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Hedging Deposits to Reduce Liability Sensitivity

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chathamfinancial.com 3 For a financial institution that needs to make adjustments to its interest rate risk position, but does not want or need new or replacement wholesale funding, deposits hold great potential to hedge. The different flavors of deposit hedging offer flexibility to the FI and can range from the simple to the more complex; however, all can be structured to effectively incorporate a cash flow hedge accounting designation. As with other cash flow hedges, changes in value of the swap are recorded in equity under other comprehensive income, and the potential exists for little to no ineffectiveness if structured right and managed well throughout the life of the swap. Determining that the FI needs to make a change to its interest rate risk position, is the first step. Determining the appropriate hedge strategy is a matter of simplicity, availability, and preference. Chatham has many clients who are hedging deposit accounts and receiving effective hedge accounting treatment. Call us and we can help you determine how best to approach this for your FI. Transac ons in over-the-counter deriva ves (or "swaps") have significant risks, including, but not limited to, substan al risk of loss. You should consult your own business, legal, tax and accoun ng advisers with respect to proposed swap transac on and you should refrain from entering into any swap transac on unless you have fully understood the terms and risks of the transac on, including the extent of your poten al risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and is a solicita on for entering into a deriva ves transac on. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the deriva ves markets, capable of making independent trading decisions, then you should not rely solely on this communica on in making trading decisions. 15-0057 235 Whitehorse Lane Kennett Square, PA 19348 | T : 610.925.3120 chathamfinancial.com 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% DDA Acct - Business DDA Acct - Personal Int CK Acct - Business Int CK Acct - Personal MMkt Acct - Business MMkt Acct - Personal 1 Mo. LIBOR Figure 2: Managed deposit rates vs. 1-month LIBOR

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