CWB Financial Group (CWB) is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners.
TARGETED PERFORMANCE
Annual Report 2023
TABLE OF CONTENTS
Message From President & CEO.....03 Message From Chair of the Board...08 Management’s Discussion and Analysis.................. 14 Consolidated Financial Statements.............59 Shareholder Information. ......... 108 Five Year Financial Summary. ............ 109
About Us CWB Financial Group (CWB) is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our nationwide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to the competition. Our people take the time to understand our clients and their business, and work as a united team to provide holistic solutions and advice. We are firmly committed to the responsible creation of value for all our stakeholders and our approach to sustainability will support our continued success. Learn more at www.cwb.com .
Our Values PEOPLE FIRST
RELATIONSHIPS GET RESULTS
EMBRACE THE NEW
INCLUSION HAS POWER
THE HOW MATTERS
Change is everywhere. We seek out new ideas and are committed to continuous learning. We know that better is always possible.
How we do things is as important as what we do. We take ownership, and move with urgency and efficiency. We always act with integrity, and balance risk and reward.
Diverse teams unleash new ideas and perspectives. We are aware of our own biases. We are proud of who we are, and we are allies for those around us.
Caring people are the key to our success. We work as a team and support one another. We always treat each other with respect and have the courage to be candid.
Clients choose CWB for the best experience. We build relationships proactively, with intention and consistency. Our results depend on it.
Connect with us:
CWB.COM
OUR VISION
To be the best full-service bank for business owners in Canada
OUR STRATEGIC DIRECTION
Provide an unrivaled client experience tailored for business owners and their families.
Offer an engaging employee experience and culture for our inclusive and performance-driven teams.
Deliver an efficient and resilient business that drives sustained growth of our profitability.
CWB Financial Group 2023 Annual Report | 1
Strategic priorities With a proven business model, performance-driven teams, and client-focused culture, we believe our strategic investments will accelerate growth of full-service client relationships, position CWB as a destination for top talent and meaningfully expand returns for our investors. Investment priorities within our strategic direction will enhance our ability to:
Deliver elevated wealth management and personal banking for business owners and their families.
Continue to augment our digital and payments platform and cash management tools for clients.
Streamline our operating model and processes for greater efficiency and faster turnaround to clients.
Expand our addressable market across Canada, including further market penetration in Ontario.
Continue to grow and diversify funding with low- cost branch-raised deposits.
Optimize capital allocation to deliver strong, sustainable risk- adjusted returns.
WHY INVEST IN CWB?
We are the only full-service bank in Canada with a focus to create an unrivalled experience for business owners and their families.
Significant opportunity to continue to grow our market share in an underserved midmarket commercial segment and in Ontario.
Prudent risk management supports a strong and resilient balance sheet.
Demonstrated history of strong, stable financial
results through business cycles.
2 | CWB Financial Group 2023 Annual Report
MESSAGE FROM PRESIDENT AND CEO Chris Fowler
FOCUSED PERFORMANCE DELIVERS STRONG FINANCIAL RESULTS
Our clients continue to choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to our competitors. Our people take the time to understand our clients and their businesses, and work as a united team to provide holistic solutions and advice. In the challenging economic backdrop of 2023 that included persistent inflation, increasing interest rates, lower economic growth, and significant volatility in the global banking industry we delivered overall performance that confirmed the strength and resilience of our strategy as the best full-service bank for business owners in Canada. While the external environment dampened financial results through the first half of the year, we successfully adapted by targeting lending opportunities to optimize returns within a prudent risk appetite and continued to enhance our client
offering while proactively managing our expenses. Our financial performance improved as the year progressed and we continued our trend of low levels of credit losses (figure 3) supported by our secured lending model, prudent underwriting practices, and proactive loan management. We exited the fiscal year with strong earnings momentum, increased capital ratios, and a resilient balance sheet. We will also benefit from the changes we executed late in fiscal 2023 to increase our operational efficiency and redeploy resources to priority activities consistent with our differentiated strategy. We are well positioned to create value for our investors in the year ahead as we continue to win relationships with business owners and their families, follow our prudent and secured lending approach and proactively manage our expenses to drive positive operating leverage.
CWB Financial Group 2023 Annual Report | 3
FROM TOUGH TIMES TO INSANELY BUSY TIMES, CWB HAS ALWAYS BEEN THERE READY TO HELP ABOVE AND BEYOND. ” –CWB Client
We are committed to building on our inclusive culture and creating opportunities and growth for strong talent in an organization where skill and performance is recognized, rewarded, and celebrated. We placed within the top 25 on this year’s Best Workplaces TM in Canada for the second year in a row and we were recognized by Waterstone Human Capital as having one of Canada’s Most Admired Corporate Cultures TM for the fourth time, earning a place in their hall of fame. A WINNING TEAM AND INCLUSIVE CULTURE
CWB has been recognized for these awards as our teams continue to go above and beyond for our clients in challenging environments by rapidly adapting to changing conditions. In 2024, we will celebrate our 40th year with our talented teams providing exceptional service to our business owner clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services.
POSITIONED FOR CONTINUED MOMENTUM
We delivered another year of very strong growth in Ontario supported by our existing full-service banking centres in Mississauga and Markham. Our teams have grown loans in the province by an average of 11% annually over the last five years (figure 1). Next year, we plan to open new banking centres in Toronto’s financial district and in Kitchener to continue to build brand awareness in Ontario and capitalize on a significant growth opportunity. General commercial lending to business owners is our core strategic target for growth as it represents a broad section of the Canadian economy that we believe is underserved by other banks. To capitalize on the opportunity to increase our market share in this segment, we continue to enhance our capabilities through an expanded partnership with Brim Financial to offer new business credit cards and are preparing to launch a commercial digital cash management and payments platform for our commercial clients in the near future. With this strategic focus we have delivered 10% general commercial loan growth in the last year, with strong results across the country. This performance has supported 13% average annual loan growth in this category over the last five years (figure 2). Our strategic effort to convert our clients from single product to broader full-service relationships has supported 11% annual growth of branch-raised deposits 1 over the last five years, while we have grown total loans 7% annually over the same period.
The changes we made late in fiscal 2023 streamline our operations to drive priority activities that take full advantage of our investments in modernized technology, digital capabilities, and further leverage our enhanced credit decisioning tools and processes. With these changes I am confident in our ability to deliver strong financial performance in a potentially volatile environment, while our teams continue to deliver an unrivalled experience to business owners and their families. In closing, I would like to express my gratitude to our clients for providing our teams the opportunity to be a trusted partner to support their success, and to our shareholders for their continued commitment and support. I would also like to thank each of our team members for their efforts during a challenging environment. Through their efforts we have built a strong, resilient bank and are well positioned to create value for all our stakeholders going forward.
Chris Fowler President and Chief Executive Officer
(1) Non-GAAP measure – refer to definitions and detail provided on page 16.
4 | CWB Financial Group 2023 Annual Report
FIGURE 1
FIGURE 2
DIVERSIFYING LOANS BY PROVINCE (%)
DIVERSIFYING LOANS BY LENDING SECTOR (%)
2023
2023
13% General Commercial Loans 5YR CAGR
11% Ontario Loans 5YR CAGR
37
30
28
1
32
8
19
15
2018
2018
21
34
25
19
32
20
18
16
13
13
19
British Columbia Alberta Ontario Remainder
General commercial loans Commercial mortgages
Personal loans and mortgages Equipment financing and leasing Real estate project loans Oil and gas production loans
FIGURE 3
Gross impaired loans as a % of gross loans Write-offs as a % of average loans (1) Our five-year and ten-year average write-offs as a percentage of average loans (1) are 16 and 17 basis points, respectively.
STRONG CREDIT QUALITY %
0.90
0.60
0.30
0.00
12 13 14 15 16 17
18 19 21
22 22 23
(1) Non-GAAP measure – refer to definitions and detail provided on page 16.
PRE-TAX, PRE-PROVISON INCOME (1) $ MILLIONS
REVENUE $ MILLIONS
DILUTED EPS $/SHARE
1,113
528
3.38
3.50
500
1,000
3.00 2.50 2.00 1.50
400
800
300
600
200
400
1.00
100
200
0.50 0
0
0
19 20 21
22 23
19 20 21
22 23
19 20 21
22 23
(1) Non-GAAP measure – refer to definitions and detail provided on page 16.
CWB Financial Group 2023 Annual Report | 5
Executive Committee
Chris Fowler President and Chief Executive Officer
Matt Rudd Chief Financial Officer
Kelly Blackett Chief People & Culture Officer
Stephen Murphy Group Head, Commercial, Personal & Wealth
Carolina Parra Chief Risk Officer
Jeff Wright Group Head, Client Solutions & Specialty Businesses
6 | CWB Financial Group 2023 Annual Report
Board of Directors
ANDREW J. BIBBY
DR. MARIE Y. DELORME
MARIA FILIPPELLI
CHRISTOPHER H. FOWLER President and CEO, Canadian Western Bank Director since : 2013
LINDA M.O. HOHOL
Corporate Director Board Commitees: Human Resources (HR), Risk, Loan Adjudication Panel (Chair) Director since: 2012
CEO, The Imagination Group of Companies Board Commitees: Audit, HR Director since: 2021
Corporate Director Board Commitees: Audit (1) (Chair), Governance and Conduct Review (GCR) Director since: 2020
Corporate Director Board Commitees: HR (Chair), Risk Director since: 2011
E. GAY MITCHELL
SARAH A. MORGAN- SILVESTER (Chair) Corporate Director Board Commitees: Audit, GCR, HR, Risk Director since: 2014
MARGARET J. MULLIGAN
IRFHAN A. RAWJI Managing Partner, Relay Ventures Board Commitees: HR, Risk Director since: 2021
IAN M. REID
Corporate Director Board Commitees: GCR, Risk (Chair) Director since: 2019
Corporate Director Board Commitees: Audit (1) , Risk Director since: 2017
Corporate Director Board Commitees: Audit, GCR (Chair) Director since: 2011
CORPORATE GOVERNANCE
Thank you Robert
On behalf of the Board, I wish to express our gratitude to Robert Manning, who retired in April 2023 after 37 years of esteemed and dedicated service on CWB’s Board. He was the longest standing member of the Board and made invaluable contributions to
We strive to maintain the trust of our stakeholders through high standards of corporate governance. Our risk governance structure, including a complete list of our Board committees and the key responsibilities for each committee can be found on page [47] of this report. Further information regarding our corporate governance practices is also available on our website at: cwb.com/corporate-governance Our Management Proxy Circular for the 2024 Annual Meeting will be available on our website in February 2024. It will include information on our director nominees, reports of each board committee, and detailed descriptions of our corporate governance practices. We are committed to open communication with stakeholders – please contact us at: ChairoftheBoard@cwbank.com CorporateSecretary@cwbank.com
CWB over the years. His dedication, leadership, and experience will be missed.
- Sarah Morgan-Silvester
ROBERT A. MANNING, President, Cathon Investments Ltd.
(1) Financial expert on the Audit Committee.
CWB Financial Group 2023 Annual Report | 7
MESSAGE FROM CHAIR OF THE BOARD Sarah Morgan- Silvester
DEAR FELLOW SHAREHOLDERS
Your Board continues to provide strong governance of CWB’s business and our winning strategy to be the best full-service bank for business owners in Canada. Through the execution of our strategy, CWB demonstrated its ability to deliver strong, stable financial results in a challenging operating environment. We provide oversight of CWB’s risk appetite and risk management framework. Through a year of economic volatility, we placed our attention on funding, liquidity, capital and credit risk. We also focused on CWB’s emerging risks, including our evolving approach to address climate risk and were pleased with how these risks were managed. Earlier this year, we disclosed operational greenhouse gas (GHG) emissions across our national footprint, and we support management’s development of targets and a reduction plan. We are also providing oversight of management’s phased approach to estimate our financed emissions. We believe that monitoring and prudent management of emerged and emerging risks to mitigate potential impacts will ensure that we deliver strong, sustainable returns for years to come. We actively manage our Board to ensure we have the full benefit of our Board Member’s varied experiences, perspectives and skill
sets to effectively address the opportunities and challenges ahead. Mary Filipelli became the Chair of our Audit Committee earlier this year, and her financial expertise and extensive experience will be invaluable. Mary’s appointment reflects our thoughtful and strategic approach to Board renewal. On behalf of the Board, I would like to thank our leadership team and all CWB team members for their hard work and unwavering commitment to our success. The Board is confident in CWB’s resilience, differentiated strategy and ability to deliver strong financial performance through the potential uncertainty in the economy. Our conviction reflects the strength of our risk culture and focused performance of our teams across the organization. Through their efforts we are delivering unrivaled experiences for our business owner clients and are well positioned to deliver long-term value for all our stakeholders.
Sarah Morgan-Silvester Chair of the board
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Building a Sustainable Future
Our approach to sustainability Our values, culture and strategy guide our approach to sustainability, which addresses the Environmental, Social and Governance (ESG) factors that are most important to our clients, people, investors and communities. Our approach is focused to support the ongoing success of our clients and we remain committed to long-term value creation for all our stakeholders and sustainable growth for our business.
MAINTAIN A FOUNDATION OF TRUST Ensure the highest standards of governance, ethics and integrity to maintain the trust of our stakeholders. Priorities: • Corporate governance • Business ethics and integrity • Human rights • Data privacy and cybersecurity
OBSESSED WITH YOUR SUCCESS Contribute to the success of our clients and their families, our people, and their communities in pursuit of a sustainable and inclusive future. Priorities: • Client experience • Financial inclusion • Team member experience • Diversity and inclusion • Community investment • Sustainable finance and products
MANAGE OUR IMPACT RESPONSIBLY
Responsibly manage our social and environmental impact, and support Canada’s transition to net- zero emissions. Priorities: • Climate change • Environmental impact of our operations • Social and environmental risk management • Responsible procurement
For information on our commitment to sustainable value creation for all our stakeholders, see our 2022 Sustainability Report at: www.cwb.com/sustainability-reports
CWB Financial Group 2023 Annual Report | 9
Protecting our clients Our stakeholders depend on us to protect the data they entrust us with. As we continue to use innovative technologies to deliver better services and automate and digitize processes to attract clients and team members, strong data privacy, cybersecurity and fraud prevention and detection programs are key to our success.
Continued to prioritize data protection by investing in our people, processes, technology and governance programs to ensure our clients’ information remains secure in an evolving threat landscape.
Maintained a focus to protect client information with enhanced data security safeguards as we continue to advance our digital banking and payments capabilities.
Continued to equip our teams with awareness and education on information security threats through mandatory monthly training with shifting areas of focus based on current and emerging threats.
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Cultivating an inclusive and engaged culture
Having a diverse team that reflects the clients and communities we serve provides different perspectives and results in better decisions. We live our Inclusion has Power value by supporting a culture where all our team members feel a strong sense of belonging and have equitable opportunities to succeed.
CWB Global ERG hosts a Potluck for International Day of Cultural Diversity
Proudly ranked 23 on the 2023 Best Workplaces™ in Canada list compiled by the Great Place to Work ® Institute and recognized as one of Canada’s Most Admired Corporate Cultures™ by Waterstone Human Capital.
Supported our 11 Employee Represented Groups (ERGs) to build community and culture in the workplace by providing members with resources and a variety of professional development opportunities.
Launched a series of initiatives focused on inclusive communication to continue to create an environment which fosters belonging and stronger connections in the workplace.
CWB Financial Group 2023 Annual Report | 11
A student from the Chapter One tutoring program reads a CWB funded story that is reflective of Indigenous community and culture.
We believe all Canadians should have the opportunity to grow, succeed and thrive. Supporting resilient and inclusive communities creates value for our clients and our people and contributes to the strength of the Canadian economy. Supporting our communities
Supported early literacy, with virtual CWB volunteer reading coaches providing tutoring sessions to students within classrooms located across Canada.
We take pride in contributing to the overall health and well- being of the communities in which we operate. In 2023, we provided over $1.7 million through donations, sponsorships, disaster relief funding, and employee volunteer, fundraising and matching grants.
Continued to support Indigenous peoples and reconciliation in Canada, with new funding to organizations that promote social and economic inclusion of Indigenous peoples and entrepreneurs and the development of programming for Indigenous post-secondary students.
Supported wildfire relief efforts across Canada,
Provided funding to several women - focused entrepreneurial organizations that aim to equip women with the tools and skills required to start and grow their businesses.
contributing to organizations providing immediate relief and access to food for impacted communities, and accepting public donations at our banking centres in support of Canadian Red Cross fundraising efforts.
12 | CWB Financial Group 2023 Annual Report
Our developing approach to climate change
We recognize that we have a part to play in Canada’s transition to net-zero emissions by managing our direct and indirect climate impact, supporting the ongoing success of our clients as they strive to achieve their climate goals and mitigating the risks associated with climate change.
Disclosed our Scope 1 and 2 greenhouse (GHG) emissions across our national operational footprint for the first time in 2023.
Progressed development of a reduction plan and related targets to support Canada’s transition to net-zero emissions, with an initial focus on Scope 1 and 2 GHG emissions from our operations.
Initiated a phased approach to refine the estimation of our Scope 3 financed emissions within targeted areas of our lending portfolio to support future disclosures and emissions reduction planning.
Continued to integrate environmental and social risks into existing risk management processes and policies and progressed readiness activities to support compliance with upcoming climate regulations.
Developed an industry-level heatmap assessment to identify potential physical and transition impacts of climate change within our lending portfolios.
CWB Financial Group 2023 Annual Report | 13
Management’s Discussion and Analysis
TABLE OF CONTENTS Forward-Looking Statements...............................................15 Non-GAAP Measures...........................................................16
Financial Instruments and Other Instruments................................36 Off-Balance Sheet...........................................................................36
Who We Are.......................................................................17 Growth Strategy.............................................................................17
Summary of Quarterly Results and Fourth Quarter..................37 Fourth Quarter of 2023...................................................................37
CWB Financial Group Performance.......................................18 Select Financial Highlights.............................................................18 Summary of Operations..................................................................19 Fiscal 2024 Outlook .......................................................................20 Net Interest Income........................................................................21 Non-Interest Income.......................................................................22 Non-Interest Expenses and Efficiency Ratio...................................23 Income Taxes..................................................................................24 Comprehensive Income .................................................................24 Cash and Securities........................................................................25 Loans............................................................................................... 26 Credit Quality.................................................................................28 Deposits and Funding.....................................................................31 Other Assets and Other Liabilities..................................................32 Liquidity Management....................................................................32 Capital Management......................................................................34
Accounting Policies and Estimates........................................38 Critical Accounting Estimates........................................................38 Changes In Accounting Policies and Financial Statement Presentation..................................................................40 Future Changes In Accounting Policies..........................................40 Risk Management...............................................................41 Top Emerged and Emerging Risks..................................................41 Risk Management Overview...........................................................42 Risk Universe - Report on Principal Risks........................................46 Other Risk Factors..........................................................................57 Share and Distribution Information.......................................58 Related Party Transactions...................................................58 Controls and Procedures.....................................................58
14 | CWB Financial Group 2023 Annual Report
Management’s Discussion and Analysis This Management’s Discussion and Analysis (MD&A), dated December 7, 2023, should be read in conjunction with the audited consolidated financial statements of Canadian Western Bank (CWB) for the year ended October 31, 2023 and the audited consolidated financial statements and MD&A for the year ended October 31, 2022. Additional information relating to CWB, including the Annual Information Form, is available on SEDAR at www.sedarplus.ca and on our website at www.cwb.com. The audited consolidated financial statements have been prepared in accordance with IFRS Accounting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are presented in Canadian dollars. FORWARD-LOOKING STATEMENTS From time to time, we make written and verbal forward-looking statements. Statements of this type are included in our Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as media releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about our objectives and strategies, targeted and expected financial results and the outlook for CWB’s businesses or for the Canadian economy. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “may increase”, “may impact”, “goal”, “focus”, “potential”, “proposed” and other similar expressions, or future or conditional verbs such as “will”, “should”, “would” and “could”. By their very nature, forward-looking statements involve numerous assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations, and conclusions will not prove to be accurate, that our assumptions may not be correct, and that our strategic goals will not be achieved. A variety of factors, many of which are beyond our control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada including housing and commercial real estate market conditions and household and business indebtedness, the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, material changes to trade agreements, transition to the Advanced Internal Ratings Based (AIRB) approach for regulatory capital purposes, legislative and regulatory developments, changes in supervisory expectations or requirements for capital, interest rate and liquidity management, legal developments, the level of competition, the occurrence of natural catastrophes, outbreaks of disease or illness that affect local, national or international economies, changes in accounting standards and policies, information technology and cyber risk, the accuracy and completeness of information we receive about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, the impact of bank failures or other adverse developments at other banks that drive negative investor and depositor sentiment regarding the stability and liquidity of banks, and our ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors. Additional information about these factors can be found in the Risk Management section of our MD&A. These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. Any forward-looking statements contained in this document represent our views as of the date hereof. Unless required by securities law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by us or on our behalf. The forward-looking statements contained in this document are presented for the purpose of assisting readers in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes. Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect our business are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, we consider our own forecasts, economic data and forecasts provided by the Canadian government and its agencies, as well as certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific. Where relevant, material economic assumptions underlying forward-looking statements are disclosed within the Fiscal 2024 Outlook and Allowance for Credit Losses sections of our MD&A.
CWB Financial Group 2023 Annual Report | 15
NON-GAAP MEASURES We use a number of financial measures and ratios to assess our performance against strategic initiatives and operational benchmarks. Some of these financial measures and ratios do not have standardized meanings prescribed by Generally Accepted Accounting Principles (GAAP) and may not be comparable to similar measures presented by other financial institutions. Non-GAAP financial measures and ratios provide readers with an enhanced understanding of how we view our financial performance. These measures and ratios may also provide the ability to analyze trends related to profitability and the effectiveness of our operations and strategies and are disclosed in compliance with National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure . To calculate non-GAAP financial measures, we exclude certain items from our financial results prepared in accordance with IFRS. Adjustments relate to items which we believe are not indicative of underlying operating performance. Our non-GAAP financial measures include: • Adjusted non-interest expenses – total non-interest expenses, excluding pre-tax costs associated with a reorganization of our operations, amortization of acquisition- related intangible assets, acquisition and integration costs and accelerated amortization of previously capitalized AIRB assets. Non-recurring reorganization costs were incurred to execute reorganization initiatives to realize efficiencies in our banking centre footprint, operational support functions, and administrative processes. Acquisition and integration costs include direct and incremental costs incurred as part of the execution and integration of business acquisitions. Accelerated amortization of AIRB assets is a result of a reduction in estimated useful lives of certain previously capitalized AIRB assets. • Adjusted common shareholders’ net income – total common shareholders’ net income, excluding the costs associated with organizational redesign initiatives, accelerated amortization of acquisition-related intangible assets, acquisition and integration costs and amortization of previously capitalized AIRB assets, net of tax. • Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses.
The following table provides a reconciliation of our non-GAAP financial measures to our reported financial results. Table 1 - Non-GAAP Measures ($ thousands)
For the three months ended
For the year ended
October 31 2023
October 31 2022
October 31 2023
October 31 2022
Non-interest expenses
$
167,600
$
166,783
$
611,283
$
581,777
Adjustments (before tax): Non-recurring reorganization costs
(17,146) (1,728)
-
(17,146) (8,490)
-
Amortization of acquisition-related intangible assets
(2,557)
(10,212)
Acquisition and integration costs
-
(361)
(602)
(626)
Accelerated amortization of previously capitalized AIRB assets
-
(16,555) 147,310
-
(16,555) 554,384 310,302
Adjusted Non-interest Expenses Common shareholders' net income Adjustments (after-tax): Non-recurring reorganization costs (1)
$ $
148,726 76,845
$ $
$ $
585,045 324,316
$ $
67,687
12,726
-
12,726
-
Amortization of acquisition-related intangible assets (2)
1,267
1,913
6,495
7,641
Acquisition and integration costs (3)
- -
270
451
470
Accelerated amortization of previously capitalized AIRB assets (4)
12,549 82,419 279,838
-
12,549 330,962
Adjusted Common Shareholders' Net Income
$ $
90,838 291,763
$ $
$
343,988
$ $
Total revenue
$ 1,112,574
1,076,287
Less: Adjusted non-interest expenses (see above)
148,726 143,037
147,310 132,528
585,045 527,529
554,384 521,903
Pre-tax, Pre-provision Income
$
$
$
$
(1) Net of income tax of $4,420 for the three months ended October 31, 2023 (Q4 2022 – $nil) and $4,420 for the year ended October 31, 2023 (2022 – $nil). (2) Net of income tax of $461 for the three months ended October 31, 2023 (Q4 2022 – $644) and $1,995 for the year ended October 31, 2023 (2022 – $2,571). (3) Net of income tax of $nil for the three months ended October 31, 2023 (Q4 2022 – $91) and $151 for the year ended October 31, 2023 (2022 – $156). (4) Net of income tax of $nil for the three months ended October 31, 2023 (Q4 2022 – $4,006) and $nil for the year ended October 31, 2023 (2022– $4,006).
Non-GAAP ratios are calculated using the non-GAAP financial measures defined above. Our non-GAAP ratios include: • Adjusted earnings per common share – diluted earnings per common share calculated with adjusted common shareholders’ net income. • Adjusted return on common shareholders’ equity – annualized adjusted common shareholders’ net income divided by average common shareholders’ equity, which is total shareholders’ equity excluding preferred shares and limited recourse capital notes. • Efficiency ratio – adjusted non-interest expenses divided by total revenue. • Operating leverage – growth rate of total revenue less growth rate of adjusted non-interest expenses. Supplementary financial measures are measures that do not have definitions prescribed by GAAP, but do not meet the definition of a non-GAAP financial measure or ratio. Our supplementary financial measures include: • Return on assets – annualized common shareholders’ net income divided by average total assets. • Net interest margin – annualized net interest income divided by average total assets. • Return on common shareholders’ equity – annualized common shareholders’ net income divided by average common shareholders’ equity. • Write-offs as a percentage of average loans – annualized write-offs divided by average total loans. • Book value per common share – total common shareholders’ equity divided by total common shares outstanding. • Branch-raised deposits – total deposits excluding broker term and capital market deposits.
16 | CWB Financial Group 2023 Annual Report
• Provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at fair value through other comprehensive income (FVOCI) and other financial assets are excluded. • Provision for credit losses on impaired loans as a percentage of average loans – annualized provision for credit losses on impaired loans divided by average total loans. • Provision for credit losses on performing loans as a percentage of average loans – annualized provision for credit losses on performing loans (Stage 1 and 2) divided by average total loans. • Average balances – average daily balances. WHO WE ARE CWB is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our nationwide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to the competition. Our people take the time to understand our clients and their business, and work as a united team to provide holistic solutions and advice. We are firmly committed to the responsible creation of value for all our stakeholders and our approach to sustainability will support our continued success. GROWTH STRATEGY Our highly engaged teams operate within a client-centric and collaborative culture, with a core focus as the best full-service bank for business owners in Canada. We continue to transform our capabilities to offer a superior full-service client experience through a range of in-person and evolving digital channels. These improving capabilities support growth of full-service client relationships in targeted segments that fit within our strategic growth objectives and prudent risk appetite. Ongoing strategic execution will create long-term value for shareholders as we deliver strong growth of full-service clients and capitalize on the opportunities available to us as we continue to expand our geographic footprint outside of Western Canada, including an increased presence in the Ontario market.
Our differentiated market position and strategy has set the stage for CWB to deliver profitable long-term growth and enhance shareholder returns for years to come.
CWB Financial Group 2023 Annual Report | 17
CWB FINANCIAL GROUP PERFORMANCE SELECT FINANCIAL HIGHLIGHTS Table 2 - Select Annual Financial Information ($ thousands, except ratios and per share amounts)
2023
2022
2021
Change from 2022
Results from Operations Total revenue Pre-tax, pre-provision income Common shareholders' net income
$
1,112,574
$
1,076,287
$
1,016,033
$
36,287
3 %
527,529 324,316
521,903 310,302
517,149 327,471
5,626
1 5
14,014
Common Share Information Earnings per share Basic
3.38 3.38 3.58 1.30
3.39 3.39 3.62 1.22
3.74 3.73 3.81 1.16
(0.01) (0.01) (0.04)
- -
Diluted
Adjusted
(1)
Cash dividends paid
0.08 2.31
7 7
Book value
35.79
33.48
33.10
Performance Measures Return on common shareholders' equity
9.8 %
10.1 %
11.6 %
(30) bp
Adjusted return on common shareholders' equity
10.4 0.77 2.34 52.6
10.8 0.79 2.41 51.5
11.8 0.92 2.49 49.1
(40)
Return on assets Net interest margin
(2) (7)
Efficiency ratio
110 300
Operating leverage
(2.2)
(5.2)
(3.3)
Credit Quality Provision for credit losses on total loans as a percentage of average loans (1) Provision for credit losses on impaired loans as a percentage of average loans (1)
0.07
0.14
0.09
(7)
0.04
0.10
0.17
(6)
Balance Sheet Assets
$
42,320,103 37,209,850 33,328,449
$ 41,427,552
$ 37,323,176
$
892,551
2 %
Loans (before the allowance for credit losses)
35,905,622 33,010,462
32,900,951 29,975,739
1,304,228
4 1
Deposits
317,987
(1) Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit. bp – basis point
Financial Highlights of 2023 (compared to 2022) • Loan growth of 4%, including 10% in the general commercial loan portfolio as we executed on our strategic focus of expanding full-service client opportunities that met our risk-adjusted return expectations. Loan growth of 10% in Ontario was supported by our expanding physical presence and growing brand awareness. • Total deposits increased 1% from last year. Branch-raised deposits declined 1%, primarily due to our intentional exit of select higher cost non-full-service client relationships in the year, which we replaced with insured, fixed term broker deposits. • Total revenue increased 3% and reflected a 4% increase in net interest income, partially offset by a 4% decline in non-interest income, primarily due to elevated foreign exchange revenue in the prior year. • Efficiency ratio increased to 52.6% compared to 51.5% in the prior year as expense growth outpaced revenue growth, primarily due to a decrease in net interest margin. • Provision for credit losses on total loans as a percentage of average loans of seven basis points, compared to 14 basis points last year, was driven by a six basis point decline in the provision for credit losses on impaired loans, primarily due to an increase in recoveries of impaired loan write-offs upon final resolution. • Common shareholders’ net income of $324 million was up 5%, primarily driven by higher revenues and a seven basis point decline in the provision for credit losses as a percentage of average loans, partially offset by higher non-interest expenses. Pre-tax, pre-provision income of $528 million was up 1%. • Diluted earnings per common share was relatively consistent with the prior year and adjusted earnings per common share declined 1%. • Our common equity Tier 1 (CET1) ratio of 9.7% increased 90 basis points from the prior year.
18 | CWB Financial Group 2023 Annual Report
SUMMARY OF OPERATIONS Fiscal 2023 represented a year where we successfully adapted to changing economic conditions. Elevated inflation continued to persist, and the Bank of Canada responded by increasing policy interest rates an additional 125 basis points through the first half of 2023. Against this backdrop, we targeted our loan growth to optimize risk-adjusted returns, prudently managed our expenses and focused on the timely resolution of unsatisfactory loans as we continued to benefit from our secured lending model and prudent risk appetite. We delivered financial performance that grew stronger as the year progressed and are well positioned to capitalize on the opportunities in front of us as we manage through the continued economic volatility. Loan growth of 4% was strategically focused on optimizing risk-adjusted return opportunities within our disciplined risk appetite. We strategically target general commercial clients as they provide the strongest potential to increase full-service client relationships across our national footprint, and our teams delivered 10% annual growth in this portfolio. We also continued to execute our geographic diversification strategy, with loan growth of 10% in Ontario supported by our Mississauga and Markham banking centres. Relationship-based branch-raised deposits decreased 1% from last year as a 9% increase in fixed term deposits were more than offset by a 5% decrease in demand and notice deposits. Lower branch-raised demand and notice deposits primarily reflected our intentional exit of select higher cost non-full-service client relationships early in the year, which we replaced with insured, fixed term broker deposits. Our number of full-service clients, who have a core banking relationship with us, continued to increase this year despite the volatility in the global banking industry. Annual revenue increased 3% from last year. Net interest income increased 4%, primarily driven by 4% annual loan growth, partially offset by a seven basis point decrease in net interest margin. The decline in net interest margin reflected the impact of lower loan related fees, including payout penalties and a proportional shift in our funding mix towards fixed term branch-raised and insured broker deposits. Non-interest income was down 4% from the prior year primarily due to lower foreign exchange revenue recorded in ‘other’ non-interest income, which was elevated in the prior year due to a rapid and significant strengthening of the U.S. dollar. Non-interest income was also supported by the launch of our new business credit cards in partnership with Brim Financial. Our borrower delinquency and default rates returned to historically normal levels this year, as expected. Our total annual provision for credit losses represented seven basis points as a percentage of average loans, compared to 14 basis points last year, and remained well below our historical average. The provision for credit losses on impaired loans of four basis points was six basis points lower than last year, primarily due to an increase in recoveries of impaired loan write-offs upon final resolution. Our credit performance continues to be supported by 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 $611 million were up 5% ($30 million). The increase included $17 million of costs incurred to execute reorganization initiatives to realize efficiencies in our banking centre footprint, operational support functions, and administrative processes. We executed most of the planned organizational redesign activities in the fourth quarter of fiscal 2023 and expect limited further activity within fiscal 2024. Adjusted non-interest expenses increased 6%, due to a higher average staffing complement, the impact of annual salary increments, the investment in our digital capabilities and higher capital taxes. Higher non-interest expenses were partially offset by lower spending on strategic projects, our continued actions undertaken during the year to contain expense growth, and the beneficial impact associated with a larger scientific research and experimental development (SR&ED) investment tax credit realized this year. Our fiscal 2023 efficiency ratio of 52.6% increased from 51.5% in the prior year, as non-interest expense growth outpaced revenue growth primarily due to the decrease in net interest margin as discussed above. The current year income tax expense increased 11% ($12 million) compared to 6% growth in net income before taxes due to an increase in the current year effective income tax rate. The current year effective income tax rate of 26.1% was 120 basis points higher than last year, primarily driven by the combined impact of the additional 1.5% of federal income tax associated with the enactment of Bill C-32 and non-recurring adjustments related to the completion of our prior year tax filings that increased tax expense in the current year compared to a reduction in tax expense recognized when our filings were completed in the prior year. Diluted earnings per share of $3.38 was relatively consistent with the prior year and adjusted earnings per common share of $3.58 declined 1%. Our return on common shareholders’ equity (ROE) of 9.8% and adjusted ROE of 10.4% decreased 30 and 40 basis points, respectively, as an increase in our common shareholders’ income, was more than offset by higher common shareholders’ equity. Higher common shareholders’ net income was primarily driven by higher revenues and a lower provision for credit losses, partially offset by higher non-interest expenses, as discussed above. Our CET1 capital ratio at October 31, 2023 of 9.7% increased 90 basis points compared to last year, reflecting the impact of retained earnings growth, a reduction in accumulated other comprehensive loss related to an increase in unrealized gains on debt securities measured at FVOCI, the adoption of the Capital Adequacy Requirements (CAR) 2023 guidelines and the impact of common shares issued under our at-the-market (ATM) program in the first quarter of the year, which more than offset targeted growth in risk-weighted assets. Our Tier 1 capital ratio of 11.5% and Total capital ratio of 13.5%, reflected increases of 90 basis points and 140 basis points, respectively, due to the proportional impact these same factors. Our Total capital ratio also reflected the issuance of $150 million Series H Non-Viability Contingent Capital (NVCC) subordinated debentures in the year.
CWB Financial Group 2023 Annual Report | 19
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