CMS Case Study

 Loan pricing, promotion and product structure (ARMs, Fixed Rate, Floating, Hybrids such as balloons, etc.);

 Deposit pricing, promotion and product structure;

 Use of alternative funding sources such as repurchase agreements and FHLB borrowings (Fixed, floating, amortizing, etc.); and Security Purchases and Sales As appropriate, hedging transactions such as interest rate swaps, caps, and floors will also be considered. In assessing the appropriateness of any strategy, ALCO will assess the expected results (risk-return) of alternative actions vs. the risk-return of inaction. Section 9. Independent Review of Interest Rate Risk Management Process The Bank will review its interest rate risk management process on an annual basis. This review can be performed by either an individual(s) within the Bank or an outside party. In either case the person(s) responsible for the review must be independent of the interest rate risk management process. The results of the review, along with any recommendations for improvement, should be reported to senior management and the Board. Such a review should consider the following factors: 

 Are policies, controls and procedures well documented?

Are policies and procedures being followed?

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 Are the risk measures employed appropriate to the nature, scope, and complexity of the banking activities?

 Are the risk limits prudent and exposure levels compliant with the Board approved risk tolerances?

 Are the assumptions in the risk measurement system reasonable, prudent, and well documented?

 Is the data used for risk measurements processed accurately?

 Are the reports and schedules used to communicate the overall balance sheet position complete, clear, and concise?

 Is the board of directors and senior management actively involved in the process?

Section 10. Related Policies Management of the Bank's interest rate risk, liquidity and earnings are impacted by our investment and hedging policies as well as our pricing of loans and deposits.  Investment and Hedging Policies - Our investment and hedging policies have been developed to complement our asset/liability and funds management policy (refer to Investment Policy Statement and Hedging Policy Statement). This policy will address credit risk, liquidity risk, interest rate risk, and profitability, as well as generally accepted accounting principals.  Capital Policy - It shall at all times be the intention of ALCO, in operating under the confines of this Policy, to maintain a capital position that is considered adequate to protect both shareholders and depositors. Both are to be protected from the risks associated with the investment of funds and from the risks associated with maintenance of the Bank’s net interest margin and net interest spread. It shall be the responsibility of ALCO to

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Approved by Board of Directors 1/20/22