 27, 2021. Those in attendance were: Chairman of the Board , Four outside Directors , President/CEO , COO , CFO , Senior Loan Officer , Mr. Smith, and Mr. Mitchell of Darling Consulting Group. . Mr. Chairman called the meeting to order. The committee discussed the following Industry Outlook for 2021: o Funding cost reduction opportunities remain limited o Yield curve slop will help, it it remains and if loan rate increase • Loan Volumes/Rates o Elevated liquidity in the system and more coming, increasing competitive pressures o Will higher market rates translate to higher origination rates? • Deposits o Do rates matter? o Deposit Surge extremely important variable to understand with impacts on liquidity, IRR and earnings • Investments o Bond market sell-off has changed the current picture • Credit Quality o Will all the stimulus/programs provide enough runway for economic take-off? All of these are also constant topics of discussions, but Management remains optimistic about the months ahead. Mr. Mitchell presented the Bank’s Balance Sheet changes, which showed even more significant growth than last quarter at $70MM for the quarter, but a decline in spread of about .25%. Though there were ~$43MM in loan originations, net loans were down $9MM, with PPP paydowns representing $4MM. Deposit inflows were up $71MM with a mix of NMD inflows and CDs down $5MM. Public Funds represented $24MM of the growth. Management acknowledged that the growth was sure to have been affected by stimulus funds, but also that several new accounts had been opened and the Bank had won some significant customers due to the goodwill earned in how we served our community during the crisis. The BS Activity impact was higher levels of liquidity with deposit inflows supporting investments/cash; higher NII due to investment purchases and PPP Fee Income; and slight dampening on asset sensitivity. Mrs. CFO stated that the~$10MM of originated Residential Mortgages (5/1 & 7/1 Arms, and 5,15,20,25,30 fixed products) were retained, and $52MM of DUS & MBS Investments in a variety of coupons (1.5 – 2.5) and maturities (10,15, 20, 30). She further stated that $82MM of • NIM Pressure