CMS Case Study

Strategy Formulation - 9/30/2021

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  Discuss deposit pricing strategies when rates rise (See lag strategy and beta stress scenarios)  Revisit Marginal Cost of funds analysis; be prepared to let some percentage of deposits leave if rate war ensues  Retail options  Wholesale options  Update on local deposit markets  Have we identified potential “surge” from our largest depositors (e.g., school system, businesses, etc.)? Lending  Growth outlook for remainder of 2021 Q1 2022?  Discuss loan rates and competition for deals; revisit spreads/terms and impact on liquidity and interest rate risk

 Discuss larger deals and “best” credits getting best rates; not all deals the same  As long-end of the curve moving up since last quarter, are loan rates moving up?  Credit quality concerns or signs of cracks? Investments  Significant purchases last 2 quarters; Comfort level for cash position?  Review impact of recent purchases on IRR, EVE, concentrations, and strategies to consider Other Discussion Items:  Review key deposit assumptions within IRR models and alternative pricing strategies  NII Lookback testing  Quarterly stress testing update (deposit pricing & migration)  Derivatives as tool for managing risk  Other? What’s on your mind? Concerns?

Cloyd Bank & Trust - Page 35