Figure 1 - Number of Full-time Equivalent Employees
Overall salaries and employee benefits increased 16% ($44 million) mainly due to the wealth acquisition, hiring activity to support overall business growth and execution of strategic priorities, higher performance-based compensation reflecting our strong financial results, and annual salary increments. Equipment and software costs were up 34% ($16 million) primarily due to ongoing investment in technology infrastructure to position ourselves for future growth and improve our client and employee experience, and amortization of accumulated capital costs associated with our AIRB implementation, which were recognized in non-interest expenses for the first time this year. General non-interest expenses were up 17% ($13 million) mainly due to the wealth acquisition, costs associated with enhancing our AIRB tools and processes, client reward point costs driven by strong uptake of our refreshed personal credit card offering, and an increase in marketing spend to promote our new digital capabilities. These increases were partially offset by reduced spending in certain categories in the current operating environment. The efficiency ratio of 49.1% compared to 47.7% last year, due to the impact of the wealth acquisition and continued investment in strategic execution, which outpaced revenue growth. Excluding the wealth acquisition, the efficiency ratio of 47.7% compared to 46.9% last year.
(1) Approximately half of the fiscal 2020 increase related to the wealth acquisition
INCOME TAXES
The current year effective income tax rate of 25.6% was 70 basis points lower than last year, reflecting the Alberta government ’s accelerated reduction of the corporate income tax rate from 10% to 8% effective July 1, 2020, as part of Alberta’s COVID -19 economic recovery plan.
Deferred tax assets and liabilities represent the cumulative amount of tax applicable to temporary differences between the carrying amount of assets and liabilities, and their values for tax purposes. Our deferred income tax assets and liabilities relate primarily to the performing loan allowance for credit losses and intangible assets. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates anticipated to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Changes in deferred income taxes related to a change in tax rates are recognized as income in the period of the tax rate change. COMPREHENSIVE INCOME Comprehensive income is comprised of net income and other comprehensive income (OCI), all net of taxes. Our OCI includes changes in unrealized gains and losses on debt securities measured at FVOCI and equity securities designated at FVOCI, and fair value changes for derivative instruments designated as cash flow hedges. Comprehensive income of $258 million was down 27% ($96 million) due to a $181 million reduction in OCI partially offset by an $86 million increase in net income. Lower OCI, net of tax, was driven by lower changes in fair value of derivatives designated as cash flow hedges ($135 million) and debt securities measured at FVOCI ($46 million). Our debt securities portfolio, which is classified at FVOCI, is primarily comprised of debt securities issued or guaranteed by federal (Canada or United States), provincial or municipal governments. Fluctuations in value are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve.
Table 8 - Comprehensive Income ($ thousands)
Change from 2020
2021
2020
Net Income
$
357,253
$
271,550
$
85,703
Other Comprehensive Income, net of tax Items that will be subsequently reclassified to net income Debt securities measured at fair value through other comprehensive income Gains (losses) from change in fair value
(34,949)
14,046 (5,900)
(48,995)
Reclassification to net income
(3,316)
2,584
(38,265)
8,146
(46,411)
Derivatives designated as cash flow hedges Gains (losses) from change in fair value
(6,197)
105,003 (31,855)
(111,200) (24,266)
Reclassification to net income
(56,121)
(62,318)
73,148
(135,466)
Items that will not be subsequently reclassified to net income Gains on equity securities designated at fair value through other comprehensive income
1,053
528
525
(99,530)
81,822
(181,352)
Comprehensive Income
$
257,723
$
353,372
$
(95,649)
28 | CWB Financial Group 2021 Annual Report
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