CMS Case Study

Deposit Sensitivity Stress Methodology - 9/30/2021

Deposit Sensitivity Stress Methodology

Basis/Rationale: The industry has experienced a large increase in non-maturity deposit balances as depositors seek safety and/or lack alternatives. Based upon historical data, the graph below confirms accelerated non-maturity deposit growth trends for institutions under $10 billion. These trends suggest that as interest rates rise, institutions may experience an outflow of parked/surge non-maturity deposit balances and/or a shift in balance sheet mix back towards time deposits. Additionally, institutions may experience increased deposit pricing pressure greater than the model suggests.

1,000 1,200 1,400 1,600 1,800 2,000 2,200

600 800

Billions

2004Q2

2005Q2

2006Q2

2007Q2

2008Q2

2009Q2

2010Q2

2011Q2

2012Q2

2013Q2

2014Q2

2015Q2

2016Q2

2017Q2

2018Q2

2019Q2

2020Q2

The following stress tests were designed to capture this dynamic: Stress Test Scenario – Assumptions 1) In the rising rate scenarios migrate 25% of non-maturity deposits evenly over months 7-18 (lag in customer behavior) into term funding based on 1Y FHLB rates. 2) In the rising rate scenarios double the non-maturity deposit betas, capping all betas at the full market move. 3) In the rising rate scenarios aggressively increase time deposit pricing, using the fully indexed FHLB curve.

Expected Results  Increase sensitivity and earnings exposure to a rising rate environment

 Increase sensitivity and earnings exposure to a rising rate environment  Increase sensitivity and earnings exposure to a rising rate environment

Cloyd Bank & Trust - Page 43