Contractual Obligations We enter into contracts in the normal course of business that give rise to commitments of future minimum payments that may affect our liquidity position. In addition to the obligations related to deposits and subordinated debentures discussed in the Deposits and Liquidity Management sections of our MD&A, as well as Notes 12, 13, 14 and 17 of the audited consolidated financial statements, the following table summarizes purchase obligations outstanding at October 31, 2023 for operating and capital expenditures. Table 28 - Contractual Obligations ($ thousands) Within 1 1 to 3 More than Year Years 4 Years Total October 31, 2023 $ 57,834 $ 54,201 $ 5,492 $ 117,527 October 31, 2022 $ 38,972 $ 14,842 $ 5,299 $ 59,113 Credit Ratings Our ability to efficiently access capital markets funding on a cost-effective basis is partially dependent upon the maintenance of satisfactory credit ratings. Such credit ratings increase the breadth of clients and investors able to participate in various deposit and debt offerings, while also lowering our overall cost of capital. Credit ratings are largely determined by the quality of earnings, the adequacy of capital, the effectiveness of risk management programs and the opinions of rating agencies related to creditworthiness of the financial sector as a whole. There can be no assurance that our credit ratings and the corresponding outlook will not be changed, potentially resulting in adverse consequences for funding capacity or access to capital markets. Changes in credit ratings may also affect the ability and/or the cost of establishing normal course derivative or hedging transactions. Credit ratings do not consider market price or address the suitability of any financial instrument for a particular investor and are not recommendations to purchase, sell or hold securities. Ratings are subject to revision or withdrawal at any time by the rating organization.
The following table summarizes our current credit ratings issued by DBRS Morningstar, as well as the corresponding rating outlook. Table 29 - DBRS Morningstar Credit Ratings
Subordinated debentures (NVCC)
Limited recourse capital notes (NVCC)
Preferred shares (NVCC)
Short-term instruments
Long-term senior debt and long-term deposits
Rating
R1 (low)
A (low) Stable
BBB (low)
Pfd-3 Stable
BB (high)
Outlook
Stable
Stable
Stable
CAPITAL RISK
Capital risk is the risk that we have insufficient capital resources, in either quantity or quality, to support economic risk taken, regulatory requirements, strategic initiatives and current or planned operations.
Risk Overview Capital management involves an ongoing process to determine, allocate and maintain appropriate capital levels. The objective of capital management is to ensure: • Capital is, and will continue to be, adequate to maintain confidence in the safety and stability of CWB while also complying with required regulatory standards;
• We have the capability to access appropriate sources of capital in a timely and cost-effective manner; and, • Return on capital is sufficient to support projected business growth and satisfy the expectations of investors. Risk Governance
The Board approves the annual regulatory capital plan, and the Board Risk Committee approves the periodic ICAAP and Capital Risk Management policy. The Group Capital Risk Committee is responsible for capital risk management. The CRO oversees the measurement of capital demand, including forecasted capital demand under base and severe but plausible stress scenarios. The CFO is responsible to ensure that adequate capital supply is available to meet the capital demand determined in accordance with our Capital Risk Management policy. Risk Management Our Capital Risk Management policy establishes a framework to manage our capital requirements, including the definition of roles and responsibilites as well as reporting and monitoring requirements. We have established target capital levels, which are informed by our ICAAP and stress tests, that are deemed prudent to effectively manage risks, and are well above regulatory minimums. Regulatory ratios are calculated under the Standardized approach for credit risk and reported to senior management and the Board of Directors on a recurring basis, at least quarterly. On at least an annual basis, we complete a regulatory capital plan, which includes a three-year capital projection. To monitor capital risk, we utilize models to analyze the likely capital impact of projected operations, various balance sheet and income statement scenarios, approaches used to calculate regulatory capital, and/or significant transactions. A quarterly update on both capital demand and capital supply risk is provided to the Board Risk Committee. The Risk Management and Finance teams comprise the core ICAAP team and are closely involved in capital management, and follow the process and principles outlined in the Stress Testing section of our MD&A. For additional information, refer to the Capital Management section of our MD&A.
CWB Financial Group 2023 Annual Report | 51
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