CASH 2018 Annual Report

98 IRR is a snapshot in time. The Company’s business and deposits are very predictably cyclical on a weekly, monthly and yearly basis. The Company’s static IRR results could vary depending on which day of the week and timing in relation to certain payrolls, as well as time of the month in regard to early funding of certain programs, when this snapshot is taken. The Company’s overnight federal funds purchased fluctuates on a predictable daily and monthly basis due to fluctuations in a portion of its non-interest bearing deposit base, primarily related to payroll processing and timing of when certain programs are prefunded and when the funds are received. Owing to the snapshot nature of IRR, as is required by regulators, in concert with the Company’s predictable weekly, monthly and yearly fluctuating deposit base and overnight borrowings, the results produced by static IRR analysis are not necessarily representative of what management, the Board of Directors and others would view as the Company’s true IRR positioning. Management and the Board are aware of and understand these typical borrowing and deposit fluctuations as well as the point in time nature of IRR analysis and anticipated an outcome where the Company may temporarily be outside of Board policy limits based on a snapshot analysis. For management to better understand the IRR position of the Bank, an alternative IRR run was completed, for which all September 30, 2018, values were utilized with the exception of overnight borrowings, non-interest bearing deposits, brokered deposits, cash due from banks, non-earning assets, and non-paying liabilities. To diminish potential issues documented above, quarterly average balances were utilized for overnight borrowings, non-interest-bearing deposits, brokered deposits and cash due from banks. Non-earning assets and non-paying liabilities were used to balance the balance sheet. Management believes this view on IRR, while still subject to some yearly cyclicality, more accurately portrays the Bank's IRR position. As noted in the below chart, the alternative EAR results are more normalized and slightly improved in the -100 interest rate shock compared to the static results, as reduced time deposits were offset by higher overnight borrowings and non-interest bearing deposits. 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, 2018 and 2017. Alternative Net Sensitive Earnings at Risk Net Sensitive Earnings at Risk Balances as of September 30, 2018 Standard (Parallel Shift) Year 1 Alternative IRR Results Net Interest Income at Risk% -100 +100 +200 +300 +400 Percent Change Scenario -2.8% 2.4% 4.7% 6.9% 9.1% Board Policy Limits -8.0% -8.0% -10.0% -15.0% -20.0% Net Sensitive Earnings at Risk Balances as of September 30, 2017 Standard (Parallel Shift) Year 1 Alternative IRR Results Net Interest Income at Risk% -100 +100 +200 +300 +400 Percent Change Scenario -1.8% 3.4% 5.4% 5.7% 6.3% Board Policy Limits -8.0% -8.0% -10.0% -15.0% -20.0% The alternative EAR analysis reported at September 30, 2018 shows that in an increasing +100, +200, +300, and +400 interest rate environment, more assets than liabilities will reprice over the modeled one-year period.