CMS Case Study

APPENDIX

C. Contingency Funding Liquidity risk is the risk than an institution’s financial condition or overall safety and soundness is adversely affected by an inability (or perceived inability) to meet its collateral obligations. Static balance sheet measures may not reveal significant liquidity risk that may exist under either normal or adverse business conditions and generally will not be the sole measures institutions use to monitor and manage liquidity. Therefore, the Bank will estimate expected future cash flows, stress those cash flow estimates under various scenarios, and develop detailed plans for coping with potential shortfalls. In the event management anticipates changes in normal business operations, it must respond to potential liquidity problems in a thorough and organized manner. It is the Bank’s policy to have a formal Contingency Funding Plan (CFP) that clearly sets out the strategies for addressing liquidity shortfalls in emergency situations. Under the direction of ALCO, a CFP will be implemented and maintained to address the issue of emergency funding in a liquidity crisis. The CFP will be reviewed annually, at a minimum. The CFP will be customized to the liquidity risk of the Bank and identify a range of stress environments, establish clear lines of responsibility, and articulate clear implementation and escalation procedures. It will be regularly tested and updated to ensure that it is operationally sound. The Bank will monitor same for potential liquidity stress events by using early warning indicators. The static liquidity ratios defined in previous sections of this policy will serve as the primary measurement of liquidity. The Bank will also consider changes in the balance sheet that may indicate heightened funding needs, as well as monitor asset quality indicators and capital concentrations. These items are included in the Liquidity Contingency report prepared quarterly by Darling Consulting Group, Liquidity 360©. As part of the CFP, the following scale will serve as warning of liquidity stress. • Liquidity is considered to be “Normal” or “N/A” when all liquidity measurement ratios are within level 1 risk limits, and there is no material threat of a liquidity crisis. • Liquidity is considered to be “Low” or a “Level A” when liquidity measurement ratios are outside level 1 risk limits, and heightened risk reporting and/or monitoring is prudent. • Liquidity is considered “Watch” or a “Level B” when liquidity measurement ratios are outside level 2 risk limits, and preemptive action(s) are likely needed. • Liquidity is considered “Critical” or a “Level C” when liquidity measurement ratios are outside established policy limits or level 3 risk limits, and immediate action(s) are required. A composite stress "Level A" per the Liquidity Risk Monitor will trigger the Action Plan as detailed in the Bank's approved Contingency Funding Plan.

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Approved by Board of Directors 1/20/22