REGULATORY CAPITAL AND CAPITAL ADEQUACY RATIOS Table 23 - Capital Structure and Regulatory Ratios at Year End ($ thousands)
Change from 2021
2022
2021
Regulatory Capital, Net of Deductions Common equity Tier 1 (1)
$
2,861,456 3,436,456 3,925,118
$
2,601,438 3,176,438 3,650,366
$
260,018 260,018 274,752
Tier 1 (1)
Total
Capital Ratios Common equity Tier 1
8.8 %
8.8 %
- bp
Tier 1
10.6 12.1
10.8 12.4
(20) (30) (50)
Total
Leverage Ratio (2)
8.1
8.6
(1) In Q2 2020, OSFI introduced transitional arrangements related to the capital treatment of performing loan allowances, resulting in a portion of allowances that would otherwise be included in Tier 2 capital to be included, subject to a scaling factor set at 50% for fiscal 2021 and 25% for fiscal 2022. The implementation of this transitional arrangement, net of related tax, resulted in a $6 million increase to CET1 and Tier 1 capital (October 31, 2021 – $6 million) and had a negligible impact on the CET1 and Tier 1 ratios at October 31, 2022 (October 31, 2021 – negligible impact). The transitional arrangement has no impact on the Total capital ratio. (2) Sovereign-issued securities that qualify as High Quality Liquid Assets under the Liquidity Adequacy Requirements guideline were temporarily excluded from the leverage ratio exposure measure until December 31, 2021. This temporary exclusion positively impacted our leverage ratio by approximately 30 basis points as at October 31, 2021.
bp – basis point
Our CET1 capital ratio of 8.8% was stable compared to last year as the impact of retained earnings growth and common shares issued under our ATM program were offset by the combined impact of strong risk-weighted asset growth and a reduction in accumulated other comprehensive income (AOCI) related to a decline in the fair value of derivatives designated as cash flow hedges and an increase in the unrealized loss on debt securities measured at FVOCI as a result of an upward shift in market interest rates that reduced the fair value of our core liquidity portfolio. We intend to hold these debt securities until maturity, where they are settled at their face value.
The Tier 1 and Total capital ratios declined 20 and 30 basis points, respectively, as strong risk-weighted asset growth and the decline in AOCI outweighed the impact of retained earnings growth and common shares issued under our ATM program.
Our Basel III leverage ratio of 8.1% was very strong compared to the regulatory minimum of 3.0%, where a higher ratio indicates lower leverage.
Table 24 - Regulatory Capital ($ thousands)
2022
2021
Common Equity Tier 1 Capital Instruments and Reserves Directly issued qualifying common share capital plus related share-based payment reserve
$
983,527
$
835,451
Retained earnings
2,317,146
2,120,795
Accumulated other comprehensive income and other reserves (1)
(121,025)
(31,049)
Common equity Tier 1 capital before regulatory adjustments Regulatory adjustments to Common equity Tier 1 (2)
3,179,648
2,925,197 (323,759)
(318,192)
Common equity Tier 1 capital
2,861,456
2,601,438
Additional Tier 1 Capital Instruments Directly issued capital instruments qualifying as Additional Tier 1 instruments
575,000
575,000
Additional Tier 1 capital
575,000
575,000
Tier 1 capital
3,436,456
3,176,438
Tier 2 Capital Instruments and Allowances Directly issued capital instruments General allowance for credit losses (3)
373,802 114,860
373,222 100,706
Tier 2 capital before regulatory adjustments
488,662
473,928
Total capital
$
3,925,118
$
3,650,366
(1) Excludes AOCI related to derivatives designated as cash flow hedges. (2) CET1 deductions include goodwill and intangible assets and transitional arrangements related to the capital treatment of the performing loan allowance, net of related tax. (3) Excludes the portion of the performing loan allowance that is included in CET1 capital under transitional arrangements.
CWB Financial Group 2022 Annual Report | 37
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