CMS Case Study

of credit and insurance will not automatically be accepted as sufficient conditions for credit enhancement. Such enhancements will be considered on a case by case basis and may fall within the Bank’s lending policy. Non-rated securities may be purchased. Such purchases are subject to additional due diligence. This includes obtaining, reviewing and maintaining financial information such as annual reports, 10 Q’s, and other pertinent information, as appropriate. Non-rated securities can include, but are not limited to, municipal securities and stocks in publicly traded companies where S&P does not provide a rating. The absence of a rating does not imply substandard quality. Credit concentration limits are presented in Section 9. Note: Combined investments in Federal Funds, Certificates of Deposit, Bankers Acceptances and other debt type obligations in any one bank are subject to limitations pursuant to Federal Reserve Board Regulation F. Refer to Appendix E for Bank’s “Limitations on Interbank Liabilities” Policy. 9. Maturity Program and Portfolio Mix The portfolio maturity and mix shall be such to assure that the Bank’s liquidity needs are satisfied, including sufficient liquidity to meet anticipated loan increases, deposit decreases and a reserve to meet unexpected liquidity demands. Irrespective of maturity, U.S. Government, U.S. Agency, and Mortgage-Backed Securities that can be utilized as collateral for borrowings in the wholesale market (providing access to funds in times of need) are deemed to be as liquid as Federal Funds. The maturity structure and mix of the portfolio will also be impacted by the Bank’s overall balance sheet position with regard to exposure of net interest income to changes in interest rates. Since this position is not static, investment types and maturities will change as the Bank’s balance sheet structure, and domestic and local economic/interest rate cycles change. Ultimately, the appropriate mix and maturities of investment purchases must be determined in the context of the overall asset/liability management process. Refer to the Bank’s Asset/Liability and Funds Management Policy Statement. Recognition must be given to the fact that price sensitivity varies in direct proportion to maturity and, therefore, maturity structure will depend in part on management’s willingness to accept unrealized losses. This is especially important for any securities classified as available for sale since net unrealized gains/losses are reflected in the carrying value of the security with a corresponding adjustment to capital. It is expected that, when maturity increases, quality should also increase. Notwithstanding the above, the following limitations apply to all investments:

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Board Approval 8/19/21