CWBFG Annual Report 2022

SUMMARY OF OPERATIONS As fiscal 2022 commenced, the Canadian economy continued on its path to recovery from the impacts of the COVID-19 pandemic. As the year progressed, rising commodity prices, supply chain pressures, labour shortages and strong global and domestic demand drove persistent levels of inflation, with the Russian invasion of Ukraine creating incremental global economic uncertainty. The rapid and significant increase in market interest rates began to cool economic growth and fuel the potential for recessionary conditions to emerge in Canada. Against this backdrop, we delivered strong strategic execution and a prudent and targeted approach to growth that positions us strongly to capitalize on the opportunities in front of us and manage through the potential economic volatility that may be on the horizon. Leveraging the experience and skillset of our teams, enhanced client offerings and expanded physical presence, we generated targeted loan growth of 9% within our prudent risk appetite. We strategically target general commercial clients to reflect our focus to increase full-service client relationships across our national footprint, and our teams delivered 14% annual growth in this portfolio. Our number of full-service clients, who have a core banking relationship with us, increased this year, and 8% growth of branch- raised deposits reflected strong growth from new clients partially offset by reductions in the deposit balances of existing customers.

We also continued to focus on our geographic diversification strategy, with loan growth of 11% in Ontario with strong momentum building from our Mississauga and newly opened Markham banking centres.

Annual revenue increased 6%. Net interest income increased 5% due to the benefit of 9% annual loan growth, partially offset by an eight basis point decrease in net interest margin. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs over the last year driven by the higher market interest rate environment. Our fixed term deposit portfolio has repriced faster to reflect higher market interest rates than our fixed term loans, which have a longer average duration. Loan yields have also been slower to reflect the changes in market interest rates due to high competition for new lending. Net interest margin was also negatively impacted by a change in our lending mix to comparatively lower-yielding borrowers and portfolios. Non-interest income increased 10% and reflected higher foreign exchange revenue recorded within ‘other’ non -interest income, higher credit related fees and higher wealth management fees, partially offset by lower net gains on security sales. Borrower credit performance remained very strong, with impaired loans as a percentage of gross loans of 0.46% at October 31, 2022, reflecting historical lows. Our total annual provision for credit losses represented 14 basis points as a percentage of average loans, compared to nine basis points last year. We recognized a four basis point provision related to performing loans (1) , driven by a deterioration in macroeconomic forecasts, compared to an eight basis point recovery in the prior year. The provision for credit losses on impaired loans of ten basis points was seven basis points lower than last year and remained well below our five-year average of 19 basis points. 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 and uncertain periods. Total non-interest expenses of $582 million were up 14% ($73 million). The increase included $17 million of costs related to the accelerated amortization of intangible assets as a result of a reduction in estimated useful lives of certain previously capitalized AIRB assets. Adjusted non-interest expenses (1) increased 11%, which was driven by our continued strategic priorities, including investment in our people, AIRB tools and processes, digital capabilities, the harmonization of our wealth management brands with the launch of CWB Wealth, our new banking centres in Markham, Ontario and downtown Vancouver and expanded client offerings to optimize our business, deliver an unrivaled experience to our clients, and accelerate full-service client growth. Growth of non-interest expenses outpaced total revenue growth, resulting in an efficiency ratio of 51.5% compared to 49.1% last year and reflects several strategic investments made this year, which will benefit revenue growth in future periods. Diluted earnings per common share of $3.39 and adjusted earnings per common share of $3.62 declined 9% and 5%, respectively. Our return on common shareholders’ equity (ROE) of 10.1% and adjusted ROE of 10.8% decreased 150 basis points and 100 basis points, respectively. Lower adjusted ROE and the decrease in our adjusted common shareholders’ net income (1) was primarily driven by an increase in the provision for credit losses on performing loans. Pre-tax, pre-provision income increased 1%. Our CET1 capital ratio at October 31, 2022 of 8.8%, was consistent with last year. Including Tier 1 and Total capital ratios of 10.6%, and 12.1%, 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 in the current environment, we issued 4,725,271 common shares during the year at an average price of $29.86 per share for net proceeds of $138 million under our at-the-market (ATM) common equity distribution programs.

(1) Non-GAAP measure – refer to definitions and detail provided on page 16.

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