CMS Case Study

INVESTMENT POLICY EXCEPTION & POLICY REVISION: Due to continued significant deposit growth and a protracted low-rate environment, Management continues with efforts to deploy excess liquidity by purchasing investment structures in line with current policy (primarily a variety of US government sponsored mortgage-backed securities).

The current policy states: (1) The limit on agency passthroughs is 25% of Assets.

(2) There are various “per issue” limits defined by sector. Though Treasuries and Agency MBS have no limit per issue, each investment transaction more than $1.5MM must receive prior approval of the ALCO Committee. Due to recent purchases, agency passthroughs were at 28.6% of assets as of 7/31, and purchases have been made in block sizes up to $5MM. Given the size of the bank today and the level of capital growth, larger block sizes are warranted for better pricing, salability, and efficient execution. As such, most MBS purchases have been executed in $2-3MM blocks and two US Treasury blocks have been executed at $3MM and $5 MM. The ALCO Committee and Board acknowledge that the amount of excess liquidity needing to be deployed, and the time sensitive nature of purchasing securities that will complement the Bank’s portfolio justify larger block purchases without prior approval on an individual transaction basis.

Therefore, ALCO and the Board acknowledge and approve these current policy exceptions.

The Investment Policy attached has been updated to include the following changes highlighted yellow.

P2 These Officers are authorized to execute investment transactions up to $1.5 $10 million per transaction without the prior approval of the Asset/Liability Committee and within the scope of the established investment policy. Each transaction in excess of $1.5 $10 million must receive prior approval of the Asset/Liability Committee. P7 Per Issue Sector

$ 000

Maturity

% of Capital No limit

% of Portfolio % of Assets

1. Treasuries

No limit No limit

10 years

No limit

No limit

2. Agencies (incl. FHLB O/N & Term Dep.) (incl. Stocks)

10 years

No limit

No limit

No limit

7. Asset Backed (incl. CMO’s) and Passthroughs

Average Life at Purchase 12 years

-

Agency

No limit

No limit

No Limit

No limit

-

CD’s

*249 13 months

10%

50%

5%

Board Approval 8/19/21