CAPITAL MANAGEMENT We manage capital in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors. Capital management includes forecast capital requirements 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. During the year, we complied with all external capital requirements. ATM Program All common shares issued under the ATM program in the year were issued in the first quarter of fiscal 2023, with no common shares issued thereafter. 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 4,501,766 common shares for gross proceeds of $111 million, or net proceeds of $109 million after commissions and other issuance costs. The ATM program was re-established following the termination of the previous ATM program established on May 31, 2021, due to the sale of most of the $150 million common shares approved under the previous program. Table 20 – ATM Usage ($ thousands, except per share amounts) 2023 2022 Common shares issued (1) 1,835 4,725 Average price per share $ 24.53 $ 29.86 Gross proceeds 44,998 141,098 Net proceeds (2) 44,253 138,392 (1) During the year ended October 31, 2023, all shares issued were under the new ATM program. For the comparative 2022 periods, shares issued in Q1 and Q2 2022 were under the previous ATM program (2,058 shares issued, at average price of $36.46, for gross proceeds of $75,038 and net proceeds of $73,767) and shares issued in Q3 and Q4 2022 were under the current ATM program (2,667 shares issued, at average price of $24.77, for gross proceeds of $66,060, and net proceeds of $64,625). (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 significantly impact the long-term financial success of the organization. Note 16 of the audited consolidated financial statements for the year ended October 31, 2023 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 CAR 2023 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 qualify as a Category I SMSB. The CAR 2023 guidelines and associated disclosure requirements became effective on February 1, 2023 which increased our CET1 capital ratio by approximately 15 basis points on adoption due to an overall reduction in risk-weighted asset density.
34 | CWB Financial Group 2023 Annual Report
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