Note 15 - Capital Management

9 Months Ended

Jul. 31, 2024

Statement Line Items [Line Items]

Disclosure of objectives, policies and processes for managing capital [text block]

15. Capital management:

a) Overview:

The Bank’s policy is to maintain a strong capital base so as to retain investor, creditor and market confidence as well as to support the future growth and development of the business. The impact of the level of capital held on shareholders’ return is an important consideration, and the Bank recognizes the need to maintain a balance between the higher returns that may be possible with greater leverage and the advantages and security that may be afforded by a more robust capital position.

OSFI sets and monitors capital requirements for the Bank. Capital is managed in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors and that take into account, amongst other items, forecasted capital requirements and current and anticipated financial market conditions.

The goal is to maintain adequate regulatory capital for the Bank to be considered well capitalized, protect deposits and provide capacity to support organic growth as well as to capitalize on strategic opportunities that do not otherwise require accessing the public capital markets, all the while providing a satisfactory return to shareholders. The Bank’s regulatory capital is comprised of share capital, retained earnings and unrealized gains and losses on fair value through other comprehensive income securities (Common Equity Tier 1 capital), preferred shares (Additional Tier 1 capital) and subordinated notes (Tier 2 capital).

The Bank monitors its capital adequacy and related capital ratios on a daily basis and has stipulated policies, which are approved by the Board of Directors, setting internal targets and thresholds for its capital ratios. These capital ratios consist of the leverage ratio and the risk-based capital ratios.

The Bank makes use of the Standardized Approach for credit risk as prescribed by OSFI and, therefore, may include eligible ECL allowance amounts in its Tier 2 capital, up to a maximum of 1.25% of its credit risk-weighted assets calculated under the Standardized Approach.

During the period ended July 31, 2024, there were no material changes in the Bank’s management of capital.

b) Risk-based capital ratios:

The Basel Committee on Banking Supervision has published the Basel III rules on capital adequacy and liquidity (“Basel III”). OSFI requires that all Canadian banks must comply with the Basel III standards on an “all-in” basis for the purpose of determining their risk-based capital ratios. Required minimum regulatory capital ratios are a 7.0% Common Equity Tier 1 capital ratio (“CET1”), an 8.5% Tier 1 capital ratio and a 10.5% Total capital ratio, all of which include a 2.50% capital conservation buffer.

OSFI also requires banks to measure capital adequacy in accordance with guidelines for determining risk- adjusted capital and risk-weighted assets, including off-balance sheet credit instruments as specified in the Basel III regulations. Based on the deemed credit risk for each type of asset, both on and off-balance sheet assets of the Bank are assigned a weighting ranging between 0% to 150% to determine the Bank’s risk- weighted equivalent assets and its risk-based capital ratios.

The Bank’s risk-based capital ratios are calculated as follows:

(thousands of Canadian dollars)
	July 31			October 31
	2024			2023
Common Equity Tier 1 (CET1) capital
Directly issued qualifying common share capital	$	214,824		$	214,824
Contributed surplus		2,789			2,513
Retained earnings		177,584			146,043
Accumulated other comprehensive income		141			131
CET1 before regulatory adjustments		395,338			363,511
Regulatory adjustments applied to CET1		(10,842	)		(12,699	)
Common Equity Tier 1 capital	$	384,496		$	350,812
Additional Tier 1 capital
Directly issued qualifying Additional Tier 1 instruments	$	13,647		$	13,647
Total Tier 1 capital	$	398,143		$	364,459
Tier 2 capital
Directly issued Tier 2 capital instruments	$	103,568		$	109,033
Tier 2 capital before regulatory adjustments		103,568			109,033
Eligible stage 1 and stage 2 allowance		2,401			2,513
Total Tier 2 capital	$	105,969		$	111,546
Total regulatory capital	$	504,112		$	476,005
Total risk-weighted assets	$	3,273,524		$	3,095,092
Capital ratios
CET1 capital ratio		11.75	%		11.33	%
Tier 1 capital ratio		12.16	%		11.78	%
Total capital ratio		15.40	%		15.38	%

As at July 31, 2024 and October 31, 2023, the Bank exceeded all of the minimum Basel III regulatory capital requirements prescribed by OSFI.

c) Leverage ratio:

The leverage ratio, which is prescribed under the Basel III Accord, is a supplementary measure to the risk-based capital requirements and is defined as the ratio of Tier 1 capital to the Bank’s total exposures. The Basel III minimum leverage ratio is 3.0%. The Bank’s leverage ratio is calculated as follows:

(thousands of Canadian dollars)
	July 31			October 31
	2024			2023
On-balance sheet assets	$	4,516,436		$	4,201,610
Assets amounts adjusted in determining the Basel III
Tier 1 capital		(10,842	)		(12,699	)
Total on-balance sheet exposures		4,505,594			4,188,911
Total off-balance sheet exposure at gross notional amount	$	433,661		$	481,389
Adjustments for conversion to credit equivalent amount		(275,050	)		(281,705	)
Total off-balance sheet exposures		158,611			199,684
Tier 1 capital		398,143			364,459
Total exposures		4,664,205			4,388,595
Leverage ratio		8.54	%		8.30	%

As at July 31, 2024 and October 31, 2023, the Bank was in compliance with the leverage ratio prescribed by OSFI.