CMS Case Study

Recommendations: Asset Liability Committee (ALCO) Relative Importance = 2 Type of Risk Identified = Interest Rate CRI reviewed a sample of minutes of ALCO meetings to determine if they include the authorization of policy exceptions, if applicable. CRI noted that in the March 31, 2021 IRR report, the Bank was out of policy in the down 100 basis points (bps) scenario for earnings at risk in year two. CRI was unable to locate documentation of approval of the exception in the ALCO meeting minutes. CRI recommends the Bank approve all policy exceptions identified in the IRR report, note approval in the ALCO meeting minutes, and notate if any action should be taken based on the discussion. Management’s Response – ALCO Management understands the importance of the committee approving policy exceptions, and it is normal protocol to discuss and document such approvals. While the above ‐ mentioned IRR exception was discussed in ALCO, Mrs. CFO acknowledges that it was not noted in the minutes and will provide the documented discussion to the ALCO for formal approval at the October Board Meeting. She will also ensure that policy exceptions are documented going forward. IRR Model Inputs Relative Importance = 3 Type of Risk Identified = Interest Rate CRI determined whether management is reconciling the data used in the IRR report to ensure accuracy and completeness. Based on discussion with CFO , there is no formal reconciliation of the balance sheet information in the model report to the general ledger (GL). She stated it is reviewed for reasonableness, but not traced to the balance sheet. CRI recommends the Bank reconcile the information in the IRR report to inputs such as the call report, GL, loan/deposit trial balances, investment portfolio, etc. Management’s Response – IRR Model Inputs Mrs. CFO will ensure the data used in the IRR reports is formally reconciled back to the source data provided to Darling, beginning with the 3Q21 ALCO reports.

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