CREDIT QUALITY IMPAIRED LOANS
Loans are determined to be in default and classified as impaired when payments are contractually past due 90 days or more, when we have commenced realization proceedings, or when we are of the opinion that the loan should be regarded as impaired based on objective evidence. Objective evidence that a loan is impaired may include significant financial difficulty of a borrower, default or delinquency of a borrower, breach of loan covenants or conditions, or indications that a borrower will enter bankruptcy. Table 10 – Change in Gross Impaired Loans ($ thousands) 2023 2022 Change from 2022 Gross impaired loans, beginning of year $ 166,673 $ 202,324 $ (35,651) (18) % New formations 341,495 150,723 190,772 127 Reductions, impaired accounts paid down or returned to performing status (205,140) (155,759) (49,381) 32 Write-offs (37,052) (30,615) (6,437) 21 Total (1) $ 265,976 $ 166,673 $ 99,303 60 % Balance of the ten largest impaired accounts $ 139,162 $ 82,314 $ 56,848 69 % Total number of accounts classified as impaired (2) 255 280 (25) (9) Total number of accounts classified as impaired under $1 million (2) 225 256 (31) (12) Gross impaired loans as a percentage of gross loans 0.71 % 0.46 % 25 bp (1) Gross impaired loans include foreclosed assets held for sale with a carrying value of $2,712 (October 31, 2022 – $2,010). We pursue timely realization of foreclosed assets and do not use the assets for our own operations. (2) Total number of accounts excludes CWB National Leasing. Bp – basis point Gross impaired loans at October 31, 2023 totaled $266 million, up from $167 million last year, which represented 0.71% of gross loans compared to 0.46% last year. The level of gross impaired loans fluctuates as loans become impaired and are subsequently resolved and does not directly reflect the dollar value of expected write-offs given tangible security held in support of lending exposures. The increase in gross impaired loans was driven by an increase in new formations of impaired loans to $341 million this year, as expected as a result of higher interest rates pressuring the cash flow of borrowers. New formations of gross impaired loans of $151 million last year was suppressed by the continued benefit of Government stimulus and support. We continue to efficiently deliver resolutions of impaired loans, which totaled $205 million this year as compared to $156 million last year. Strong resolution activity with net write-offs that remain well below our historical average reflects our ongoing proactive management of the loan portfolio by our Special Asset Management Unit, a team that specializes in resolving troubled loans and minimizing credit losses. We regularly review the overall loan portfolio and undertake credit decisions on a case-by-case basis to provide early identification of possible adverse trends. Our strong credit risk management framework, including well-established underwriting standards, the secured nature of our lending portfolio with conservative loan-to-value ratios, and proactive approach to working with clients through difficult periods has continued to be an effective approach. This is demonstrated by our history of low write-offs as a percentage of average loans, including through past periods of economic volatility. Refer to the Risk Management section of this MD&A for additional information.
28 | CWB Financial Group 2023 Annual Report
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