Capital Markets Examiner School, Providence, RI

To Hedge or Not To Hedge….

Overview • Given recent increases in interest rates, the outlook for earnings and NII growth have improved considerably. • Bank X is positioned moderately more asset sensitive than its peers and while it has benefited more from the curve steepening, they have more to lose from a retrenchment.

• Bank X is on track to achieve its longer-term profitability objectives as articulated in its Strategic Plan

Potential Hedging Opportunities

• Given this dynamic, it is prudent to evaluate potential hedging options that will enable them to achieve their goals while protecting against the downside risk of lower interest rates. • Various hedging options have been evaluated and included in subsequent slides along with the path of the various profitability metrics. – NII, AOCI and capital distributions are varied in each scenario, while holding all else equal (e.g. Salaries and Benefits, Mortgage Revenues, etc.)