CMS Case Study

Section 1. The Purpose of Asset/Liability Management (ALM) At our Bank, the purpose of asset/liability management is ongoing performance enhancement. These policies and procedures have been formulated to coordinate our interest rate risk management and liquidity/funds management practices in an effort to maximize net interest income while maintaining a prudent balance between risk and return levels. We do not believe it is possible to reliably predict future interest rates and are therefore establishing these policies and procedures to ensure we provide adequate earnings in all plausible future interest rate environments. Section 2. Primary Objectives of Asset/Liability Management In general, ALCO will focus on ensuring a stable and steadily increasing flow of net interest income through managing the size and mix of the balance sheet. More specifically, the primary objective of the Bank's asset/liability management process is to maximize earnings and return on capital within acceptable levels of risk:  Interest Rate Risk (IRR) : risk to earnings caused by potential short and long term changes in interest rates. IRR measurement and management is discussed in Section 8 of this policy. Risk tolerance and limits are discussed in Appendix Section E of this policy.  Liquidity : risk the Bank will not have sufficient available funding resources to respond to the needs of both depositors and borrowers; as well as access to unanticipated earnings enhancement opportunities. Liquidity measurement and management is discussed in Section 7 of this policy. Risk tolerance and limits are discussed in Appendix Section C of this policy.  Capital: risk the Bank will not operate with capital levels sufficient to absorb potential losses and/or grow assets to help meet established earnings objectives. Adequacy will be determined by regulatory guidelines as well as internal risk tolerances.  Credit: risk the Bank will not receive full reimbursement of principal investments in loans and securities due to default and/or realized losses in value from sale. The credit risk and related asset quality associated with the Bank’s assets will have implications on risk based capital levels as well as the Bank’s ability to leverage capital to meet established earnings objectives. These objectives are to be accomplished by setting in place a planning and control process, the key concept of which is the coordinated and simultaneous management of both assets and liabilities. Section 3. Authority for Asset/Liability Management The Asset/Liability and Funds Management policy of the Bank falls under the authority of the Board of Directors, who in turn assigns authority for its formulation, revision and administration to the Asset/Liability Management Committee (ALCO). Ultimate responsibility for effective asset/liability management rests with the Board. The responsibilities conveyed to the ALCO include:

 developing an asset/liability management process and related procedures;

 establishing a monitoring and reporting system;

 developing asset/liability strategies and tactics;

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Approved by Board of Directors 1/20/22