Q4 2023 VS. Q4 2022 Common shareholders’ net income and diluted earnings per common share increased 14% and 11%, respectively, primarily due to higher revenues and a lower provision for credit losses compared to the same quarter last year. Adjusted common shareholders’ net income and adjusted earnings per common share increased 10% and 7%, respectively. Pre-tax, pre-provision income increased 8%. Total revenue increased 4%, primarily due to a 7% increase in net interest income, partially offset by an 11% decrease in non-interest income, as foreign exchange revenue was significantly elevated in the same quarter last year. Net interest income increased 7%, primarily due to 4% loan growth and a seven basis point improvement in net interest margin. The increase in net interest margin was driven by focusing loan growth in our strategically targeted general commercial loan portfolio, which produced strong risk-adjusted returns. Our provision for credit losses on total loans as a percentage of average loans was three basis points lower compared to the same quarter last year due to a decrease in the performing loan provision, partially offset by a higher impaired loan provision. The performing loan provision was elevated in the same quarter last year due to a more significant deterioration in the forward-looking macroeconomic outlook at that time. Adjusted non-interest expenses were up 1% from the same quarter last year as the impact of salary increments enacted in the prior year and higher capital taxes, were partially offset by lower spending on strategic projects and our continued actions undertaken during the year to carefully manage our staffing levels and limit discretionary expenditures. Non-interest expenses also benefited from an SR&ED investment tax credit realized in the current quarter. ADJUSTED ROE AND ROA The fourth quarter ROE of 9.0% declined 80 basis points on a sequential basis and reflected lower common shareholders’ net income, driven by higher non-interest expenses due to costs associated with the reorganization of our operations in the quarter and higher common shareholders’ equity. Compared to the same quarter last year, ROE increased 40 basis points and reflected higher common shareholders’ net income, partially offset by higher average common shareholders’ equity. Adjusted ROE of 10.6% was up 60 basis points from last quarter and 10 basis points from the same quarter last year, as higher adjusted common shareholders’ net income was partially offset by higher average common shareholders’ equity. The fourth quarter return on assets (ROA) of 0.72% was six basis points lower on a sequential quarter basis and reflected lower common shareholders’ net income, driven by higher non-interest expenses due to costs associated with the reorganization of our operations in the quarter and higher average assets. Compared to the same quarter last year, ROA increased six basis points as higher common shareholders’ net income more than offset higher average assets. EFFICIENCY RATIO The fourth quarter efficiency ratio improved to 51.0% compared to 51.6% last quarter and 52.6% last year driven by the combination of an expanding net interest margin and prudent expense management.
ACCOUNTING POLICIES AND ESTIMATES CRITICAL ACCOUNTING ESTIMATES
CWB’s significant accounting policies are outlined in Note 1 of the audited consolidated financial statements for the year ended October 31, 2023, 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 assets 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: • Internal risk ratings attributable to a borrower or instrument reflecting the borrower’s credit quality, including any changes since the inception of the loan; • Estimated realizable amount of future cash flows on Stage 3 loans; • Thresholds used to determine when a borrower has experienced a significant increase in credit risk; and, • Forward-looking information, specifically related to variables to which the ECL models are calibrated, and our construction of the scenarios and their weights Key economic variables incorporated into our ECL models are inherently prone to volatility on a forward-looking basis. Hindsight cannot be used, so while evolving macroeconomic assumptions may result in future forecasts that differ from those used in the ECL estimation as at October 31, 2023, those changes will be reflected in future periods. Additional information on the process and methodology for determining the allowance for credit losses can be found in the discussions of Credit Quality section of our MD&A and in Note 6 of the audited consolidated financial statements for the year ended October 31, 2023.
38 | CWB Financial Group 2023 Annual Report
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