Capital Markets School - Case Study

Exhibit B

Cloyd Bank & Trust FHLB Internal Risk Analysis As of September 30, 2021

Value

Rating

Critical Capital Cushion

5.26 9.99 7.42

A B A B

Return on Equity

Provision Expense Percentage Assigned Credit Rating*

*Generally, a bank will be assigned a credit rating based on the lowest rating that corresponds to the three criteria as defined below. Therefore, we estimate the Bank's credit rating to be a B as of the period reported.

FHLB Credit Rating Criteria

Rating

Critical Capital Cushion

Return on Equity

Provision Expense Percentage

A Greater than or equal to 3.75% Greater than or equal to 10% Less than 11%

Less than 3.75% but greater than or equal to 2.50% Less than 2.50% but greater than or equal to 1.40% Less than 1.40% but greater than or equal to 1.20% Less than 1.20% but greater than or equal to 1.00%

Less than 10% but greater than or equal to 5% Less than 5% but greater than or equal to 0% Less than 0% but greater than or equal to -5% Less than -5% but greater than or equal to -10%

Less than 16% but greater than or equal to 11% Less than 25% but greater than or equal to 16% Less than 30% but greater than or equal to 25% Less than 36% but greater than or equal to 30% Greater than or equal to 36%

B

C

D

E

E* Less than 1.00%

Less than -10%

Critical capital cushion means, for the most recent data available, the least of the calculated differences between each regulatory capital ratio and the applicable corresponding standard for adequate capitalization. Return on equity means the average for the most recent calendar quarter and the immediately preceding six calendar quarters of the ratio of net income after taxes and extraordinary items divided by the average of a quarter’s beginning and ending total equity. Provision expense percentage means the average of the most recent calendar quarter and the immediately preceding six calendar quarters of the ratio of provision for loan and lease losses divided by net interest incomes

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