CMS Case Study

APPENDIX

D. Interest Rate Risk Limits It is neither possible nor prudent to eliminate interest rate risk. It is, however, both necessary and desirable to establish quantifiable limits of interest rate risk exposure the Bank is willing to accept. The current exposure will be estimated quarterly using the income simulation and EVE simulation reports. Because the primary objective of asset/liability management is to manage the level and potential volatility of net interest income, the Bank has established acceptable levels of interest rate risk as follows: Projected net interest income over the next twelve months will not be reduced by more than 10% given a gradual shift (i.e. over 12-months) in interest rates of up to 200 basis points (+ or -) and assuming no balance sheet growth. Projected net interest income over a second twelve months will not be reduced by more than 15%. The Bank will also monitor earning sensitivity to changes in interest rate shocks, as noted below.

Year 1 Max Sensitivity EAR ($)

Year 2 Max Sensitivity EAR ($)

RATE SHOCK +400BP +300BP +200BP +100BP 0 -100BP -200BP RATE SHOCK +400BP +300BP +200BP +100BP 0 -100BP -200BP -300BP

-20% -15% -10%

-25% -20% -15% -10% -10% -15%

-5%

-5%

-10%

The Bank will also monitor the sensitivity of Economic Value of Equity to changes in interest rates, as outlined in the body of this policy.

Max Sensitivity EVE ($)

Min EVE ratio

6% 6% 6% 6% 6% 6% 6%

-40% -30% -20% -10% -10% -20% -30%

These limits will be re-evaluated on a periodic basis (not less than annually) and may be modified, as appropriate. As part of its quarterly report to the Board, ALCO will review the Bank's interest rate risk position relative to current limits. If current limits are exceeded, ALCO will discuss with the Board its plans for bringing the Bank back within limits. To continue to operate outside the limits will require Board approval.

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Approved by Board of Directors 1/20/22