CMS Case Study

Investment/ALCO Committee Meeting Minutes 11/19/2020

ALCO Committee Meeting November 19,2020

The ALCO/Investment Committee meeting was held on November 19, 2020. Those in attendance were: Chairman of the Board , Four outside Directors , President/CEO , COO , CFO , Senior Loan Officer , Secretary , and Frank of Darling Consulting Group. Mr. Chairman called the meeting to order. The committee discussed the two significant events that had occurred since the last meeting that could shape the markets in the coming months are the change in the presidency and the announcement of the COVID vaccines. There are many uncertainties, and many businesses are still suffering the effects of the pandemic, and cases have been surging again. Treasuries have been rallying as the cases have been on the rise and Fed Chairman Powell stated, “We have got new cases at a record level, we have seen a number of states begin to reimpose limited activity restrictions, and people may lose confidence that it is safe to go out”. Though Powell has stated negative rates are not a tool the committee is looking to use, the FOMC expects rates to stay near zero through 2023. The committee discussed the importance of understanding the implications of this on investments and longer-term loans as well as deposit pricing. The committee also discussed the importance of the lenders staying closely engaged their borrowers to ensure they are well informed about the potential impact of economic conditions Mr. Frank presented the Bank’s Balance Sheet changes for the quarter, which showed a contraction of almost $6 million, but a slight increase in overall spread of about .04%. The expiration of a CD special, the reduction in the CD Board Rates in May, and the outflow of a single large CD customer had contributed to a positive impact on CD Cost of funds by .42% quarter over quarter. Mr. Frank confirmed that management had done an excellent job of lowering deposit rates, and the Bank’s opportunity for improvement now lies on the asset side. Given the ongoing pressure on asset yields, the Committee discussed ways to offset future pressure on NII which included dropping NMD rates, significant loan growth at +3% spread, or $40-80MM bond leverage at 1.50% spread. For the quarter, there had been $38MM loan originations at an average yield of 4.20%, net growth in residential mortgage loans of $4.7MM, and outstanding PPP loan balances at quarter end were $40MM. Mr. Frank continued to stress that the Bank has ample room to add longer term assets and reiterated the emphasized on retaining some of residential mortgage loans the mortgage division originates. Mrs. CFO stated that the Bank had retained over $17 MM since last quarter again in a variety of maturities (5/1 & 7/1 Arms, and 10, 15, 20, 30 fixed) As previously discussed, Mrs. CFO also stated that the investment portfolio prepayment speeds were being monitored to assess the need to sell any that indicated significant acceleration that may result in negative yields. Raymond James was currently working on an in-depth analysis that could result in several sales and purchases. The committee also discussed that the Bank is still sitting on a large amount of excess liquidity and that deposits do not show any sign of rolling