CMS Case Study

Strategy Formulation - 9/30/2020

Objectives: 

Increase current earnings

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Minimum capital ratios - Tier 1 leverage ratio @ 7.50% - Risk-based capital @ 12.00% Maintain adequate liquidity - Targeted Total Basic Surplus > 15%

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 Maximum decline in Net Interest Income of 15% in +/- 200BP rate change over one-year period

Elements of Strategies: Current Environment 

Discuss and review impact of PPP and 2020 deposit surge.  Discuss market outlook. Forward guidance depicts low rates for at least 3 more years. Credit and liquidity unknowns for remainder of year and into 2021.

Deposits/Funding 

Deposit Monitoring and Analysis -

Discuss deposit balance expectations regarding liquidity forecasting - Continue to focus on core deposit growth despite recent “surge”. Value proposition besides rate?  Deposit costs - How much more can we reduce? Update on current market pricing - Review NMD and CD rates and activity - Update on Kasasa balances, pricing, and fee related income  Wholesale – Discuss potential for future funding needs and IRR management (stay short)

Lending 

Continue to monitor credit closely - Update on PPP Forgiveness Process

Industry credit concerns abating given minimal level issues thus far, how do we feel?

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Projected Loan Forecast? - Pipelines through year end strong but “net new” not as promising with payoffs, questions for 2021… - Update on competitive pricing and credit spreads - Will net loans be up, flat, or down? - Where do opportunities exist?  Discuss appetite/capacity for duration at existing rate levels  Discuss “last of layer” approach for derivatives Investments  Discuss investment portfolio and recent purchases at HIGH Premiums! Keep pricing below $102 tops - Goals if we are investing today? - Discuss current challenges related to price/prepayment and credit risk - Revisit selling high premium, fast paying MBSs

Other Discussion Items:  Review Key Assumptions within IRR models, NII Lookback testing & Stress Testing

Cloyd Bank & Trust - Page 36