Capital Markets School - Case Study

PRO FORMA CASH FLOW PROJECTIONS Estimating cash flow is a critical component to determining liquidity adequacy. Conventional on-balance sheet cash projections are appropriate to establishing funding excesses or deficiencies. Management expects the balance sheet to be relatively static through September 30, 2023. The investment portfolio will serve as a primary source of liquidity to provide funds to meet loan demand and/or reduction in deposits. Investment collateral available as of September 30, 2021 totaled $222.3 million and can be used to secure funding. The Bank’s consolidated projections for sources and uses of funds for the next eight quarters is attached as Exhibit C. This proforma projection is an estimate of the base case or most likely scenario and is included as part of the Liquidity Contingency report prepared by Darling Consulting Group using Liquidity 360©. CONTINGENT LIQUIDITY STRESS TESTS The Liquidity 360© model allows for an additional six stress scenarios, as well as six relief scenarios. The assumptions for the stress tests will reflect risks identified by the Liquidity Risk Monitor and are subject to change on a quarterly basis. If no material risk is noted, it will be the Bank’s practice to simulate at least two stress test scenarios (i.e. mild to moderate stress, as well as moderate to severe stress) with a relief scenario for the more strenuous test. The Liquidity 360© as of September 30, 2021 is attached as Exhibit C. The stress scenarios presented assess the impact of reduced loan cash flows due to deteriorating asset quality as derived from the Credit Stress Test, as well as losses of local market deposits and investment collateral haircuts, all footnoted in the report. While the Bank has no historical confirmation of “satisfactory” reserve periods, we are comfortable that three months on-balance sheet liquidity reserve with no management intervention is adequate. Therefore, liquidity is considered adequate in both scenarios currently modeled.

Page 13 Smith Shellnut Wilson, LLC  Investment Counsel and Management  SEC Registered Investment Advisor 661 Sunnybrook Rd., Suite 130  Ridgeland, MS 39157  Telephone 601-605-1776  Fax 601-605-1710