CMS Case Study

Strategy Formulation - 6/30/2021

Objectives:  Increase current earnings  Maintain interest rate risk exposure within policy limits  Targeted Liquidity Minimums:  Tier 1 Basic Surplus 0%: Tier 2 Basic Surplus with FHLB > 4%; Tier 3 Basic Surplus with FHLB and Brokered > 8%  Targeted minimum capital ratios  Leverage = 8.00%; Risk-based = 12.50% Elements of Strategies: Deposits/Funding  Current rates – there are still select rate cuts to be made; discuss NII impact of lowering and other considerations  Deposit ‘homework’ and growth will help prepare for near – and long-term strategies  Retail options  Wholesale options  Update on local deposit markets  Discuss net growth outlook for remainder of the year (or shrinkage? See Simulation of outflow )  Has the net growth in deposits since March 2020 hidden any attrition?

Lending  Growth outlook for remainder of 2021  Discuss loan rates/spreads/terms and impact on liquidity and interest rate risk  What level of loan originations are required to maintain NII levels (See breakeven analysis)

 For “best” credits and existing customers, how low can we go to keep the loans (discuss targeted amount of loan pool)  If long-end of the curve holds at current levels, could we see re-finance activity pick back up? Prepayment fees?  Credit quality concerns remain low within the industry (outside of specific sectors, i.e., hospitality), how do we feel?

Investments

 Comfort level for cash position?  Spreads are tight across all sectors – continue to re-invest cash flows into today’s market?  Discuss in terms of overall liquidity, IRR, price risk, option risk, premium risk and “policy guidelines”

Other Discussion Items:  Review key assumptions within IRR models and NII Lookback testing  Quarterly stress testing update (loan pricing)  Other? What’s on your mind?

Cloyd Bank & Trust - Page 35