CMS Case Study

Investment/ALCO Committee Meeting Minutes 02/17/2022

Mr. Mitchell presented the Bank’s Balance Sheet changes: • Loans up $30MM Growth in CRE and C&I PPP down $7MM • Deposits up $45MM, with a mix of NMD growth • Cash down $11MM

• Investment purchases primarily MBS ($65MM @ 1.55%) • $15MM FHLB at 1bp (since called and renewed at 28 bps) • Slight Reduction in Liquidity - Public deposits requiring collateral increased • NII Higher • Loan growth and investment purchases funded with low-cost deposits and zero cost borrowings • NII trends higher due to higher investment residential loan replacement rates

o Additional Liability Sensitivity o $360k Lower PPP Fee Income • Slightly higher capital ratios – capital down-streamed from HC

The committee discussed using Promontory’s Insured Cash Sweep product as a liquidity management tool for Public Depositors. Mrs. CFO stated that the Bank currently had one customer utilizing the network and that we need to ensure the interface with the new DNA core system is seamless before actively marketing the service to other customers. She will provide an update at the next ALCO meeting. The committee also discussed engaging Darling Consulting to do a comprehensive Deposit study. Mrs. CFO will work with Darling’s team to kick the process off. According to Darling, the study will take several weeks to complete. Mrs. CFO reported that ~$5MM of originated Residential Mortgages (7,10,15,30 fixed products) were retained for the quarter ($25MM YTD). She also stated that in keeping with previous strategy discussions of deploying excess liquidity, $65MM of securities had been purchased, again in a variety of products (MBS, CMBS Pools, Munis, UST), terms (5-30 years), coupons (.75-3.00), with limited premium risk. The portfolio book balance at quarter end was $447MM, with yields of 1.65/1.60 (accounting/market). Mr. Mitchell reminded the group avoiding investment premium risk was prudent. The Committee also discussed that the projected existing investment portfolio cashflow for was $17MM/90 days and $56 MM/12 mths, and normal loan paydowns had been averaging ~$10MM/month. The Committee agreed that continuing to deploy excess liquidity not needed to fund loans or potential deposit roll-off was prudent. Mr. Mitchell reiterated that that the Bank’s overall ALM position still supports longer duration assets. Mr. Mitchell presented the Executive Summary noting Liquidity was up YoY, NII up $4MMYoY, and more earnings at risk as a tradeoff for higher earnings today. Earnings at Risk Shock Scenarios continue to be outside of the stated policy guideline and the EVE calculation is outside of the stated policy guideline in +200/300/400 bp scenarios. The Bank’s greatest risk continues to be in the current and falling rate scenarios. The Committee discussed again the impact of the significant investment purchases funded by NMDA with an “assumed” average life of 5 years. Mr. Mitchell indicated that of the 100s of deposit studies they’ve performed, a 6.5 yr average life is a more