CWBFG Annual Report 2022

CAPITAL MANAGEMENT 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 and composition, 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.

We continued to comply with all internal and external capital requirements in 2022.

ATM Program On June 1, 2022, we re-established an ATM program to allow the periodic issuance up to a total of $150 million of common shares, at our discretion and if needed, at the prevailing market price, under a prospectus supplement to the CWB short-term base shelf prospectus which expires on July 1, 2024. Under the existing ATM program, we have issued 2,667,171 common shares for gross proceeds of $66 million, or net proceeds of $65 million after commissions and other issuance costs.

The ATM program was re-established following the termination of the previous ATM program on May 31, 2021, due to the sale of most of the $150 million common shares approved under the previous program.

We continue to utilize our ATM program to support strong loan growth as we navigate current and future economic volatility, while prudently managing our regulatory capital ratios, and driving positive contributions to earnings per common share and ROE.

Table 22 - ATM Usage

2022

2021

Common shares issued (1)

4,725,271

2,052,600

Average price per share

$

29.86

$

35.55

Gross proceeds Net proceeds (2)

141,098 138,392

72,969 71,353

(1) During the six months ended April 30, 2022, we issued 2,058,100 common shares at an average price of $36.46 per share for gross proceeds of $75,038, or net proceeds of $73,767 after sales commissions and other issuance costs, under our previous ATM program. Subsequent to April 30, 2022, all shares issued were under the new program. (2) Gross proceeds less sales commissions and other issuance costs. Share-based Payments We provide a share-based 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 16 of the audited consolidated financial statements for the year ended October 31, 2022 provides details related to the number of options outstanding, the weighted average exercise price and the amounts exercisable at year end. 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 UPDATES Basel III Reforms and Pillar 3 Disclosures

On January 31, 2022, OSFI released the finalized 2023 CAR guidelines related to the implementation of Basel III reforms in Canada, which includes adjustments to the calculation of risk-weighted assets under both the Standardized approach and the internal ratings-based approach to credit risk, operational risk, and credit valuation adjustments, as well as to the AIRB capital floors. On the same date, OSFI released the Small and Medium-Sized Deposit-taking Institutions (SMSBs) Capital and Liquidity Requirements, which considers proportionality and provides simplified capital and liquidity requirements for SMSBs of various sizes. OSFI also released the final Pillar 3 Disclosure Guideline, which lists the disclosures required for SMSBs and their respective implementation date. Based on our total assets, we will qualify as a Category I SMSB. The CAR 2023 guidelines and associated disclosure requirements become effective on February 1, 2023. Our preparation to adopt the CAR 2023 guidelines remains in progress. We continue to estimate that the overall impact will likely be moderately positive to our regulatory capital ratios upon adoption, but will depend on our loan portfolio composition at that time. Under the CAR 2023 guidelines, certain commercial loan exposures attract a lower risk-weight compared to the existing guidelines, which we intend to leverage to lower the risk-weight density of our loan growth subsequent to adoption. Assurance Guideline on Capital, Leverage, and Liquidity Returns In November 2022, OSFI released a new assurance guideline on capital, leverage and liquidity returns. Starting for the fiscal 2025 year end, CWB will be required to, within 90 days of fiscal year end, obtain an external auditor opinion on the numerator and denominator that calculate the Basel Capital Adequacy Reporting (BCAR), Leverage Requirement Return (LRR), and the Liquidity Coverage Ratio (LCR) to provide to OSFI.

36 | CWB Financial Group 2022 Annual Report

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