Large Bank Examination Workshop February 2026

sensitivity analyses are conducted at least annually for all significant model

assumptions, including loan prepayments.

Status of Prior Validation Finding:

1. (Low Risk) – The weighted average lives calculated by Mountain View/MPS in 2018 for the

Bank ’s non -maturity deposit accounts were within reasonable ranges but behaved very

differently under the rate scenarios utilized in the study compared to the same calculations

from a prior study performed in 2016. Specifically, many of the weighted average lives

calculated in 2018 moved in the opposite direction from those calculated in 2016 when

subjected to rate shocks.

a. Recommendation: The Bank should ensure that formal analysis is conducted and

documented to either justify this change in results or correct any potential errors in

either the calculation of the WALs or their implementation in the Model. The results of

this analysis should be reported to ALCO.

b. Management Response : Management will contact Mountain View to discuss this

discrepancy in the calculations and report the findings to ALCO. The results of the

2020 calculations will also be verified.

c. Resolution Status : TBD

2. (Low Risk) – For the Bank's construction and commercial real estate loan portfolio, The

Model is using the Bank's actual customer prepayment history to determine projected

prepayment assumptions. This static analysis, while accurate on an average basis over a

complete rate cycle, does not account for the dynamic changes in prepayment speed

behaviors as market rates and external non-financial influences change. The unprecedented

continuation of a low rate environment, coupled with the impact of the current pandemic, are

all indications that historical correlations are unlikely to be a useful basis for forecasting

future prepayment behaviors.

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