CHFC 2017 Annual Report

A summary of our interest rate sensitivity at December 31, 2017 and 2016 follows: Gradual Change Immediate Change December 31, 2017 Twelve month interest rate change projection (in basis points) -200 -100 — +100 +200 +400 Percent change in net interest income vs. constant rates (3.6)% (1.2)% —% 0.9% (2.1)% (4.2)% December 31, 2016 Twelve month interest rate change projection (in basis points) -200 -100 0 +100 +200 +400 Percent change in net interest income vs. constant rates (3.9 )% (0.9 )% —% (1.4)% (2.6 )% (6.8)% At December 31, 2017, our model simulations projected that 200 and 400 basis point increases in interest rates would result in negative variances in net interest income of 2.1% and 4.2%, respectively, while the 100 basis point increase would result in a positive variance in net interest income of 0.9%, relative to the base case over the next twelve-month period. At December 31, 2017, our model simulations also projected that decreases in interest rates of 100 and 200 basis points would result in negative variances in net interest income of 1.2% and 3.6%, respectively, relative to the base case over the next twelve-month period. At December 31, 2016, the model simulations projected that 100, 200 and 400 basis point increases in interest rates would result in negative variances in net interest income of 1.4%, 2.6% and 6.8%, respectively, relative to the base case over the next twelve- month period, while decreases in interest rates of 100 and 200 basis points would result in negative variances in net interest income of 0.9% and 3.9%, respectively, relative to the base case over the next twelve-month period. The likelihood of a decrease in interest rates beyond 100 basis points at December 31, 2017 and 2016 was considered to be unlikely given prevailing interest rate levels. Our model simulations at December 31, 2017 for a 200 basis point increase in interest rates resulted in a negative variance in net interest income, relative to the base case, primarily due to our deployment of excess cash and maturing variable-rate investment securities into fixed-rate loans during 2017. While the model simulations projected a negative variance for a 200 basis point increase, our net interest income is still projected to be higher if interest rates were to rise 200 basis points due to the higher yield being earned on the funds deployed into loans compared to maintaining these funds at the FRB earning 25-50 basis points or investing in lower yielding variable-rate investment securities. The model simulations at December 31, 2017 for an immediate 400 basis point increase in interest rates also resulted in a negative variance in net interest income, relative to the base case, due to the loan portfolio being primarily comprised of fixed-rate loans, while a majority of our customer deposit accounts are interest- rate sensitive. 77