FOURTH QUARTER OF 2021 Q4 2021 VS. Q4 2020
Common shareholders’ net income of $ 90 million and diluted earnings per common share of $1.01 increased 42% and 38%, respectively . Adjusted common shareholders’ net income of $92 million and adjusted earnings per common share of $1.03 increased 41% and 37%, respectively. Pre-tax, pre-provision income of $123 million was up 6%.
Total revenue of $261 million grew 10%, which reflected an 11% increase in net interest income and a 3% increase in non-interest income. Net interest income of $230 million increased due to the benefit of 9% loan growth combined with a two basis point increase in net interest margin, driven by a favourable shift in our funding mix from strong branch-raised deposit growth, which drove a decline in more expensive broker deposits, partially offset by the impact of holding higher average cash and securities balances compared to last year. Non-interest income growth reflects higher wealth management fees, partially offset by lower net gains on securities. The provision for credit losses on total loans as a percentage of average loans represented a 12 basis point recovery this quarter and was 38 basis points lower than the same quarter last year. We recognized a 24 basis point decrease in the performing loan provision driven by the impact of a more optimistic macroeconomic outlook associated with the ongoing economic recovery, and a 14 basis point reduction in impaired loan provisions. Lower impaired loan provisions reflected the reversal of provisions related to previously impaired loans that were resolved with lower than expected realized losses, combined with a decline in new impaired loan formations. Non-interest expenses of $141 million, were up 14%, which included $4 million of additional 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 AIRB-related costs, non-interest expenses increased 11%, which was driven by continued investment in our teams and technology to support growth and strategic execution.
Q4 2021 VS. Q3 2021
C ommon shareholders’ net income and diluted earnings per common share increased 4% and 3%, respectively. Adjusted common shareholders’ net income and adjusted earnings per common share increased 5% and 2%, respectively. Pre-tax, pre-provision income was down 11%.
Total revenue decreased 1%, primarily due to an 8% decline in non-interest income driven by nominal net losses on securities in the current quarter compared to $2 million of net gains last quarter. Net interest income was consistent with last quarter as the benefit of 2% sequential loan growth was offset by a four basis point decline in net interest margin. The decline in net interest margin primarily reflects lower yields in our fixed rate portfolios, driven by very strong residential mortgage growth and lower fee income recognized in loan yields compared to the prior quarter.
Our provision for credit losses on total loans as a percentage of average loans was 23 basis points below last quarter, primarily due to lower impaired loan provisions driven by the factors noted in the comparison to the same quarter last year.
Non-interest expenses increased 10%, primarily due to continued investment in our teams and technology, customary seasonal increases in advertising, community investment and employee training costs, and additional costs to implement enhancements to our AIRB tools and processes.
ADJUSTED ROE AND ROA
Compared to last year, the fourth quarter ROE of 12.2% and adjusted ROE of 12.5% were both up 300 basis points due to higher earnings, partially offset by higher average common shareholders’ equity. Fourth quarter ROE and adjusted ROE were relatively consistent with last quarter.
The fourth quarter ROA of 0.97% was 22 basis points above last year, due to higher earnings, partially offset by higher average assets, and was consistent with last quarter.
EFFICIENCY RATIO
The fourth quarter efficiency ratio of 52.9% increased compared to 50.9% last year and 47.7% last quarter as expense growth outpaced revenue growth as we continue to proactively invest in our capabilities and technology to drive higher revenue growth in future periods.
ACCOUNTING POLICIES AND ESTIMATES CRITICAL ACCOUNTING ESTIMATES
CWB’s significant accounting policies are outlined in Note 1 of the consolidated financial statements for the year ended October 31, 2021, with related financial note disclosures by major caption. The policies discussed below are considered particularly important, as they require management to make significant estimates or judgments, some of which may relate to matters that are inherently uncertain.
ALLOWANCE FOR CREDIT LOSSES An allowance for credit losses is maintained to absorb ECL for both performing as sets and impaired assets based on management’s estimate at the balance sheet date and forward-looking information. Under IFRS 9, the allowance for credit losses related to performing and impaired assets is estimated using an ECL approach that represents the discounted probability-weighted estimate of cash shortfalls expected to result from defaults over the relevant time horizon. To do this, the ECL approach incorporates a number of underlying assumptions which involve a high degree of management judgment and can have a significant impact on financial results. Significant key drivers impacting the estimation of ECL, which are interrelated, include:
• Changes in internal risk ratings attributable to a borrower or instrument reflecting changes in credit quality; • Thresholds used to determine when a borrower has experienced a significant increase in credit risk; and, • Changes in forward-looking information, specifically related to variables to which the ECL models are calibrated.
CWB Financial Group 2021 Annual Report | 43
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