CMS Case Study

Deposit Sensitivity Stress Methodology - 9/30/2020

Deposit Sensitivity Stress Methodology

Basis/Rationale:

The industry has experienced a large increase in non-maturity deposit balances as depositors seek safety and/or lack alternatives. Based upon historical data, the graph below confirms accelerated non-maturity deposit growth trends for institutions under $10 billion. These trends suggest that as interest rates rise, institutions may experience an outflow of parked/surge non-maturity deposit balances and/or a shift in balance sheet mix back towards time deposits. Additionally, institutions may experience increased deposit pricing pressure greater than the model suggests.

The following stress tests were designed to capture this dynamic: Stress Test Scenario – Assumptions

Expected Results  Increase sensitivity and earnings exposure to a rising rate environment

1) In the rising rate scenarios migrate 25% (potential 2009-present surge balances) of non-maturity deposits evenly over months 7 18 (lag in customer behavior) into term funding based on 1Y FHLB rates.

2) In the rising rate scenarios double the non-maturity deposit betas, capping all betas at the full market move.

 Increase sensitivity and earnings exposure to a rising rate environment

 Increase sensitivity and earnings exposure to a rising rate environment

3) In the rising rate scenarios aggressively increase time deposit pricing, using the fully indexed FHLB curve.

Cloyd Bank & Trust - Page 41