Total assets increased 1% ($147 million) in the quarter, 6% ($1,053 million) year-to-date and 12% ($1,894 million) in the past year to reach $17,927 million at July 31, 2013.
Cash and Securities
Cash and securities totaled $2,285 million at July 31, 2013, compared to $2,077 a year earlier and $2,545 million at the end of last quarter. In a manner consistent with the Bank's asset/liability policies and in view of the current economic environment, management prudently reduced average liquidity through the third quarter. Net unrealized losses recorded on the balance sheet of $4.5 million compare to unrealized gains of $16.5 million last quarter and $12.1 million a year earlier, with the differences mainly reflecting a decrease in the market value of preferred shares and the realization of gains on common shares. The securities portfolio is primarily comprised of high quality debt instruments, preferred shares and common equities that are not held for trading purposes and, where applicable, are typically held until maturity. As discussed above, fluctuations in value are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. Fluctuations during the current period mainly relate to steepening of the interest rate curve. Volatility in equity markets also leads to fluctuations in value, particularly for common shares.
Net realized gains on securities in the third quarter of $7.0 million compare to $1.9 million in the same period last year and $3.1 million in the previous quarter. Year-to-date net gains of $12.8 million reflect favourable market conditions that prompted the realization of gains following unexpectedly strong performance within the common share portfolio. Based on the level of gains realized and current composition of the securities portfolio, including a significant quarterly increase in the level of unrealized losses on preferred shares, net gains on securities are not expected to provide a meaningful source of revenue in the fourth quarter. The Bank has no direct investment in any non-Canadian sovereign debt or other securities issued outside of Canada or the United States.
Assuming a supportive economic environment continues and following the prudent reduction of liquidity described above, management expects average liquidity to remain relatively consistent with the current level going forward.
DBRS Limited maintains published credit ratings on the Bank's senior debt (deposits), short-term debt, subordinated debentures and preferred shares of "A (low)", "R1 (low)", "BBB (high)", and "Pfd-3 (high)", respectively, all with a stable outlook. Credit ratings do not comment on market price or 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. Management believes the ratings widen the base of clients and investors who can participate in CWB's offerings, while also lowering overall funding costs and the cost of capital. The successful launch of a Bearer Deposit Note (BDN) program during the quarter exemplifies the funding diversification available to the Bank on the basis of its credit ratings. Refer to the Deposits section of this MD&A for additional details of the BDN program.
The Basel Committee on Banking Supervision (the Basel Committee) has issued a framework document outlining two new liquidity standards. The document prescribes the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as minimum regulatory standards beginning in 2015 and 2018, respectively. The LCR establishes a common measure of liquidity risk and requires institutions to maintain sufficient liquid assets to cover a minimum of 30 days of cash flow requirements in a stressed situation. The NSFR describes a second common measure of liquidity establishing a minimum acceptable amount of stable funding based on the liquidity characteristics of a financial institution's assets and activities over a one-year horizon. Although the Basel Committee has introduced a phase-in period for compliance with LCR guidelines, Canadian banks will be required to fully comply with the LCR regulations in 2015 with no phase-in. The Basel Committee issued an additional Consultative Document during the quarter, discussing qualitative and quantitative disclosure standards related to the LCR. Based on its review of the relevant standards, CWB believes it is well positioned to comply with these new requirements.
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