CWBFG Annual Report 2022

Salaries and employee benefits increased 6% ($21 million) mainly due to hiring activity to support overall business growth, our Ontario expansion, and execution of strategic priorities, along with annual and one-time salary increments. Higher salaries and employee benefits were partially offset by lower share-based compensation expense associated with a lower share price in the current year. Premises increased 7% ($2 million) and reflect expenses associated with our continued physical geographic expansion, including our new banking centres in Markham, Ontario and downtown Vancouver. Equipment and software costs were up 46% ($30 million) primarily due to the accelerated amortization of intangible assets of previously capitalized AIRB assets. Excluding the accelerated depreciation of intangible assets, equipment and software costs were up 20%, primarily driven by our ongoing investments in technology infrastructure to position ourselves for future growth and to improve our client and employee experience, and higher depreciation expense associated with previous capital expenditures incurred to support our strategic execution. General non-interest expenses were up 24% ($21 million) primarily due to higher professional fees and services associated with our strategic execution, including costs related to the development of AIRB tools and processes and the harmonization of our wealth management brands with the launch of CWB Wealth. We also incurred higher travel costs associated with the reduction in COVID-19 restrictions, higher amortization of acquisition-related intangible assets due to the brand launch of CWB Wealth and concurrent retirement of legacy wealth management brands, an increase in employee recruitment and training costs, reflecting the increase in competition for talent and a return to in-person learning, and higher banking charges driven by expansion of our credit card offerings. These increases were partially offset by lower acquisition and integration costs associated with our previously executed wealth acquisition.

The efficiency ratio was 51.5% compared to 49.1%, as expense growth outpaced revenue growth as we have made several strategic investments this year, which will benefit revenue growth in future periods.

Figure 1 - Number of Full-time Equivalent Employees

(1) Approximately half of the fiscal 2020 increase related to the wealth acquisition


The current year effective income tax rate of 24.9% was 70 basis points lower than last year, primarily due to a non-recurring adjustment that reduced the tax expense recorded in the current year.

On November 4, 2022, the Canadian Government introduced Bill C-32 as the Fall Economic Statement Implementation Act, which includes legislation to increase the federal corporate income tax rate by 1.5% on taxable income above $100 million for banking and life insurance groups. The Bill is not yet substantively enacted. Based on the proposed legislation, it will not result in a significant impact to our effective tax rate for the year, if enacted, as the increase in current tax expense will be partially offset by the impact of re-measuring applicable net deferred tax assets at the higher tax rate. 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 $192 million was down 26% ($66 million) due to a $46 million reduction in OCI and a $20 million decrease in net income. Lower OCI, net of tax, was driven by lower changes in fair value of debt securities measured at FVOCI ($55 million) and derivatives designated as cash flow hedges ($33 million), partially offset by lower losses reclassified to net income ($43 million), as the prior year reflected elevated losses associated with the impact of adjusting certain balance sheet management activities in response to a shift in our funding mix. Our debt securities portfolio, which is classified at FVOCI, is comprised of bonds issued or guaranteed by federal (Canada or United States), provincial or municipal governments used exclusively for liquidity management purposes and typically held to maturity. Fluctuations in value are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve.

26 | CWB Financial Group 2022 Annual Report

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