CWBFG Annual Report 2023

to discontinue the hedging relationship. For aspects of hedge accounting not covered by the amendments and hedges that are not directly impacted by IBOR reform, the accounting policies as described in Note 10 of these audited consolidated financial statements continue to apply.

As IBORs are widely referenced, the transition presents a number of risks to us and the industry as a whole. These risks, such as increased volatility, lack of liquidity and uneven fallback practices, may impact market participants. In addition to these inherent risks, we are exposed to operational risk arising from the renegotiation of contracts and readiness to issue and trade products referencing alternative reference rates. Our cross functional IBOR Reform working group continues to coordinate an orderly transition to alternative reference rates. Prior to June 30, 2023, we completed the transition of our USD LIBOR referenced contracts by incorporating appropriate fallback language or by replacing the referenced rates with the Secured Overnight Financing Rate (SOFR), with appropriate spread adjustments. At October 31, 2022, prior to our transition away from USD LIBOR, there were $295,527 of loans with maturity dates after June 30, 2023 which referenced USD LIBOR, and less than $1 million of undrawn loan commitments that could potentially have been drawn in USD LIBOR. In 2023, our IBOR Reform working group has been preparing for CDOR cessation by transitioning legacy CDOR-based contracts to CORRA or alternative rates, incorporating appropriate contract fallback language, and introducing products referencing CORRA or other alternative rates. We have ceased the issuance of new loans referencing CDOR or BA rates to meet the November 1, 2023 ‘no new CDOR or BA’ milestone. The working group has also been preparing systems, processes and communications to ensure overall operational readiness. The working group monitors recommendations from industry groups and regulatory bodies, and engages with industry associations and counterparties regarding transition of CDOR to CORRA as we update our transition plans. The working group provides periodic updates to senior management and the Asset and Liability Committee and quarterly to the Audit Committee of the Board of Directors regarding the status of transition plans for migrating our CDOR products and upgrading systems and processes. The following table presents the gross outstanding balances of our non-derivative financial assets and liabilities, and notional amounts of our derivatives that are indexed to CDOR as at October 31, 2023 and 2022, which were due to mature after the announced cessation date. In the normal course of business, our exposures may continue to fluctuate until full transition away from CDOR.

Notional/gross outstanding amounts referencing CDOR (1) Maturing after June 28, 2024 October 31, 2023

October 31, 2022

Non-derivative Financial Assets Securities

2,405,557

1,254,038

Loans (2)

2,405,557

1,254,038

Non-derivative Financial Liabilities Deposits - business and government

125,000

Debt - subordinated debentures

125,000

2,030,097

2,127,716

Derivative Financial Instruments (3)

(1) While the six-month and 12-month tenors of CDOR were discontinued on May 17, 2021, we did not hold significant positions referencing these tenors at October 31, 2023 and October 31, 2022. (2) Excludes undrawn loan commitments. As at October 31, 2023, the total outstanding undrawn loan commitments that can potentially be drawn in CDOR beyond the announced cessation date of June 28, 2024 is $66 million (October 31, 2022 – $49 million). (3) Derivative financial instruments are comprised of interest rate swaps referencing CDOR that we use to manage interest rate risk. As at October 31, 2023 and October 31, 2022, all of these instruments were designated in hedge relationships. 27. CAPITAL MANAGEMENT Capital funds are managed in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors and take 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 a share incentive plan that is provided to officers and employees who are in a position to impact our longer-term financial success as measured by share price appreciation and dividend yield. Note 16 to the consolidated financial statements details the number of shares under options outstanding, the weighted average exercise price and the amounts exercisable at year end. Regulatory capital and capital ratios are calculated in accordance with the requirements of OSFI. Capital is managed and reported in accordance with the requirements of the Basel III Capital Adequacy Accord (Basel III) using the Standardized approach. OSFI requires banks to measure capital adequacy in accordance with instructions for determining risk-adjusted capital and risk-weighted assets, including off-balance sheet commitments. Based on the deemed credit risk of each type of asset, a standardized weighting of 0% to 150% is assigned. As an example, a loan that is fully insured by CMHC is applied a risk weighting of 0% as our risk of loss is nil, while uninsured business loans are assigned a risk weighting of 100% to reflect the higher level of risk associated with this type of asset. The ratio of regulatory capital to risk-weighted assets is calculated and compared to OSFI’s standards for C anadian financial institutions. Off-balance sheet assets, such as the notional amount of derivatives and some credit commitments, are included in the calculation of risk-weighted assets and both the credit risk equivalent and the risk-weighted calculations are prescribed by OSFI. The results for the year ended October 31, 2023 reflect our adoption of the revised Capital Adequacy Requirements that came into effect on February 1, 2023 as part of OSFI’s implementation of the Basel III reforms. Our required minimum regulatory capital ratios, including a 250 basis point capital conservation buffer, are 7.0% common equity Tier 1 (CET1), 8.5% Tier 1 and 10.5% Total capital. In addition, OSFI requires banks to maintain a minimum leverage ratio of 3.0%. The leverage ratio provides the ratio of Tier 1 capital to on-balance sheet and off- balance sheet exposures.

During the year, we complied with all external capital requirements.

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