CASH 2017 Annual Report

86 The Company believes that its growing portfolio of non-interest bearing deposits provides a stable and profitable funding vehicle and a significant competitive advantage in a rising interest rate environment as the Company’s cost of funds will likely remain relatively low, with less increase expected relative to other banks. When not able to match loan growth to deposit growth, theCompany continues to execute its investment strategy of primarily purchasingNBQmunicipal bonds and agencyMBS, however, the Bank reviews opportunities to add diverse, high quality securities at attractive relative rates when opportunities present themselves. The NBQ municipal bonds are tax exempt and as such have a tax equivalent yield higher than their book yield. The tax equivalent yield calculation for NBQ municipal bonds uses the Company’s cost of funds as one of its components. With the Company’s large volume of non-interest bearing deposits, the tax equivalent yield for these NBQ municipal bonds is higher than a similar term investment in other investment categories of similar risk and higher than most other banks can realize and sustain on the same or similar instruments. The above interest income figures are quoted on a pre-tax basis which is particularly notable due to the size of the Company’s tax-exempt municipal portfolio. Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario. The economic value of equity is calculated as the difference between the estimated market value of assets and liabilities, net of the impact of off-balance sheet instruments. The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management. It models immediate -100, +100, +200, 300 and +400 basis point parallel shifts in market interest rates. Due to the current low level of interest rates, only a -100 basis point parallel shift is represented. The Company is within Board policy limits for all scenarios. The tables below show the results of the scenario as of September 30, 2017 and 2016: Economic Value Sensitivity Balances as of September 30, 2017 Standard (Parallel Shift) Economic Value of Equity at Risk% -100 +100 +200 +300 +400 Percent Change Scenario -3.2% -0.8% -3.8% -7.8% -10.7% Board Policy Limits -10.0% -10.0% -20.0% -30.0% -40.0% Balances as of September 30, 2016 Standard (Parallel Shift) Economic Value of Equity at Risk% -100 +100 +200 +300 +400 Percent Change Scenario 1.6% -3.7% -8.3% -13.1% -17.2% Board Policy Limits -10.0% -10.0% -20.0% -30.0% -40.0% The EVE at risk reported at September 30, 2017, shows that as interest rates increase immediately, the economic value of equity position will decrease from the base, partially due to the degree of the economic value of its base asset size in relation to the economic value of its base liabilities. The Company would be within policy limits in all scenarios utilizing the alternative IRR scenario run for management purposes. The tables below highlight those results for September 30, 2017 and 2016: Alternative Economic Value Sensitivity Balances as of September 30, 2017 Standard (Parallel Shift) Alternative IRR Results Economic Value of Equity at Risk% -100 +100 +200 +300 +400 Percent Change Scenario -2.2% -1.9% -6.0% -10.9% -14.7% Board Policy Limits -10.0% -10.0% -20.0% -30.0% -40.0%