CAPITAL MANAGEMENT
Highlights of 2021
• CET1 regulatory capital ratio of 8.8% under the Standardized approach for calculating risk-weighted assets.
• Basel III leverage ratio of 8.6%, compared to the regulatory minimum of 3.0%, where a higher ratio indicates lower leverage.
• Established an ATM program that allows us to incrementally issue up to $150 million of common shares, at our discretion, at the prevailing market price. During the year, we issued 2,052,600 common shares at an average price of $35.55 per share for gross proceeds of $73 million under the program.
• Completed the issuance of $150 million of Series 2 Limited Recourse Capital Notes (LRCNs).
• Redeemed all $140 million of outstanding Series 7 Preferred Shares.
• Paid a cash dividend of $1.16 per share to common shareholders.
Subsequent Highlights • Subsequent to October 31, 2021, our Board of Directors declared a dividend of $0.30 per common share payable on January 6, 2022 to shareholders of record on December 16, 2021. This quarterly dividend is up one cent, or 3%, from the dividend declared last quarter and one year ago, and represents an increase following the conclusion on November 4, 2021 of OSFI’s moratorium on dividend increases for federally-regulated financial institutions, which had been in effect since March 2020. • The Board of Directors also declared cash dividends of $0.2688125 per Series 5 and $0.375 per Series 9 preferred share, all payable on January 31, 2022 to shareholders of record on January 21, 2022. We maintain a capital structure that both optimizes our cost of capital and supports ongoing profitable growth and strategic execution. We manage capital in accordance with policies and plans that are regularly reviewed and approved by the Board Risk Committee. Capital management takes into account forecast capital needs with consideration of anticipated profitability, asset growth, market and economic conditions, regulatory changes, and common and preferred share dividends. The goal is to maintain adequate regulatory capital to be considered well-capitalized and protect customer deposits, while providing a satisfactory return for shareholders. We have established target capital levels that are informed by our Internal Capital Adequacy Assessment Process (ICAAP) and stress tests, and are deemed prudent to effectively manage risks, including potential capital shocks from unexpected macroeconomic and/or CWB-specific events. During the year, we issued $150 million of Series 2 LRCNs and redeemed all $140 million of outstanding Series 7 Preferred Shares. The LRCNs have a preferential tax treatment for the issuer compared to other sources of Tier 1 capital, where tax deductible coupon payments lower our overall cost of capital compared to other similar sources. For further details on the transactions and the conversion features of our NVCC capital instruments, refer to Notes 15 and 16 of the consolidated financial statements for the year ended October 31, 2021. On May 31, 2021, we established an ATM program that allows us to incrementally issue up to $150 million of common shares, at our discretion, at the prevailing market price. The ATM program was established under a prospectus supplement to the CWB short-form base shelf prospectus, and expires on November 9, 2022. During fiscal 2021, we issued 2,052,600 common shares at an average price of $35.55 per share for gross proceeds of $73 million, or net proceeds of $71 million after commissions and other issuance costs. We provide a share incentive plan to officers and employees who are in a position to materially impact the longer-term financial success of the organization, as measured by overall profitability, earnings growth, share price appreciation and dividends. Note 17 of the consolidated financial statements for the year ended October 31, 2021 provides details related to the number of options outstanding, the weighted average exercise price and the amounts exercisable at year end.
We complied with all internal and external capital requirements in 2021.
BASEL III CAPITAL ADEQUACY ACCORD OSFI requires Canadian financial institutions to manage and report regulatory capital in accordance with the Basel III capital management framework. We currently report regulatory capital ratios using the Standardized approach for calculating risk-weighted assets, which requires us to carry significantly more capital for certain credit exposures compared to requirements under the AIRB methodology. For this reason, regulatory capital ratios of banks that utilize the Standardized approach are not directly comparable with the large Canadian banks and other financial institutions that utilize the AIRB methodology. Our required minimum regulatory capital ratios, including a 250 basis point capital conservation buffer, are 7.0% CET1, 8.5% Tier 1 and 10.5% Total capital.
REGULATORY RESPONSE TO COVID-19
Beginning in March 2020, OSFI introduced temporary measures to support the economy and maintain financial system resiliency in the face of the COVID-19 pandemic. Those most applicable to CWB that remain in place include:
• OSFI introduced transitional arrangements related to the capital treatment of performing loan allowances, resulting in a portion of the allowance that would otherwise be included in Tier 2 capital to be included in CET1 capital. Subject to a scaling factor, the after-tax increase in performing loan allowances between the current quarter end and January 31, 2020 will be included in CET1 capital. The scaling factor is 70% for fiscal 2020, 50% for fiscal 2021 and 25% for fiscal 2022. • For the leverage ratio, central bank reserves and sovereign-issued securities that qualify as High Quality Liquid Assets (HQLA) under the LAR guideline can be temporarily excluded from the exposure measure until December 31, 2021.
38 | CWB Financial Group 2021 Annual Report
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