SUMMARY OF OPERATIONS During the year, the Canadian economy continued to be disrupted by the COVID-19 pandemic. Despite the continued challenging operating environment and macroeconomic uncertainty, we showcased our ability to provide a differentiated experience to our clients, achieve very strong financial results and deliver on our unwavering commitment to advance a culture that puts people first. As we move forward, we remain confident in our ability to support our teams, clients and communities in a safe return to a more normal operating environment. Successful execution of our diversified funding strategy was underpinned by another year of very strong branch-raised deposit growth as we leveraged our enhanced capabilities to broaden our access to lower cost funding within and outside of our banking centre footprint. Our number of full-service clients, who have a core banking relationship with us, increased and we delivered very strong 16% growth of branch-raised deposits, with the increase primarily driven by demand and notice deposits. This strong performance resulted in a 10% reduction in our outstanding balance of broker deposits. Leveraging the strength of our teams and an improvement in underlying economic conditions, we generated strong loan growth of 9% within our prudent risk appetite. Loan growth was led by a 24% increase in the commercial mortgage portfolio, which reflected a focus on high-quality borrowers, and a 12% increase in the strategically targeted general commercial portfolio. We continued to focus on our geographic diversification strategy, with loan growth of 10% in Ontario supported by the opening of our Mississauga banking centre in August 2020 and the diverse and experienced team we have built in that market. Diluted earnings per common share of $3.73 and adjusted earnings per common share of $3.81 were both up 30%. Our return on co mmon shareholders’ equity (ROE) of 11.6% increased 230 basis points due to the impact of a 32% increase in common shareholders’ net income, partially offset by higher average common shareholders’ equity. Pre-tax, pre-provision income increased 10%, which removes the impact of the significant decrease in the performing loan provision for credit losses compared to the prior year. Annual revenue increased 13% and surpassed $1 billion for the first time in our history, which reflected contributions across all of our business lines. Net interest income increased 12% due to strong 9% loan growth and a four basis point increase in net interest margin, despite the continued historical low Bank of Canada policy interest rates enacted in March 2020. Net interest margin benefited from strong branch-raised deposit growth, which drove a decline in more expensive broker deposits, and proactive deposit pricing changes to reflect the strength of deposit growth across our funding channels. Non-interest income increased 26% and represented 12% of total revenue, compared to 11% last year, primarily due to the contribution of the wealth acquisition and higher credit related fees, partially offset by lower net gains on securities, which were elevated last year as we re-balanced our cash and securities portfolio through the market disruption that followed the emergence of the COVID-19 pandemic. Borrower credit performance remained strong, with impaired loans and payment delinquencies below pre-COVID-19 levels at October 31, 2021. Gross impaired loans of $202 million decreased 21% from 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. We remain confident in 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. Our total provision for credit losses represented nine basis points as a percentage of average loans, compared to 32 basis points last year, primarily driven by improved macroeconomic forecasts associated with the ongoing economic recovery, which resulted in an eight basis point recovery related to performing loans (1) , compared to a 14 basis point charge in the prior year. As a percentage of average loans, the provision for credit losses on impaired loans of 17 basis points was one basis point lower than last year and remained below our five-year average of 19 basis points. Non-interest expenses were up 17% due to the combined impact of the wealth acquisition, continued investment in our teams and technology to support the execution of our strategic priorities and overall business growth, and costs associated with our AIRB tools and processes. AIRB-related costs include ongoing operating costs, non-recurring costs incurred to implement certain enhancements to our tools and processes, and amortization of accumulated capital costs of our AIRB implementation. Excluding the wealth acquisition and the incremental costs associated with operating and enhancing our AIRB tools and processes, non-interest expense growth was 10%. Growth of non- interest expenses outpaced total revenue growth, resulting in an efficiency ratio of 49.1% compared to 47.7% last year. Excluding the wealth acquisition, our efficiency ratio was 47.7% compared to 46.9% last year. The maintenance of conservative capital levels is fundamental to our objectives to effectively manage risks and support strong growth. Our CET1 capital ratio at October 31, 2021 of 8.8% is consistent with last year. Including Tier 1 and Total capital ratios of 10.8%, and 12.4%, respectively, all of our capital ratios remain above both internal and regulatory minimums. To support strong loan growth while prudently managing our regulatory capital ratios, we issued 2,052,600 common shares during the year at an average price of $35.55 per share for net proceeds of $71 million under our at-the-market (ATM) common equity distribution program. We remain confident in our ability to deliver strong earnings for shareholders while we maintain financial stability and a strong capital position.
(1) Non-GAAP measure – refer to definitions and detail provided on page 18.
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