CMS Case Study

change such that the ALCO committee believes this type of activity to be desirable, guidelines and limits will be established as an amendment to this policy with approval of the Board of Directors.

Other Issues: The delineation of a security as Held to Maturity, Available for Sale, or Trading will reflect the role of the security relative to the overall management of the Bank’s asset/liability position. As this situation changes over time, so will the criteria that impact the classifications of new securities purchases. Transfers of securities amongst classifications may arise if circumstances warrant; although this is expected to occur infrequently. Any transfers require prior approval by the Asset/Liability Committee and subsequent ratification by the Board of Directors. The fact that loans are “securitized” by packaging them into a mortgage-backed security is not an indication of the intent of the Bank to sell these securities. Rather, securitization of loans produces more efficient pledging collateral for borrowings and/or municipal deposits, which is a very important consideration. Finally, the Bank has the intent to execute transactions for its investment portfolio purposes only. The Bank does not intend to conduct activities incidental to a dealer trading account for the purchasing of a security inventory held principally for the resale to customers.

5. Investment Types The Bank will limit its investments to those currently permitted by banking regulations, including:

a) Federal Funds (overnight and term) b) Reverse Repurchase Agreements

c) Banker’s Acceptances d) U.S. Treasury Securities e) Federal Agency Securities f) Certificates of Deposit (CD’s) g) Mortgage-Backed Securities h) Collateralized Mortgage Obligations (restricted to the least complex/non-exotic types of tranches) i) Small Business Administration Guaranteed Loan Pools j) Asset-Backed Securities

k) Municipal Bonds and Notes l) Corporate Bonds and Notes m) Trust Preferred Securities (with prior approval of Board of Directors) n) Commercial Paper o) Federal Home Loan Bank Deposits (overnight and term) p) Auction Rate/Money Market Preferred Stocks

q) Mutual Funds which invest only in securities that are otherwise allowed under law and within this policy. r) Equities and Covered Options to the extent permitted by Federal and State Banking laws for Federal Reserve stock, FNMA stock, FHLMC stock or stock in bank service organizations. s) Bank Owned Life Insurance The Bank is authorized to maintain holdings of Federal Home Loan Bank stock and may invest in limited other equity securities. The total investment in limited equities, not including FHLB stock and adjustable rate preferred stocks, may not exceed the Bank’s Tier 1 capital. The Bank may also implement a covered option writing program covering a portion of its equity holdings. Refer to Appendix F for a description of the program. Refer to Appendix B of this policy statement for a brief description of the above authorized investments and their corresponding risk-weights under the FDIC risk-based capital guidelines. Since all securities differ in structure, and therefore risk characteristics, it is important to understand the inherent risks amongst capital market securities. Refer to Appendix C for an overview of security risks.

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Board Approval 8/19/21