A one-percentage point increase in interest rates would decrease OCI $87,691 (October 31, 2021 – $66,052), net of tax and a one-percentage point decrease in interest rates would increase OCI by $90,586 (October 31, 2021 – $67,710), net of tax. The estimates are based on a number of assumptions and factors, which include: a constant structure in the interest sensitive asset and liability portfolios; interest rate changes affecting interest sensitive assets and liabilities by proportionally the same amount, except floor levels for various deposit liabilities and certain floating rate loans, and applied at the appropriate repricing dates; and, no early redemptions.
23. INTEREST INCOME
The composition of our interest income follows:
Loans measured at amortized cost (1)
Securities Debt securities measured at FVOCI (1)
Securities purchased under resale agreements measured at amortized cost (1)
Equity securities designated at FVOCI
Deposits with financial institutions measured at FVOCI (1)
(1) Interest income is calculated using the effective interest method.
24. FAIR VALUE OF FINANCIAL INSTRUMENTS A) FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT BASIS
The fair value of a financial instrument on initial recognition is normally the transaction price (i.e. the value of the consideration given or received). Subsequent to initial recognition, financial instruments measured at fair value that are quoted in active markets are based on bid prices for financial assets and offer prices for financial liabilities. For certain securities and derivative financial instruments where an active market does not exist, fair values are determined using valuation techniques that refer to observable market data, including discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants, and non- market observable inputs. Several of our significant financial instruments, such as loans and deposits, lack an available trading market as they are not typically exchanged. Therefore, these instruments have been valued assuming they will not be sold, using present value or other suitable techniques and are not necessarily representative of the amounts realizable in an immediate settlement of the instrument. Changes in interest rates are the main cause of changes in the fair value of our financial instruments. The carrying value of loans, deposits, subordinated debentures and debt related to securitization activities are not adjusted to reflect increases or decreases in fair value due to interest rate changes as our intention is to realize their value over time by holding them to maturity.
104 | CWB Financial Group 2022 Annual Report
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