CWBFG Annual Report 2022


Economic Conditions Current economic forecasts anticipate lower gross domestic product (GDP) growth through 2023 and a moderate to sharp decline in housing prices, reflecting the impact of Bank of Canada policy interest rate increases enacted in fiscal 2022. The labour market is also expected to be impacted, with unemployment rates forecast to steadily increase in 2023. Policy interest rate increases by the Bank of Canada are expected to taper in fiscal 2023. Expectations of potential recessionary conditions in Canada over the next year continue to evolve with the timing and magnitude remaining uncertain at this time. Outlook of expected financial performance We have a demonstrated history of delivering strong, stable financial results against volatile economic backdrops. We target and win new full-service clients through economic cycles by delivering an unrivaled client experience with a consistent and prudent risk management approach. Looking ahead to fiscal 2023, we expect to deliver:

Annual Metric

Fiscal 2023 expectations

Loan growth

High single-digit percentage growth

Branch-raised deposits growth

Double-digit percentage growth

Pre-tax, pre-provision income growth

Double-digit percentage growth

Efficiency ratio

Less than 50%

Adjusted earnings per common share growth

Low to mid single-digit percentage growth

Adjusted ROE

10 to 11%

In fiscal 2023, we expect our teams to continue to deliver strong full-service client growth in strategically targeted segments and within our risk appetite. We expect to deliver high single-digit annual percentage overall loan growth, with stronger growth in the strategically targeted general commercial portfolio, where prudent. Our loan growth in 2023 will continue to be focused on portfolios that support further full-service client opportunities that remain within our strict underwriting and pricing criteria. We will also continue to target further geographic diversification and expect strong loan growth in Ontario as we continue to leverage our Mississauga and Markham banking centres and further expand our presence with the opening of our Toronto financial district banking centre in fiscal 2023. We expect double-digit annual percentage growth of branch-raised deposits as we continue to execute on our strategic focus to leverage lower-cost funding channels and further diversify our funding sources. Very strong growth of new branch-raised deposits is expected to be supported by our enhanced digital capabilities. We also expect continued diversification of funding sources to include strong contributions from our capital market and securitization channels. In fiscal 2022, the rapid increase in Bank of Canada policy interest rates drove a compression in lending spreads as increases in asset yields lagged the increase in deposit costs over the last year. The shorter duration of our fixed term deposit products, as compared to our fixed term loan products, our deposit book was quicker to reflect the impact of the rising interest rate environment. Based on the assumption of a more stable interest rate environment in fiscal 2023, our net interest margin is expected to increase over the next year to reflect the combined benefit of normalized lending spreads and the impact of fixed term loans continuing to re- price at the current market interest rates. Our approach to expense management in fiscal 2023 will focus on execution of our most important strategic priorities, with prudent management of discretionary expenses. We expect lower growth of non-interest expenses next year and we will manage to an annual efficiency ratio below 50%, with positive operating leverage (1) . Credit performance in fiscal 2022 was strong as we recognized a provision for credit losses of 14 basis points as a percentage of total loans, below our normal historical range of 18 to 23 basis points. We expect that the combined impacts of the conclusion of COVID-19 government support programs, rapidly rising interest rates and a deteriorating economic outlook will drive an increase in the provision for credit losses next year. Our prudent approach and leveraging our enhanced credit risk management tools and processes supports our expectation that our provision for credit losses will remain within our strong historical range of 18 to 23 basis points next year, likely on the higher end of that range given potential economic volatility. With all other assumptions constant and as described above, a provision for credit losses in the high end of our historical range drives annual adjusted earnings per common share percentage growth in the low-single digits and adjusted ROE around the mid-point of a 10 to 11% range. On this same basis, a provision for credit losses in the low end of our historical range drives annual adjusted earnings per common share percentage growth in the mid-single digits and adjusted ROE that approaches 11%.

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

22 | CWB Financial Group 2022 Annual Report

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