2019
Annual
Report
GRAEDON RUST, Relationship Manager, Commercial Banking, CWB
SOHAIL “ZEE” ZAIDI, Owner and CEO, Remedy Café
Five Year Financial Summary (1)
($ thousands, except per share amounts)
Results from Continuing Operations(3)
Net interest income
Non-interest income
Pre-tax, pre-provision income
Total revenue
Common shareholders’ net income
Earning per share
Basic
Diluted
Adjusted cash
Return on common shareholders' equity
Adjusted return on common shareholders' equity
Return on assets
Efficiency ratio
Net interest margin
Number of full-time equivalent staff
Results from Combined Operations(3)
Common shareholders' net income
Earnings per share
Basic
Diluted
Adjusted cash
Return on common shareholders' equity
Adjusted return on common shareholders' equity
Return on assets
Results from Discontinued Operations(3)
Common shareholders' net income
Earnings per share
Basic
Diluted
Adjusted cash
Per Common Share
Average common shares outstanding (thousands)
Cash dividends
Book value
Market price
High
Low
Close
2019(2)
2018
2017
2016
2015
$
785,584
$
724,990
$ 642,390
$
585,224
$
543,472
76,020
461,130
861,604
266,940
78,368
436,188
803,358
249,256
84,245
388,729
726,635
214,277
72,672
350,603
657,896
177,761
67,948
322,479
611,420
208,064
3.05
3.04
3.15
10.9%
11.3
0.88
46.5
2.60
2,278
2.81
2.79
3.01
11.0%
11.9
0.89
45.7
2.60
2,178
2.43
2.42
2.63
10.1%
11.0
0.85
46.5
2.56
2,058
2.13
2.13
2.26
9.3%
9.9
0.73
46.7
2.41
1,966
2.59
2.59
2.63
12.4%
12.6
0.97
47.3
2.53
1,928
$ 266,940
$
249,256
$
214,277
$
177,761
$
319,701
3.05
3.04
3.15
10.9%
11.3
0.88
-
-
-
-
87,513
1.08
29.29
33.89
24.33
33.35
2.81
2.79
3.01
11.0%
11.9
0.89
-
-
-
-
$
$
88,952
$
1.00
$
26.09
40.83
29.81
30.62
2.43
2.42
2.63
10.1%
11.0
0.85
-
-
-
-
88,297
0.93
24.82
37.36
23.68
36.34
$
$
3.97
3.97
4.01
19.1%
19.3
1.48
$
111,637
2.13
2.13
2.26
9.3%
9.9
0.73
-
-
-
-
$
1.38
1.38
1.38
80,442
0.86
22.18
38.16
21.04
25.13
83,411
$
0.92
$
23.58
29.30
19.26
25.45
Balance Sheet and Off-Balance Sheet Summary
Assets
$ 31,424,235
$ 29,021,463
$ 26,447,453
$ 25,222,549
$ 22,838,527
Cash resources, securities and repurchase agreements
Loans
Deposits
Debt
Shareholders' equity
Assets under administration
Assets under management
Capital Adequacy
Common equity Tier 1 ratio
Tier 1 ratio
Total ratio
Other Information
2,475,415
28,365,893
25,351,361
2,412,293
2,945,810
9,298,745
2,099,569
2,237,973
26,204,599
23,699,957
2,007,854
2,585,752
8,368,716
2,100,802
2,708,783
23,229,239
21,902,982
1,476,336
2,461,045
2,791,968
21,961,348
21,194,553
1,268,198
2,342,040
10,408,012
10,689,398
2,114,861
1,924,181
2,994,534
19,475,383
19,365,407
1,187,623
1,910,907
9,293,683
1,882,736
9.1%
10.7
12.8
9.2%
10.3
11.9
9.5%
10.8
12.5
9.2%
11.0
13.1
8.5%
9.7
12.7
Provision for credit losses on total loans
as a percentage of average loans(4) (5)
Provision for credit losses on impaired loans
as a percentage of average loans(4) (5)
Net impaired loans as a percentage of total loans
0.21%
0.20%
0.23%
0.38%
0.17%
0.21
0.43
0.19
0.42
0.19
0.65
0.32
0.51
0.12
0.41
(1) See page 20 for a discussion of non-IFRS measures.
(2) Amounts for 2019 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9) (refer to Notes 1 and 2 of the annual consolidated financial statements). Prior year comparatives
(3)
have been prepared in accordance with IAS 39 Financial Instruments: Classification and Measurement (IAS 39) and have not been restated.
On May 1, 2015, CWB sold its property and casualty insurance subsidiary and CWB’s stock transfer business. Revenues, expenses and gains on sale associated with the businesses sold are
defined and classified on the consolidated statements of income for prior periods as “Discontinued Operations”. The remaining operations are defined as “Continuing Operations”, and the total
Continuing Operations and Discontinued Operations are defined as “Combined Operations”. Total revenues from Combined Operations include $107.8 million of divestiture gains in 2015. Return on
shareholders’ equity reflects equity from Combined Operations. All other measures reflect either Continuing or Combined Operations as indicated.
(4) Under IFRS 9, provisions for credit losses related primarily to loans, committed but undrawn credit exposures and letters of credit, and also apply to debt securities measured at fair value through
other comprehensive income and other financial assets. Prior to the adoption of IFRS 9, provisions for credit losses only related to loans, committed but undrawn credit exposures and letters of
credit.
Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.
(5)
CWB Financial Group 2019 Annual Report
i
Performance
Dashboard
(1)(2)
CWB Financial Group (CWB) operates with a clear focus to
meet the unique financial needs of business owners. Clients
recognize CWB for our in-depth knowledge of targeted
segments within Canada’s commercial banking industry, our
uncommon brand of personal service and our full suite of
relevant financial solutions. Shareholders value CWB’s strong
track record of high-quality balance sheet and dividend
growth, conservative approach to risk management and
consistent profitability.
2019
10YR CAGR(3)
TOTAL LOANS*
$28.4B
12%
TOTAL ASSETS
$31.4B
10%
TOTAL DEPOSITS
$25.4B
10%
ASSETS UNDER
MANAGEMENT
$2.1B
ASSETS UNDER
ADMINISTRATION
$9.3B
* INCLUDING THE ALLOWANCE FOR CREDIT LOSSES
DIVERSIFYING LOANS BY
PROVINCE (%)
DIVERSIFYING LOANS BY
LENDING SECTOR (%)
Growing a more balanced
geographic footprint through
targeted growth
in Ontario
2019
2009
33
32
27
5
3
35
50
7
5
3
British Columbia
Alberta
Ontario and other
Saskatchewan
Manitoba
Growing a more balanced
industry mix with reduced
concentration in commercial
real estate through targeted
growth of full-service
relationships with business
owners
2019
2009
General commercial loans
Personal loans and mortgages
Commercial mortgages
Equipment financing and leasing
Real estate project loans
Oil and gas production loans
30
20
18
18
13
1
27
16
23
13
19
2
GROWTH AND DIVERSIFICATION OF FUNDING SOURCES -
COMPOSITION OF TOTAL FUNDING (%)
Deep and
liquid funding
sources
Lower proportion of broker
deposits, significant increases
in funding from capital markets
and securitization
Branch demand and notice deposits
Broker term deposits
Branch term deposits
Capital markets term deposits
Securitization
2019 2009
32
30
19
12
7
35
35
29
1
-
ii
CWB Financial Group 2019 Annual Report
STRONG CREDIT QUALITY
STRONG EFFICIENCY RATIO
5 YEAR AVERAGE AS A % OF GROSS LOANS
EXPENSE GROWTH DIVIDED BY REVENUE GROWTH
0.52%
$ GROSS IMPAIRED LOANS
0.21%
$ WRITE-OFFS
GROSS IMPAIRED LOANS AND WRITE-OFFS AS A % OF GROSS LOANS
46.5%
1.5
1.0
0.5
0.0
60
40
20
00
10
11
12
13
14
15
16
17
18
19
10
11
12
13
14
15
16
17
18
19
PROVISION FOR CREDIT LOSSES AS A
% OF AVERAGE LOANS
LOW LEVERAGE
TOTAL ASSETS-TO-EQUITY
5YR AVERAGE AS A % OF AVERAGE LOANS
0.21%
10.7%
0.5
0.4
0.3
0.2
0.1
0.0
21.0
14.0
7.0
0.0
10
11
12
13
14
15
16
17
18
19
10
11
12
13
14
15
16
17
18
19
STRONG REGULATORY CAPITAL RATIOS BASED ON THE STANDARDIZED APPROACH
CWB | CWB’S REGULATORY MINIMUM
9.1% | 7.0%
COMMON EQUITY
TIER 1 CAPITAL (CET1)
10.7% | 8.5%
TIER 1
CAPITAL
12.8% | 10.5%
TOTAL
CAPITAL
8.3% | 3.0%
BASEL III
LEVERAGE RATIO
CWB Financial Group 2019 Annual Report
iii
COMMON SHAREHOLDERS’
NET INCOME
($ MILLIONS)
$267
CONSISTENT
GROWTH OF BOOK VALUE /
SHARE
CONSISTENT GROWTH OF
DIVIDENDS PAID / COMMON
SHARE
$29.29 9% 10YR
CAGR
$1.08
9% 10YR
CAGR
260
195
130
65
00
32.00
24.00
16.00
8.00
0.00
1.20
0.90
0.60
0.30
0.00
15
16
17
18
19
15
16
17
18
19
15
16
17
18
19
2019 MEDIUM-TERM PERFORMANCE TARGET RANGES
KEY METRICS
Adjusted cash earnings per
common share growth
Adjusted return on common
shareholders’ equity
Operating leverage
Common equity Tier 1 capital ratio under the
Standardized approach
Common share dividend
payout ratio
MEDIUM-TERM PERFORMANCE
TARGET RANGES
FISCAL 2019 PERFORMANCE
7 - 12%
12 - 15%
Positive
Strong
~30%
Delivered 5%
Delivered 11.3%
Delivered negative 1.8%
Delivered a very strong ratio of 9.1%
Delivered 35%
INVESTMENT GRADE CREDIT RATINGS (DBRS) - STABLE TREND
(CONFIRMED NOVEMBER 27, 2019)
A (low)
LONG-TERM DEPOSITS /
LONG-TERM SENIOR DEBT
R-1 (low)
SHORT-TERM
INSTRUMENTS
BBB (low)
SUBORDINATED
DEBENTURES (NVCC)
Pfd-3
PREFERRED
SHARES
(1) Financial results presented include certain metrics which do not have standardized meanings prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions; see page 20 for definitions and
discussions of non-IFRS measures. (2) As of 2011, financial results are reported under International Financial Reporting Standards (IFRS), as opposed to Generally Accepted Accounting Principles (GAAP). CWB adopted IFRS 9 Financial Instruments in 2019
(refer to Notes 1 and 2 of the 2019 audited annual financial statements). Prior period results have not been restated and are not directly comparable. (3) CAGR - compound annual growth rate.
CWB Financial Group 2019 Annual Report
1
Table of Contents
i FIVE YEAR FINANCIAL SUMMARY
ii PERFORMANCE DASHBOARD
3 WHO WE ARE
3 WHY INVEST IN CWB?
4 A DIFFERENTIATED FULL-SERVICE CLIENT EXPERIENCE
5 GROWING CAPABILITIES TO DELIVER COAST TO COAST
7 STRATEGIC OBJECTIVES & 2019 HIGHLIGHTS
8 MESSAGE FROM THE PRESIDENT & CEO
11 OUR VALUES
11 OUR STRATEGY
11 OUR VISION
12 EXECUTIVE COMMITTEE
14 MESSAGE FROM THE CHAIR OF THE BOARD
16 BOARD OF DIRECTORS & CORPORATE GOVERNANCE
17 SOCIAL RESPONSIBILITY
18 LASTING IMPACTS IN OUR COMMUNITIES
19 MANAGEMENT’S DISCUSSION AND ANALYSIS
70 CONSOLIDATED FINANCIAL STATEMENTS
117 SHAREHOLDER INFORMATION
118 LOCATIONS
MIKE SPIESS, AVP and Manager of Commercial Relationships, CWB
CAREY MOBIUS, President and CEO, Garibaldi Glass
2
CWB Financial Group 2019 Annual Report Who we are
Why invest in CWB?
CWB Financial Group (TSX: CWB) is an agile, future focused,
CWB Financial Group creates long-term value for shareholders
growth-oriented,
full-service financial
institution serving
through strong, profitable growth of
full-service client
business owners and individuals across Canada. Our teams
relationships across a growing geographic footprint. We
deliver a uniquely proactive client experience through highly
maintain strong capital ratios, generate consistent dividend
personalized service, specialized expertise within targeted
growth, and maintain the strongest consolidated efficiency
industries, customized solutions and faster response times.
Headquartered in Edmonton, Alberta, we are the only full-
service bank with a strategic focus to meet the unique financial
ratio among the Canadian banks. In fiscal 2020, we expect to
successfully transition to the Advanced approach for capital
and risk management, which will position us to deliver a higher
needs of business owners. We provide full-service business and
growth, higher profitability bank with an improved view of risk.
personal banking, nation-wide specialized financing in targeted
industries, comprehensive wealth management offerings, and
trust services.
Our highly engaged teams operate within a client-centric,
collaborative and change-ready culture, with a core focus
to achieve CWB’s long-term goal to be the best full-service
bank for business owners in Canada. We continue to invest in
capabilities to provide innovative financial solutions to business
owners, their employees and their families, through a full range
of in-person and digital channels. CWB’s differentiated market
position, performance-based culture and
transformation-
focused strategy has set the stage to create a disruptive force
in Canadian financial services, and deliver breakout growth in
the years to come.
3
CWB Financial Group 2019 Annual Report A Differentiated Full-Service
Client Experience
At CWB Financial group, our relationship-based approach
is
FULL-SERVICE PERSONAL BANKING AND LENDING
focused to meet the unique financial needs of small and medium-
sized businesses and their owners. We set ourselves apart through
proactive client experiences: our people know our clients and their
industries, we ask the right questions, and work to find the right
financial solutions. Our core strength in full-service business and
personal banking is complemented with targeted capabilities in
highly-responsive business lines offering specialized financing,
wealth management and trust services.
CWB FULL-SERVICE BANKING
FULL-SERVICE BUSINESS BANKING AND LENDING
We take an uncommon approach to business banking. Through
our branch network we offer our full suite of financing and cash
management solutions to allow business owners to streamline
financial management so they can focus on what matters most:
growing their business. We also offer specialized financing solutions
within targeted, growth-oriented markets:
• Led through our flagship Real Estate and Specialized lending
offices in Vancouver, Surrey, Edmonton and Calgary, we deliver
local market expertise and flexible lending options to top real
estate developers and commercial property owners.
We understand that a business owner’s financial life extends beyond
their business. We provide a proactive approach for business owners,
their employees and families with a full complement of personal
banking services delivered today through our branch network.
Services include chequing and savings accounts, mortgages, home
equity lines of credit, personal loans and investment products.
We also offer targeted savings solutions for individuals:
• Our branch-based teams deliver a highly personal, caring client
experience and offer attractive rates.
• Motive Financial provides internet banking services to clients
across Canada seeking enhanced flexibility for their personal
saving needs. Online account access and a dedicated customer
service team allow Motive Financial clients to manage their
savings with ease.
CWB WEALTH MANAGEMENT
We understand that a business owner’s personal wealth is often
integrated with their business, and we deliver a complete wealth
management approach to encompass both aspects. We create
thoughtful, sophisticated financial plans that complement their
investment portfolio and are woven into the fabric of our clients’
• Our equipment financing specialists provide transactions across
lives.
a broad range of industries, with comprehensive geographic
coverage. CWB National Leasing is the largest Canadian lessor
in small- and mid-size commercial equipment transactions, with
operations across Canada. CWB Equipment Finance delivers mid-
and large-size equipment transactions from British Columbia to
Ontario. Our specialized Broker Buying Centre acquires loans
and leases from the finance divisions of original equipment
manufacturers and select third-party brokers.
• CWB Maxium provides financing solutions to a growing and
diversified base of entrepreneurial business owners across
the country with a particularly strong presence in Ontario.
High net-worth individuals and institutions who value discretionary
wealth management choose the boutique portfolio management
companies of CWB Wealth Management, including CWB McLean
& Partners. We provide our clients with distinct and personalized
investment strategies matched to their risk appetite. Financial
planning and investment products are also offered within CWB
branches through our mutual fund dealer, Canadian Western
Financial. Investment solutions include CWB Wealth Management’s
proprietary Core and Onyx Portfolio Series mutual funds, as well as
offerings from other leading mutual fund companies.
Our industry specializations include general corporate, health
CWB TRUST SERVICES
care, program financing, real estate, golf, and transportation.
• CWB Franchise Finance is a leading provider of financing solutions
for growth-oriented hotel and hospitality franchise owners across
Canada.
We offer a wide variety of comprehensive trustee and custodial
solutions for individuals and businesses through CWB Trust Services.
CWB Trust Services has a proven reputation for comprehensive
delivery of fiduciary expertise, asset safe keeping and dedicated
• CWB Optimum Mortgage is our broker-sourced provider of “A”
client service. Our philosophy is centered on providing clients a
and alternative mortgages. We offer personalized borrowing
rapid response, strong attention to detail and a flexible, solution-
solutions for clients who fall within and outside of traditional
oriented approach to doing business.
lending guidelines, with geographic coverage across Canada
outside of Quebec.
4
CWB Financial Group 2019 Annual Report KELLY-ANNE BODVARSON,
Manager of Operations,
Oakville Investments Ltd.
MENNO GIESBRECHT,
President,
Oakville Investments Ltd.
Growing Capabilities to Deliver
Coast to Coast
FIRST ONTARIO BRANCH IN MISSISAUGA WILL OPEN IN 2020.
REGIONAL MARKET COVERAGE
BC
AB
SK and MB
ON
CWB Full-service Branches
CWB Full-service Branches
CWB Full-service Branches
CWB Equipment Financing
CWB Equipment Financing
CWB Equipment Financing
CWB Franchise Finance
CWB Franchise Finance
CWB Franchise Finance
CWB National Leasing
CWB National Leasing
CWB National Leasing
CWB Maxium
CWB Maxium
CWB Maxium
CWB Optimum Mortgage
CWB Optimum Mortgage
CWB Optimum Mortgage
CWB Trust Services
CWB Trust Services
CWB Wealth Management
CWB Wealth Management
CWB Full-service
Branch (2020)
CWB Equipment Financing
CWB Franchise Finance
CWB National Leasing
CWB Maxium
CWB Optimum Mortgage
CWB Trust Services
QC
CWB National Leasing
CWB Equipment Financing
NB, NS, PEI and NL
CWB National Leasing
CWB Optimum Mortgage
5
CWB Financial Group 2019 Annual Report “ CWB is very hands-on and
customer service oriented.
It feels similar to what we do
and it just works.”
- SOFIA SAYANI
SOFIA SAYANI, Director of Sales and Marketing, Executive Hotels & Resorts
FARIDA SAYANI, Owner and Managing Director, Executive Group Development
6
CWB Financial Group 2019 Annual Report Strategic Objectives & 2019 Highlights
BALANCED GROWTH
OBJECTIVE
STRATEGIC EXECUTION
DURING FISCAL 2019
Full-service client growth with a focus on
business owners, including further geographic
and industry diversification
• Solid annual loan growth of 8%, including 13% growth in Central
and Eastern Canada, 8% growth in Alberta, and 5% growth in BC
• Increased the proportion of the loan portfolio in Central and
Eastern Canada to 27%
• Increased business diversification with very strong 15% growth in
general commercial loans and 9% growth in equipment financing
and leasing
• Recognized as a Great Place to Work Canada™, and one of the
Best Workplaces™ in Alberta
• Very strong branch-raised deposit growth of 12%, including 14%
growth in the demand and notice category, and 10% growth in
term deposits
Growth and diversification of funding sources
• Growth in debt capital markets funding with three successful
senior deposit note issuances totaling $900 million
• Growth in debt related to securitization to support originations
of both equipment loans and leases, and residential mortgages
• Expect to submit final application and receive regulatory approval
in fiscal 2020 for transition to the AIRB approach.
Optimized capital and risk management
processes through transition to the Advanced
Internal Ratings Based (AIRB) approach
2019 PERFORMANCE HIGHLIGHTS
FINANCIAL HIGHLIGHTS
• Delivered an 8% increase to CWB’s annual common share
• Solid performance with common shareholders’ net income of
$267 million, up 7%, pre-tax, pre-provision income of $461 million,
up 6%, and total revenue of $862 million, up 7%.
• Diluted and adjusted cash earnings per common share of
$3.04 and $3.15, up 9% and 5%. Gains on sale related to the
CWT strategic transactions contributed $0.04 to adjusted cash
earnings per common share in fiscal 2018 and nil in 2019.
• Full-year operating leverage of negative 1.8% as revenue growth
was outpaced by growth of expenses reflecting continued
investment in strategic execution.
• Solid loan growth of 8% with strong execution against our
balanced growth strategic objectives for geographic and industry
diversification, including very strong 15% growth in general
commercial loans and 13% growth in Central and Eastern Canada.
• Very strong branch-raised deposit growth of 12%, including
14% growth of demand and notice deposits, contributing to a
reduction in the outstanding balance of broker deposits.
• Continued stable credit quality with the provision for credit losses
representing 21 basis points of average loans, compared to 20
basis points last year.
dividend.
• Very strong Basel
III regulatory capital ratios under the
Standardized approach for calculating risk-weighted assets of
9.1% common equity Tier 1 (CET1), 10.7% Tier 1 and 12.8% Total
capital.
NON-FINANCIAL HIGHLIGHTS
• Recognized as a Great Place to Work CanadaTM, and one of the Best
WorkplacesTM in Alberta.
• Significant progress to align our culture with our ambitious strategic
agenda with the introduction of new core values.
• Unveiled an exciting new brand promise to business owners across
Canada – Obsessed with your successTM.
• Expanded Environmental, Social
(ESG)
disclosure to reflect our ongoing commitments to environmental
sustainability, inclusion and diversity in the workforce, and positive
impacts in our communities.
and Governance
• Completed enterprise-wide
integration of the market-leading
Workday human capital management system.
• Gross
impaired
unchanged from last year.
loans represented 0.52% of gross
loans,
7
CWB Financial Group 2019 Annual Report MESSAGE FROM
PRESIDENT AND CEO
Chris Fowler
8
CWB Financial Group 2019 Annual Report BECOMING A DISRUPTIVE FORCE IN
CANADIAN FINANCIAL SERVICES
evolving expectations of the business owners we serve. Going
forward, further progress to align increasingly frictionless processes
with increasingly powerful human and digital capabilities will
CWB Financial Group was created 35 years ago to fill a gap in
drive delivery of our proactive full-service client experience at a
Canadian financial services. CWB’s entrepreneurial founders
significantly accelerated scale.
recognized that small and medium-size businesses were under-
served, overlooked, and ignored. They got “off-the-shelf” products
built for someone else, instead of solutions customized just for
them. Today, we still believe business owners are under-served by
our competitors. They deserve a better alternative than “all things
to all people.” They deserve a partner focused on their unique needs
and their success.
This year we also expect to successfully transition to the Advanced
approach for regulatory capital and risk management. This
accomplishment will represent the culmination of an enterprise-
wide transformation effort with contributions from nearly every
CWB team. It has the power to make us more competitive on loan
pricing, enhance our overall view of portfolio risk, unlock new
opportunities to deploy our capital, and ultimately, to win more
Those needs are diverse and complex. They evolve through the
clients. The Advanced approach will be a foundational capability for
different stages of a business owner’s journey, from start up, to
us, and will unleash our full potential to grow across Canada.
scaling, to sustained growth and business succession. No two
journeys are the same and each milestone brings new opportunities
and new challenges, both personal and professional. We are
confident that the growing community of business owners we
serve will benefit from a fully integrated, full-service approach. Our
strategy for long-term value creation is focused to solve for this
unmet need.
We will continue to empower our business banking, personal
banking, and wealth management teams to create an increasingly
Our strategy is focused to translate these new capabilities – from
client experience to capital deployment – into strong and scalable
growth to create value for the people who choose CWB every day:
our clients, our people, and our investors. Our continued focus on
transformation will drive progress towards our near-term mission
to create a clear alternative to the big banks, and our aspiration to
become the best full-service bank for business owners in Canada.
Obsessed with your successTM
is much more than a clever
tagline. It’s a rallying cry for our
team and a promise to business
owners. Our people live our
brand promise with purpose
every day.
CUTTING THROUGH THE NOISE
For 35 years, much of our growth has come from
word of mouth and the confidence and trust of our
loyal clients. It’s astonishing to think how successful
we have been with limited investment in marketing,
and exciting to imagine how much room we have
to grow with a powerful national brand driving
increased visibility and familiarity with our target
clients.
This year we unveiled an exciting new brand
promise to business owners across Canada –
Obsessed with your successTM. We sharpened
our visual identity with a more contemporary
logo and bolder treatments of our signature teal
and gold. We re-vamped our website, cwb.com,
and brought in new expertise to engage business
owners through digital and social media. Finally,
we launched a new brand campaign – we come to
integrated experience. We’ve launched a client-centric operating
you – to show business owners the lengths we’ll go (literally!) to help
model to create focus, increase collaboration across lines of business,
them succeed. While stronger marketing will help us reach more
and enable our teams to deliver for our clients more seamlessly and
clients, obsessed with your successTM is much more than a clever
consistently. In the new model, our people have more time to focus
tagline. It’s a rallying cry for our team and a promise to business
on the client experience, and can tap into expert internal partners for
owners: to be proactive, to never take them for granted, and to go
support to meet our clients’ specialized needs.
the extra mile. Our people live our brand promise with purpose every
While proactive, personal service, and specialized expertise remain
at the core of our competitive advantage, digital capabilities will
be an increasingly prominent feature of our differentiated client
experience. To accelerate this transformation, we continue to
reshape our digital infrastructure, which we have built on top of a
modern, flexible core technology platform. In 2020, a key priority
will be to add new, innovative solutions that meet the rapidly
day.
GROWING WITH BUSINESS OWNERS
Graedon Rust, Relationship Manager, Commercial Banking
in
Edmonton is one of those outstanding CWB team members.
Graedon has worked with Sohail “Zee” Zaidi, Owner and CEO of
Remedy Café, to support Zee’s rapid growth from a single location
9
CWB Financial Group 2019 Annual Report This year, we were recognized as a Great Place to Work Canada™, and
one of the Best Workplaces™ in Alberta. We are honoured by these
achievements, but I will be the first to admit that better is always
possible. We have a great culture to build on, and as our transformation
continues to drive significant change across CWB Financial Group,
our culture must evolve to support this ambitious agenda.
This year we made significant progress to evolve our culture with the
introduction of new core values. Like our brand promise, our values
stand for who we are and who we want to be. They ground us in
the qualities our clients and people love about CWB and encourage
us to stretch and thrive through change as we transform to meet
our exciting future. They also remind us to be inclusive of others,
and to welcome new ideas and perspectives that push us to be
better for our clients and each other. Our culture will continue to be
a competitive advantage for us and will ensure we can attract and
retain the diverse talent we need to drive our future growth.
CREATING MORE VALUE FOR INVESTORS
In fiscal 2019, we continued to execute on our strategy and deliver
against our balanced growth objectives. We generated solid loan
growth with further geographic and industry diversification, including
strong 11% growth in Ontario and very strong 15% overall growth in the
strategically targeted general commercial category. We delivered very
strong 12% growth of branch-raised deposits – including 14% growth
in the demand and notice category – as we continued to strengthen
our full-service client experience, and invest in competitive deposit-
gathering capabilities. With ongoing profitable growth and strong
capital ratios, we were also pleased to provide shareholders with an
8% increase to the common share dividend.
Strong, profitable growth against a highly competitive market
backdrop reflects the tremendous contributions of our entire team,
and I would like to close with an expression of gratitude. A sincere
thank you to our people for their passion and continued dedication
to our clients. I would also like to personally thank our clients
across Canada. We are honoured that you’ve chosen CWB, and we
are determined to enable your future success. And finally to our
shareholders, thank you for your ongoing confidence in us.
There is no doubt in my mind that our future looks more exciting than
ever before. As an increasingly disruptive force in Canadian financial
services, we are well-positioned to deliver high-quality earnings and
profitable long-term growth in the years to come.
to 10 bustling cafés in the Edmonton area. “CWB has helped me a
lot,” Zee says. “If CWB didn’t stand with me, I wouldn’t have been
able to do it. They’ve put everything together for me. I think Graedon
has taken this really personally.” Thanks to the proactive effort of
Graedon and his team, Zee is willing to offer the highest compliment
we could hope for: “I trust this bank,” he says. “It feels like a family.
It’s been a really good experience with them for the last 10 years.
We’ve got the best. There’s no need to ever look anywhere else.”
We don’t sit back
and wait for our clients
to come to us. We
proactively step up
with valuable insight,
relevant solutions, and
tailored advice.
I’m thrilled with this story, and proud of our commitment to help our
clients tackle their growth opportunities with confidence. Nearly two
decades into his relationship with CWB, Frank Rizzardo, President
and General Manager of Emcon Services Inc., agrees with Zee. It’s
partly our willingness to step up and support big moves that sets us
apart. “Getting banks to understand our business has always been a
challenge from day one,” Frank says. “(But) CWB is there for us. Our
ideal account manager is someone who understands our business;
they know equipment, attend auctions, and understand valuations
on various brands. We have found this at CWB.”
We are proud of the support we provided to the Emcon team to
complete a recent acquisition which tripled the company’s size, adding
1,800 people and more than two thousand pieces of equipment. This
was a bold move, realizing Emcom’s plan to become the largest road
maintenance contractor in Canada. We were with them every step of
the way, because that’s what it takes to deliver on our brand promise.
We don’t sit back and wait for our clients to come to us. We proactively
step up with valuable insight, relevant solutions, and tailored advice.
We know that people like Zee and Frank never sit still, and we succeed
when our effort reflects their energy.
INVESTING IN PEOPLE AND CULTURE
These stories demonstrate our commitment to reach out and listen
to our clients, and I’m extremely proud of what we hear. Business
owners see us as caring, responsive, helpful, and different from the
other banks. This feedback confirms something we’ve known from
the beginning: our people and our culture set us apart.
10
CWB Financial Group 2019 Annual Report Our values
PEOPLE FIRST
Caring people are the key to our success. We work as a team and
EMBRACE THE NEW
Change is everywhere. We seek out new ideas and are committed to
support one another. We always treat each other with respect and
continuous learning. We know that better is always possible.
have the courage to be candid.
RELATIONSHIPS GET RESULTS
Clients choose CWB for the best experience. We build relationships
THE HOW MATTERS
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,
proactively, with intention and consistency. Our results depend on it.
and balance risk and reward.
INCLUSION HAS POWER
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.
Our strategy
CREATING VALUE FOR THE PEOPLE WHO
CHOOSE CWB EVERY DAY
OUR CLIENTS, OUR PEOPLE, OUR INVESTORS
BUILDING ON OUR STRENGTHS
Personalized service, specialized industry expertise,
customized solutions, faster response times
TRANSFORMING OUR BUSINESS
TRANSFORMATION
PRIORITIES
•
Targeted digital capabilities
•
Client-focused operating model
• Fast, smooth, scalable
processes
•
Transition to AIRB methodology
for capital and risk management
GROWTH ACCELERATORS
Brand: bolder and more
•
visible to cut through the
noise
•
Culture: proactive, client-
focused, and change-ready
to align with our strategy
TO CREATE UNIQUE VALUE
A proactive client experience through in-person and digital channels
AND DELIVER
BREAKOUT GROWTH
A disruptive force
full-service alternative for Canadian business owners
in Canadian financial services, and a clear
Our vision
TO BE THE BEST FULL-SERVICE BANK FOR
BUSINESS OWNERS IN CANADA
11
CWB Financial Group 2019 Annual Report
Executive Committee
Front row (left to right)
Back row (left to right)
KELLY BLACKETT, Executive Vice President,
Human Resources and Corporate Communications
STEPHEN MURPHY, Executive Vice President, Banking
CHRIS FOWLER, President and Chief Executive Officer
DARRELL JONES, Executive Vice President
and Chief Information Officer
GLEN EASTWOOD, Executive Vice President,
Business Transformation
CAROLYN GRAHAM, Executive Vice President
and Chief Financial Officer
BOGIE OZDEMIR, Executive Vice President
and Chief Risk Officer
12
CWB Financial Group 2019 Annual Report “ At CWB we’ve had good people who
take the time to understand what it is
we need to keep our company moving
forward. They’re there as partners.”
- FRANK RIZZARDO
KIRBY HILL, Vice President, Equipment Finance Group Branch Operations, CWB Equipment Finance
FRANK RIZZARDO, President & General Manager, Emcon Services Inc.
13
CWB Financial Group 2019 Annual Report MESSAGE FROM
CHAIR OF THE BOARD
Robert Phillips
14
CWB Financial Group 2019 Annual Report Your Board of Directors oversees development and implementation of the strategic direction for CWB Financial Group
and maintains an effective governance framework. Our focus is to ensure CWB continues to deliver exceptional client
experiences, a great place to build a career for CWB’s people, and strong, profitable long-term growth for investors.
SUPPORTING LONG-TERM VALUE CREATION
FOR ALL OF CWB’S STAKEHOLDERS
Fiscal 2019 was a strong year of strategic execution for CWB
Financial Group and marked our 35th year in business. This milestone
provides an opportunity to reflect on our growth and success, and
to focus on our promising future. CWB was founded during a time
of economic uncertainty in the 1980s with less than $50 million
dollars in total assets. We have grown to over $30 billion in assets
with strong client relationships across the country. Our success is
rooted in our commitment to an exceptional client experience, a
culture that attracts and retains top talent, profitable growth for
our investors, and support for the communities where we operate.
Keeping these commitments will generate long-term value for all of
our stakeholders.
The Board oversees CWB’s strategy to set ourselves apart as a
disruptive force in Canadian financial services. Our transformation
plan is bold and ambitious, and as we innovate and grow, the
Board will continue to ensure that a strong risk culture and sound
enterprise risk management framework remain embedded in the
strategic agenda. We are dedicated to strong corporate governance
and continually monitor emerging trends.
One important development is the increasing attention given to ESG
factors by our stakeholders. We are working to expand our disclosure
in these areas so they better reflect our values and our commitments
to environmental sustainability, inclusion and diversity in the
workforce, positive impact in our communities, and your Board’s
prudent oversight of CWB’s activities. As the landscape for ESG
reporting continues to evolve, we remain committed to transparency
and proactive communication with all of our stakeholders.
SUPPORTING NEW CAPABILITIES TO
STRENGTHEN CWB’S UNIQUE CLIENT
EXPERIENCE
This year, the Board continued to provide oversight of management’s
work to develop new capabilities that strengthen our client
experience. A critical part of this is the evolution of our culture to
support our continued transformation. We are very pleased with
our progress to build a collaborative, inclusive, and change-ready
culture within CWB, rooted in new core values and brought to life
by our passionate employees. The Board will continue to support a
culture that embraces transformation and exceeds the expectations
of our clients today and in the future.
We are also very pleased with the progress in our transition to the
Advanced approach for regulatory capital and risk management. This
is a foundational part of our transformation strategy. It will make us
more competitive and further expand our addressable market. It has
already improved our risk management capabilities, and will better
equip us to allocate resources to generate the most attractive risk-
adjusted returns and maximize shareholder return. It will position us
to deliver higher growth and higher profitability with an enhanced
view of risk.
CREATING VALUE THROUGH RENEWAL
With the exception of your President and Chief Executive Officer,
the CWB Board is fully comprised of independent directors with
strong and diverse backgrounds, experiences, perspectives, and
skills. We are committed to ongoing renewal to ensure the Board
remains effective in a rapidly changing environment. This year Ms. E.
Gay Mitchell was elected as your newest director. Ms. Mitchell has a
wealth of industry knowledge gained through decades of experience
in financial services. With Ms. Mitchell’s election, women now
comprise 33% of the Board.
WELL-POSITIONED FOR FUTURE GROWTH
We are confident that CWB’s focus to meet the financial needs of
business owners represents a clear path to open-ended growth. We
know that our current clients value the services we offer and their
relationships with our teams. We believe more business owners
deserve a clear, full-service alternative to Canada’s large banks. They
deserve a proactive partner who will go to any length to help them
succeed.
Over the next year, we will continue to improve our capabilities and
make it easier and more valuable for business owners to deal with us.
In fiscal 2020, the Board will provide oversight for CWB’s transition
to the Advanced approach, further enhancements to our digital
capabilities, and ongoing improvements to key business processes
that will elevate our client experience. Successful execution
against these priorities will position CWB to deliver a differentiated
experience to more business owners across Canada through a full
range of channels, and we are thrilled with our continued progress.
On behalf of the Board, I would like to thank every CWB team
member for their focus and dedication to create value for all of
our stakeholders. I would also like to thank my fellow directors for
their ongoing commitment to CWB’s continued success. Finally,
to my fellow shareholders, I thank you for your commitment and
confidence in our unique vision for continued strong and profitable
growth.
THANK YOU FROM CWB
Mr. Albrecht Bellstedt retired from the Board of Directors at
our annual shareholders’ meeting this year. Al had served on
your board since 1995, and his roots with CWB go back to the
formation of our predecessor organization, the Bank of Alberta.
Al was an exceptional director and significantly influenced our
path to become the national, full-service financial institution
we are today. Al’s contributions will be missed.
15
CWB Financial Group 2019 Annual Report Board of Directors
Front row (left to right)
Back row (left to right)
IAN M. REID, Corporate Director
LINDA M.O. HOHOL, Corporate Director
ANDREW J. BIBBY, Corporate Director
H. SANFORD RILEY, President and CEO,
MARGARET J. MULLIGAN, Corporate Director
Richardson Financial Group Limited
ROBERT L. PHILLIPS (Chair), President and CEO,
CHRIS H. FOWLER, President and CEO, Canadian Western Bank
R.L. Phillips Investments Inc.
ALAN M. ROWE, Partner, Crown Realty Partners
SARAH A. MORGAN-SILVESTER, Corporate Director
ROBERT A. MANNING, President, Cathton Investments Ltd.
RAYMOND J. PROTTI, Corporate Director
E. GAY MITCHELL, Corporate Director
Corporate Governance
CWB Financial Group strives to earn and maintain the trust of our
Circular and in the Corporate Governance section at cwb.com/
stakeholders through high standards of corporate governance.
corporate-governance. Please review our circular to learn how
Active oversight of our leadership team and operations and a robust
shareholders can attend and participate in the annual shareholder
governance and risk management framework are core to our business
meeting on April 2, 2020 in Edmonton, Alberta.
processes and key to our success. We work continuously to enhance
our governance practices to ensure the sound functioning of CWB
Financial Group and provide value to our fellow shareholders.
Detailed
information about CWB Financial Group’s corporate
governance practices are available in CWB’s Management Proxy
We are committed to open communication with stakeholders –
please contact us at:
ChairoftheBoard@cwbank.com
CorporateSecretary@cwbank.com
16
CWB Financial Group 2019 Annual Report Social Responsibility
At CWB Financial Group we believe our success depends on the
responsible creation of value for all of our stakeholders. We believe
our future success is rooted in our complementary commitments
to deliver an exceptional client experience, cultivate a culture our
people want to be part of, contribute to a healthy society for future
generations and deliver long term value creation. We are focused
to build and maintain relationships with all of our stakeholders –
our clients, employees, shareholders and community members
– and continue to work diligently to create economic, social and
environmental value through our corporate social responsibility
activities. We truly believe the “how” matters in the way we operate
our business. We are proud of the activities we have undertaken and
awards we received in 2019, and have highlighted many below.
We will continue to enhance the environmental, social and
governance information available on our website and invite you to
follow our progress at www.cwb.com.
CLIENTS
• Focused business transformation and investment in digital capabilities continue to drive
delivery of our differentiated full-service client experience through a full range of channels
• Initiatives to optimize client-facing operations within banking branches continue to build
on the benefits from centralization of our credit support processes
• We have implemented a multi-year accessibility plan
• Together, we expect these initiatives to support growth in the number of clients we serve,
the proportion of clients we serve on a full-service basis and our Net Promoter Score
reflecting satisfaction with our offerings
EMPLOYEES
• We are certified as a Great Place to Work Canada™ and one of the Best Workplaces™ in Alberta
• We invested more than 23,000 hours in employee training and development in 2019, more
than 3,300 of which of was focused to address diversity, inclusion, and unconscious bias
• We are a signatory to the UN Women’s Empowerment Principles
• We support a number of Employee Represented Groups, including CWB Women and CWB
Pride
• CWB National Leasing is a 2019 winner of Canada’s Top 100 Employers and Manitoba’s Top
Employers
• CWB Optimum Mortgage is a 2019 winner of Mortgage Industry Employer of Choice from
the Canadian Mortgage Awards
COMMUNITIES
• CWB’s Community Investment Program generated over $2 million in charitable donations
in fiscal 2019, benefitting approximately 200 organizations, including:
- Partnered with and donated $100,000 to the YWCA to support girl empowerment programs
- Partnered with Enactus Canada to support financial literacy
- Partnered with Rise to help individuals living with mental health or addiction challenges
launch or growth their business
- Partnered with and sponsored “6 degrees”, to support new Canadians and foster
environments that lead to strengthened diversity and inclusion in our society
• We support community involvement through our Funds for Fundraisers program, Employee
Volunteer Grant, and the United Way Workplace Campaign and CWB’s Week of Caring
• CWB donated more than $165,000 through employee matching initiatives
ENVIRONMENT
• We are a founding member of the City of Edmonton Corporate Climate Leaders Program,
and have engaged with Climate Smart to measure CWB’s greenhouse gas emissions in the
Alberta capital region and identify ways to reduce
- We have established greenhouse gas reduction targets of 15% (over 880 TCO2e (tonnes
of carbon dioxide equivalent)) by 2025 and 25% (over 1,450 TCO2e) by 2035
- We will reduce energy utility consumption by provisioning bicycle parking, increased
telecommuting options, new LED lighting, occupancy sensors, and programmed paper
reduction in print-capable devices
• We support employee participation in waste management for initiatives like Shoreline
Clean-up and CWB electronics recycling days
17
CWB Financial Group 2019 Annual Report DAVE REID, Business Advisor, Rise
REBEKAH THIBEAULT,
Business Owner, Bee & Key
Lasting Impacts
in Our Communities
We take pride in actively participating in the growth, development
Over the past 12 months, we looked for opportunities to support
and sustainability of the communities where we operate. This year
organizations working to remove barriers for people in our
we helped our charitable and not-for-profit partners through more
communities. We’re particularly proud of our new partnership
than a thousand hours of employee volunteerism and donated
with Rise. Rise launched an Edmonton-based satellite office
more than $2 million in financial support through our community
this year to provide one-on-one advisory services and training
investment program. Our program is aligned with our business
programs so people living with mental health challenges can start
goals and strategies, and is focused on helping our partners in the
their own businesses. Rise successfully helped Rebekah Thibeault
areas of health research and promotion, community development,
and Melissa Wylie – their first clients – launch a retail consignment
and education.
and vintage store in Leduc.
“It’s incredibly rewarding to build partnerships
with community and charitable organizations
that are helping to improve outcomes for people
across Canada. Through support for organizations
like Rise, CWB is committed to creating more
opportunities to drive economic prosperity and
ensure a positive future for our communities.”
- LACEY JANSEN, Program Manager, Community Engagement, CWB
18
CWB Financial Group 2019 Annual Report Management’s Discussion
and Analysis (MD&A)
TABLE OF CONTENTS
Forward Looking Statements
IFRS 9
Non-IFRS Measures
Who We Are
Growth Strategy and Vision
Fiscal 2019 Strategic Highlights
Fiscal 2020 Strategic Priorities
CWB Financial Group
Performance
Overview
Select Financial Highlights
Net Interest Income
Non-Interest Income
Non-Interest Expenses, Efficiency
and Operating Leverage
Acquisition-Related Fair Value Changes
19
20
20
21
22
22
22
23
23
24
28
29
30
31
Income Taxes
Comprehensive Income
Cash and Securities
Loans
Credit Quality
Deposits and Funding
Other Assets and Other Liabilities
Liquidity Management
Capital Management
Financial Instruments and
Other Instruments
Off-Balance Sheet
Summary of Quarterly
Results and Fourth Quarter
Quarterly Results
Fourth Quarter of 2019
Accounting Policies
and Estimates
Critical Accounting Estimates
Changes In Accounting Policies
and Financial Statement
Presentation
Future Changes In
Accounting Policies
Risk Management
Risk Management Overview
Risk Universe - Report on
Principal Risks
Other Risk Factors
Updated Share Information
Controls and Procedures
31
31
32
33
36
38
39
39
42
45
46
47
47
48
49
49
51
51
52
53
58
68
69
69
This Management’s Discussion and Analysis (MD&A), dated December 4,
Information Form, is available on SEDAR at www.sedar.com and on CWB’s
2019, should be read in conjunction with the audited consolidated financial
website at www.cwb.com.
statements of CWB for the year ended October 31, 2019 and the audited
consolidated financial statements and MD&A for the year ended October
31, 2018. Additional information relating to CWB, including the Annual
The consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) and are presented
in Canadian dollars.
FORWARD-LOOKING STATEMENTS
From time to time, we make written and verbal forward-looking statements.
economic and political conditions, material changes to trade agreements,
Statements of this type are included in our Annual Report and reports
legislative and regulatory developments, legal developments, the level
to shareholders and may be included in filings with Canadian securities
of competition, the occurrence of natural catastrophes, changes in
regulators or in other communications such as press releases and corporate
accounting standards and policies, information technology and cyber risk,
presentations. Forward-looking statements include, but are not limited to,
the accuracy and completeness of information we receive about customers
statements about our objectives and strategies, targeted and expected
and counterparties, the ability to attract and retain key personnel, the
financial results and the outlook for CWB’s businesses or for the Canadian
ability to complete and integrate acquisitions, reliance on third parties
economy. Forward-looking statements are typically identified by the
to provide components of business infrastructure, changes in tax laws,
words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “may increase”,
technological developments, unexpected changes in consumer spending
“may impact”, “goal”, “focus”, “potential”, “proposed” and other similar
and saving habits, timely development and introduction of new products,
expressions, or future or conditional verbs such as “will”, “should”, “would”
and our ability to anticipate and manage the risks associated with these
and “could”.
factors. It is important to note that the preceding list is not exhaustive of
By their very nature, forward-looking statements
involve numerous
possible factors.
assumptions and are subject to inherent risks and uncertainties, which
Additional information about these factors can be found in the Risk
give rise to the possibility that our predictions, forecasts, projections,
Management section of our MD&A. These and other factors should be
expectations and conclusions will not prove to be accurate, that our
considered carefully, and readers are cautioned not to place undue reliance
assumptions may not be correct and that our strategic goals will not be
on these forward-looking statements as a number of important factors could
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,
cause our actual results to differ materially from the expectations expressed
in such forward-looking statements. 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.
general business and economic conditions in Canada, including housing
Assumptions about the performance of the Canadian economy over the
market conditions, the volatility and level of liquidity in financial markets,
forecast horizon and how it will affect our businesses are material factors
fluctuations in interest rates and currency values, the volatility and level
considered when setting organizational objectives and targets.
of various commodity prices, changes in monetary policy, changes in
19
CWB Financial Group 2019 Annual Report
In determining expectations for economic growth, we consider our
be general or specific. Where relevant, material economic assumptions
own forecasts, economic data and forecasts provided by the Canadian
underlying forward-looking statements are disclosed within the Outlook
government and its agencies, as well as certain private sector forecasts.
section of our MD&A for the year ended October 31, 2019.
These forecasts are subject to inherent risks and uncertainties that may
IFRS 9
We adopted International Financial Reporting Standard (IFRS) 9 Financial
cost, debt securities measured at fair value through other comprehensive
Instruments (IFRS 9), which replaces International Accounting Standard
income (FVOCI), and certain off-balance sheet loan commitments and
(IAS) 39 Financial Instruments: Classification and Measurement (IAS 39)
financial guarantee contracts. The implementation of an ECL approach
beginning November 1, 2018. As permitted by IFRS 9, we have not restated
under IFRS 9, which results in allowances for credit losses being recognized
prior period comparative figures and have recognized an adjustment to
on financial assets regardless of whether there has been an actual loss
opening retained earnings and accumulated other comprehensive income
event, is a significant change from the incurred loss model under IAS 39.
(AOCI) to reflect the application of the new requirements at the adoption
date. For further details, refer to Notes 1 and 2 of the 2019 audited annual
financial statements.
Under IFRS 9, we refer to allowances and provisions for credit losses on
impaired loans (Stage 3) and performing loans (Stages 1 and 2). Our specific
allowances under IAS 39 are consistent with Stage 3 allowances for credit
The most significant impact to CWB with the transition to IFRS 9 is the
losses under IFRS 9, while the collective allowance under IAS 39 is replaced
introduction of an expected credit loss (ECL) approach for measuring
by Stage 1 and 2 allowances for credit losses under IFRS 9.
impairment that is applicable to financial assets measured at amortized
NON-IFRS MEASURES
We use a number of financial measures to assess our performance against
• Provision for credit losses on total loans as a percentage of average loans
strategic initiatives and operational benchmarks. Non-IFRS measures
– provision for credit losses on loans, committed but undrawn credit
provide readers with an enhanced understanding of how we view our
exposures and letters of credit divided by average total loans. Provisions
ongoing performance. These measures may also provide the ability to
for credit losses related to debt securities measured at FVOCI and other
analyze trends related to profitability and the effectiveness of our operations
financial assets are excluded.
and strategies, and determine compliance against regulatory standards. To
arrive at certain non-IFRS measures, we make adjustments to the results
prepared in accordance with IFRS. Adjustments relate to items which we
believe are not indicative of underlying operating performance. Adjusted
results provide the reader with a better understanding of how we view our
performance. Some of these financial measures do not have standardized
meanings prescribed by IFRS, and therefore, may not be comparable to
similar measures presented by other financial institutions. The non-IFRS
• Provision for credit losses on impaired loans as a percentage of average
loans – 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 – provision for credit losses on performing loans (stage 1
and 2) divided by average total loans.
• Operating leverage – growth rate of total revenue less growth rate of
measures used in this MD&A are calculated as follows:
adjusted non-interest expenses.
• Adjusted non-interest expenses – total non-interest expenses, excluding
the pre-tax amortization of acquisition-related intangible assets (see
• Common share dividend payout ratio – common share dividends
declared during the year divided by common shareholders’ net income.
Table 1).
• Adjusted common shareholders’ net income – total common shareholders’
net income, excluding the amortization of acquisition-related intangible
assets and contingent consideration fair value changes, net of tax (see
Table 1).
• Basel III common equity Tier 1, Tier 1, Total capital, and leverage ratios
– calculated in accordance with guidelines issued by Office of the
Superintendent of Financial Institutions Canada (OSFI).
• Risk-weighted assets – on and off-balance sheet assets assigned a risk
weighting calculated in accordance with the Standardized approach
• Pre-tax, pre-provision income – total revenue less adjusted non-interest
guidelines issued by OSFI.
expenses (see Table 1).
• Average balances – average daily balances.
• Adjusted cash earnings per common share – diluted earnings per
common share calculated with adjusted common shareholders’ net
income (see Table 1).
• Return on common shareholders’ equity – common shareholders’ net
income divided by average common shareholders’ equity.
• Adjusted return on common shareholders’ equity – adjusted common
shareholders’ net income divided by average common shareholders’
equity.
• Return on assets – common shareholders’ net income divided by average
total assets.
• Efficiency ratio – adjusted non-interest expenses divided by total revenue.
• Net interest margin – net interest income divided by average total assets.
20
CWB Financial Group 2019 Annual Report Table 1 - Non-IFRS Measures
($ thousands)
Non-interest expenses
Adjustments (pre-tax):
For the three months ended
For the year ended
October 31
2019
October 31
2018
October 31
2019
October 31
2018
$
107,667
$
98,751
$
405,481
$
373,483
Amortization of acquisition-related intangible assets
Adjusted non-interest expenses
(1,204)
(1,367)
(5,007)
$
106,463
$
97,384
$
400,474
$
(6,313)
367,170
Common shareholders' net income
Adjustments (after-tax):
Acquisition-related fair value changes
Amortization of acquisition-related intangible assets
Adjusted common shareholders' net income
Total revenue
Less:
Adjusted non-interest expenses
Pre-tax, pre-provision income
STRATEGIC TRANSACTIONS
$
67,512
$
64,501
$
266,940
$
249,256
-
904
3,705
1,005
5,773
3,397
14,769
4,695
$
68,416
$
69,211
$
276,110
$
268,720
$
220,853
$
208,566
$
861,604
$
803,358
106,463
97,384
400,474
$
114,390
$
111,182
$
461,130
$
367,170
436,188
On January 31, 2018, we closed an asset purchase agreement to acquire, for
On August 16, 2017, we announced that the division of Canadian Western
cash, equipment loans and leases, and general commercial lending assets
Trust (CWT) now known as CWB Trust Services will focus its activities within
totaling approximately $850 million (referred to as the acquired “business
business lines that are most aligned with the strategic objectives of CWB
lending assets”). The business lending assets acquired were fully aligned
Financial Group, and will no longer offer self-directed account services to
with our balanced growth strategic objectives, including goals related
holders of certain securities. CWT initiated a process to appoint successor
to industry and geographic diversification. The portfolio was primarily
trustees for these accounts (referred to as the “CWT strategic transactions”).
comprised of assets concentrated within the transportation, construction
The CWT strategic transactions were completed in fiscal 2018. As a result of
and healthcare industries, with approximately three quarters of the
this process, we realized pre-tax gains on sale of approximately $4 million
exposures distributed across Central and Eastern Canada.
included in ‘other’ non-interest income in fiscal 2018, or $0.04 of adjusted
cash earnings per common share (fiscal 2019 – nil).
WHO WE ARE
CWB Financial Group (CWB) is a growth-oriented, full-service financial
CWB Equipment Finance delivers mid- and
large-size equipment
institution, and the only Schedule 1 chartered bank in Canada with a focus
transactions from British Columbia to Ontario. Our specialized Broker
to meet the unique financial needs of business owners. Operating from
Buying Centre acquires loans and leases from the finance divisions of
corporate headquarters in Edmonton, Alberta, we continue to extend
original equipment manufacturers and select third-party brokers.
our capabilities to deliver for clients across Canada. Our teams deliver a
differentiated, proactive client experience through highly personalized
service, specialized expertise within specific
industries, customized
solutions and faster response times.
Through our branch network and dedicated wealth and trust offices,
alongside growing digital capabilities, we deliver full-service business
banking, personal banking, wealth management and trust services offerings
specifically tailored for business owners, their employees and their families.
• CWB Maxium provides financing solutions to a growing and diversified
base of entrepreneurial business owners across the country with a
particularly strong presence in Ontario. Our industry specializations
include general corporate, health care, program financing, real estate,
golf, and transportation.
• CWB Franchise Finance is a leading provider of financing solutions for
growth-oriented hotel and hospitality franchise owners across Canada.
• CWB Optimum Mortgage (CWB Optimum) is our broker-sourced
We also provide specialized financing solutions within targeted, growth-
provider of “A” and alternative mortgages, where “A” mortgages consist
oriented markets, through dedicated teams of experts:
of residential mortgages eligible for bulk portfolio insurance. We offer
personalized borrowing solutions for clients who fall within and outside
• Led by our flagship Real Estate and Specialized Lending teams in
of traditional lending guidelines, with geographic coverage across
Vancouver, Surrey, Edmonton and Calgary, we deliver local market
Canada other than Quebec.
expertise and flexible lending options to top real estate developers and
commercial property owners.
• Our equipment financing specialists provide transactions across a broad
range of industries, with comprehensive geographic coverage. CWB
National Leasing is the largest Canadian lessor in small- and mid-size
commercial equipment transactions, with operations across Canada.
Motive Financial is our internet bank, with offerings tailored for dedicated
savers.
21
CWB Financial Group 2019 Annual Report GROWTH STRATEGY AND VISION
Our highly engaged teams operate within a client-centric, collaborative and
consistent dividend growth, and maintain the strongest consolidated
change-ready culture, with a core focus to achieve our vision to become
efficiency ratio among the Canadian banks. In fiscal 2020, we expect to
the best full-service bank for business owners in Canada. We continue to
successfully transition to the Advanced Internal Ratings Based (AIRB)
transform our capabilities to offer a superior full-service client experience
approach for regulatory capital and risk management, which will position
through a complete range of in-person and digital channels, and to offer
us to deliver a higher growth, higher profitability bank with an enhanced
clients a clear alternative to the big banks.
view of risk.
We create long-term value for shareholders through strong, profitable
Our differentiated market position and transformation-focused strategy
growth of full-service client relationships across a growing geographic
has set the stage for CWB to be a disruptive force in Canadian financial
footprint. We maintain strong and conservative capital ratios, generate
services, and to deliver break-out growth in the years to come.
FISCAL 2019 STRATEGIC HIGHLIGHTS
Table 2 - Execution against CWB’s Balanced Growth Strategic Objectives
Balanced growth objective
Strategic execution during fiscal 2019
Full-service client growth with a
focus on business owners, including
further geographic and industry
diversification
• Solid annual loan growth of 8%, including 13% growth in Central and Eastern Canada, 8% growth in
Alberta, and 5% growth in BC
• Increased the proportion of the loan portfolio in Central and Eastern Canada to 27%
• Increased business diversification with very strong 15% growth in general commercial loans and 9%
growth in equipment financing and leasing
• Recognized as a Great Place to Work Canada™, and one of the Best Workplaces™ in Alberta
Growth and diversification of
funding sources
Optimized capital and risk
management processes through
transition to the AIRB approach
• Very strong branch-raised deposit growth of 12%, including 14% growth in the demand and notice
category, and 10% growth in term deposits
• Growth in debt capital markets funding with three successful senior deposit note issuances totaling $900
million
• Growth in debt related to securitization to support originations of both equipment loans and leases, and
residential mortgages
• Expect to submit our final application and receive regulatory approval in fiscal 2020 for transition to the
AIRB approach
FISCAL 2020 STRATEGIC PRIORITIES
Table 3 - Accelerated Transformation to Create Value for our Clients, our People and our Investors
To create value for the people
who choose CWB
Fiscal 2020 transformation priorities
Transform our capabilities to create
enhanced value for clients and
strengthen client relationships
• Invest in digital capabilities to enhance our differentiated full-service client experience, including
development of a digital offering for small business owners and upgraded online and mobile banking
capabilities for mid-market clients
• Optimize client-facing operations within banking branches, building upon centralization of our credit
support processes
• Significantly expand our presence in Central Canada with the opening of our first full-service Ontario
banking location in Mississauga
Continue to evolve our culture and
our employee experience to create
value for our people and become a
career destination for top talent
• Make continued progress toward CWB’s target culture, further leveraging and integrating our new core
values across the organization
• Continue to earn recognition as an employer of choice, a Great Place to Work CanadaTM and one of the
Best WorkplacesTM in Alberta
• Build momentum in change management and change readiness through ongoing training, communication
and feedback tools
• Continue to make strong progress to further enhance inclusion and diversity
Transform and diversify our business
to create value for investors through
break-out growth and enhanced
profitability
• Submit final application and receive regulatory approval for transition to the AIRB approach for capital
and risk management
• Capture increased market share within targeted industries across our growing geographic footprint
• Maintain double-digit percentage growth of branch-raised deposits and achieve double-digit loan growth,
where prudent
22
CWB Financial Group 2019 Annual Report CWB FINANCIAL GROUP PERFORMANCE
OVERVIEW
Financial Highlights of 2019 (compared to 2018)
• Solid performance with common shareholders’ net income of $267
commercial loans and 13% growth in Central and Eastern Canada.
million, up 7%, pre-tax, pre-provision income of $ 461 million, up 6%,
and total revenue of $862 million, up 7%.
• Very strong branch-raised deposit growth of 12%, including 14%
growth of demand and notice deposits, contributing to a reduction
• Diluted and adjusted cash earnings per common share of $3.04 and
in the outstanding balance of broker deposits.
$3.15, up 9% and 5%. Gains on sale related to the CWT strategic
transactions contributed $0.04 to adjusted cash earnings per
common share in fiscal 2018 and nil in 2019.
• Full-year operating leverage of negative 1.8% as revenue growth was
outpaced by growth of expenses reflecting continued investment in
strategic execution.
• Solid
loan growth of 8% with strong execution against our
balanced growth strategic objectives for geographic and industry
diversification,
including very strong 15% growth
in general
• Continued stable credit quality with the provision for credit losses
representing 21 basis points of average loans, compared to 20 basis
points last year.
• Gross impaired loans represented 0.52% of gross loans unchanged
from last year.
• Delivered an 8% increase to CWB’s annual common share dividend.
• Very strong Basel III regulatory capital ratios under the Standardized
approach for calculating risk-weighted assets of 9.1% common equity
Tier 1 (CET1), 10.7% Tier 1 and 12.8% Total capital.
Non-Financial Highlights of 2019
• Recognized as a Great Place to Work Canada™, and one of the Best
• Expanded Environmental, Social and Governance (ESG) disclosure
Workplaces™ in Alberta
• Significant progress to align our culture with our ambitious strategic
agenda with the introduction of new core values.
• Unveiled an exciting new brand promise to business owners across
Canada – Obsessed with your success™.
to reflect our ongoing commitments to environmental sustainability,
inclusion and diversity in the workforce, and positive impacts in our
communities.
• Completed enterprise-wide
integration of the market-leading
Workday human capital management system.
23
CWB Financial Group 2019 Annual Report SELECT FINANCIAL HIGHLIGHTS
Table 4 - Select Annual Financial Information(1)
($ thousands, except per share amounts)
Key Performance Indicators
Total revenue
Pre-tax, pre-provision income
Common shareholders' net income
Earnings per share
Basic
Diluted
Adjusted cash
Return on common shareholders' equity
Adjusted return on common shareholders' equity
Return on assets
Net interest margin
Efficiency ratio(3)
Operating leverage
Provision for credit losses on total loans as a
percentage of average loans(4)(5)
Provision for credit losses on impaired loans as a
percentage of average loans(4)(5)
Other Financial Information
Total assets
Dividends per common share
Change from 2018
2019(2)
2018
2017
$
58,246
24,942
17,684
0.24
0.25
0.14
$
861,604
$
803,358
$
726,635
$
461,130
266,940
436,188
249,256
388,729
214,277
3.05
3.04
3.15
10.9%
11.3
0.88
2.60
46.5
(1.8)
0.21
0.21
2.81
2.79
3.01
11.0%
11.9
0.89
2.60
45.7
1.9
0.20
0.19
2.43
2.42
2.63
10.1%
11.0
0.85
2.56
46.5
0.3
0.23
0.19
$ 31,424,235
$
29,021,463
$ 26,447,453
$
2,402,772
1.08
1.00
0.93
0.08
%
7
6
7
9
9
5
(10) bp(6)
(60)
(1)
-
80
(370)
1
2
8%
8
(1)
(2)
(3)
(4)
(5)
(6)
See page 20 for a discussion of non-IFRS measures.
Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9) (refer to Notes 1 and 2 of the 2019 audited annual financial statements). Prior year comparatives have been prepared in accordance with
IAS 39 Financial Instruments: Classification and Measurement (IAS 39) and have not been restated.
A decrease in the ratio reflects improved efficiency, while an increase reflects deterioration.
Under IFRS 9, provisions for credit losses related primarily to loans, committed but undrawn credit exposures and letters of credit, and also apply to debt securities measured at FVOCI and other financial assets. Prior to the adoption of IFRS
9, provisions for credit losses only related to loans, committed but undrawn credit exposures and letters of credit.
Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.
bp – basis points.
Summary of Operations
Fiscal 2019 was a very good year for CWB, as we continued to execute
on our transformational strategy and deliver against our balanced growth
objectives. We generated solid loan growth with further geographic and
industry diversification, including strong 13% growth in Central and Eastern
Canada, and very strong 15% overall growth in the strategically targeted
general commercial category.
We delivered very strong 12% growth of branch-raised deposits – including
14% growth in the demand and notice category – as we continued to
strengthen our full-service client experience and invest in competitive
deposit-gathering capabilities. This strong performance resulted in a
reduction in our outstanding balances of broker deposits.
Net interest income was up 8% from 2018, reflecting the combined positive
impacts of 8% loan growth and stable net interest margin. Expectations for
further increases in net interest margin were tempered early in the year
when it became apparent that an anticipated Bank of Canada rate increase
would not materialize. In view of a relatively subdued macroeconomic
backdrop, the possibility of a Bank of Canada rate cut persisted for most
of the year.
Non-interest income was down 3% from fiscal 2018. Growth of credit related
fees, positive net gains on securities compared to losses last year, and higher
retail services fees were more than offset by the impact of approximately
$4 million of gains realized from the CWT strategic transactions recorded
within ‘other’ non-interest income in 2018, along with the impact of slightly
lower wealth management fees.
24
Focused business transformation and investment in digital capabilities
continue to enhance our differentiated full-service client experience.
Initiatives to optimize client-facing operations within our banking
branches continued this year, building upon centralization of our credit
support processes. Together, this integrated transformation will boost our
capabilities to deliver on our reputation for proactive, personalized service
through both in-person and digital channels in a highly scalable manner, and
contribute to maximum value creation from our upcoming transition to the
AIRB approach for capital and risk management.
We re-launched the CWB Financial Group brand this year to generate greater
awareness of our differentiated offering and increased visibility in targeted
markets. We sharpened our visual identity with a more contemporary logo
and bolder treatments of our signature teal and gold. We re-vamped and
modernized our digital and online properties, including cwb.com, and
we launched a new Obsessed with your success™ brand promise and We
come to you marketing campaign. The campaign includes increased use of
digital advertising on social media, as well as a television strategy to raise
awareness of our story.
Our continued success is built on strong collaboration between engaged,
well-trained and empowered teams, and we continue to invest in improved
people-related infrastructure to support efficiency and drive effective
collaboration. Following implementation of the market-leading Workday
human capital management system for our core banking operations in
2018, we further integrated operations across the enterprise with the
CWB Financial Group 2019 Annual Report
implementation of Workday for CWB National Leasing, CWB Maxium and
CWB McLean & Partners. Workday integration is now complete across the
entire organization.
System and process transformation continues to drive change across
CWB, and we have taken steps to ensure our culture evolves to support
our ambitious strategic agenda. This year we made significant progress
to evolve our culture with the introduction of new core values. Our values
stand for who we are, and how we show up for our clients and each other.
They ground us in the qualities our clients and people love about CWB, and
encourage us to stretch as we transform to meet our exciting future. We
are committed to create a culture that thrives through change, continues
to foster deep relationships with clients, and helps us attract and retain the
talent we need to drive our future growth.
Continued progress to support a rewarding experience for CWB employees
is reflected in our recognition as a Great Place to Work Canada™, and one
of the Best Workplaces™ in Alberta.
Our focus for 2019 was to build the culture, capabilities, technology,
and brand to position CWB to deliver break-out growth and enhanced
profitability as a model-enabled bank under the AIRB approach. Non-
interest expenses were up 9%, reflecting investments to support continued
growth and strategic execution, including increased advertising. Higher
salaries and benefits comprised two-thirds of the increase and primarily
reflect additional hiring. Costs related to premises, equipment and software
were also higher, reflecting investment in new technology and depreciation
of our previous investments.
Growth of non-interest expenses, reflecting the strategic investments
described above, outpaced total revenue growth of 7%, resulting in negative
1.8% operating leverage. Diluted earnings per common share of $3.04 and
adjusted cash earnings per common share of $3.15 were up 9% and 5%,
respectively. The higher growth rate of diluted earnings per common share
primarily reflects decreased acquisition-related fair value changes this year.
Adjusted return on common shareholders’ equity (ROE) of 11.3% decreased
60 basis points from last year, as 3% growth of adjusted common
shareholders net income was more than offset by the increase in average
common shareholders’ equity driven by higher accumulated other
comprehensive income and retained earnings growth, partially offset by
the impact of common shares purchased for cancellation under the normal
course issuer bid.
The maintenance of solid and conservative capital levels is fundamental to
our objectives to effectively manage risks and support strong growth. Our
Basel III CET1 capital ratio at October 31, 2019 remained very strong at 9.1%,
compared to 9.2% last year. The change from last year reflects strong asset
growth supported by solid growth in retained earnings and AOCI, the IFRS
9 transitional adjustment to opening retained earnings, partially offset by
common share repurchases under the normal course issuer bid. Including
Tier 1 and total capital ratios of 10.7%, and 12.8%, respectively, all of our
capital ratios remain above both internal and regulatory minimums.
With ongoing profitable growth and very strong capital ratios, we also
rewarded shareholders with an 8% increase to the common share dividend
compared to 2018.
2019 Medium-term Performance Target Ranges
Target ranges effective through fiscal 2019, with related fiscal 2019 performance, are presented in the following table:
Table 5 - 2019 Medium-term Performance Target Ranges
Key Metrics(1)
Medium-term Performance
Target Ranges
Fiscal 2019 Performance
Adjusted cash earnings per common share growth
Adjusted return on common shareholders’ equity
Operating leverage
Common equity Tier 1 capital ratio under the
Standardized approach
Common share dividend payout ratio
(1) See page 20 for definitions and discussion of non-IFRS measures.
7 - 12%
12 - 15%
Positive
Strong
~30%
Delivered 5%
Delivered 11.3%
Delivered negative 1.8%
Delivered a very strong ratio of 9.1%
Delivered 35%
In view of our planned transition to the AIRB approach for capital and
However the magnitude of capital available for deployment upon transition
risk management in fiscal 2020, we have discontinued our medium-term
to the AIRB approach is uncertain at this time. We expect to establish
targets. We introduced these targets in fiscal 2016, and designed them
revised multi-year performance expectations incorporating benefits of the
to be effective over a three- to five-year period under the Standardized
AIRB transition following formal regulatory approval. Expectations related
approach
for calculating risk-weighted assets. We are confident
to key performance metrics for fiscal 2020, on a standalone basis, are
our transition to the AIRB approach will support higher growth and
summarized within the Outlook section below.
profitability from our differentiated business model over the medium-term.
25
CWB Financial Group 2019 Annual Report Fiscal 2020 Outlook
We expect overall financial performance in fiscal 2020 to reflect
and leasing as compared to real estate project loans.
ongoing strong execution of our transformational strategy, including
success in key strategic initiatives to enhance our client experience,
continue to build core funding sources, and leverage investment in
digital capabilities to position CWB for break-out growth as a model-
enabled bank under AIRB.
We expect growth
in Ontario to continue to reflect ongoing
contributions from our established businesses with a national footprint,
as well as the planned opening of our first CWB branch premises in
the province this year. We expect progress toward our strategic goal
for Ontario to represent a third of the overall portfolio to moderate
Financial results are expected to benefit from our expanding geographic
somewhat compared to the significant rate of change achieved over
footprint and increased business diversification; further optimization
the past several years. This mainly reflects expectations for continued
of our funding mix; strong credit risk management; effective expense
normalization of very high growth within CWB Maxium and CWB
management in consideration of revenue growth opportunities; and
Franchise Finance, moderate growth from CWB National Leasing due
prudent capital management.
to the persistence of strong competition, and high-single digit growth
In view of these expectations, considerations related to the Canadian
within CWB Optimum.
economy, and key performance drivers discussed below, we expect to
We expect residential mortgage growth to continue to include an
deliver:
• a percentage growth rate of adjusted cash earnings per common
share in the mid-single digits;
• adjusted return on common shareholders’ equity at a similar level to
2019;
• moderately positive operating leverage, with some volatility between
quarters reflecting the timing of execution of our strategic priorities;
• a strong CET 1 capital ratio; and,
• a growth rate of common share dividends in the high-single digits.
A relatively stable Canadian economy
increased proportion of “A” mortgages, reflecting ongoing investment
in our securitization capabilities. We remain committed to the ongoing
development of CWB Optimum as it has produced solid returns while
maintaining an acceptable risk profile. With new mortgage products
launched late in fiscal 2019 that are specifically targeted to business
owners, we expect to resume growth at a rate resembling the rest of
our loan portfolio.
We continue to assess construction-related lending opportunities
within targeted markets. Our expectations for moderate growth of
real estate project loans, with the potential for further incremental
contraction, reflect the combined impact of this portfolio’s relatively
The overall outlook for the Canadian economy is relatively stable. We
short duration and our strategic focus to grow other portfolios more
expect economic performance within our largest provincial markets to
quickly. Within the parameters of our established risk appetite, we will
vary based on factors unique to each region.
continue to finance well-capitalized developers on the basis of sound
Growth in BC is expected to accelerate slightly to a level exceeding the
national average, mainly reflecting more constructive housing market
loan structures and acceptable pre-sale/lease levels and have a strong
pipeline of new lending opportunities.
conditions and the impact of large-scale capital projects. Growth in
Commercial mortgages are often subject to a higher level of pricing
Alberta is also expected to improve from a level that was well below the
competition compared to other types of lending. However, we remain
national average in fiscal 2019. However, reduced provincial government
focused to support existing client relationships and high-quality lending
expenditures could dampen the recovery. Growth in Ontario is also
opportunities offering adequate risk-adjusted returns within targeted
expected to moderate to a level below the national average, with more
markets, and we expect to deliver stronger growth in this portfolio
constructive housing market conditions potentially offset by the impact
compared to 2019.
of trade-related uncertainty.
Stable credit quality
Strong, profitable loan growth with continued strategic
diversification
We expect impaired loans as a percentage of total loans to remain
within our risk appetite. We expect actual loss rates and specific
Continued strategic execution has positioned us to capture increased
allowances on current and future impaired loans to remain stable
market share within a larger addressable market, notwithstanding the
from current levels, reflecting the combined positive impact of our
potential for varying degrees of volatility in the operating environment.
disciplined underwriting, secured lending practices, and proactive
We will continue to support high-quality borrowers with a focus on
account management. This expectation is consistent with our prior
business owners operating within targeted industry segments across
experience, where write-offs have typically been low as a percentage
Canada, and we remain committed to deliver double-digit annual loan
of impairments. We remain confident in the strength, diversity and
growth whenever prudent. This includes a continued focus on secured
underwriting structure of the overall loan portfolio, and we continue to
loans that offer an appropriate return and acceptable risk profile.
closely monitor lending exposures for signs of weakness.
We continue to target further geographic and industry diversification
While IFRS 9 affects the timing of the recognition of credit losses, the
through growth of client relationships in targeted industries across
accounting standard does not affect actual credit losses realized over
our national geographic footprint. Slightly higher relative growth rates
the life of a particular loan, represented by write-offs net of recoveries.
should remain apparent in Central Canada, as compared to expectations
Provisions for credit losses on performing loans have the potential to be
for continued solid growth in Western Canada. We also expect higher
somewhat volatile in view of the forward-looking ECL approach under
relative growth in general commercial loans, and equipment financing
IFRS 9. While levels for key economic variables incorporated in ECL
26
CWB Financial Group 2019 Annual Report models such as unemployment rates, gross domestic product growth,
loan growth. Enhanced transactional capabilities in cash management
the Canadian dollar/U.S. dollar exchange rate, interest rates and oil
and other retail services, including our relationship-based, branch-
prices are expected to be relatively consistent with 2019, with the
raised deposit franchise, is expected to drive increases in retail services
potential for slight improvements in housing market conditions, these
fees. We expect growth in revenue from CWB Wealth Management
variables are inherently prone to volatility on a forward-looking basis.
to reflect increases in assets under management, and we continue
Potential risks that could have a material adverse impact on loan growth
and/or credit quality include a deterioration in Canadian residential
real estate prices, material changes to trade agreements, including
the imposition of tariffs, which could affect the outlook for Canadian
exports, material weakening of energy and other commodity prices
compared to recent levels, a material contraction of economic growth
in the U.S., or a significant disruption in major global economies.
Continued growth and diversification of funding
to consider strategically aligned wealth management acquisition
opportunities. With renewed focus on targeted business lines aligned
to our strategic direction, we expect revenue from CWB Trust Services
to benefit from growth in new and expanding trustee and custody
relationships. Based on the current composition of the debt securities
portfolio, net gains and losses are not expected to contribute materially
to non-interest income; however, the magnitude and timing of gains
and losses are dependent on market factors that are difficult to predict.
Growth in the above noted categories could be partially offset by
lower ‘other’ non-interest income. In fiscal 2019 results in this category
Our strategic focus to grow and diversify funding sources will continue.
included gains from favourable foreign exchange activities, recoveries
This includes a continued goal to increase branch-raised deposits, with
on loan realization assets, and proceeds from asset sales that may not
particular emphasis on demand and notice deposits.
recur at comparable levels.
We expect future growth in branch-raised funding to reflect success
Efficient operations and operating leverage
in acquiring more clients and developing broader, full-service client
relationships across the country. We will continue to enhance our
client experience by investing in digital capabilities, maintaining our
strategic focus on business transformation and process improvement,
and developing new and more effective products. In combination, we
expect this effort to support core deposit growth by enhancing our
capacity to deliver on our reputation for excellence in personalized
service in a highly scalable manner through a full range of channels.
Support for deposit gathering capabilities will also include targeted
strategies within Motive Financial and CWB Trust Services, as well as
continued development of the full-service branch network, including
the opening of our first full-service branch in Ontario. We also expect
continued diversification of funding sources to include growth of both
debt capital markets and securitization funding channels.
Strong revenue growth
We expect to deliver high single-digit growth of net interest income in
fiscal 2020 from the benefits of stronger loan growth, partially offset by
downward pressure on net interest margin.
Our strategic priorities to support net interest income include continued
strong core deposit growth with further enhancement of our client
experience through focused business transformation and ongoing
investment in digital capabilities. However, the potential for Bank of
Canada interest rate cuts in fiscal 2020 remains apparent, and we
expect rising funding costs in our branch-raised deposits to continue
as a result of competitive factors. We also anticipate slightly higher
average levels of liquidity based on our expected deposit maturity
profile, and the adoption of IFRS 16 Leases (IFRS 16) on November 1,
2019 will also contribute to net interest margin compression compared
to 2019. That said, our net interest margin has operated within a fairly
tight range of approximately 2.50 to 2.60% over the past several years,
and we expect to remain around the mid point of that range in fiscal
2020 on a full-year basis, with the potential for quarterly volatility.
We expect to restore positive growth of non-interest income with increases
across most categories, reflecting our strategy to extend and deepen
relationships with both new and existing clients across all business lines.
We expect credit related fees to grow approximately in proportion to
Our continued focus on business transformation and process
improvement, alongside ongoing investment in digital capabilities,
is intended to support improved efficiency and operating leverage
through increasingly scalable client acquisition and business growth
over the medium term.
Our annual efficiency ratio over the past three years has been
approximately 46%. We expect a relatively consistent outcome in
2020, with slightly positive operating leverage on a full-year basis.
This incorporates expectations for strong business growth supported
through strategic investment in people, technology and infrastructure,
along with effective control of non-interest expenses. Notwithstanding
our commitment to prudently manage expenses based on expected
revenue growth, quarterly volatility of operating leverage may occur
based on the timing of expenditures.
Prudent capital management and dividends
We expect to submit our final application and receive regulatory
approval in fiscal 2020 for transition to the AIRB approach for capital and
risk management. A reduction in risk-weighted assets measured under
the AIRB approach is expected to increase our regulatory capital ratios;
however, we do not expect any other material impacts to our financial
results in fiscal 2020. With a very strong CET1 capital ratio under the
more conservative Standardized approach for calculating risk-weighted
assets, we are well positioned to create value for shareholders through
a range of capital deployment options consistent with our balanced
growth strategic objectives while remaining conservatively capitalized.
Ongoing support and development of each of CWB’s businesses
will remain a key priority, and we will continue to evaluate potential
strategic acquisitions.
Transition to the AIRB approach will put us on more equal footing with
our competition and increase our addressable market. It will add risk
sensitivity to our framework for capital management, increase risk
quantification processes, improve risk-based pricing capabilities and
economic capital estimations, improve stress testing capabilities and
enhance our Internal Capital Adequacy Assessment Process (ICAAP).
27
CWB Financial Group 2019 Annual Report These improved risk management capabilities will better equip CWB to
share dividend increases are evaluated every quarter against capital
allocate resources to target business segments that generate the most
requirements under the Standardized approach and opportunities
attractive risk-adjusted returns.
to create value for shareholders through various forms of capital
deployment, including support for ongoing strong and balanced asset
A normal course issuer bid (NCIB) authorizing the purchase for
growth.
cancellation prior to September 30, 2020, of a maximum of 1,740,000
common shares is in place. We may choose to activate the NCIB in fiscal
We expect to deliver dividend growth in the high single digit range in
2020 should appropriate circumstances become apparent. Common
fiscal 2020.
NET INTEREST INCOME
Net interest income is the difference between interest and dividends earned on assets, and interest paid on deposits and other liabilities, including debt. Net
interest margin is net interest income as a percentage of average total assets.
Highlights of 2019
• Solid 8% growth of net interest income to a record $786 million,
• The yield on average loans increased 25 basis points to 5.07% in
reflecting 8% loan growth and stable net interest margin of 2.60%.
2019. This primarily reflects an increase in the average prime rate of
• Stable net interest margin reflects the positive impacts of higher
asset yields and lower average balances of cash and securities as
47 basis points following Bank of Canada rate increases in July and
October 2018, partially offset by competitive factors.
a percentage of total average assets, offset by higher funding costs
• The increase in funding costs also reflects the higher average prime rate,
and changes in funding mix.
along with longer fixed term deposit duration and competitive factors.
Table 6 - Net Interest Income(1)
($ thousands)
Assets
Cash, securities and deposits with
regulated financial institutions
Securities purchased under
2019
2018
Average
Balance
Mix
Interest
Interest
Rate
Average
Balance
Mix
Interest
Interest
Rate
$ 2,405,937
8%
$
37,470
1.56%
$ 2,731,904
10%
$
39,574
1.45%
resale agreements
80,956
-
1,500
1.85
13,915
-
191
1.37
Loans
Personal
Business
Total interest bearing assets
Other assets
Total Assets
Liabilities
Deposits
Personal
Business and government
Securities sold under
repurchase agreements
Other liabilities
Debt
Shareholders' equity
Non-controlling interests
Total Liabilities and Equity
Total Assets/Net Interest Income
(1) See page 20 for a discussion of non-IFRS measures.
5,405,011
21,782,700
27,187,711
29,674,604
556,757
$ 30,231,361
18
72
90
98
2
100%
215,253
1,164,477
1,379,730
1,418,700
-
$ 1,418,700
3.98
5.35
5.07
4.78
0.00
4.69%
4,951,222
19,653,260
24,604,482
27,350,301
550,806
$ 27,901,107
18
70
88
98
2
100%
190,802
994,728
1,185,530
1,225,295
-
1,225,295
$
$ 15,347,419
9,288,447
24,635,866
12,094
629,682
2,139,110
2,812,579
2,030
$ 30,231,361
$ 30,231,361
$
51%
31
82
377,345
195,881
573,226
2.46%
2.11
2.33
$ 13,911,075
8,906,830
22,817,905
$
50%
32
82
287,519
164,244
451,763
-
2
7
9
-
100%
$
$
253
-
59,637
-
-
633,116
785,584
2.09
0.00
2.77
0.00
0.00
2.09%
2.60%
52,406
608,108
1,894,203
2,525,934
2,551
$ 27,901,107
$ 27,901,107
-
2
7
9
-
100%
$
$
763
-
47,779
-
-
500,305
724,990
3.85
5.06
4.82
4.48
0.00
4.39%
2.07%
1.84
1.98
1.46
0.00
2.52
0.00
0.00
1.79%
2.60%
Net interest income increased 8% to a record $786 million. Solid growth was primarily driven by the 8% increase in average interest-earning assets and stable
net interest margin of 2.60% compared to the prior year.
28
CWB Financial Group 2019 Annual Report The yield on average loans increased 25 basis points to 5.07% in 2019. This
primarily reflects an increase in the average prime rate of 47 basis points
following Bank of Canada rate increases in July and October 2018, partially
offset by competitive factors.
The yield on average cash, securities and deposits with regulated financial
institutions was up 11 basis points from last year, primarily reflecting the
higher average prime rate. Average balances of cash and securities were
lower compared to the prior year, reflecting reduced liquidity requirements
based on the composition of our balance sheet and contractual maturities.
Average deposit costs were up 35 basis points from last year and the
overall cost of average interest bearing liabilities and equity increased 30
basis points to 2.09%. The average cost of both personal, and business
and government deposits were higher due to changes in the interest rate
environment, competitive factors on deposit pricing, as well as deposit mix.
Debt-related costs were 25 basis points higher, mostly reflecting the higher
average prime rate, partly offset by lower fixed rates on term debt.
NON-INTEREST INCOME
Highlights of 2019
• Non-interest income of $76 million was down 3%, or $2 million, from
• Non-interest income represented 9% of total revenues, down from
2018.
10% in 2018.
• Growth of credit related fees, positive net gains on securities,
compared to losses last year, and higher retail services fees were
more than offset by the impact of approximately $4 million of gains
realized from the CWT strategic transactions recorded within
‘other’ non-interest income in 2018, along with slightly lower wealth
management fees.
Table 7 - Non-interest Income
($ thousands)
Credit related
Wealth management services
Retail services
Trust services
Gains (losses) on securities, net
Other(2)
Total Non-interest Income
Change from 2018
2019(1)
2018
$
34,082
$
32,165 $
19,640
10,627
7,651
301
3,719
20,371
10,334
7,784
(217)
7,931
$
76,020
$
78,368
$
$
1,917
(731)
293
(133)
518
(4,212)
(2,348)
%
6%
(4)
3
(2)
nm(3)
(53)
(3)%
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2 of the audited annual financial statements). Prior year comparatives have been prepared in accordance with IAS 39 and have not been restated.
(2)
Includes gains on loan portfolio sales, lease administration services, foreign exchange gains/losses, gains/losses on land, buildings and equipment disposals, and other miscellaneous non-interest revenues. Fiscal 2018 also includes the gains
on CWT strategic transactions.
nm – not meaningful
Non-interest income of $78 million was down 3%, or $2 million, from 2018.
transactions recorded within ‘other’ non-interest income last year, along
Growth of credit related fees, positive net gains on securities, compared to
with slightly lower wealth management fees. Higher credit related and retail
losses last year, and higher retail services fees were more than offset by the
services fee income mainly reflects overall growth of loans and deposits.
impact of approximately $4 million of gains realized from the CWT strategic
29
CWB Financial Group 2019 Annual Report
NON-INTEREST EXPENSES, EFFICIENCY AND OPERATING LEVERAGE
Highlights of 2019
• The 2019 efficiency ratio of 46.5% compares to 45.7% in 2018.
• Full-year operating leverage of negative 1.8%, reflects the same
Revenue growth this year was outpaced by growth in expenses
factors driving the change in the efficiency ratio.
reflecting continued investment in strategic execution.
Table 8 - Non-interest Expenses and Efficiency Ratio
($ thousands)
Salaries and Employee Benefits
Salaries
Employee benefits
Premises
Rent
Depreciation
Other
Equipment and Software
Depreciation
Other
General
Professional fees and services
Marketing and business development
Regulatory costs
Banking charges
Amortization of acquisition-related intangible assets
Employee recruitment and training
Travel
Staff relations
Communications
Capital and business taxes
Other
2019
2018
$
%
Change from 2018
$
213,452
$
198,203
$
44,514
257,966
39,025
237,228
22,460
5,310
3,842
31,612
22,127
16,776
38,903
13,824
12,546
12,022
5,048
5,007
4,690
4,028
2,248
1,995
1,888
13,704
77,000
20,730
5,074
3,854
29,658
18,321
14,775
33,096
12,241
11,151
10,107
5,519
6,313
4,844
3,805
2,323
1,795
1,453
13,950
73,501
15,249
5,489
20,738
1,730
236
(12)
1,954
3,806
2,001
5,807
1,583
1,395
1,915
(471)
(1,306)
(154)
223
(75)
200
435
(246)
3,499
31,998
8%
14
9
8
5
-
7
21
14
18
13
13
19
(9)
(21)
(3)
6
(3)
11
30
(2)
5
9%
80 bp(3)
(370)
Total Non-interest Expenses
$ 405,481
$ 373,483
$
Efficiency Ratio(1)(2)
Operating Leverage(1)
(1) See page 20 for a discussion of non-IFRS measures.
(2) A decrease in this ratio reflects improved efficiency, while an increase reflects deterioration.
(3) bp – basis points.
46.5%
(1.8)
45.7%
1.9
Total non-interest expenses of $405 million were up 9% ($32 million).
The efficiency ratio of 46.5% compares to 45.7% last year. Revenue growth in
Overall salaries and employee benefits increased 9% ($21 million), mainly
2019 was outpaced by growth of expenses reflecting continued investment
reflecting hiring activity to support overall business growth and execution
in strategic execution.
of strategic priorities, along with annual salary increments. The increase in
overall full-time equivalent employees was moderate at 5%.
Operating leverage, which is calculated as the growth rate of total revenue
less the growth rate of adjusted non-interest expenses, over the last 12
Equipment and software costs were up 18% ($6 million) primarily due to
months was negative 1.8%, compared to positive 1.9% last year. Operating
ongoing investment in technology infrastructure to position CWB for
leverage in 2019 was impacted by the same factors as our full-year efficiency
future growth and improve our client and employee experience. Premises
ratio. In 2018, revenue growth benefited from very strong loan growth, a
expenses were up 7% ($2 million) to position us for future growth. General
four basis point improvement in net interest margin and gains from the
non-interest expenses were up 5%, or $3 million, mainly due to increases in
CWT strategic transactions.
regulatory costs, and expenses related to the launch of the renewed CWB
brand.
30
CWB Financial Group 2019 Annual Report Figure 1 - Number of Full-time Equivalent Staff
INCOME TAXES
1,928
(+8%)
1,966
(+2%)
2,058
(+5%)
2,278
(+5%)
2,178
(+6%)
2500
2000
1500
1000
500
0
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 collective 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.
The 2019 effective income tax rate was 26.3%, compared to 26.8% in
2018. On June 28, 2019, the Alberta government enacted reductions to
the provincial corporate income tax rate from 12% to 8% over four years,
beginning with a 1% decrease on July 1, 2019 with further reductions of 1%
on each of January 1, 2020, 2021 and 2022. Our 2019 effective income tax
rate benefited from the re-measurement of our deferred tax assets and
liabilities from the tax rate reductions, which resulted in a one-time deferred
tax recovery of approximately $1.5 million. Our expected income tax rate for
2015
2016
2017
2018
2019
fiscal 2020 is approximately 26%.
ACQUISITION-RELATED FAIR VALUE CHANGES
Acquisition-related fair value changes in 2019 were $8 million, compared
to $20 million last year, reflecting completion of the earn-out period on
February 28, 2019 for the contingent consideration related to the successful
and accretive acquisition of CWB Maxium Financial. Total contingent
payments in cash and CWB common shares over the earn-out period of $70
million represented the maximum payout under the purchase agreement
and confirm the successful integration and growth of the acquired business.
CWB Maxium has delivered very strong performance since the acquisition
in 2016, with contributions to financial performance and CWB’s strategic
diversification objectives exceeding our expectations.
COMPREHENSIVE INCOME
Comprehensive
income
is comprised of net
income and other
comprehensive income (OCI), all net of income 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. The growth in
comprehensive income was primarily driven by a $98 million increase in the
change in fair value of derivatives designated as cash flow hedges and a $54
million increase in the change in fair value of debt securities measured at
FVOCI. Very strong 9% ($23 million) growth of net income also contributed
to the increase. Our debt securities portfolio, which is classified at FVOCI,
is comprised primarily of debt securities issued or guaranteed by Canada,
a province or municipality. Fluctuations in value are generally attributed to
changes in interest rates, movements in market credit spreads and shifts in
the interest rate curve.
Table 9 - Comprehensive Income
($ thousands)
Net Income
Other Comprehensive Income (Loss), net of tax
Items that will be subsequently reclassified to net income
Debt securities measured at fair value through other comprehensive income
(2018: Available-for-sale securities debt and equity securities)
Gains (losses) from change in fair value
Reclassification to net income
Derivatives designated as cash flow hedges
Gains (losses) from change in fair value
Reclassification to net income
Items that will not be subsequently reclassified to net income
Losses on equity securities designated at fair value through other comprehensive income
Comprehensive Income
2019(1)
2018
Change from
2018
$
287,846
$
264,647
$
23,199
34,301
(354)
33,947
71,361
(383)
70,978
(14,175)
90,750
378,596
$
$
(19,945)
158
(19,787)
(26,848)
(994)
(27,842)
n/a
(47,629)
217,018
54,246
(512)
53,734
98,209
611
98,820
n/a
138,379
161,578
$
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (see Notes 1 and 2 of the 2019 audited annual financial statements). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.
n/a – not applicable
31
CWB Financial Group 2019 Annual Report CASH AND SECURITIES
Cash, securities and securities purchased under resale agreements
attributed to changes in interest rates, movements in market credit spreads,
amounted to $2.5 billion at October 31, 2019, compared to $2.2 billion last
shifts in the interest rate curve, as well as volatility in equity markets. Total
year. The cash and securities portfolio is mainly comprised of high-quality
net unrealized losses before tax recorded on the balance sheet at October
debt instruments along with a small portfolio of investment grade preferred
31, 2019 were $13 million, compared to $67 million last year. Unrealized
shares that are not held for trading purposes and, where applicable, are
gains or losses are reflected in the following table.
typically held to maturity. Fluctuations in the value of securities are generally
Table 10 - Unrealized Gains (Losses) on Debt Securities and Cash Resources Measured at FVOCI and Equity
($ thousands)
Measured at FVOCI
Interest bearing deposits with regulated financial institutions
Debt securities issued or guaranteed by
Canada
A province or municipality
Other debt securities
Designated at FVOCI
Preferred shares
Total
Available-for-sale
Interest bearing deposits with regulated financial institutions
Debt securities issued or guaranteed by
Canada
A province or municipality
Other debt securities
Preferred shares
Total
IFRS 9
As at October 31, 2019
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
$
293,865
$
-
$
9
$
293,856
1,344,455
468,989
190,803
477
75
291
3,606
393
48
1,341,326
468,671
191,046
26,648
$ 2,324,760
$
-
843
$
8,484
12,540
$
18,164
2,313,063
IAS 39
As at October 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
Value
$
26,825
$
-
$
-
$
26,825
1,362,647
531,798
146,610
110,696
2,178,576 $
$
-
-
1
-
1 $
36,831
9,973
3,075
17,121
67,000 $
1,325,816
521,825
143,536
93,575
2,111,577
We regularly review the level of unrealized losses on securities.
See Table 28 – Valuation of Financial Instruments of this MD&A for
additional information on significant financial assets and liabilities reported
Impairment charges on debt securities are reflected in net gains (losses)
at fair value.
on securities only in the case of an issuer credit event. We have no direct
investment in any sovereign debt or other securities issued outside of
The balance and mix of cash and securities are managed as part of our
Canada or the United States.
overall liquidity management process; additional information is included in
the Liquidity Management discussion of this MD&A.
Net realized gains (losses) on securities recognized in income were
insignificant in 2019 and 2018. For the preferred shares that have been
designated as FVOCI, $20 million of realized losses were recognized
directly in retained earnings in accordance with IFRS 9.
32
CWB Financial Group 2019 Annual Report LOANS
Highlights of 2019
• Overall loan growth was solid at 8%, with strong execution against
• Growth in Ontario and Alberta was strong at 11% and 8%, respectively,
our balanced growth strategic objectives.
while growth in BC was 5%.
• Achieved further geographic diversification, with very strong 13%
• Achieved further industry diversification, with very strong 15%
growth in Central and Eastern Canada and expansion in every
growth in general commercial loans and 9% growth in equipment
province.
financing and leasing.
• Ontario-based loans represented 22% of total loans at year end,
• Solid 8% growth in personal loans and mortgages mainly reflected
compared to 21% last year, and the proportion of loans in Central
originations of “A” mortgages to leverage CWB’s securitization
and Eastern Canada was 27%, compared to 26% in 2018.
capabilities.
Table 11 - Outstanding Loans by Portfolio
($ millions)
General commercial loans
Personal loans and mortgages
Equipment financing and leasing
Commercial mortgages
Real estate project loans
Oil and gas production loans
Total Outstanding Loans(1)
(1) Total loans outstanding by lending sector exclude the allowance for credit losses.
Change from 2018
2019
2018
$
8,600
$
7,458
$
5,690
5,192
5,088
3,752
155
5,247
4,779
4,865
3,855
129
$
1,142
443
413
223
(103)
26
%
15%
8
9
5
(3)
20
$
28,477
$
26,333
$
2,144
8%
Total loans before the allowance for credit losses increased 8% to reach
Total loans of $3.0 billion within CWB Optimum were relatively unchanged
$28.5 billion at year end.
Growth by lending sector was consistent with our balanced growth
strategic objectives. In dollar terms, growth was led by the strategically
targeted general commercial category ($1.1 billion). In percentage terms,
annual growth within this category was 15% overall, including growth of
22% in Ontario, 14% in BC and 8% in Alberta. General commercial lending
reflects activity across a broad range of industries, such as manufacturing,
construction,
transportation,
retail
trade, hospitality, healthcare,
professional services, and wholesale trade. Targeted growth and very
from last year. New CWB Optimum originations in fiscal 2019 were
primarily driven by alternative mortgages secured via first mortgages
carrying a weighted average loan-to-value at initiation of approximately
69%, along with an increasing proportion of “A” mortgages. The average
size of CWB Optimum mortgages originated was approximately $333,000
and the average size of mortgages outstanding at October 31, 2019 was
$296,000. The renewal rate with existing CWB Optimum borrowers was
72%, compared to 77% last year. The renewal rate in 2018 was unusually
high, and reflected a temporary market adjustment in response to changes
to OSFI’s Guideline B-20, Residential Mortgage Underwriting Practices and
strong performance within this category reflects ongoing efforts to leverage
Procedures (B-20).
development of full-service relationships with business owners to support
our funding diversification objectives.
Personal loans and mortgages increased 8% ($443 million). Overall growth
reflects continued origination of both “A” and alternative mortgages.
Alternative mortgages originated within CWB’s broker-sourced residential
mortgage business, CWB Optimum, represent approximately 52% of CWB’s
personal loans and mortgage portfolio, or approximately 10% of CWB’s total
loans (2018 – 11%).
33
CWB Financial Group 2019 Annual Report Coming into 2019, we expected growth within CWB Optimum to slow
construction with high presale coverage continue and we have a strong
compared to prior years. This reflected the expected combined impacts
pipeline of new lending opportunities. Recent growth in Alberta has skewed
of reduced housing market activity in certain regions following changes to
toward the industrial sector in the Calgary market.
B-20, our overall risk appetite for alternative mortgages as a proportion of
total loans, and ongoing refinement of our risk appetite within the alternative
mortgage market, including a preference for stronger credits. However,
it is apparent that we tightened our risk appetite more than competing
alternative mortgage originators, and growth within CWB Optimum this
year was lower than expected.
Lending activity in bank branches and our participation in the National
Housing Act Mortgage Backed Security (NHA MBS) program comprise the
remainder of CWB’s personal loans and mortgages exposure. The gross
amount of mortgages securitized under the NHA MBS program was $837
million (2018 – $609 million).
We continue to lend into oil and gas production on a syndicated basis and
maintain a proactive approach to manage our small portfolio in this space.
The $26 million increase in the past year reflects participation in syndicated
lending facilities. The total balance of loans in this category comprises
approximately 1% of our total loans, with underlying commodity exposures
skewed toward oil and liquid rich natural gas.
The mix of our portfolio (see Figure 2) shifted in a manner consistent with
our balanced growth strategic objectives. Very strong growth in general
commercial loans increased the proportion of loans in this category as a
percentage of the total portfolio to 30%, compared to 28% in 2018. The
proportion of loans in equipment financing and leasing decreased to 18%
Growth of equipment financing and leasing was strong at 9% ($ 413 million)
from 19% last year. Real estate project loans comprised 13% of the portfolio
overall, with ongoing contributions from CWB’s branch-based equipment
at year end, compared to 15% in 2018.
financing teams and CWB National Leasing.
Commercial mortgages increased 5% ($223 million), with strong 15% growth
(see Figure 3) was also consistent with our balanced growth strategic
in BC and 4% growth in Saskatchewan partially offset by contractions in
objectives. BC and Alberta represented 33% and 32%, respectively, of total
The change in the mix of our portfolio based on the location of security
other provinces.
Real estate project loans contracted $103 million with growth in Alberta,
Ontario and Quebec more than offset by the impact of successful project
completions and payouts in BC. While the pace of new project development
in greater Vancouver has moderated, originations related to projects under
loans at October 31, 2019, compared to 34% and 32% in 2018, respectively.
Ontario represented 22% of total loans at the end of fiscal 2019, up from
21% last year. This result was underpinned by strong performance from our
businesses with a national footprint, particularly CWB Maxium and CWB
Franchise Finance, with continued support from CWB National Leasing and
stable balances in CWB Optimum.
Oil & Gas Production
1% (0%)
General Commercial Loans
30% (28%)
Personal Loans & Mortgages
20% (20%)
Figure 2 - Outstanding Loans by Portfolio
(October 31, 2018 in brackets)
Real Estate Project Loans
13% (15%)
Commercial Mortgages
18% (18%)
Equiment Financing
18% (19%)
34
CWB Financial Group 2019 Annual Report DIVERSIFICATION OF PORTFOLIO
Figure 3 - Geographical Distribution of Loans based on Location of Security
(October 31, 2018 in brackets)
Other
2% (2%)
Quebec
3% (3%)
Manitoba
3% (3%)
Saskatchewan
5% (5%)
Ontario
22% (21%)
Table 12 - Total Advances Based on Industry Sector(1)
(% at October 31)
Construction
Consumer loans and residential mortgages
Real estate operations
Transportation and storage
Finance and insurance
Retail trade
Hotel/motel
Health and social services
Manufacturing
Agriculture
Oil and gas service
Professional, scientific and technical services
Utilities
Wholesale trade
Logging/forestry
Oil and gas production
Accommodation and food services
All other
Total
(1) Table is based on the North American Industry Classification System (NAICS) codes.
The loan portfolio is focused on areas of demonstrated lending expertise,
while concentrations measured by geographic area and industry sector are
managed within specified tolerance levels. The portfolio is well diversified,
including a mix of business and personal loans, with significantly increased
geographic and industry diversification delivered over the past several
years.
British Columbia
33% (34%)
Alberta
32% (32%)
2019
20%
20
18
8
7
5
4
3
2
2
2
2
1
1
1
1
1
2
2018
21%
20
18
7
7
5
4
3
2
2
2
1
1
1
1
1
1
3
100%
100%
35
CWB Financial Group 2019 Annual Report CREDIT QUALITY
Highlights of 2019
• Stable credit quality with the provision for credit losses on impaired
• Gross impaired loans represented 0.52% of gross loans, unchanged
loans representing 21 basis points of average loans under IFRS 9,
from last year.
compared to 19 basis points last year under IAS 39.
IMPAIRED LOANS
The loan portfolio is delineated through the assignment of internal risk
Gross impaired loans within Alberta of $78 million accounted for 53%
ratings to each borrower. The rating is based on assessments of key
of total impairments at year end, compared to 56% last year. Gross
evaluation factors for the nature of the exposure applied on a consistent
impairments outside of Alberta represented 0.36% of non-Alberta loans
basis across the portfolio. Risk ratings are updated at least annually for
at October 31, 2019, up from 0.34% last year. The ten largest accounts
all loans, with the exception of consumer loans and single-unit residential
classified as impaired, measured by dollars outstanding, represented 36%
mortgages.
As shown in Table 13, the dollar level of gross impaired loans at October
31, 2019 totaled $148 million, up from $138 million last year. This
of total gross impaired loans at year end, down from 41%. New formations
of impaired loans totaled $192 million, compared to $97 million last year.
Strong resolutions of $119 million this year, compared to $82 million last
year, reflects our ongoing commitment to proactive management of the
amount represented 0.52% of total loans, unchanged from a year ago.
loan portfolio.
Table 13 - Change in Gross Impaired Loans
($ thousands)
Gross impaired loans, beginning of period
New formations
Reductions, impaired accounts paid down
or returned to performing status
Write-offs
Total, end of period(1)
Balance of the ten largest impaired accounts
Total number of accounts classified as impaired(2)
Total number of accounts classified as impaired under $1 million(2)
Gross impaired loans as a percentage of gross loans(3)
Change from 2018
2019
2018
$
$
137,872
$
168,261
$
(30,389)
191,662
96,729
94,933
(119,018)
(62,266)
(81,759)
(45,359)
(37,259)
(16,907)
$
148,250
$
137,872
$
10,378
$
52,795
$
56,748
$
(3,953)
330
308
0.52%
214
195
0.52%
116
113
%
(18)%
98
46
37
8%
(7)%
54
58
- bp(4)
(1) Gross impaired loans includes foreclosed assets held for sale with a carrying value of $4,217 (2018 – $6,628). CWB pursues timely realization on foreclosed assets and does not use the assets for its own operations.
(2) Total number of accounts excludes CWB National Leasing.
(3) Total loans do not include an allocation for credit losses or deferred revenue and premiums.
(4) bp – basis point change.
We regularly review the overall loan portfolio and undertake credit decisions
of expected write-offs given tangible security held in support of lending
on a case-by-case basis to provide early identification of possible adverse
exposures. A specialized team closely monitors loans that have become
trends. The level of gross impaired loans fluctuates as loans become impaired
impaired, with regular reviews of each loan and its realization plan. Please
and are subsequently resolved, and does not directly reflect the dollar value
see the Risk Management section of this MD&A for further information.
36
CWB Financial Group 2019 Annual Report ALLOWANCE FOR CREDIT LOSSES
Allowances for credit losses are maintained to absorb both identified and
The year-over-year change in the allowance for credit losses split between
unidentified losses in the loan portfolio. At October 31, 2019, under IFRS
the Stage 3 allowance by category of impaired loans and the Stage 1 and 2
9, the total allowance for credit losses consisted of $26 million of impaired
allowance for credit risk is provided in the following table.
(Stage 3) allowances and $89 million of performing (Stage 1 and 2) allowance
for credit losses. One year ago, under IAS 39, the total allowance for credit
losses consisted of $27 million of specific allowances and $120 million in the
collective allowance for credit losses.
Upon adoption of the new impairment requirements of IFRS 9 on November
1, 2018, CWB’s allowances for credit losses on performing loans (Stages 1 and
2) totaled $89 million, a decrease of $31 million from the IAS 39 collective
allowance as at October 31, 2018. Further details related to the transition
The Stage 3 allowance for impaired loans consists of the amounts required
to IFRS 9 are included in Notes 1 and 2 of the audited annual consolidated
to reduce the carrying value of individually identified impaired loans to their
financial statements.
estimated realizable value. We establish estimates through detailed analysis
of both the overall quality and ultimate marketability of the security held
against each impaired account. The Stage 1 and 2 allowance for performing
loans consists of expected credit losses for losses in the portfolio that are
not presently identifiable on an account-by-account basis.
Table 14 - Allowance for Credit Losses
($ thousands)
Impaired (Stage 3) Allowance
Equipment financing and leasing
General commercial loans
Commercial mortgages
Personal loans and mortgages
Real estate project loans
Oil and gas production loans
Performing (Stage 1 and 2) Allowance
Total
Represented by:
IAS 39
2018 Ending
Balance
IFRS 9
Remeasure-
ment(1)
IFRS 9
2019 Opening
Balance
Provision
for Credit
Losses
Write-Offs,
net of
Recoveries(2)
2019
Ending
Balance
$
15,606 $
5,484
3,290
647
2,000
-
27,027
119,766
-
-
-
-
-
-
-
(31,229)
$
15,606
$ 24,833
$
(25,305)
$ 15,134
5,484
3,290
647
2,000
-
27,027
88,537
30,508
(28,962)
417
1,773
(191)
(3)
57,337
524
(943)
(1,384)
(1,809)
3
(58,400)
-
7,030
2,764
1,036
-
-
25,964
89,061
$
146,793 $
(31,229)
$
115,564
$
57,861
$
(58,400)
$ 115,025
Loans
Committed but undrawn credit exposures and letters of credit(3)
Total
$ 110,834
4,191
$ 115,025
(1) Represents the transition impact of adopting IFRS 9 on November 1, 2019. For further information see Notes 1 and 2 of the 2019 audited annual financial statements.
(2) Recoveries in 2019 totaled $3,866.
(3) The performing allowance for credit losses related to committed but undrawn credit exposures and letters of credit is included in Other Liabilities on the consolidated balance sheets.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was estimated under IFRS 9 beginning in
CWB has a long history of strong credit quality and low loan losses, both
fiscal 2019, with the provision in fiscal 2018 estimated under IAS 39. Under
of which compare very favourably to the Canadian banking industry. We
IFRS 9, the provision for credit losses as a percentage of average loans
continually analyze macroeconomic and other external factors that may
of 21 basis points related entirely to impaired loans. This compares to 20
impact core geographic regions and/or industries in which our clients
basis points last year under IAS 39, consisting of 19 basis points related to
operate.
impaired loans and one basis point related to performing loans. In dollar
terms, the 2019 provision for credit losses of $58 million compares to $48
million last year.
37
CWB Financial Group 2019 Annual Report Table 15 - Provision for Credit Losses
($ thousands)
Provision for credit losses on total loans(1)
Provision for credit losses on impaired loans(1)(2)
Write-offs(1)
IFRS 9
2019
0.21%
0.21
0.23
2018
0.20%
0.19
0.18
IAS 39
2017
0.23%
0.19
0.21
2016(3)
0.38%
0.32
0.34
2015
0.17%
0.12
0.06
(1) As a percentage of average loans.
(2) Portion of the year’s provision for credit losses allocated to impaired loan provisions as a percentage of average loans.
(3) Provision for credit losses, net new specific provisions and write-offs in 2016 reflected the credit performance of oil and gas production loans, including the impact of regulatory factors on the liquidity of assets securing those loans.
DEPOSITS AND FUNDING
Highlights of 2019
• Strong execution against our balanced growth strategic objectives
• Reduced broker deposits by $153 million and decreased their
for growth and diversification of funding.
proportion as a percentage of total funding to 32% of total deposits
• Very strong branch-raised deposit growth of 12% from last year,
at year end, down from 35% in 2018.
including 14% growth of demand and notice deposits.
• Growth of debt capital markets with three successful senior deposit
• Branch-raised deposits comprised 55% of total deposits at year end,
note issuances totaling $900 million.
compared to 52% in 2018.
• Growth of debt related to securitization to support originations of
both equipment loans and leases, and residential mortgages.
Table 16 - Deposits
($ thousands)
Personal
Business and government
Capital markets
Total Deposits
% of Total
Personal
Business and government
Capital markets
Total Deposits
% of Total
Demand
Notice
Term
2019
Total
$
34,296
$ 4,452,592
$ 10,813,617
$ 15,300,505
715,875
3,420,754
-
-
2,595,531
3,318,696
6,732,160
3,318,696
$
750,171
$ 7,873,346
$ 16,727,844
$ 25,351,361
3%
31%
66%
100%
Demand
Notice
Term
2018
Total
$
35,889
$ 3,684,259
$ 10,763,538
$ 14,483,686
716,156
3,157,875
-
-
2,335,785
3,006,455
6,209,816
3,006,455
$
752,045
$ 6,842,134
$ 16,105,778
$ 23,699,957
3%
29%
68%
100%
% of
Total
60%
27
13
100%
% of
Total
61%
26
13
100%
We delivered strong execution against our funding diversification strategy
Personal deposits increased 6% ($817 million), including deposits issued
in 2019. Total deposits of $25.4 billion were up 7% ($1.7 billion).
through the deposit broker network, and business and government deposits
Relationship-based, branch-raised funding increased 12% ($1.5 billion) from
last year, with very strong 14% growth of demand and notice deposits.
Branch-raised deposits represented 55% of total deposits at October 31,
increased 8% ($522 million). The proportion of deposits raised through the
capital markets was stable at 13% of total deposits, with three successful
senior deposit note issuances totaling $900 million. We also increased debt
related to securitization to support originations of equipment leases and
2019, compared to 52% last year. Demand and notice deposits comprised
residential mortgages.
34% of total deposits, compared to 32% in 2018.
38
CWB Financial Group 2019 Annual Report Table 17 - Deposits by Source
(as a percentage of total deposits at October 31)
Branches
Deposit brokers
Capital markets
Total
2019
55%
32
13
100%
2018
52%
35
13
100%
References to branch-raised deposits within this MD&A include all deposits
Other types of deposits are primarily sourced through a deposit broker
generated through CWB’s full-service banking branches, including insured
network, through the deposit-taking franchises of both Canadian Western
deposits raised through Valiant Trust’s deposit-taking franchise, as well as
Bank and Canadian Western Trust, as well as debt capital markets. Deposits
deposits raised via CWB Trust Services and Motive Financial. Increasing
raised through deposit brokers are primarily insured, and the broker deposit
the level of branch-raised business and personal deposits is an ongoing
market remains an efficient and liquid source of funding. Although these
strategic focus for us as success in this area provides the most reliable
funds are subject to commissions, this cost is countered by a reduced
and stable sources of funding. CWB’s banking branches contributed
dependence on a more extensive branch network and the benefit of
approximately half of the increase in branch-raised deposits from last year,
generating insured fixed term retail deposits over a wide geographic base.
with Motive Financial contributing approximately one third of the increase
Of note, we actively raise only fixed term deposits through this funding
and the remainder from CWB Trust Services.
channel, with terms to maturity between one and five years, and do not
CWB Trust Services raises deposits through notice accounts, including cash
balances held in self-directed registered accounts as well as corporate trust
deposits, and fixed term deposits through our CWB branch network. Motive
Financial offers various deposit products to customers in all provinces and
offer a High Interest Savings Account (HISA) product. Strong core deposit
growth this year resulted in lower outstanding balances of broker-sourced
deposits compared to last year. Broker deposits comprised 32% of total
deposits at year end, down from 35% in 2018.
territories except Quebec. Deposits in Motive Financial at October 31, 2019
We continue to invest in our securitization capabilities and utilize
totaled $797 million, up from $305 million last year, mainly from strong
securitization funding through participation in lease securitization vehicles,
growth in the Motive Savvy Savings account.
the NHA MBS program and the Canada Mortgage Bond (CMB) program.
Consistent with our commercial focus, we generate a considerable portion
of our branch-raised deposits from business clients that tend to hold larger
balances compared to personal clients, which can increase the volatility of
demand and notice deposits (see the Liquidity Management section of this
MD&A).
OTHER ASSETS AND OTHER LIABILITIES
Fiscal 2019 funding from the securitization of leases, loans and mortgages
was $907 million (2018 – $1.2 billion), including $704 million (2018 – $1.1
billion) of equipment leases and loans, and $203 million (2018 – $182 million)
from participation in the CMB program.
Other assets at October 31, 2019 totaled $583 million (2018 – $ 579 million).
Other liabilities totaled $713 million at October 31, 2019 (2018 – $725 million).
Goodwill and intangible assets recorded on the balance sheet at October
31, 2019 were $85 million (2018 – $85 million) and $174 million (2018 – $161
million), respectively.
LIQUIDITY MANAGEMENT
Highlights of 2019
• Maintained a prudent liquidity position and conservative investment
• Higher balances of cash and securities at year end partly reflect
profile.
liquidity requirements related to the subordinated debenture
• Continued to enhance reporting, forecasting and control activities
redemption that occured early in fiscal 2020.
for both liquidity and asset/liability management through further
execution of our Treasury Infrastructure Program, which will support
the implementation of a more robust Funds Transfer Pricing (FTP)
framework.
A schedule outlining the consolidated securities portfolio at October 31,
• specific investment criteria and procedures are in place; and,
2019 is provided in Note 6 to the consolidated financial statements. A
conservative liquid asset profile is maintained by ensuring:
• all investments are high quality and include government debt securities
(both Canadian and United States government debt securities), short-
term money market instruments, and other marketable securities;
• the Board Risk Committee, annually reviews and approves the structural
interest rate, and liquidity and funding risk policies and risk appetite
statements.
39
CWB Financial Group 2019 Annual Report Our comprehensive liquidity management process includes, but is not
• monitor liability diversification and maturity profile;
limited to, the following priorities:
• monitor deposit behaviour;
• maintain a pool of high-quality liquid assets;
• maintain access to deposit and capital market funding sources; and,
• complete comprehensive liquidity scenario stress testing;
• monitor microeconomic and macroeconomic factors and early warning
• monitor the quality of the cash and securities portfolio;
indicators.
Table 18 - Liquid Assets
($ thousands)
Cash and non-interest bearing deposits with financial institutions
$
116,963
$
73,822
$
43,141
2019
2018
Change
from 2018
Deposits with regulated financial institutions
Cheques and other items in transit
Total Cash Resources
Government of Canada, provincial and municipal debt, term to maturity 1 year or less
Government of Canada, provincial and municipal debt, term to maturity more than 1 year
NHA mortgage-backed securities(1)
Other debt securities
Securities purchased (sold) under resale agreements
293,856
5,023
415,842
1,071,125
738,872
394,342
191,046
10,401
26,825
52,574
153,221
377,657
1,469,984
330,599
143,536
(95,126)
Total Securities Sold Under Repurchase Agreements and Marketable Securities
2,405,786
2,226,650
267,031
(47,551)
262,621
693,468
(731,112)
63,743
47,510
105,527
179,136
Total Liquid Assets
Total Assets
Liquid Assets as a Percentage of Total Assets
Total Cash and Securities
Cash and Securities as a Percentage of Total Assets
Total Deposit Liabilities
Liquid Assets as a Percentage of Total Deposit Liabilities
$
2,821,628
$ 31,424,235
$
$
2,379,871
$
441,757
29,021,463
$ 2,402,772
9%
8%
100 bp(2)
$
2,475,415
$
2,237,973
$
237,442
8%
8%
- bp(2)
$
25,351,361
$ 23,699,957
$
1,651,404
11%
10%
100 bp
Includes securitized mortgages that were not transferred to third parties. These are reported in loans at amortized cost on the consolidated balance sheets.
(1)
(2) bp – basis points.
Liquid assets, as defined by OSFI, comprised of cash, deposits, securities
Additional sources of liquidity and funding in 2019 included $907 million
sold under repurchase agreements and marketable debt securities
(2018 – $1.2 billion) from the securitization of leases and mortgages,
totaled $2.8 billion at October 31, 2019 (2018 – $2.4 billion). Liquid assets
including $837 million (2018 – $608 million) of residential mortgages
represented 9% (2018 – 8%) of total assets and 11% (2018 – 10%) of total
which represent utilization of our NHA MBS allocation and $203 million
(2018 – $182 million) from participation in the CMB program. Sources of
incremental new funding included branch-raised deposits, issuances of
senior deposit notes, subordinated debentures and preferred shares, as
well as securitization activity. A summary of all outstanding deposits by
contractual maturity date is presented in the two following tables.
deposit liabilities at year end.
Our liquidity management is based on an internal stressed cash flow model,
with the level of cash and securities driven primarily by the term structure
of both assets and liabilities, and the liquidity structure of liabilities. The
composition of total liquid assets supports ongoing compliance with the
OSFI Liquidity Adequacy Requirements guideline. Higher balances of cash
and securities at year end partly reflect liquidity requirements related to
the planned subordinated debenture redemption that occured in early fiscal
2020. Other key changes in the composition of liquid assets at October 31,
2019 compared to the prior year include:
• maturities within one year comprise 59% (2018 – 39%);
• Government of Canada, provincial and municipal debt securities and
unencumbered NHA MBS comprise 78% (2018 – 92%);
• deposits with regulated financial institutions comprise 15% (2018 – 6%);
and,
• other marketable securities and securities sold under repurchase
agreements comprise 7% (2018 – 2%).
40
CWB Financial Group 2019 Annual Report
Table 19 - Deposit Maturities Within One Year
($ millions)
October 31, 2019
Demand deposits
Notice deposits
Deposits payable on a fixed date
Total
October 31, 2018 Total
Table 20 - Total Deposit Maturities
($ millions)
Within
1 Month
1 to 3
Months
3 Months
Cumulative
to 1 Year Within 1 Year
$
750
$
-
$
-
$
6,963
685
193
1,261
717
4,748
8,398
$
1,454
$
5,465
$
750
7,873
6,694
15,317
8,201
$
1,216
$
4,285
$
13,702
$
$
October 31, 2019
Demand deposits
Notice deposits
Deposits payable on a fixed date
Total
October 31, 2018 Total
$
$
Within
1 Year
1 to 2
Years
2 to 3
Years
3 to 4
Years
4 to 5
Years
More than
5 Years
$
750
$
7,873
6,694
$
-
-
$
-
-
$
-
-
$
-
-
5,013
2,242
1,793
986
15,317
$
5,013
$
2,242
$
1,793
$
986
$
Total
750
7,873
16,728
25,351
-
-
-
-
$
$
13,702
$
3,831
$
3,345
$
1,321
$
1,501
$
-
$
23,700
A breakdown of deposits by source is provided in Table 17. Target limits by
source have been established as part of the overall liquidity policy and are
monitored regularly to ensure an acceptable level of funding diversification
is maintained. We continue to develop and implement strategies to
compete for branch-raised deposits, and to strengthen this channel as the
core source of funding.
Deposits raised through deposit brokers remain an effective incremental
funding source. Senior and bearer deposit notes raised in the capital
markets provide a further source of funding and liquidity.
A summary of the subordinated debentures outstanding is presented in the
following table:
Table 21 - Subordinated Debentures Outstanding
($ thousands)
Non-NVCC subordinated debentures
NVCC subordinated debentures
Interest
Rate
Maturity
Date
Earliest Date
Redeemable
by CWB at Par
3.463%(1)
3.668%(2)
December 17, 2024
June 11, 2029
December 17, 2019
June 11, 2024
$
Par Value
250,000
250,000
(1) These conventional debentures had a 12-year term with a fixed interest rate for the first seven years. Thereafter, if not redeemed the interest rate would have reset quarterly at the 3-month Canadian Dollar Offered Rate (CDOR) plus 160 basis
points. All of the outstanding 3.463% non-NVCC subordinated debentures were redeemed on November 18, 2019 at an aggregate amount of $253,900, representative of the early redemption value plus accrued interest.
(2) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the 3-month CDOR plus 199 basis points.
In addition to deposit liabilities and subordinated debentures, we have
notional debt securities related to the securitization of loans, leases and
mortgages to third parties (refer to Note 9 and 16 of the consolidated
financial statements for additional information).
41
CWB Financial Group 2019 Annual Report
CAPITAL MANAGEMENT
Highlights of 2019
• We expect to submit final application and receive regulatory
• Repurchased 1.8 million common shares on the open market at a
approval in fiscal 2020 for transition to the AIRB approach for capital
weighted average price of $27.08 per share under the normal course
and risk management.
issuer bid (NCIB) which terminated on September 30, 2019.
• Very strong Basel III CET1 regulatory capital ratio of 9.1% under the
• Launched a new NCIB authorizing the purchase for cancellation up
Standardized approach for calculating risk-weighted assets.
to 1.7 million common shares, terminating on September 30, 2020.
• Cash dividends of $1.08 per share paid to common shareholders, up 8%
• Reset the fixed rate non-cumulative cash dividend for Series 5
• Very conservative Basel III leverage ratio of 8.3%, compared to the
preferred shares to 4.301% per annum.
regulatory minimum of 3.0%, where a higher ratio indicates lower
• Issued $125 million five-year rate reset non-viability contingent
leverage.
capital (NVCC) First Preferred Shares Series 9.
• Issued $250 million of NVCC subordinated debentures due June 11,
2029.
Subsequent Highlights
• On December 4, 2019, the Board of Directors declared a cash
• Redeemed all $250 million of outstanding non-NVCC subordinated
dividend of $0.28 per common share, unchanged from the prior
debentures on November 18, 2019.
quarter and up 8% from the dividend declared in the same period
last year. The Board also declared preferred share cash dividends
of $0.2688125 per Series 5, $0.390625 per Series 7, and $0.375 per
Series 9.
This year we repositioned CWB’s capital structure to both optimize our cost
of capital and support ongoing profitable growth and strategic execution.
We issued $125 million of new Series 9 preferred shares and reset the rate
on outstanding Series 5 preferred shares to lower the cost. We issued $250
million of NVCC subordinated debentures, and subsequent to year end,
redeemed all $250 million of non-NVCC subordinated debentures. We also
repurchased 1,829,944 common shares on the open market at a weighted
average price of $27.08 per common share under the NCIB which terminated
on September 30, 2019. We launched a new NCIB authorizing the purchase
for cancellation up to 1,740,000 common shares, representing approximately
2% of the issued and outstanding common shares, terminating on
September 30, 2020.
We manage capital in accordance with policies and plans that are regularly
reviewed and approved by the Board Risk Committee. Capital management
takes
into account forecasted capital needs with consideration of
anticipated profitability, asset growth, market and economic conditions,
regulatory changes, and common and preferred share dividends. The
overriding goal is to remain well-capitalized in order to protect depositors,
and provide capacity for internally generated growth and strategic
opportunities that do not otherwise require accessing the capital markets,
all while providing a satisfactory return for common shareholders. We
have implemented an ICAAP to establish target capital levels deemed
prudent to effectively manage risks, including potential capital shocks from
unexpected macroeconomic and/or CWB-specific events.
We provide a share incentive plan to officers and employees who are in
a position to materially impact the longer term financial success of the
organization, as measured by overall profitability, earnings growth, share
price appreciation and dividends. Note 18 to the 2019 annual consolidated
financial statements details the number of options outstanding, the
weighted average exercise price and the amounts exercisable at year end.
Holders of CWB common shares and all series of preferred shares are
deemed eligible by the Board and offered the choice to direct cash
42
dividends paid toward the purchase of common shares through a dividend
reinvestment plan (DRIP). Further details regarding CWB’s DRIP are
available at https://www.cwb.com/investor-relations.
We complied with all internal and external capital requirements in 2019.
AIRB TRANSITION PLAN
Our project continues in support of an application to OSFI for transition
to the AIRB methodology for capital and risk management. In the second
quarter of 2019, we revised our expected date to submit our final application
from 2019 to 2020. This change reflected the iterative and conservative
approach we have undertaken to achieve this transformational milestone,
which we expect to create meaningful and lasting value for shareholders.
We continue to expect to receive regulatory approval to transition in 2020.
Transition to the AIRB approach will put us on more equal footing with our
competition and increase our addressable market. It will add risk sensitivity
to our framework for capital management, increase risk quantification
processes, improve risk-based pricing capabilities and economic capital
estimations, improve stress testing capabilities and enhance our ICAAP.
These improved risk management capabilities will better equip CWB to
allocate resources to target business segments that generate the most
attractive risk-adjusted returns.
Our AIRB transition project is comprised of several discrete phases,
including: establishment of formalized project governance; creation of
models including data collection, development and testing, deployment,
operationalization and use test; model validation; and, submission of the
final application to OSFI. All material AIRB models and related scorecards
have been deployed into the business, with ongoing enhancement of
existing models underway.
Further development of ERM function is also ongoing, including: three lines
of defence enhancement, stress testing capabilities, and economic capital
estimation. Implementation of CWB’s AIRB risk-weighted asset calculation
and capital reporting tools continues.
CWB Financial Group 2019 Annual Report BASEL III CAPITAL ADEQUACY ACCORD
OSFI requires Canadian financial institutions to manage and report
On October 30, 2018, OSFI revised its securitization framework to reflect
regulatory capital in accordance with the Basel III capital management
the adoption of the BCBS’ Revisions to the Securitisation Framework and
framework. We currently report regulatory capital ratios using the
Capital Treatment for Short-term “Simple, Transparent and Comparable”
Standardized approach for calculating risk-weighted assets, which requires
Securitisations. The new requirements were effective November 1,
CWB to carry significantly more capital for certain credit exposures
2018, however OSFI provided transitional arrangements for transactions
compared to requirements under the AIRB methodology. For this reason,
undertaken before January 1, 2019. In addition, OSFI allowed a one-year
regulatory capital ratios of banks that utilize the Standardized approach are
grandfathering of the securitization framework for all exposures held at
not directly comparable with the large Canadian banks and other financial
October 31, 2018. Upon adoption of the revised guidelines, there was no
institutions that utilize the AIRB methodology. CWB’s required minimum
material impact to CWB’s capital ratios.
regulatory capital ratios, including a 250 basis point capital conservation
buffer, are 7.0% common equity Tier 1 (CET1), 8.5% Tier 1 and 10.5% Total
capital.
On October 30, 2018, OSFI also revised its guidelines to incorporate the new
BCBS Standardized approach methodologies for measuring counterparty
credit risk and capital requirements for exposures to central counterparties.
With very strong capital ratios of 9.1% CET1, 10.7% Tier 1 and 12.8% Total
The adoption required over-the-counter derivative exposures to be reflected
capital at October 31, 2019, CWB is well positioned to create value for
under the new Standardized Approach for Measuring Counterparty Credit
shareholders through a range of capital deployment options consistent
Risk (SA-CCR), instead of the previous methodology based on the current
with our balanced growth strategic objectives. Ongoing support and
exposure method. The adoption of these guidelines had no material impact
development of each of CWB’s core businesses will remain a key priority,
to CWB’s capital ratios.
and we will continue to evaluate potential strategic acquisitions. CWB’s
Basel III leverage ratio of 8.3% at year end remains very strong.
On October 30, 2018, OSFI published its updated Leverage Requirements
Guideline, effective for November 1, 2018. The revisions align the leverage
The Basel Committee on Banking Supervision (BCBS) finalized Basel III
guideline with OSFI’s 2019 adoption of the BCBS standard on SA-CCR and
reforms in fiscal 2017, with an effective date of January 2022. The final Basel
the revisions to the securitization framework discussed above.
III reforms included adjustments to the calculation of risk-weighted assets
(RWAs), which more specifically included changes to both the standardized
approach (SA) and internal ratings based (IRB) approach to credit risk,
operational risk, and credit valuation adjustments as well as to the AIRB
capital floors. The reforms are mainly intended to reduce the variability
in capital levels and to address a number of weaknesses in the existing
capital framework. OSFI is currently engaged in a consultation process with
interested stakeholders on its proposed policy direction and its timelines for
implementation of the final Basel III reforms in Canada.
On November 20, 2018, OSFI also finalized the Leverage Ratio Disclosure
Requirements guideline, effective for November 1, 2018. The adoption of
these guidelines had no material impact to CWB’s leverage ratio.
On July 11, 2019, OSFI released a discussion paper titled Advancing
Proportionality: Tailoring Capital and Liquidity Requirements for Small
and Medium-Sized Deposit Taking Institutions. OSFI launched a public
consultation process on the discussion paper and is now considering the
submissions.
Table 22 - Capital Structure and Regulatory Ratios at Year End
($ thousands)
Regulatory Capital, Net of Deductions
Common equity Tier 1
Tier 1
Total
Capital Ratios
Common equity Tier 1
Tier 1
Total
Leverage Ratio
(1) bp – basis points.
2019
2018
Change from
2018
$ 2,302,551
$ 2,153,019
$
149,532
2,692,714
3,232,807
2,418,231
2,788,048
274,483
444,759
9.1%
10.7
12.8
8.3
9.2%
10.3
11.9
8.0
(10) bp
40
90
30
Our very strong CET1 capital ratio of 9.1% compares to 9.2% last year. The
partially offset by the items noted above, as well as the fact that a portion
impacts of earnings net of dividends, the IFRS 9 transitional adjustment
of the $250 million of non-NVCC subordinated debentures outstanding
to opening retained earnings and positive other comprehensive income
during the year was not included in Total capital in 2019. At 8.3% (8.0% as
were more than offset by the combined impact of strong risk-weighted
at October 31, 2018), the Basel III leverage ratio remains very conservative.
asset growth, and common shares repurchased under the NCIB. The Tier
1 and Total capital ratios increased 40 basis points and 90 basis points,
respectively, primarily reflecting the issuance of $125 million NVCC Series 9
Preferred Shares and $250 million of NVCC subordinated debentures,
43
CWB Financial Group 2019 Annual Report Table 23 - Regulatory Capital
($ thousands)
Common Equity Tier 1 Capital Instruments and Reserves
Directly issued qualifying common share capital plus related share-based payment reserve
$
756,279
$
768,638
As at
October 31
2019
As at
October 31
2018
Retained earnings
Accumulated other comprehensive income and other reserves
Common equity Tier 1 capital before regulatory adjustments
Regulatory adjustments to Common equity Tier 1(1)
Common equity Tier 1 capital
Additional Tier 1 Capital Instruments
Directly issued capital instruments qualifying as Additional Tier 1 instruments
Additional Tier 1 instruments issued by subsidiaries and held by third parties
Additional Tier 1 capital
Tier 1 capital
Tier 2 Capital Instruments and Allowances
Directly issued capital instruments
Directly issued capital instruments subject to phase out from Tier 2(2)
General allowance for credit losses
Tier 2 instruments issued by subsidiaries and held by third parties
Tier 2 capital before regulatory adjustments
Total capital
1,785,273
(8,600)
2,532,952
(230,401)
2,302,551
1,649,196
(48,962)
2,368,872
(215,853)
2,153,019
390,000
265,000
163
390,163
2,692,714
212
265,212
2,418,231
248,494
202,500
89,061
38
-
250,000
119,766
51
540,093
369,817
$ 3,232,807
$ 2,788,048
(1) CET1 deductions include goodwill and intangible assets, net of related tax.
(2) The 2019 inclusion of non-qualifying capital instruments in regulatory capital under Basel III is capped at 30% (2018 – 40%) of the balance of non-common equity instruments outstanding at January 1, 2013. At October 31, 2019, $47,500
(2018 – nil) was excluded from Total regulatory capital related to outstanding non-NVCC subordinated debentures.
Cash,
Securities
and Resale
Agreements
As at October 31, 2019
Loans
Other
Items
Total
Risk-
Weighted
Assets
$
94,491
$ 17,689,942
$
1,852,338
426,966
9,297
51
65,086
5,690,445
-
-
18,292
-
-
-
-
-
184,947
3,331,350
-
339,641
-
114,690
162,182
-
242,186
-
47,690
511,431
-
-
-
-
-
-
-
-
$
17,784,433
$ 17,708,342
1,861,635
427,017
1,859
77,370
5,755,531
1,667,224
184,947
125,144
3,331,350
2,538,663
18,292
339,641
114,690
162,182
47,690
753,617
18,292
335,935
1,433,625
800,856
17,989
476,994
$
$
2,457,173
$ 27,650,041
2,174,038
$ 25,443,612
$
$
673,811
$ 30,781,025
$ 25,202,293
689,488
$ 28,307,138
$ 23,486,242
Table 24 - Risk-Weighted Assets
($ thousands)
Corporate
Sovereign
Bank
Retail residential mortgages
Other retail
Excluding small business entities
Small business entities
Equity
Undrawn commitments
Operational risk
Securitization risk
Derivative exposures
Other
As at October 31, 2019
As at October 31, 2018
44
CWB Financial Group 2019 Annual Report
Table 25 - Risk-Weighting Category
($ thousands)
Retail residential mortgages
1,067,378
-
4,641,167
1,852,338
9,297
40,376
386,589
-
-
Corporate
Sovereign
Bank
Other retail
Excluding small
business entities
Small business entities
Equity
Undrawn commitments
Operational risk
Securitization risk
Derivative exposures
0%
20%
35%
50%
75%
100%
As at October 31, 2019
150% and
greater
Balance
Weighted
$
30,938 $ 89,078 $
- $ 10,065 $
- $ 17,592,067 $ 62,285 $ 17,784,433 $ 17,708,342
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52
-
-
1,861,635
427,017
1,859
77,370
19,937
25,422
1,627
5,755,531
1,667,224
166,793
1
9
184,947
125,144
3,188,703
102,804
29,401
3,331,350
2,538,663
-
18,292
15,000
324,553
-
-
-
-
-
-
-
88
114,690
162,182
687
48,520
344,175
37,666
18,292
339,641
114,690
162,182
47,690
753,617
18,292
335,935
1,433,625
800,856
17,989
476,994
17,972
9,287
172
1,155
-
-
-
-
-
-
-
-
-
47,003
5,164
-
-
-
-
-
-
-
-
Other
318,092
As at October 31, 2019
$ 3,336,381 $ 538,458 $ 4,641,167 $ 10,065 $ 3,438,953 $ 18,407,366 $ 408,635 $ 30,781,025 $ 25,202,293
As at October 31, 2018
$ 3,052,548 $ 188,388 $ 4,412,605 $ 5,023 $ 3,133,833 $
17,159,188 $ 355,553 $ 28,307,138 $ 23,486,242
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
As a financial institution, most of CWB’s balance sheet is comprised of
Further information on how the fair value of financial instruments is
financial instruments and the majority of net income results from gains,
determined is included in the Financial Instruments Measured at Fair Value
losses, income and expenses related to the same.
discussion in the Accounting Policies and Estimates section of this MD&A.
Financial assets include cash resources, securities, securities purchased
Income and expenses are classified as to source, either securities or loans
under resale agreements, loans, derivative financial instruments and certain
for income, and deposits or debt for expense. Gains (losses) on the sale of
other assets. Financial liabilities include deposits, securities sold under
securities, net and fair value changes in certain derivatives are classified
repurchase agreements, derivative financial instruments, debt and certain
to non-interest income. Contingent consideration fair value changes are
other liabilities.
classified as acquisition-related fair value changes in the consolidated
statements of income.
The use of financial instruments exposes CWB to credit, liquidity and
market risk. A discussion of how these are managed can be found in the
Risk Management section of this MD&A.
DERIVATIVE FINANCIAL INSTRUMENTS
More detailed information on the nature of derivative financial instruments
is shown in Note 12 to the consolidated financial statements. The notional
amounts of derivative financial instruments are not reflected on the
consolidated balance sheets.
45
CWB Financial Group 2019 Annual Report Table 26 - Derivative Financial Instruments
($ thousands)
Notional Amounts
Interest rate swaps designated as cash flow hedges(1)
Foreign exchange contracts not designated as accounting hedges(2)
Interest rate swaps designated as fair value hedges(3)
Bond forwards designated as cash flow hedges(4)
Equity swaps designated as cash flow hedges(5)
Equity swaps not designated as accounting hedges(6)
Total
2019
2018
$ 6,828,000
$ 4,908,000
270,913
39,746
20,000
19,268
5,319
189,128
-
15,000
18,285
5,842
$
7,183,246
$
5,136,255
(1) CWB receives interest at a fixed contractual rate and pays interest on the one-month (30-day) Canadian Bankers’ Acceptance rate. Interest rate swaps designated as accounting cash flow hedges outstanding at October 31, 2019 mature
between November 2019 and September 2024.
Interest rate swaps designated as accounting fair value hedges outstanding at October 31, 2019 mature in August and December 2022.
(2) Foreign exchange contracts outstanding at October 31, 2019 mature between November 2019 and April 2020.
(3)
(4) Bond forward contracts outstanding at October 31, 2019 mature in December 2019.
(5) Equity swaps designated as accounting hedges outstanding at October 31, 2019 mature between June 2020 and June 2022.
(6) Equity swaps not designated as accounting hedges outstanding at October 31, 2019 mature in June 2020.
The active use of interest rate contracts remains an integral component to
the counterparty. As part of our structural Market Risk Policy the use of
manage the interest rate gap position. Derivative financial instruments are
derivative financial instruments are approved, reviewed and monitored on
entered into only for CWB’s own account. We do not act as an intermediary
a regular basis by Asset Liability Committee (ALCo), and are reviewed and
in derivatives markets. Transactions are entered into on the basis of industry
approved by the Board Risk Committee no less than annually.
standard contracts with approved counterparties subject to periodic and
at least annual review, including an assessment of the credit worthiness of
OFF-BALANCE SHEET
Off-balance sheet items include assets under administration and assets
Other off-balance sheet items are comprised of standard industry credit
under management. Total assets under administration, which are comprised
instruments (guarantees, standby letters of credit and commitments to
of trust assets under administration, third-party leases under administration,
extend credit). We do not utilize, nor do we have exposure to, collateralized
and mortgages under service agreements, totaled $9.3 billion at October
debt obligations or credit default swaps. For additional information
31, 2019 (2018 – $8.4 billion).
regarding other off-balance sheet items refer to Note 20 of the consolidated
Assets under management held within CWB Wealth Management, including
CWB McLean & Partners Wealth Management, were $2.1 billion at year end
(2018 – $2.1 billion).
financial statements.
46
CWB Financial Group 2019 Annual Report
SUMMARY OF QUARTERLY RESULTS AND FOURTH QUARTER
QUARTERLY RESULTS
The financial results for each of the last eight quarters are summarized in
Detailed MD&A along with unaudited interim consolidated financial
Table 27. In general, our performance reflects a consistent growth trend,
statements for each quarter, except for the fourth quarters, are available for
although the second quarter contains three fewer revenue-earning days,
review on SEDAR at www.sedar.com and on our website at www.cwb.com.
and two fewer days during leap years. Non-interest income includes gains
Copies of the quarterly reports to shareholders can also be obtained, free
on sale related to the CWT strategic transactions of $0.6 million, $0.4
of charge, by contacting InvestorRelations@cwbank.com.
million and $3.0 million in the fourth, third and first quarters of fiscal 2018,
respectively.
Among other things, quarterly results can also fluctuate from the recognition
of periodic income tax items.
Table 27 - Quarterly Financial Highlights(1)
($ thousands, except per share amounts)
Results from Operations
Net interest income
Non-interest income
Total revenue
Pre-tax, pre-provision income
Common shareholders' net income
Earnings per common share
Basic
Diluted
Adjusted cash
Return on common
shareholders’ equity
Adjusted return on common
shareholders’ equity
Return on assets
Efficiency ratio
Net interest margin
Operating leverage
Provision for credit losses on total loans
Q4
2019(2)
Q3
Q2
Q1
Q4
2018
Q3
Q2
Q1
$ 201,439
$ 199,746
$
191,057
$ 193,342
$
189,093
$ 186,644
$
177,986
$
171,267
19,414
18,738
18,711
19,097
19,473
18,345
18,600
220,853
218,484
209,828
212,439
208,566
204,989
196,586
114,390
67,512
116,975
70,964
111,692
61,965
118,073
66,499
111,182
64,501
110,695
62,362
107,247
60,464
0.77
0.77
0.78
0.81
0.81
0.82
0.71
0.71
0.74
0.75
0.75
0.80
0.73
0.72
0.78
0.70
0.70
0.75
0.68
0.68
0.73
21,950
193,217
107,064
61,929
0.70
0.69
0.75
10.6%
11.3%
10.5%
11.1%
11.1%
10.8%
11.1%
11.1%
10.7
0.86
48.2
2.55
(3.4)
11.4
0.92
46.5
2.60
(1.1)
11.0
0.85
46.8
2.63
(3.1)
11.9
0.90
44.4
2.61
0.4
11.9
0.89
46.7
2.61
0.1
11.7
0.88
46.0
2.64
(1.4)
12.0
0.89
45.4
2.61
5.4
12.0
0.91
44.6
2.52
3.9
as a percentage of average loans
0.19
0.19
0.23
0.24
0.19
0.21
0.20
0.18
Provision for credit losses on impaired
loans as a percentage of average loans
0.18
0.22
0.22
0.22
0.19
0.22
0.20
0.16
(1) See page 20 for a discussion of non-IFRS measures.
(2) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2 of the 2019 audited annual financial statements). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been
restated.
47
CWB Financial Group 2019 Annual Report
FOURTH QUARTER OF 2019
Overview of Operations
Q4 2019 VS. Q4 2018
ADJUSTED ROE AND ROA
Common shareholders’ net income of $68 million and pre-tax, pre-provision
The fourth quarter adjusted ROE of 10.7% was 120 basis points lower
income of $114 million were up 5% and 3%, respectively. Total revenue of
compared to the same period last year. The change mainly reflects 10%
$221 million was up 6% from last year, including a 7% increase in net interest
growth of average common shareholders’ equity from the fourth quarter
income. Higher net interest income reflects solid 8% loan growth, partially
last year, with an increase in accumulated other comprehensive income and
offset by a six basis point decrease in net interest margin to 2.55%. Net
retained earnings growth, partially offset by the impact of common shares
interest margin declined as higher asset yields and favourable changes in
purchased for cancellation, compared to a 1% reduction in fourth quarter
funding mix were more than offset by increased funding costs and changes
adjusted common shareholders net income.
Adjusted ROE was 70 basis points lower on a sequential basis, mainly
reflecting 4% lower adjusted net income this quarter and 2% growth in
average common shareholders’ equity.
The fourth quarter return on assets (ROA) of 0.86% was three basis points
lower than the prior year as growth of net income was outpaced by growth
of average assets. ROA was down six basis points from the prior quarter,
reflecting the same factors.
EFFICIENCY RATIO
The fourth quarter efficiency ratio of 48.2%, which measures adjusted non-
interest expenses divided by total revenue, compares to 46.7% in the same
period last year and 46.5% in the previous quarter. Compared to last year
and last quarter, revenue growth was outpaced by growth of non-interest
expenses, mainly reflecting continued investment in strategic execution.
in asset mix. Non-interest income of $19 million was consistent with last
year, with fourth quarter results in fiscal 2018 including $0.6 million of gains
on sale related to the CWT strategic transactions. The IFRS 9 provision for
credit losses on total loans as a percentage of average loans was 19 basis
points. Under IAS 39, provisions for credit losses represented 19 basis
points in the fourth quarter of last year. Non-interest expenses were up 9%,
reflecting investments to support continued growth and strategic execution,
including increased advertising. Higher salaries and benefits comprised two
thirds of the increase and primarily reflect additional hiring. Three quarters
of the increase in premises and equipment costs related to technology
investment. Acquisition-related fair value changes were $5 million lower,
reflecting completion of the earn-out period on February 28, 2019 for the
contingent consideration related to the successful and accretive acquisition
of CWB Maxium Financial. Preferred share dividends were $2 million higher.
Diluted and adjusted cash earnings per common share of $0.77 and $0.78
were up 7% and nil, respectively. The higher growth rate of diluted earnings
per common share primarily reflects no acquisition-related fair value
changes this quarter.
Q4 2019 VS. Q3 2019
Common shareholders’ net income and pre-tax, pre-provision income
were down 5% and 2%, respectively. Total revenue was up 1%. Growth
in net interest income of 1% reflected 1% loan growth, partially offset by
a five basis point decrease in net interest margin. Moderate loan growth
partly reflected payouts from successful project completions in our real
estate portfolio. Within net interest margin, positive changes in funding
mix from higher growth in demand and notice deposits was more than
offset by changes in asset mix, lower asset yields and increased funding
costs. Non-interest income was up 4% and the provision for credit losses
as a percentage of average loans was unchanged. Non-interest expenses
were 5% higher, reflecting the factors noted above. The fourth quarter
also included higher consulting fees and customary seasonal increases in
employee training and community investment. Diluted and adjusted cash
earnings per common share were both down 5%.
48
CWB Financial Group 2019 Annual Report ACCOUNTING POLICIES AND ESTIMATES
CRITICAL ACCOUNTING ESTIMATES
CWB’s significant accounting policies are outlined in Note 1 to the audited
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
consolidated financial statements 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
Cash resources, securities, acquisition contingent consideration and
derivative financial instruments are reported on the consolidated balance
sheets at fair value.
CWB categorizes its fair value measurements of financial instruments
according to a three-level hierarchy. Level 1 fair value measurements
reflect unadjusted quoted prices in active markets for identical assets and
An allowance for credit losses is maintained to absorb expected credit losses
liabilities that CWB can access at the measurement date. Level 2 fair value
for both performing assets and impaired assets based on management’s
measurements were estimated using observable inputs, including quoted
estimate at the balance sheet date and forward-looking information. Under
market prices for similar assets or liabilities in active markets, quoted prices
IFRS 9 effective November 1, 2018, the allowance for credit losses related
for identical or similar assets or liabilities in inactive markets, and model
to performing and impaired assets is estimated using an ECL approach that
inputs that are either observable or can be corroborated by observable
represents the discounted probability-weighted estimate of cash shortfalls
market data for substantially the full term of the assets or liabilities. Level
expected to result from defaults over the relevant time horizon. To do this,
3 fair value measurements were determined using one or more inputs that
the ECL approach incorporates a number of underlying assumptions which
are unobservable and significant to the fair value of the asset or liability.
involve a high degree of management judgment and can have a significant
Unobservable inputs are used to measure fair value to the extent that
impact on financial results. Significant key drivers impacting the estimation
observable inputs are not available at the measurement date.
of ECL, which are interrelated, include:
• changes in internal risk ratings attributable to a borrower or instrument
reflecting changes in credit quality;
• thresholds used to determine when a borrower has experienced a
significant increase in credit risk; and,
• changes in forward-looking information, specifically related to variables
to which the ECL models are calibrated.
The inputs and models used for estimating ECL may not always capture all
emerging market conditions and as such, qualitative adjustments based on
expert judgment that consider reasonable and supportable information may
be incorporated. Changes in circumstances may cause future assessments
of credit risk to be significantly different than current assessments and
may require an increase or decrease in the allowance for credit losses.
Establishing a range for the allowance for credit losses is difficult due to the
number of uncertainties involved. At October 31, 2019, our total allowance
for credit losses was $115 million which includes an allowances for credit
losses related to impaired assets of $ 26 million and an allowances for credit
losses related to performing assets of $89 million. Additional information
on the process and methodology for determining the allowance for credit
losses under IFRS 9 and IAS 39 during fiscal 2019 and 2018, respectively, and
the transition between the standards on November 1, 2018 can be found in
the discussions of Credit Quality and Changes in Accounting Policies and
Financial Statement Presentation, respectively, in this MD&A and in Note 1,
2 and 8 to the consolidated financial statements.
49
CWB Financial Group 2019 Annual Report The following table summarizes the significant financial assets and liabilities recorded on the consolidated balance sheets at fair value.
Table 28 - Valuation of Financial Instruments
($ thousands)
As at October 31, 2019
Financial Assets
Cash resources
Securities
Securities purchased under resale agreements
Loans
Derivatives
Total Financial Assets
Financial Liabilities
Deposits
Securities sold under resale agreements
Debt
Derivatives
Total Financial Liabilities
As at October 31, 2018
Financial Assets
Cash resources
Securities
Loans
Derivatives
Total Financial Assets
Financial Liabilities
Deposits
Securities sold under repurchase agreements
Debt
Contingent consideration(1)
Derivative related
Total Financial Liabilities
Fair Value
Level 1
Level 2
Level 3
Valuation Technique
-
-
-
-
-
$
415,842
$
139,876
$
275,966
$
2,019,207
40,366
28,478,436
47,815
141,070
-
-
-
1,878,137
40,366
-
28,478,436
47,815
-
$ 31,001,666
$
280,946
$ 2,242,284
$ 28,478,436
$ 25,544,270
$
29,965
2,444,034
14,016
$ 28,032,285
$
-
-
-
-
-
$ 25,544,270
$
29,965
2,444,034
14,016
$ 28,032,285
$
Valuation Technique
-
-
-
-
-
Fair Value
Level 1
Level 2
Level 3
$
153,221
$
144,019
$
9,202
$
219,570
1,865,182
2,084,752
26,551,146
2,496
-
-
-
26,551,146
2,496
-
$ 28,791,615
$
363,589
$
1,876,880
$ 26,551,146
$ 23,502,200
$
95,126
1,942,472
29,814
69,581
$ 25,639,193
$
-
-
-
-
-
-
$ 23,502,200
$
95,126
1,942,472
-
69,581
-
-
-
29,814
-
$ 25,609,379
$
29,814
(1) The Level 3 financial liability at October 31, 2018 is related to the acquisition of CWB Maxium and the CWT strategic transactions.
Notes 3, 5, 6, 7, 8, 12, 14, 16, 25 and 27 to the consolidated financial statements provide additional information regarding these financial instruments.
50
CWB Financial Group 2019 Annual Report CHANGES IN ACCOUNTING POLICIES AND
FINANCIAL STATEMENT PRESENTATION
IFRS 9 FINANCIAL INSTRUMENTS
CWB adopted IFRS 9, which replaces IAS 39 for the fiscal year beginning
November 1, 2018. As permitted by IFRS 9, we have not restated prior period
comparative figures and have recognized an adjustment to opening retained
earnings and accumulated other comprehensive income (AOCI) to reflect
the application of the new requirements at the adoption date. For further
details, refer to Notes 1 and 2 of the consolidated financial statements.
The most significant impact to CWB with the transition to IFRS 9 is
the introduction of an ECL approach for measuring impairment that is
applicable to financial assets measured at amortized cost, debt securities
measured at FVOCI, and certain off-balance sheet loan commitments and
financial guarantee contracts. The implementation of an ECL approach
under IFRS 9, which results in allowances for credit losses being recognized
on financial assets regardless of whether there has been an actual loss
event, is a significant change from the incurred loss model under IAS 39.
Under IFRS 9, we refer to allowances and provisions for credit losses on
impaired loans (Stage 3) and performing loans (Stages 1 and 2). Our specific
allowances under IAS 39 are consistent with Stage 3 allowances for credit
losses under IFRS 9, while the collective allowance under IAS 39 is replaced
by Stage 1 and 2 allowances for credit losses under IFRS 9.
IFRS 15 REVENUE FROM CONTRACTS WITH
CUSTOMERS
IFRS 15 Revenue from Contracts with Customers (IFRS 15) was issued in
May 2014, and replaces IAS 18 Revenue, IAS 11 Construction Contracts and
related Interpretations. IFRS 15 provides a single, principles-based five-step
model that applies to all contracts with customers. The standard excludes
from its scope revenue arising from items such as financial instruments
and leases as these fall within the scope of other IFRSs. We performed a
detailed analysis on each revenue stream that is within the scope of the new
standard. We adopted IFRS 15 using the modified retrospective approach
and have concluded that there is no significant impact in relation to the
adoption of IFRS 15.
FUTURE CHANGES IN ACCOUNTING POLICIES
At initial application, we will elect the modified retrospective option
permitted by IFRS 16, in which the lessee recognizes the cumulative effect,
if any, on initial application in retained earnings as of November 1, 2019,
subject to allowable and elected practical expedients. On initial adoption,
we intend to use the following recognition exemptions and practical
expedients, where applicable:
• not apply the requirements of IFRS 16 to short-term and low value leases;
• apply a single discount rate to a portfolio of leases with reasonably
similar characteristics;
• exclude
initial direct costs relating to existing
leases from the
measurement of the right-of-use assets;
• rely on previous assessment of whether leases are onerous in accordance
with IAS 37 Provisions, Contingent Liabilities and Contingent Assets,
immediately before the date of initial application as an alternative to
performing an impairment review;
• use hindsight to determine the lease term where the lease contracts
contain options to extend or terminate the lease; and,
• treat existing operating leases with a remaining term of less than 12
months at November 1, 2019 as short-term leases.
We have completed the process of assessing existing contractual
relationships to identify leases that will be recorded on the consolidated
balance sheets upon the adoption of IFRS 16. The main impact for CWB
will be recognizing right-of-use assets and lease liabilities for premises
leases. Currently, premises leases are classified as operating leases,
with lease expense recorded over the term of the lease with no asset or
liability recorded on the consolidated balance sheets. Based on preliminary
assessments, we expect to recognize right-of-use assets of approximately
$75 million to $85 million, lease liabilities of $90 million to $100 million and
a decrease in the common equity Tier 1 capital ratio of approximately 10
basis points upon transition to IFRS 16. The adoption of IFRS 16 is expected
to have a nominal impact to ongoing profitability, as amortization of
right-of-use assets and interest expense on lease liabilities will be mostly
offset by a reduction in lease expense previously recognized in premises
and equipment expense. The recognition of interest expense on premises
leases will marginally contribute to net interest margin compression. The
actual impact of adopting IFRS 16 on November 1, 2019, may differ from
A number of standards and amendments have been issued by the
these estimates as we continue to review our calculations and refine certain
International Accounting Standards Board (IASB), and the following
inputs.
changes may have an impact on our future financial statements.
HEDGE ACCOUNTING
IFRS 16 LEASES
In September 2019, the IASB issued amendments to hedge accounting
In January 2016, the IASB issued IFRS 16, which supersedes IAS 17 Leases
requirements in IFRS 9, IAS 39 and IFRS 7 Financial Instruments: Disclosures
(IAS 17). This standard provides principles for the recognition, measurement,
which address the possible effects of uncertainties created by Inter-bank
presentation and disclosure of leases. The standard sets out a single lessee
Offered Rate (IBOR) reform. The amendments are effective for CWB’s fiscal
accounting model for all leases by eliminating the distinction between
year beginning November 1, 2020 with early adoption permitted. CWB is in
operating and financing leases. IFRS 16 requires lessees to recognize a
the process of assessing the impact of these amendments.
right-of use asset and lease liability on the consolidated balance sheets for
most leases. Lessees will also recognize depreciation expense on the right-
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
of-use asset and interest expense on the lease liability in the consolidated
In March 2018, the IASB issued a revised version of the Conceptual
statements of income. Lessor accounting remains substantially unchanged
Framework for Financial Reporting which assists the IASB in developing IFRS
other than additional disclosure requirements. IFRS 16 is effective for our
standards and serves as an accounting policy guide when no IFRS standard
fiscal year beginning November 1, 2019.
There are two methods by which the new standard may be adopted: (1) a full
retrospective approach with a restatement of all prior periods presented, or
(2) a modified retrospective approach with a cumulative-effect adjustment
recognized in opening retained earnings as of the date of adoption.
applies. The amendments provide revised definitions and recognition
criteria for assets and liabilities, and guidance on different measurement
bases. The IASB also issued amendments to IFRS standards to refer to
the revised framework. The revisions are effective for CWB’s fiscal year
beginning November 1, 2020 with early adoption permitted. CWB is in the
process of assessing the impact of the revised framework.
51
CWB Financial Group 2019 Annual Report RISK MANAGEMENT
The shaded areas of this MD&A represent a discussion of risk management policies and procedures relating to credit, market and liquidity risks as
required under IFRS, which permits these specific disclosures to be included in the MD&A. Therefore, the shaded areas presented on pages 52 to 68
of this MD&A form an integral part of the audited consolidated financial statements for the year ended October 31, 2019.
CWB’S APPROACH TO RISK MANAGEMENT
We maintain an
integrated and disciplined approach to risk
include an effective balance of risk and reward. This requires that each
management. Effective risk management supports the creation of long-
team member make common-sense business decisions by assessing
term shareholder value by providing a framework to optimize capital
risk and reward trade-offs considering our strategic objectives and risk
management and risk-adjusted capital returns. Our risk management
appetite, along with regulatory and legal requirements. We consciously
framework guides us in prudent, balanced and measured risk-taking
accept risks to create long-term value for stakeholders and support the
aligned with our balanced growth strategic objectives.
responsible and efficient delivery of products and services to valued
The ERM group develops and maintains our risk management
framework. This framework encompasses risk culture, risk governance,
• Are aligned with CWB’s strategic objectives;
clients, provided those risks:
risk appetite, risk policies, and risk management processes. The
framework also provides independent review and oversight across
the enterprise on risk-related issues. To achieve our balanced growth
strategic objectives and our long-term goal to be the best full-service
bank for business owners in Canada requires continuous consideration,
understanding and responsible management of all key risks at both
the strategic and operational levels. CWB’s core strategic objectives
• Are thoroughly understood, measured and managed within the
confines of well-communicated risk tolerances, including the highest
ethical standards; and,
• Serve the interests of stakeholders, including clients, shareholders,
creditors, employees, regulators and communities.
Highlights of 2019
We undertook further enhancements to CWB’s Risk Management
• Continued to enhance risk analytics, economic forecasting, and
Framework
in 2019 as part of the ongoing development and
portfolio and systematic risk management capabilities;
implementation of our risk management processes. Key initiatives
included:
• Significant progress of CWB’s multi-year project in support of an
application for transition to the AIRB approach for capital and risk
management:
- We plan to submit our final application and expect to receive
regulatory approval for transition in 2020
- We developed, operationalized, and enhanced AIRB models and
• Further developed and matured CWB’s ERM function and the three
lines of defence framework to provide consistent, transparent and
clearly documented allocation of accountabilities and segregation
of functional responsibilities;
• Developed an overall legal, regulatory compliance and reputation
risk management policy and continued to develop and enhance
underlying supporting frameworks, including regulatory compliance
risk management capabilities;
AIRB-based stress testing capabilities
• Further developed and matured data governance frameworks;
- The transition will enhance CWB’s competitive position and
facilitate risk-based pricing, enable further optimization of capital
allocation, facilitate business mix optimization, and enhance CWB’s
risk quantification, stress testing, and overall ERM capabilities
• Continued to mature a second line of defence for risk-based pricing
to support profitable growth; and,
• Continued to implement an advanced operational risk management
framework.
Outlook for Risk Management
We will continue to support enhanced risk management capabilities
• Further development of second line frameworks for liquidity and
through further development of ERM and risk appetite frameworks, and
technology risk;
related risk policies. Key risk management priorities for 2020 include:
• Utilization of CWB’s economic capital framework;
• Submission of CWB’s final application and expected regulatory
• Continuous utilization of CWB’s newly developed systematic risk
approval to transition to the AIRB approach for capital and risk
management capabilities, including stress testing applications; and,
management;
52
• Production of an AIRB model-enabled ICAAP.
CWB Financial Group 2019 Annual Report RISK MANAGEMENT OVERVIEW
We design risk management processes to complement CWB’s overall size,
RISK MANAGEMENT PRINCIPLES
level of complexity, risk profile and philosophy regarding risk. Our risk
management philosophy emphasizes risk measurement, sound controls,
effective governance, transparency and accountability. Selective choice
and management of acceptable risks has been integral to our ability to grow
profitably in both favourable and adverse market conditions. A strong risk
culture continues to be a cornerstone of our approach to risk management.
As with all financial institutions, we are in the business of managing risk
and are therefore exposed to various risk factors that could adversely affect
our operating environment, financial condition and financial performance.
Exposure to risk may also influence a client’s decision to take loans and/or
make deposits, and an investor’s decision to buy, sell or hold CWB shares
or other securities. Each of our businesses is subject to certain risks that
CWB’s risk management principles are based on the premise that we are
in the business of accepting risks for appropriate return. We do not seek to
eliminate financial risk, but seek to manage risk appropriately and optimize
risk-adjusted returns on capital.
In conducting our business activities, we will take financial risks that
are aligned with our balanced growth strategic objectives in a manner
expected to create sustainable, long-term value for shareholders and
other stakeholders. Our risk management principles are therefore aligned
with CWB’s strategic objectives, and embedded within our management
practices.
The following principles guide the management of risks across all of our
require unique mitigation strategies.
operations:
We have demonstrated our ability to effectively manage risks through
conservative management practices based on a strong risk culture and a
disciplined risk management approach; however, not all risks are within our
• Ongoing commitment to a three lines of defence risk governance
framework with independent oversight and effective challenge from the
second line, and an independent and effective Internal Audit function
direct control.
comprising the third line;
A description of key internal and external risk factors we consider is included
in this risk management discussion. We actively evaluate existing and
• A commitment to utilize AIRB capabilities for management of systematic
risk, capital and risk return optimization, stress testing and balance sheet
potential risks to develop, implement and continually enhance appropriate
optimization;
risk mitigation strategies.
RISK MANAGEMENT STRENGTHS
• Secured lending business model;
• An effective balance of risk and reward through alignment of business
strategy with risk appetite, diversifying risk, pricing appropriately for risk,
and mitigating risk through sound preventative and detection controls;
• An enterprise-wide view of risk and the acceptance of risks required to
• Disciplined underwriting with demonstrated strength through multiple
build the business with continuous consideration for how those risks may
credit cycles;
affect CWB’s reputation;
• Strong risk culture with a robust risk management framework which
addresses risks throughout CWB;
• Relatively low operational risk profile;
• No trading book;
• In-depth knowledge of CWB’s clients;
• Increasing geographic diversification;
• Low balance sheet leverage;
• Low average duration of lending portfolios; and,
• The belief that every employee is accountable to understand and manage
the risks inherent in their day-to-day activities, including identification
of risk exposures, with communication and escalation of risk-based
concerns;
• Use of common sense, sound
judgment and fulsome risk-based
discussions; and,
• Recognition that “knowing your client” reduces risks by ensuring the
services provided are suitable for, and understood by, the client.
• Relatively low exposure to economically sensitive, unsecured retail
The mandate of our ERM function is to provide independent oversight of risk-
lending portfolios.
RISK MANAGEMENT CHALLENGES
taking decisions, independent assessment of risk and effective challenge
to the business. ERM establishes the enterprise-wide risk management
framework to identify, measure, aggregate and report all material risks
• Capital requirements under the Standardized approach, which are
managed by the first line within CWB’s three lines of defence framework.
insensitive to the underlying economic risk, and do not adequately reflect
This includes oversight of risk governance policies, establishment of risk
CWB’s demonstrated risk management strengths through multiple credit
appetites and key risk metrics, and development of risk infrastructure,
including all risk management processes and practices. Independent of the
business, ERM measures and reports risk exposures against risk appetite
limits for all risk types.
cycles;
• The potential impact of low interest rates on net interest income;
• Market volatility related to factors outside of CWB’s control which affect
investors’ decisions to buy, sell or hold CWB shares or other securities;
• Macroeconomic volatility, including the impacts of constrained energy
transportation infrastructure in Western Canada;
• Uncertainty related to trade agreements which could affect the outlook
for Canadian exports and future economic growth;
• Increasing volume and complexity of regulatory requirements and
expectations; and,
• Cyber security and other technology related risk.
53
CWB Financial Group 2019 Annual Report RISK MANAGEMENT FRAMEWORK
The primary goal of risk management is to ensure that the outcomes of risk-
provides the foundation for achieving this goal. We utilize the ISO 31000
taking are consistent with our overall risk appetite, our balanced growth
Standard for Risk Management as a comprehensive framework to help
strategic objectives, and related business activities. The ERM framework
ensure risk is managed effectively and efficiently.
Figure 4 - CWB’s Risk Management Framework
C
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CWB’s risk culture is the core of the ERM framework, including risk
Principal risks within our Risk Universe include:
management principles, values and accountabilities as defined within a
three lines of defence framework. Key elements of our risk management
framework include Risk Governance, the Risk Universe, Risk Management
Policies, and Risk Appetite Framework.
• Credit risk;
• Capital risk;
• Market risk, including interest rate risk;
• Foreign exchange risk;
• Liquidity and funding risk; and,
• Operational risk.
Reputational risk arises as a consequence of not managing other risks
effectively.
RISK CULTURE
A strong risk culture emphasizes transparency and accountability.
• Effective integration of our compensation strategy with desired risk
Organizations with a strong risk culture have a consistent and repeatable
behaviours;
approach to risk management when making key business decisions,
• Risk management principles, policies and processes,
including
including regular discussions of risk and reviews of risk scenarios that can
implementation of a three lines of defence framework;
help management and the Board understand the interrelationships and
potential impacts of risks.
Our strong risk culture starts with an appropriate “tone at the top” that
demonstrates and sends consistent and clear messages throughout the
organization. Our risk culture is demonstrated throughout CWB and is
emphasized by the actions of senior management and the Board.
CWB’s risk culture includes:
• An environment where the first, second and third line can freely raise
and escalate risk issues and concerns, issues are discussed diligently, and
acted upon appropriately; and,
• Zero tolerance for inappropriate risk taking in violation of core values,
risk appetite and reputational risk management principles.
Our three lines of defence framework provides a consistent, transparent,
and clearly documented allocation of accountability and segregation of
functional responsibilities. This segregation of responsibilities helps to
establish a robust control framework that demonstrates CWB’s risk culture,
• “Tone at the top” as established through the CWB Code of Conduct and
contributes to effective risk management and encourages continuous
governance processes;
improvement of risk management practices. Our three lines of defence
• CWB’s core values: people first, relationships get results, embrace the
framework is described in Table 29.
new, the how matters, inclusion has power;
54
CWB Financial Group 2019 Annual Report
Table 29 - Three Lines of Defence Framework
First Line
Second Line
Business and Support Areas
ERM and Support Functions
Third Line
Internal Audit
• Own and manage all risks within their lines of
• Establish an ERM framework to provide
• Provide independent assurance to the Audit
business
a consistent and integrated view of risk
Committee as to the effectiveness and
• Pursue suitable business opportunities within
their established risk appetite and limits
• Act within their delegated risk-taking
authority as set out in established policies
exposures across CWB
appropriateness of (and adherence to) the
• Set key risk metrics on which risk appetite
risk framework
and limits are based
• Independently audit first and second lines
• Establish policies, standards, processes and
and report on their effectiveness in regard to
practices that address all significant risks
respective functional responsibilities
• Establish appropriate operating guidelines
across CWB
• Independently review adherence to
and internal control structures in accordance
• Independently assess, quantify, monitor,
controls, policies, standards, guidelines and
with the risk policies
control and report all significant risk
regulations
exposures against the risk appetite and limits
• Identify operational weaknesses; recommend
• Provide independent oversight, effective
and track remediation actions
challenge and independent assessment of risk
RISK APPETITE FRAMEWORK
Our risk appetite framework includes policies and processes to establish
Key attributes of our overall risk appetite include the following:
and monitor adherence to CWB’s risk appetite, and outlines accountabilities
for those overseeing its implementation. The purpose of the risk appetite
framework is to define the type and amount of risk we are willing to assume
through our business activities, while considering the priorities of all
stakeholders. The risk appetite framework is forward-looking and integrates
with CWB’s balanced growth strategic objectives, including consideration
for our capital plan and budget processes.
Key components of CWB’s risk appetite framework include:
• Risk Capacity – the maximum level of risk CWB can assume before
breaching regulatory or other stakeholders constraints;
• Risk Appetite – the aggregate level and type of risk CWB is willing to
assume; and,
• Risk Limits – the allocation of risk to specific risk categories, to business
units, and/or to lines of business at the portfolio or product level. ERM
measures, monitors, and manages CWB’s risk profile to ensure the
overall level of risk remains within specified risk limits. Early warning
indicators are reported to the Executive Risk Committee and the Board
Risk Committee, along with proposed actions to reduce the level of risk
to within the approved risk appetite.
• An appropriately conservative risk culture that is prevalent throughout
CWB, from the Board to senior management to front-line employees;
• A philosophy to only take risks that are aligned with our balanced growth
strategic objectives and are expected to create sustainable, long-term
value for stakeholders;
• A philosophy to only take risks that are transparent and understood, and
that can be measured, monitored and managed;
• Careful and diligent management of risks at all levels led by a
knowledgeable and experienced leadership team committed to sound
management practices and the promotion of a highly ethical culture;
• Targeted financial performance which supports maintenance of
investment grade credit ratings to allow for competitive access to
funding;
• Maintenance of effective policies, standards, guidelines and controls,
with training and oversight to guide the business practices and risk-
taking activities of all employees in support of CWB’s reputation and
adherence to all legal and regulatory obligations; and,
• Risk Appetites for key risk types are established based on both quantitative
and qualitative risk types by ERM and other corporate functions, as the
second line, endorsed by senior management, and ultimately approved
by the Board Risk Committee.
We conduct stress testing of relevant metrics on a regular basis to enable
the identification and monitoring of potential vulnerabilities. The results
from stress testing also help inform the Risk Appetite, and periodic
sensitivity testing of earnings and capital ratios ensures that CWB operates
within Risk Limits.
55
CWB Financial Group 2019 Annual Report Risk Management Governance Structure
The foundation of CWB’s ERM framework is a governance approach,
well as supporting corporate standards and operating guidelines.
consistent with OSFI’s Corporate Governance Guideline, which
The Risk Management Framework is governed through a hierarchy of
includes a robust committee structure and a comprehensive set of
committees and individual responsibilities as outlined in Figure 5:
corporate policies and limits approved by the Board of Directors, as
Figure 5 - CWB’s Enterprise-Wide Risk Management Framework
Board of Directors
Board Governance and
Conduct Review Committee
Board Risk Committee
Board Audit Committee
Chief Risk Officer
Chief Executive Officer
Chief Internal Auditor
Regulatory
and
Reputation
Risk
Executive Risk Committee
Group
Disclosure
Committee
Group
Credit Risk
Committee
Group
ALCO
Group
Capital Risk
Committee
Group
Operational
Risk
Committee
Group
Forecasting
Committee
Model Risk
and
Deployment
Committees
Credit
Market
Liquidity
Funding
Capital
ICAAP
Stress
Testing
Operational
• Regulatory
• Technology
• People
Economic
Forecasting
Model
Risk
First Line of Defence
Business and Support
Second Line of Defence
Third Line of Defence
ERM
Other Corporate Teams
Internal Audit
Board of Directors – responsible for setting the strategies of CWB
Board Human Resources Committee – provides oversight of people
and overseeing management. The Board, either directly or through
related risks, including employment practices and workplace health
its Committees, is responsible for oversight in the following areas:
and safety, and ensures compensation programs appropriately align to,
strategic planning, risk appetite, identification and management of
and support, CWB’s risk appetite framework.
risk, capital management, promotion of a culture of integrity, internal
controls, evaluation of senior management and succession planning,
public disclosure and corporate governance.
Chief Executive Officer (CEO) – directly accountable to the Board
for all of CWB’s risk-taking activities. The CEO is supported by the
Executive Risk Committee and its sub-committees, as well as the ERM
Board Risk Committee – assists the Board in fulfilling its oversight
function and other corporate functions.
responsibilities in relation to CWB’s identification and management of
risk, adherence to corporate risk management policies and procedures,
and compliance with risk-related regulatory requirements. The Board
Risk Committee also includes a Loan Adjudication Panel.
Chief Risk Officer (CRO) – as head of ERM, responsible to provide
independent review and oversight of enterprise-wide risks and
leadership on risk
issues, developing and maintaining a Risk
Management Framework which includes key risk metrics and risk
Board Governance and Conduct Review Committee – assists the
policies, and fostering a strong risk culture across the enterprise. The
Board in fulfilling its oversight responsibilities with respect to developing
CRO reports functionally to the Board Risk Committee.
CWB’s corporate governance policies and practices, including oversight
of legal, regulatory compliance and reputation risk.
Executive Risk Committee – provides risk oversight and governance
at the highest levels of management. The Executive Risk Committee
Board Audit Committee – assists the Board in fulfilling its oversight
reviews and discusses significant risk issues and action plans that arise
responsibilities for the
integrity of CWB’s financial reporting,
in executing the enterprise-wide strategy. The Committee is chaired by
effectiveness of CWB’s internal controls, and the performance of its
the CRO and membership includes the full Executive Committee.
internal and external audit functions.
56
CWB Financial Group 2019 Annual Report Subcommittees of the Executive Risk Committee – the various sub-
Group Operational Risk Committee – reviews the operational risk
committees provide oversight of the processes whereby the risks
management framework, operational loss reporting and business
assumed across the enterprise are identified, measured, monitored,
continuity plans. Reviews action plans for mitigating and improving
held within delegated limits and reported in accordance with policy
the management of operational risk;
guidelines. They include:
Group Credit Risk Committee – approves loans within delegated
over public disclosures. Responsible for reviewing CWB’s internal
limits and is responsible for ensuring that appropriate credit policies
control over financial reporting and disclosure controls and
are in place. An escalation sub-committee of the Group Credit Risk
procedures to help ensure the accuracy, completeness and
Committee considers credit related pricing and reputational issues
timeliness of public disclosures;
Group Disclosure Committee – supports CEO/CFO certification
that may be relevant to specific loans;
Group Forecasting Committee – develops an enterprise-wide view
Group Asset Liability Committee (ALCo) – reviews and approves
of the economic outlook;
operational guidelines and programs for liquidity management
and control, funding sources, investments, foreign exchange risk,
structural interest rate risk and derivatives risk;
Group Capital Risk Committee – responsible for the oversight of
capital adequacy, CWB’s regulatory capital plan, ICAAP and stress
testing;
Group Model Risk and Model Deployment Committees – develop
and oversee CWB’s model risk management framework and
enterprise-wide model deployment.
The following CWB oversight functions provide key support within the
• Model Vetting – responsible for development and maintenance of an
enterprise-wide risk management framework.
enterprise-wide model risk management framework, and to monitor,
Oversight teams include:
effectively challenge and report on model risk in accordance with related
policy and guidelines;
• Credit Risk Management – responsible to assess, recommend, process
and adjudicate credit applications and credit reviews within delegated
loan approval authorities, and to provide second line oversight of credit
• Risk Capital and IFRS 9 – produces risk-based expected credit losses
(ECL) under IFRS 9, Economic Capital and oversees all periodic risk
production, as well as CWB’s ICAAP;
risk;
• Integrated Risk Management – responsible for our interest rate and
liquidity risk management framework, and to provide second line
oversight for interest rate and liquidity risk management; implements
• Finance – provides independent oversight of processes to manage
financial reporting, external credit ratings, certain regulatory reporting,
tax, and capital risk, including capital adequacy and capital management.
This activity is overseen by CWB’s CFO, who reports functionally to the
the operational risk management framework; operationalizes second
Audit Committee;
line oversight of risk-based pricing, with responsibility for profitability
reporting and analysis; provides economic forecasting and develops
stress-testing models;
• Risk Technology and Model Deployment – responsible to deploy AIRB
and other risk models within CWB’s risk technology infrastructure and
produce AIRB risk ratings for Basel Capital Adequacy Requirements,
• Legal, Regulatory Compliance and Investigations – provides second
line oversight of legal, regulatory compliance, financial crime (including
fraud, corruption and bribery, and anti-money laundering risks) and
reputation risks with established and maintained relevant policies,
frameworks and standards used by the first and second lines to identify,
measure, mitigate and report on significant legal, regulatory compliance
Economic Capital and ICAAP purposes;
and reputation risks; and,
• Risk Data Aggregation, Analytics, and Reporting (RDAAR) – responsible
to develop, implement, and monitor risk measurement processes and
validation methodologies to provide a comprehensive view of overall
credit risk exposures. Ensures that credit risk exposures are measurable,
and that adequate reporting is produced to facilitate the management of
the portfolio within established limits, appetite and standards; and that
regulatory requirements are satisfied;
RISK MANAGEMENT POLICIES
• Human Resources – provides second line oversight of people risks across
the organization by establishing and maintaining relevant policies,
frameworks and standards related to workforce practices and safety.
To support effective communication, implementation, and governance of
second line governance documentation promotes the application of a
our risk management framework, ERM and other corporate functions codify
consistent approach to manage risk exposures across the enterprise. All risk
processes and operational requirements in comprehensive management
policies are developed by the second line and approved by the Board Risk
policies, frameworks, and standards. The first line in turn implements
Committee, Governance and Conduct Review Committee, or the full Board
these second line protocols in guidelines and procedures. Such first and
of Directors, on an annual basis.
57
CWB Financial Group 2019 Annual Report RISK UNIVERSE – REPORT ON PRINCIPAL RISKS
We pursue opportunities and the associated risks that are aligned with
identified as principal risks, have the greatest potential to materially impact
CWB’s balanced growth strategic objectives and are expected to create
operations and financial performance. These risks materially comprise
sustainable long-term value for shareholders and other stakeholders. While
CWB’s risk universe as defined as part of our ERM framework.
CWB’s operations are exposed to numerous types of risk, certain risks,
CREDIT RISK
Credit risk is the risk that a financial loss will be incurred due to the failure of a counterparty to fulfil its contractual commitment or obligation to
CWB. Credit risk is comprised of default risk and credit migration, or downgrade risk. Credit default risk is defined as the potential that a bank
borrower or counterparty will fail to meet its obligations in accordance with the agreed terms. Credit migration or downgrade risk refers to the risk
of deterioration of credit quality of a borrower or counterparty.
Risk Overview
CWB’s credit risk results from granting loans and leases to businesses
sector and product type. In order to minimize potential loss, most of our
and individuals. Our credit risk management culture reflects the unique
loans are secured by tangible collateral. CWB’s approach to managing
combination of policies, standard practices, experience and management
credit risk has proven to be very effective, as demonstrated by our relatively
attitudes that support growth within chosen industries and geographic
stable long-term average annual provision for credit losses and customarily
markets. Underwriting standards are designed to ensure an appropriate
low write-offs measured as a percentage of total loans.
balance of risk and return, and are supported by established loan exposure
limits in areas of demonstrated lending expertise. Concentration is
Refer to the Loans and Credit Quality sections of this MD&A for additional
measured against specified tolerance levels by geographic region, industry
information.
Risk Governance
The credit approval process is centrally controlled, with all significant
Requests for credit approval beyond the lending limit of the CEO
credit requests submitted to Credit Risk Management for adjudication.
are referred to the Group Credit Risk Committee or the Board Risk
Credit Risk Management is independent of the originating business.
Committee’s Loan Adjudication Panel.
Risk Management
We are committed to a number of important principles to manage
• Pricing of credits commensurate with risk to ensure an appropriate
credit exposures, which include:
financial return;
• Oversight provided by the Board Risk Committee;
• Delegated lending authorities that are clearly communicated to
lenders and other personnel engaged in the credit granting process;
• Credit policies, standards, guidelines and directives which are
communicated within all branches, business lines and to officers
whose activities and responsibilities include credit granting and risk
assessment;
• Appointment of personnel engaged in credit granting who are both
qualified and experienced;
• Management of growth while maintaining the quality of loans;
• Early recognition of problem accounts and immediate action to
protect the safety of CWB’s capital;
• Delegation of loans deemed to carry higher risks to a specialized
loan workout group that performs an appropriate level of regular
monitoring and close management;
• Independent review by
Internal Audit of the adequacy and
effectiveness of governance, risk management and control over
credit risk across CWB Financial Group, which includes direct
reporting of results to senior management, the CEO and the Audit
• A standard credit risk-rating classification established for all credits;
Committee of the Board; and,
• A review at least annually of credit risk-rating classifications and
individual credit facilities (except consumer loans and single-unit
residential mortgages);
• Quarterly review of risk diversification by geographic area, industry
sector and product measured against assigned portfolio limits;
• Ongoing development of RDAAR reporting to assess portfolio risks
at a granular level;
• Detailed quarterly reviews of accounts rated less than satisfactory.
Reviews include a recap of action plans for each less than satisfactory
account, the completion of a watch list report recording accounts
with evidence of weakness and an impaired report covering loans
that show impairment to the point where a loss is possible. Subject
to independent oversight, effective challenge and independent
assessment by the second line. A summary report of less than
satisfactory accounts is reviewed on a quarterly basis by the Board
Risk Committee.
58
CWB Financial Group 2019 Annual Report Credit Risk Concentration
Risk diversification is addressed by establishing portfolio limits by
and loan security from more than one source, will increase to $200
geographic area, industry sector and product. The policy is to limit
million commencing in fiscal 2020, up from $150 million. The connection
loans to connected corporate borrowers to not more than 10% of
limit remains $150 million for borrowers with credit ratings of BBB+.
shareholders’ equity. Under the Credit Risk Concentration Policy,
CWB clients with larger borrowing requirements can be accommodated
the single risk exposure lending limit is $75 million. Our Credit Risk
through loan syndications with other financial institutions.
Concentration policy for certain quality connections with investment
grade credit ratings of A- or better, that confirm debt service capacity
Environmental Risk
Portfolio Quality
While the day-to-day operations of CWB do not have a material impact on
Our strategy is to maintain a quality, secured and diversified loan portfolio
the environment, environmental risks include the risk of loss if a borrower
by engaging experienced personnel who provide a hands-on approach in
is unable to repay loans due to environmental cleanup costs, and the risk of
credit granting, account management and timely action when problems
damage to CWB’s reputation resulting from the same. In order to manage
develop. We target lending to small- and medium-sized businesses, and to
these risks, and to help mitigate CWB’s overall impact on the environment,
individuals. Relationship banking and “knowing your client” are important
CWB evaluates potential environmental risks as part of its credit granting
tenets of effective account management. Earning an appropriate financial
process. If potential environmental risks are identified that cannot be
return for the level of risk is also fundamental.
resolved to CWB’s satisfaction, the application will be denied.
Reports on environmental inspections and findings are provided quarterly
is achieved through ongoing strong growth within CWB’s established
to the Board Risk Committee. Where financing is provided, Internal Audit
businesses with a national footprint, including CWB Optimum, CWB
will sample test loan files to ensure environmental studies required as a
National Leasing, CWB Maxium, and CWB Franchise Finance, as well as
condition of financing are in place, including review for a transmittal letter
participation in syndicated lending facilities primarily led by other Canadian
from the author of the environmental study indicating that it may be relied
banks, and periodically through acquisition. We will also open our first full-
upon for financing purposes.
service branch location in Ontario in fiscal 2020.
Geographic diversification of the loan portfolio outside of Western Canada
For additional information, see the Loans and Credit Quality sections of this
MD&A.
MARKET RISK
Market risk is the impact on earnings and on economic value of equity resulting from changes in financial market variables such as interest rates and
foreign exchange rates. Our market risk is primarily comprised of structural interest rate risk on the balance sheet, liquidity and funding risk, and
foreign exchange risk.
Risk Overview
The most material market risks for CWB are those related to changes in
in financial markets. We have limited direct exposure to foreign exchange
interest rates. We do not have a trading book; we do not undertake market
risk. We maintain some investment risk from exposure to our discretionary
activities such as market making, arbitrage or proprietary trading and,
investment portfolio comprised of preferred shares issued by public
therefore, do not have direct risks related to those activities.
Canadian companies across a variety of industries.
We maintain a diversified cash and securities portfolio that is primarily
comprised of high-quality debt instruments. These instruments are subject
to price fluctuations based on movements in interest rates and volatility
Risk Governance
Market risk is managed in accordance with the approved structural
ongoing oversight, review and endorsement of operational guidelines.
interest rate risk, and liquidity and funding risk policies, the second line
Integrated Risk Management provides
independent second
line
standard and the accompanying first line guideline. As the first line of
monitoring and reporting of market risk exposure against risk appetite
defence, Treasury owns and manages CWB’s market risk on a daily basis.
to ALCo, the Executive Risk Committee and Board Risk Committee.
ALCo provides tactical and strategic direction and is responsible for
59
CWB Financial Group 2019 Annual Report Subcategories of Market Risk
INTEREST RATE RISK
Interest rate risk is the impact on earnings and economic value of equity resulting from changes in interest rates.
Structural interest rate risk arises when changes in interest rates affect
Risk Metrics
the cash flows, earnings and values of assets and liabilities. The objective
Structural interest rate risk is measured using historical simulations to
of structural interest rate risk management is to maintain an appropriate
evaluate earnings sensitivity and economic value sensitivity analysis, stress
balance between earnings volatility and economic value volatility while
testing and gap analysis, in addition to other traditional risk metrics.
keeping both within their respective risk appetite limits.
Structural interest rate risk arises due to the duration mismatch between
reduction in net interest income due to adverse interest rate movements
assets and liabilities. Adverse interest rate movements may cause a reduction
over a one-year horizon.
• Earnings at Risk – Earnings at risk (EaR) is defined as the potential
• Economic Value of Equity at Risk – Economic Value of Equity at Risk
(EVaR) is defined as the potential reduction in economic value of CWB’s
equity due to adverse interest rate movements. This is not an earnings
measure, but rather a value measure.
Both EaR and EVaR are measured against stress scenarios historically
observed (historical simulation or historical Value at Risk (VaR)) and standard
parallel interest shocks (interest rate sensitivity).
CWB’s Interest Rate Risk Exposures
Exposure to interest rate risk is controlled by managing the size of the
static gap positions between interest sensitive assets and interest sensitive
liabilities for future periods. This is supplemented by historical VaR for
economic value of CWB’s equity, estimated by applying historical interest
rate scenarios to interest sensitive assets and interest sensitive liabilities.
These analyses are supplemented by stress testing of the asset liability
portfolio structure, duration analysis and dollar estimates of net interest
income sensitivity after Treasury hedging activity for periods of up to one
year. The interest rate gap is measured at least monthly. Note 25 to the
consolidated financial statements shows the gap position at October 31,
2019 for select time intervals.
The analysis in Note 25 is a static measurement of interest rate sensitivity
gaps at a specific point in time, and there is potential for these gaps to
change significantly over a short period. The impact on earnings from
changes in market interest rates will depend on both the magnitude of and
speed with which interest rates change, as well as the size and maturity
structure of the cumulative interest rate gap position and the management
of those positions over time.
The one-year and under cumulative gap represented 1.4% of total assets at
October 31, 2019, compared to 0.8% one year ago, while the one-month and
under gap was negative 3.1% compared to negative 1.8% one year earlier.
in earnings; and/or a reduction in the economic value of our assets; and/or an
increase in the economic value of our liabilities. Structural interest rate risk
is primarily comprised of duration mismatch risk and option risk embedded
within the structure of products. Duration mismatch risk arises when there
are differences in the scheduled maturity, repricing dates or reference rates
of assets, liabilities and derivatives. The net duration mismatch is managed
to a target profile through interest rate swaps and our cash and securities
portfolio. Product-embedded option risk arises when product features allow
customers to alter scheduled maturity or repricing dates. Such features
include loan prepayment, deposit redemption privileges and interest rate
commitments on un-advanced mortgages.
Variation in market interest rates can affect net interest income by altering
cash flows and spreads. Variation in market interest rates can also affect
the economic value of our assets, liabilities and off-balance sheet (OBS)
positions. Thus, the sensitivity of CWB’s economic value to fluctuations in
interest rates is an important consideration for management, regulators
and shareholders. The economic value of an instrument represents an
assessment of the present value of the expected net cash flows, discounted
to reflect market rates. By extension, the economic value of our equity can
be viewed as the present value of our expected net cash flows, defined as
the expected cash flows on interest-sensitive assets minus the expected
cash flows on interest-sensitive liabilities plus the expected net cash flows
on OBS positions. In this sense, the economic value perspective reflects one
view of the sensitivity of net worth to fluctuations in interest rates.
Management of structural interest rate risk balances short-term income
volatility against volatility in the long-term value of CWB’s equity. Treasury
manages the economic value of the balance sheet within a range around a
target duration. Duration limits are approved by ALCo. The duration limits
consider an appropriate trade-off between:
• Earnings volatility and volatility in the value of CWB’s equity;
• Risk and return (e.g. increasing duration increases the exposure to rising
interest rates, but also benefits net interest income when there is a
positively sloping yield curve); and,
• Expected interest rate movements.
While management of the benchmark duration is the responsibility of the
first line of defence (recommended by Treasury and approved by ALCo), the
resulting risk exposure is maintained within CWB’s risk appetite.
60
CWB Financial Group 2019 Annual Report Interest rate risk is managed to ensure sustainable earnings over time, balancing the impact on current year earnings against changes in economic
value at risk over the life of the asset and liability portfolios.
The estimated sensitivity of net interest income to a change in interest rates
• A constant structure in the interest sensitive asset liability portfolio;
is presented in Table 30. The amounts represent the estimated change in net
interest income over one year resulting from a one percentage point change
in interest rates. The estimates are based on a number of assumptions and
factors, which include:
• Floor levels for various deposit liabilities;
• Interest rate changes affecting interest sensitive assets and liabilities by
proportionally the same amount and applied at the appropriate repricing
dates; and,
• No early redemptions.
Table 30 - Estimated Sensitivity of Net Interest Income as a Result of One Percentage Point Change in Interest Rates
($ thousands)
Impact of 1% increase in interest rates
Period
1 year
1 year percentage change
Impact of 1% decrease in interest rates
Period
1 year
1 year percentage change
2019
2018
$
4,556
$
6,234
0.58%
0.86%
$
2019
(7,463)
(0.95)%
2018
$
(7,467)
(1.03)%
We estimate that a one-percentage point increase in all interest rates
cash flow hedges, which would increase other comprehensive income by
at October 31, 2019 would decrease unrealized gains related to FVOCI
approximately $112 million, net of tax (October 31, 2018 – $107 million).
securities and the fair value of interest rate swaps designated as cash
flow hedges, and result in a reduction in other comprehensive income of
approximately $108 million, net of tax (October 31, 2018 – $105 million).
We maintain the asset liability structure and interest rate sensitivity within
CWB’s established policies through pricing and product initiatives, as well as
the use of interest rate swaps and other appropriate strategies. Differences
We estimate that a one-percentage point decrease in all interest rates at
in the respective sensitivity of net interest income and other comprehensive
October 31, 2019 would result in an increase of unrealized gains related to
income to changes in interest rates compared to last year primarily reflects
FVOCI securities and the fair value of interest rate swaps designated as
the current interest rate environment and balance sheet composition.
FOREIGN EXCHANGE RISK
Foreign exchange risk is the risk to changes in earnings or economic value arising from changes in foreign exchange rates. This risk arises when
various assets and liabilities are denominated in different currencies.
In providing financial services to our customers, we have assets and
We have established policies that include limits on the maximum
liabilities denominated in U.S. dollars. At October 31, 2019, assets
allowable differences between U.S. dollar assets and liabilities. We
denominated in U.S. dollars were 1.3% (2018 – 1.4%) of total assets and
measure the difference daily and manage it through use of U.S. dollar
U.S. dollar liabilities were 1.4% (2018 – 1.6%) of total liabilities. We do
forward contracts or other means. The Board Risk Committee reviews
not buy or sell currencies other than U.S. dollars other than to meet
and approves policy respecting foreign exchange exposure at least
specific client needs. We have no material exposure to currencies other
annually. Any deviations from compliance with policy are reported
than U.S. dollars.
monthly to ALCo and quarterly to the Board Risk Committee.
LIQUIDITY AND FUNDING RISK
Liquidity risk is the risk that CWB cannot meet a demand for cash or fund its financial obligations in a cost efficient or timely manner as they become
due. These financial obligations can arise from withdrawals of deposits, debt or deposit maturities or commitments to provide credit.
61
CWB Financial Group 2019 Annual Report
Risk Overview
We maintain a sound, prudent and conservative approach to managing
• Broad funding access, including preserving and growing a reliable base
exposure to liquidity risk, including holding a portfolio of high-quality liquid
of core deposits and continual access to diversified sources of funding;
assets to allow continued operation as a going concern under stressed
conditions that may be caused by CWB-specific or systemic events.
This pool of high-quality liquid assets and related liquidity and funding
management strategies comprise an integrated liquidity risk management
program designed to ensure that CWB manages liquidity risk within an
appropriate threshold.
Our key risk mitigation strategies include:
• An appropriate balance between the level of risk we undertake and the
corresponding cost of risk mitigation that considers the potential impact
of extreme but plausible events;
RISK GOVERNANCE
• A comprehensive group-wide liquidity contingency plan supported
by a pool of unencumbered high-quality liquid assets and marketable
securities that would provide assured access to liquidity in a crisis; and,
• Maintenance of a liquidity position to manage current and future
liquidity requirements while also contributing to the flexibility, safety and
soundness of CWB under times of stress.
Refer to the Liquidity Management sections of this MD&A for additional
information.
Liquidity management is centralized to better facilitate the effective
is responsible for managing liquidity and funding risk. ALCo oversees
management of liquidity risk. The Board Risk Committee approves
the treasury function and provides tactical and strategic direction.
market risk management policies and delegates
liquidity risk
Integrated Risk Management, as the second line, is responsible for
authorities to senior management. As the first line of defence, Treasury
independent oversight.
RISK MANAGEMENT
We have a comprehensive liquidity risk management policies. The key
We stress test liquidity as per the OSFI Liquidity Adequacy
elements of managing liquidity risk for CWB include the following:
Requirement guideline. Stress test results are reviewed by ALCo
• Policy – Liquidity risk management policies establish a target for
minimum liquidity, set the monitoring regime, and define authority
levels and responsibilities. Policies are reviewed at a minimum
annually by ALCo, Executive Risk Committee and the Board Risk
Committee. Limit setting establishes acceptable thresholds for
liquidity risk;
• Monitoring – Trends and behaviours regarding how clients manage
their deposits and loans are monitored to determine appropriate
liquidity levels. Active monitoring of the external environment is
performed using a wide-range of sources and economic barometers;
• Measurement and modeling – CWB’s liquidity model measures and
forecasts cash inflows and outflows, including any cash flows related
to applicable off-balance sheet activities over various risk scenarios;
and considered in making liquidity management decisions. Liquidity
stress testing has many purposes, including, but not limited to:
- Helping the Board Risk Committee and senior management
understand the potential behaviour of various positions on CWB’s
balance sheet in circumstances of stress; and,
- Facilitating the development of effective funding, risk mitigation
and contingency plans.
• Contingency planning – A liquidity contingency plan is maintained
that defines a liquidity event and specifies the desired approaches
for analyzing and responding to actual and potential liquidity
events. The plan outlines an appropriate governance structure
for the management and monitoring of liquidity events, processes
for effective internal and external communication, and identifies
potential countermeasures to be considered at various stages of an
• Reporting – Treasury oversight of all significant liquidity risks that
event;
supports analysis, risk measurement, stress testing, monitoring and
reporting to both ALCo and the Board Risk Committee;
• Stress testing – CWB performs liquidity stress testing on a regular
basis to evaluate the potential effect of both systemic and CWB
specific (idiosyncratic) disruptions to our liquidity position. Liquidity
stress tests consider the effect of changes in funding assumptions,
depositor behaviour and the market behaviour of liquid assets.
• Funding diversification – We actively pursue diversification of our
deposit liabilities by source, type of depositor, instrument and term.
Supplementary funding sources currently include securitization,
capital market issuance and whole loan sales; and,
• Core liquidity – We maintain a pool of highly liquid, unencumbered
assets that can be readily sold, or pledged to secure borrowings,
under stressed market conditions or due to CWB-specific events.
We remain in compliance with OSFI’s Liquidity Adequacy Requirements guideline.
Contractual Obligations
We enter into contracts in the normal course of business that give rise to
of this MD&A, as well as Notes 14, 16, 20 and 24 to the consolidated
commitments of future minimum payments that may affect the liquidity
financial statements, the following contractual obligations are outstanding
position. In addition to the obligations related to deposits and subordinated
at October 31, 2019:
debentures discussed in the Deposits and Liquidity Management sections
62
CWB Financial Group 2019 Annual Report Table 31 - Contractual Obligations
($ thousands)
Lease commitments
Purchase obligations for operating and capital expenditures
October 31, 2019
October 31, 2018
Credit Ratings
Within 1
Year
14,946
1,659
16,605
15,768
$
$
$
$
$
$
1 to 3
Years
27,192
1,393
28,585
37,713
$
$
$
4 to 5
Years
22,503
-
22,503
8,971
$
$
$
More than
5 Years
27,943
-
27,943
24,338
$
$
$
Total
92,584
3,052
95,636
86,790
CWB’s ability to efficiently access capital markets funding on a cost-
for funding capacity or access to capital markets. Changes in credit ratings
effective basis is partially dependent upon the maintenance of satisfactory
may also affect the ability and/or the cost of establishing normal course
credit ratings. Such credit ratings, accompanied with a stable or positive
derivative or hedging transactions.
outlook, increase the breadth of clients and investors able to participate
in various deposit and debt offerings, while also lowering our overall cost
of capital.
Credit ratings do not consider market price or address the suitability of any
financial instrument for a particular investor and are not recommendations
to purchase, sell or hold securities. Ratings are subject to revision or
Credit ratings are largely determined by the quality of earnings, the
withdrawal at any time by the rating organization.
adequacy of capital, the effectiveness of risk management programs and
the opinions of rating agencies related to creditworthiness of the financial
sector as a whole.
The following table summarizes the credit ratings issued by DRBS
Morningstar for CWB, as well as the corresponding rating agency outlook,
last confirmed on November 27, 2019. DBRS Morningstar has discontinued
There can be no assurance that CWB’s credit ratings and the corresponding
CWB’s legacy, non-NVCC subordinated debt rating as all outstanding non-
outlook will not be changed, potentially resulting in adverse consequences
NVCC debt was repaid on November 18, 2019.
Table 32 - DBRS Morningstar Credit Ratings
Long-term senior debt
and long-term deposits
Short-term
instruments
Subordinated
debentures (NVCC)
Preferred shares
Outlook
A (low)
R1 (low)
BBB (low)
Pfd-3
Stable
CAPITAL RISK
Capital risk is the risk that we have insufficient capital resources, in either quantity or quality, to support economic risk taken, regulatory requirements,
strategic initiatives and current or planned operations.
Risk Overview
We follow three main principles to facilitate the effective management of
• The objective of capital management is to ensure:
capital risk:
• Capital management involves a dynamic and ongoing process to
determine, allocate and maintain appropriate amounts of capital;
• The optimal amount and composition of capital must consider regulatory
requirements, as well as the expectations of our shareholders and other
stakeholders; and,
- Capital is, and will continue to be, adequate to maintain confidence
in the safety and stability of CWB while also complying with required
regulatory standards;
- We have the capability to access appropriate sources of capital in a
timely and cost-effective manner; and,
- Return on capital is sufficient to support projected business growth
and satisfy the expectations of investors.
63
CWB Financial Group 2019 Annual Report Risk Governance
The Board approves the annual regulatory capital plan, and the Board
In addition, Integrated Risk Management, Risk Capital and IFRS 9,
Risk Committee approves the periodic ICAAP and capital management
and Finance comprise the ICAAP core team and are closely involved
policies. The Group Capital Risk Committee is responsible for capital risk
in capital management. The core team is closely supported by other
management. ERM oversees the demand side of capital management,
key departments, including Treasury, Credit Risk Management, and
including risk capital and economic capital. Separate from ERM, CWB’s
Strategy.
Finance team provides independent oversight of processes to manage
capital risk. In effect, the CFO is responsible for the supply side of
capital adequacy, and the CRO is responsible for the demand side of
risk capital and capital risk management.
Risk Management
The following are key elements of capital risk management:
• Forecast models used to analyze the likely capital impact of projected
• The annual regulatory capital plan,
inclusive of the capital
operations, various balance sheet and income statement scenarios,
approaches used to calculate regulatory capital, and/or significant
management policy and three-year capital projections;
transactions; and,
• A quarterly regulatory capital risk update provided to the Board Risk
• Regulatory capital ratios reported to senior management and the
Committee;
Board on a monthly basis.
For additional information, please refer to the Capital Management section of this MD&A.
OPERATIONAL RISK
Operational risk is defined as the risk of loss due to unanticipated outcomes that result from inadequate or failed systems, processes, or human
errors, as well as from external events. Exposure to operational risks arises from the people, processes, and systems that are established to serve
CWB’s clients and maintain the required functions of the enterprise.
Risk Overview
Operational risk is inherent in all of CWB’s business activities, including
The regulatory framework requires certain amounts of capital to be allocated
banking, trust, and wealth management. We are exposed to operational
to support operational risk. We use the Standardized approach to measure
risk from internal business activities, external threats and outsourced
operational risk. We have a group-wide Operational Risk Management
business activities. Its impact can be financial loss, loss of reputation, loss
Policy to ensure that all employees understand their responsibilities with
of competitive position, regulatory penalties, or failure in the management
respect to operational risk management. The Operational Risk Management
of other risks. While operational risk cannot be eliminated, proactive
Policy encompasses a common language of risk coupled with programs and
operational risk management is a key strategy to mitigate this risk. The
methodologies for identification, measurement, control, and management
primary financial measure of operational risk is actual losses incurred.
of operational risk.
Risk Governance
Business and support areas are the first line of defence, and are fully
the enterprise. Integrated Risk Management, as the second line, is
accountable to manage and mitigate the operational risks associated
responsible for the continual enhancement of the Operational Risk
with their activities. The Operational Risk Committee oversees the
Management Framework and supporting policies. The Board Risk
implementation and adoption of the Operational Risk Management
Committee has ultimate oversight and approves the Operational Risk
Policy across the enterprise and facilitates the
involvement of
Management Policy.
relevant stakeholders in the first and second line of defence across
64
CWB Financial Group 2019 Annual Report Risk Management
Following is a summary of strategies and factors that assist with the
• Management is very engaged with promoting CWB’s operational risk
effective management of operational risk:
tolerance and appetite; and,
• Management remains close to operations, which helps to facilitate
effective internal communication and operational control;
• Communication of, and training related to, the importance of
effective operational risk management to all levels;
• Ongoing enhancement of enterprise-wide operational
risk
management processes.
Key elements of the Operational Risk Management Framework include:
In addition to the second line Operational Risk Management Framework,
• Common definitions of operational risk – We incorporate standard
additional key components include:
risk terms and certain key operational risk definitions as part of our
• Implementation of policies and procedural controls appropriate to
operational risk management framework and supporting policies;
address identified risks (including segregation of duties and other
• Risk Control Assessments (RCA) – Utilized to develop a forward-looking
fundamental checks and balances);
view of operational risk exposure based on proactive identification of key
• Continual enhancements to fraud prevention processes, policies and
sources of operational risk exposures. The results of RCAs are aggregated
communication;
across the enterprise to evaluate the key sources of operational risks and
compare relative exposures from different business activities;
• Operational risk reporting – Loss data monitoring is important to maintain
awareness of identified operational risks and to assist management in
taking constructive action to reduce exposure to future losses;
• Root cause analysis – For significant operational risk events we employ
a standardized methodology to identify the underlying cause of the
operational risk event and document the corrective actions taken to
avoid similar events in the future; and,
• New
initiative risk assessments –
Integrated with our change
management process, requires project owners to proactively identify
all relevant stakeholders across significant functional areas and conduct
detailed RCAs for new initiatives.
• Established “whistleblower” processes, a robust employee code of
conduct and ethical concerns hotline;
• Maintenance of an outsourcing management program;
• At least annual assessment and benchmarking of business insurance;
• Human resource guidelines and processes to ensure staff are adequately
trained for the tasks for which they are responsible and to enable
retention and recruitment;
• A Regulatory Compliance team focused on key regulatory compliance
areas such as privacy, anti-money laundering, anti-terrorist financing and
consumer protection regulations;
• Use of technology that incorporates automated systems with built-
in controls and active management of configuration and change
management along with information security management programs;
• Enhanced focus on data quality as an important and strategic asset;
• Effective project management processes supported by a designated
committee comprised of representatives of senior management; and,
• Continual updating and testing of procedures and contingency plans for
disaster recovery and business continuity (including pandemic planning).
We have adopted an Operational Risk Taxonomy as part of our Operational
Risk Management Framework. This taxonomy forms the basis for all
operational risk management reporting, with loss events and identified risks
categorized consistently.
The taxonomy is based on 15 distinct risk types that are aligned within the
seven Basel Operational Risk categories.
65
CWB Financial Group 2019 Annual Report Table 33 - Operational Risk Taxonomy
Operational Risk Level
Description
Financial crime risk
The risk of loss or harm arising from crimes committed against CWB, our clients,
or by our employees or third parties. Loss in this context refers to economic loss
including time, recovery costs, and overhead.
Category
External Fraud and
Internal Fraud
Regulatory compliance risk
The risk of loss or harm created by failing to comply with or satisfy the laws,
regulatory requirements or prescribed practices that apply to CWB. It does not
include risk arising from non-conformance with ethical standards.
Clients, Products, and
Business Practices
Legal risk
Reputation risk
The risk of loss or harm arising from the ways in which laws, regulatory
requirements, prescribed practices or contractual obligations apply to CWB. It
does not include risk arising from non-conformance with ethical standards.
The risk of loss or harm to the CWB brand or reputation. It may arise even if other
operational risks are effectively managed, and includes the risk arising from non-
conformance with ethical standards.
Legal Risk
Reputation Risk
Damage to physical assets
(excludes investment assets)
The risk of loss or harm to physical assets caused by natural disaster, mechanical
failures, or intentional or unintentional human actions.
Damage to Physical
Assets
People risk
The risk that we cannot attract and retain sufficient qualified resources to
implement our strategies and/or achieve our objectives.
Employment Practices
and Workplace Safety
Business disruption risk
The risk of loss or harm due to the failure to ensure the ongoing continuation of
critical business operations caused by disruptions impacting the availability of
staff, systems, and/or premises.
Business Disruption and
System Failure
Technology risk
Information security risk
Accounting risk (excludes
model errors related to
financial statements)
Model risk
Reporting risk
Outsourcing and third-party
supplier risk
Change management risk
(excludes technology change)
The risk of loss or harm related to the operational performance, confidentiality,
integrity and availability of our information, systems and infrastructure. The risk
of loss due to information systems and services (including application systems
and supporting technology infrastructure) failing to satisfy business requirements,
caused by inadequately designed, maintained, and/or supported systems,
applications and technology.
Business Disruption and
System Failure
The risk of loss or harm due to the compromising of our information assets (i.e.,
the unauthorized use, loss, damage, disclosure, or modification of company
information and information systems) caused by a failure to protect our information
assets (including cyber risk).
External Fraud and
Client, Products, and
Business Practices
The risk of loss or harm due to misstatements of assets, liabilities and/or income,
caused by internal financial control failures or deficiencies.
Execution, Delivery, and
Process Management
The risk of loss or harm due to inaccurate model outputs or incorrect
interpretations of model outputs, caused by inadequate model design, use and/or
assumptions.
Execution, Delivery, and
Process Management
The risk of loss or harm due to inadequate risk-related information being provided
to senior management, the Board, and/or regulatory bodies, caused by incomplete,
inaccurate or untimely risk reporting processes, systems and/or un-actioned risk
reporting.
The risk of loss or harm due to a third-party service provider failing to deliver
functionality and performance required to effectively support underlying business
objectives, caused by inadequate selection, retention, oversight and/or monitoring
of the relationship, or by inadequate contractual terms and conditions.
The risk of loss or harm due to a failure to effectively manage change to achieve the
desired business requirements and objectives, caused by inadequate management
(i.e., planning, execution, monitoring, oversight, and reporting) of significant
business change.
Execution, Delivery, and
Process Management
Execution, Delivery, and
Process Management
Execution, Delivery, and
Process Management
Process and execution risk
The risk of loss or harm due to a failure to achieve the desired outcome caused by
inadequately designed or executed processes.
Execution, Delivery, and
Process Management
Product and customer/client
selection risk (includes design,
development, distribution, and
sales)
The risk of loss or harm due to the inability to effectively design, develop,
distribute, and sell products and services, or attract profitable clients caused by
a breakdown of the product development and sales distribution process, or the
failure to properly vet clients.
Clients, Products, and
Business Practices
Risk of loss or harm due to CWB failing to meet professional obligations to our
clients, caused by an inadequate understanding and/or execution of the obligation/
suitability requirements.
Clients, Products, and
Business Practices
Fiduciary risk
66
CWB Financial Group 2019 Annual Report A discussion of several of CWB’s key operational risks follows:
People Risk
Competition for qualified employees in our key markets has remained
consistent and reflects the generally stable level of economic activity and
evolving needs of other financial services participants within and outside
CWB’s geographic footprint.
We intend to continually attract and retain qualified employees to
successfully execute against our vision to become the best full-service bank
for business owners in Canada. We do this by proactively investing in our
practices and programs to build a positive, rewarding and collaborative
work environment, where teams are empowered to deliver exceptional
client experiences. Our refreshed brand and values include a people first
approach to planning and execution, a focus to drive inclusion and diversity
as key business advantages, and specific strategies to increase CWB’s
brand awareness in the markets where we operate. We complement this
with a specialized and knowledgeable approach to talent acquisition, a
competitive total rewards offering with differentiated benefits, flexible work
arrangements, comprehensive learning and development opportunities and
a proactive focus on succession planning.
An inability to attract and retain an appropriate staff complement would
adversely affect our ability to achieve CWB’s strategic objectives.
Technology Risk
We are highly dependent upon information technology and supporting
infrastructure, such as voice, data and network access. In addition to
internal resources, various third-parties provide key components of the
infrastructure and applications. Disruptions in information technology
and infrastructure, whether attributed to internal or external factors, and
including potential disruptions in the services provided by various third
parties, could adversely affect our ability to conduct regular business and/
or deliver products and services to clients. Ongoing diligence is required
to ensure systems are secure from threats. CWB currently has a number
of projects underway focused to increase our digital capabilities which
increase risk exposure related to information systems and technology. We
continuously identify and assess key services to ensure potential failure
points are highlighted and related risk is mitigated the best possible way (i.e.
direction, a decline in client and shareholder confidence, and damage to
our reputation. Management of these risks is a key priority for us, and we do
so in accordance with our three lines of defence framework.
Legal Risk
Legal risk is the potential for loss or harm resulting from a failure to comply
with laws or satisfy contractual obligations. We are subject to litigation
arising in the ordinary course of business, and the unfavourable resolution
of any such litigation could have a material adverse effect on our financial
results and damage our reputation. We are required to disclose material
litigation to which we are party. In assessing the materiality of litigation,
factors considered include a case-by-case assessment of specific facts and
circumstances, our past experience and the opinions of legal experts.
Regulatory Compliance Risk
Our businesses are highly regulated through the
laws, regulatory
requirements and prescribed practices applicable to CWB that have
been put in place by various authorities, including federal and provincial
governments and regulators. Changes to these applicable requirements,
including changes
in their
interpretation or
implementation, could
adversely affect us, and we anticipate ongoing scrutiny from our regulatory
authorities and strict enforcement of such requirements as reforms continue
at the federal and provincial levels to strengthen the stability of the financial
system and protect stakeholders. Over the past several years, the intensity
of supervisory oversight of all federally regulated Canadian financial
institutions has increased significantly in terms of both regulation and new
standards. This includes amplified supervisory activities, an increase in the
volume of regulation, more frequent data and information requests from
regulators, and shorter implementation timeframes for new requirements.
Certain requirements may also impact our ability to compete against
both federally regulated and non-federally regulated entities. We actively
monitor these developments and implement required changes to systems
and processes. We have implemented a robust regulatory compliance risk
management framework and developed supporting protocols to manage
regulatory compliance risk across the enterprise.
Financial Crime Risk
Safeguarding our customers, employees, information and assets from
upgrades, enhancements, new products). In the last year, our Information
exposure to criminal risk is an important priority for us. Criminal risk is the
Services team has worked closely with ERM to apply further rigour to, and
potential for loss or harm resulting from a failure to comply with criminal
enhanced governance around, identification and evaluation of potential
laws and includes acts by employees or third parties against us and acts by
risks in the technology environment.
Information and Cyber Security Risk
We manage information security risk by ensuring appropriate technologies,
processes and practices are effectively designed and implemented to help
prevent, detect and respond to threats as they emerge and evolve. We rely
upon a complete suite of advanced controls to protect CWB’s operations
and our customers from attack and have partnered with leading third-party
service providers to provide counsel and support should the need arise. We
regularly test the completeness and effectiveness of our information and
cyber security program.
Legal, Regulatory Compliance and Reputation Risk
Legal and regulatory compliance risk is the potential for loss or harm
created by legal, regulatory compliance, financial crimes and reputation
risks. Failing to manage these risks may result in civil or criminal litigation,
administrative penalties, supervisory findings, enforcement actions,
external parties using CWB to engage in unlawful conduct, such as fraud,
theft, money laundering, violence, cyber crime, bribery and corruption.
We govern, oversee and assess principles and procedures designed to help
ensure compliance with legal and regulatory requirements and internal risk
parameters related to anti-money laundering, anti-terrorist financing and
sanctions measures, and our compliance with anti-corruption and anti-
bribery laws and regulations.
Reputation Risk
Damage to our reputation and negative public perception could be an
outcome of operational risk events that result from breakdowns in internal
processes, deficient systems, actual or alleged misconduct of employees
or external partners representing non-conformance with our ethical
standards, or external events. Significant reputation risk events typically
lead to questions about business ethics and integrity, competence,
corporate governance practices, quality and accuracy of financial reporting
disclosures, or quality of products and service.
financial loss, reputation damage, restricted business activities, increased
Negative public opinion could adversely affect our ability to attract and
regulatory supervision or intervention or the imprisonment or regulatory
examination of officers and directors, an inability to execute our strategic
retain clients and/or employees and could expose us to litigation and/or
regulatory action. Responsibility for managing the impact of operational
67
CWB Financial Group 2019 Annual Report (and other) risks on our reputation falls to all of our teams, including senior
conduct policies, in a manner that minimizes operational risks and aligns to
management and the Board. All directors, officers and employees have a
our three lines of defence framework.
responsibility to conduct their activities in accordance with our personal
Further, the initiation of any new growth initiatives or infrastructure projects,
and any significant expansion of the business may increase the operating
complexity and divert management’s attention away from established or
ongoing business activities. Any failure to successfully manage strategic
execution or acquisition strategies could have a material adverse impact on
our business, financial condition and results of operations.
ADEQUACY OF CWB’S RISK MANAGEMENT FRAMEWORK
The Risk Management Framework is comprised of various processes and
strategies for managing risk exposure. Given the structure and scope of our
operations, CWB is primarily subject to credit, market (mainly interest rate),
liquidity, operational, reputation, regulatory, environmental, and other risks.
There can be no assurance that the framework to manage risks, including
the framework’s underlying assumptions and models, will be effective under
all conditions and circumstances. If the risk management framework proves
ineffective, CWB could be materially affected by unexpected financial
losses and/or other harm.
CHANGES IN ACCOUNTING STANDARDS AND
ACCOUNTING POLICIES AND ESTIMATES
The IASB continues to change the financial accounting and reporting
standards that govern the preparation of our financial statements. These
types of changes can be significant and may materially impact how we
record and report our financial condition and results of operations. Where
we are required to retroactively apply a new or revised standard, we may be
required to restate prior period financial statements
OTHER FACTORS
We caution that the above discussion of risk factors is not exhaustive. Other
factors beyond our control that may affect future results include changes
in tax laws, technological changes, unexpected changes in consumer
spending and saving habits, timely development and introduction of new
products, and the anticipation of and success in managing the associated
risks.
OTHER RISK FACTORS
In addition to the risks described above, other risk factors, including those
below and those identified in the forward-looking statements section, may
adversely affect CWB’s businesses and financial results.
GENERAL BUSINESS AND ECONOMIC CONDITIONS
CWB’s overall financial performance is impacted by general business and
economic conditions across the country. Several factors that could impact
general business and economic conditions in our markets include, but are
not limited to, changes in: short-term and long-term interest rates; energy
and other commodity prices, including the impact of constrained energy
transportation infrastructure; real estate prices; adverse global economic
events and/or elevated economic uncertainties; inflation; exchange rates;
levels of consumer, business and government spending; levels of consumer,
business and government debt; and consumer confidence.
LEVEL OF COMPETITION
Our performance is impacted by competition in the markets in which we
operate. Client retention may be influenced by many factors, including
relative client experience, the relative price and attributes of products
and services, changes in products and services, and actions taken by
competitors.
While transition from the Standardized to the AIRB approach for risk and
capital management will not affect the attributes or behaviour of our
competitors, we expect this transition to enhance our competitiveness by
enabling CWB to price more effectively for risk.
ACCURACY AND COMPLETENESS OF INFORMATION ON
CLIENTS AND COUNTERPARTIES
We depend on the accuracy and completeness of information about clients
and counterparties. In deciding whether to extend credit or enter into other
transactions with clients and counterparties, we may rely on information
furnished by them, including financial statements, appraisals, external
credit ratings and other financial information.
We may also rely on the representations of clients and counterparties as
to the accuracy and completeness of that information and, with respect to
financial statements, on the reports of auditors. Our financial condition and
earnings could be negatively impacted to the extent it relies on financial
statements that do not comply with standard accounting practices, that
are materially misleading, or that do not fairly present, in all material
respects, the financial condition and results of operations of the customer
or counterparties.
ABILITY TO EXECUTE GROWTH INITIATIVES AND
STRATEGIC INFRASTRUCTURE PROJECTS
As part of our transformational strategy, we intend to continue growing
our business through a combination of organic growth and strategic
acquisitions. The ability to successfully grow organically will depend
on successful execution of key business transformation efforts and
infrastructure projects. The ability to successfully grow through acquisition
will be dependent on a number of factors, including identification of
accretive new business or acquisition opportunities, negotiation of purchase
agreements on satisfactory terms and prices, approval of acquisitions by
regulatory authorities, securing satisfactory regulatory capital and financing
arrangements, and effective integration of newly acquired operations
into the existing business. All of these activities may be more difficult to
implement or may take longer to execute than we anticipate.
68
CWB Financial Group 2019 Annual Report UPDATED SHARE INFORMATION
As at November 30, 2019, there were 87,264,636 common shares and
the dividend declared one year ago. The Board of Directors also declared
1,615,178 stock options outstanding. On December 4, 2019, CWB’s Board of
preferred share cash dividends of $0.2688125 per Series 5, $0.390625
Directors declared a cash dividend of $0.28 per common share, payable
per Series 7, and $0.375 per Series 9, all payable on January 31, 2020 to
on January 7, 2020 to shareholders of record on December 17, 2019. This
shareholders of record on January 24, 2020.
quarterly dividend is consistent with the prior quarter and 8% higher than
CONTROLS AND PROCEDURES
As of October 31, 2019, an evaluation was carried out on the effectiveness
On November 1, 2018, CWB adopted IFRS 9 and updated or modified
of CWB’s disclosure controls and procedures. Based on that evaluation, the
certain internal controls over financial reporting as a result of the new
CEO and CFO have certified that the design and operating effectiveness of
accounting standard. There were no other significant changes in CWB’s
CWB’s disclosure controls and procedures were effective.
ongoing internal controls over financial reporting that occurred during the
Also at October 31, 2019, an evaluation was carried out on the effectiveness
of internal controls over financial reporting to provide reasonable assurance
year ended October 31, 2019 that have materially affected, or are reasonably
likely to materially affect, CWB’s internal controls over financial reporting.
regarding the reliability of financial reporting and the preparation of
Prior to its release, this MD&A was reviewed by the Audit Committee and,
financial statements in accordance with IFRS. Based on that evaluation, the
on the Audit Committee’s recommendation, approved by the Board of
CEO and CFO have certified that the design and operating effectiveness of
Directors of CWB.
internal controls over financial reporting were effective.
These evaluations were conducted using the framework and criteria
established in accordance with Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). A Disclosure Committee, comprised
of members of senior management, assists the CEO and CFO in their
responsibilities. Management’s evaluation of controls can only provide
reasonable, not absolute, assurance that all control issues that may result in
material misstatement, if any, have been detected.
69
CWB Financial Group 2019 Annual Report Consolidated Financial Statements
MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING
The consolidated financial statements of Canadian Western Bank (CWB)
The system of internal controls is also supported by our internal audit
and related financial information presented in this annual report have been
function, which carries out periodic internal audits of all aspects of CWB’s
prepared by management, who are responsible for the integrity and fair
operations. The Chief Internal Auditor has full and free access to the Audit
presentation of the information presented, which includes the consolidated
Committee and to the external auditors.
financial statements, Management’s Discussion and Analysis (MD&A) and
other information. The consolidated financial statements were prepared
in accordance with International Financial Reporting Standards, including
the requirements of the Bank Act and related rules and regulations issued
by the Office of the Superintendent of Financial Institutions Canada. The
MD&A has been prepared in accordance with the requirements of securities
regulators, including National Instrument 51-102 of the Canadian Securities
Administrators (CSA).
The Audit Committee, appointed by the Board of Directors, is comprised
entirely of independent directors who are not officers or employees of
CWB. The Committee is responsible for reviewing the consolidated financial
statements and annual report, including the MD&A, and recommending
them to the Board of Directors for approval. Other key responsibilities of
the Audit Committee include meeting with management, the Chief Internal
Auditor and the external auditors to discuss the effectiveness of certain
internal controls over the financial reporting process and the planning and
The consolidated financial statements, MD&A and related financial
results of the external audit. The Audit Committee also meets regularly with
information reflect amounts which must, of necessity, be based on informed
the Chief Financial Officer, Chief Internal Auditor and the external auditors
estimates and judgments of management with appropriate consideration to
without management present.
materiality. The financial information represented elsewhere in this annual
report is fairly presented and consistent with the consolidated financial
statements.
The Governance and Conduct Review Committee, appointed by the Board
of Directors, is comprised of directors who are not officers or employees
of CWB. Their responsibilities include reviewing related party transactions
Management has designed the accounting system and related internal
and reporting to the Board of Directors, those related party transactions
controls, and supporting procedures are maintained to provide reasonable
which may have a material impact on CWB.
assurance that financial records are complete and accurate, assets are
safeguarded and CWB is in compliance with all regulatory requirements.
These supporting procedures include the careful selection and training of
qualified staff, defined division of responsibilities and accountability for
performance, and the written communication of policies and guidelines of
business conduct and risk management throughout CWB.
We, as CWB’s Chief Executive Officer and Chief Financial Officer, will certify
CWB’s annual filings with the CSA as required by National Instrument 52-
109 Certification of Disclosure in Issuers’ Annual and Interim Filings.
The Office of the Superintendent of Financial Institutions Canada, at least
once a year, makes such examination and inquiry into the affairs of CWB and
its federally regulated subsidiaries as is deemed necessary or expedient to
satisfy themselves that the provisions of the relevant Acts, having reference
to the safety of depositors, are being duly observed and that CWB is in a
sound financial condition.
KPMG LLP, the independent auditors appointed by the shareholders of
CWB, have performed an audit of the consolidated financial statements and
their report follows. The external auditors have full and free access to, and
meet periodically with, the Audit Committee to discuss their audit and any
resulting matters.
Chris H. Fowler
President and Chief Executive Officer
December 4, 2019
Carolyn J. Graham, FCPA, FCA
Executive Vice President and Chief Financial Officer
70
CWB Financial Group 2019 Annual Report INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Canadian Western Bank
In connection with our audit of the financial statements, our responsibility
OPINION
We have audited the consolidated financial statements of Canadian
Western Bank (the Entity), which comprise:
is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
• the consolidated balance sheets as at October 31, 2019 and October 31,
2018
We obtained the information, other than the financial statements and the
auditors’ report thereon, included in Management’s Discussion and Analysis
• the consolidated statements of income and comprehensive income for
filed with the relevant Canadian Securities Commissions.
the years then ended
• the consolidated statements of changes in equity for the years then
ended
• the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary
of significant accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in
all material respects, the consolidated financial position of the Entity as
at October 31, 2019 and October 31, 2018, and its consolidated financial
performance, and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Our responsibilities under those standards are further
described in the “Auditors’ Responsibilities for the Audit of the Financial
Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical
requirements that are relevant to our audit of the financial statements in
Canada and we have fulfilled our other responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
If, based on the work we have performed on this other information, we
conclude that there is a material misstatement of this other information, we
are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’
report thereon, included in a document likely to be entitled “2019 Annual
Report” is expected to be made available to us after the date of this auditors’
report. If, based on the work we will perform on this other information, we
conclude that there is a material misstatement of this other information, we
are required to report that fact to those charged with governance.
RESPONSIBILITIES OF MANAGEMENT AND THOSE
CHARGED WITH GOVERNANCE FOR THE FINANCIAL
STATEMENTS
Management is responsible for the preparation and fair presentation of
the financial statements in accordance with IFRS, and for such internal
control as management determines is necessary to enable the preparation
of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, management is responsible for
assessing the Entity’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the
Entity or to cease operations, or has no realistic alternative but to do so.
EMPHASIS OF MATTER – CHANGE IN ACCOUNTING
POLICY
Those charged with governance are responsible for overseeing the Entity‘s
financial reporting process.
Without qualifying our opinion on the consolidated financial statements, we
draw attention to Note 1(J) to the consolidated financial statements, which
indicates that the Bank has changed its method of accounting for financial
instruments in 2019 due to the adoption of IFRS 9 Financial Instruments. Our
opinion is not modified in respect of this matter.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes
OTHER INFORMATION
our opinion.
Management is responsible for the other information. Other information
Reasonable assurance is a high level of assurance, but is not a guarantee
comprises:
that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it
• the information, other than the financial statements and the auditors’
exists.
report thereon, included in Management’s Discussion and Analysis filed
with the relevant Canadian Securities Commissions.
Misstatements can arise from fraud or error and are considered material
• the information, other than the financial statements and the auditors’
if, individually or in the aggregate, they could reasonably be expected to
report thereon, included in a document likely to be entitled “2019 Annual
influence the economic decisions of users taken on the basis of the financial
Report”.
statements.
Our opinion on the financial statements does not cover the other information
As part of an audit in accordance with Canadian generally accepted auditing
and we do not and will not express any form of assurance conclusion
standards, we exercise professional judgment and maintain professional
thereon.
skepticism throughout the audit.
71
CWB Financial Group 2019 Annual Report We also:
• Identify and assess the risks of material misstatement of the financial
statements,
including the disclosures, and whether the financial
statements, whether due to fraud or error, design and perform audit
statements represent the underlying transactions and events in a manner
procedures responsive to those risks, and obtain audit evidence that is
that achieves fair presentation.
sufficient and appropriate to provide a basis for our opinion.
• Communicate with those charged with governance regarding, among
• The risk of not detecting a material misstatement resulting from fraud is
other matters, the planned scope and timing of the audit and significant
higher than for one resulting from error, as fraud may involve collusion,
audit findings, including any significant deficiencies in internal control
forgery, intentional omissions, misrepresentations, or the override of
that we identify during our audit.
internal control.
• Provide those charged with governance with a statement that we have
• Obtain an understanding of internal control relevant to the audit in order
complied with relevant ethical requirements regarding independence,
to design audit procedures that are appropriate in the circumstances, but
and communicate with them all relationships and other matters that
not for the purpose of expressing an opinion on the effectiveness of the
may reasonably be thought to bear on our independence, and where
Entity’s internal control.
applicable, related safeguards.
• Evaluate the appropriateness of accounting policies used and the
• Obtain sufficient appropriate audit evidence regarding the financial
reasonableness of accounting estimates and related disclosures made by
information of the entities or business activities within the Group Entity
management.
to express an opinion on the financial statements. We are responsible
• Conclude on the appropriateness of management’s use of the going
for the direction, supervision and performance of the group audit. We
concern basis of accounting and, based on the audit evidence obtained,
remain solely responsible for our audit opinion.
whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Entity’s ability to continue as a going
The engagement partner on the audit resulting in this auditors’ report is
concern. If we conclude that a material uncertainty exists, we are required
Carlo De Mello.
to draw attention in our auditors’ report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditors’ report. However, future events or conditions
may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial
KPMG LLP
Chartered Professional Accountants
Edmonton, Canada
December 4, 2019
72
CWB Financial Group 2019 Annual Report CONSOLIDATED BALANCE SHEETS
($ thousands)
Assets
Cash Resources
Cash and non-interest bearing deposits with financial institutions
Interest bearing deposits with regulated financial institutions
Cheques and other items in transit
Securities
Issued or guaranteed by Canada
Issued or guaranteed by a province or municipality
Other debt securities
Preferred shares
Securities Purchased Under Resale Agreements
Loans
Personal
Business
Allowance for credit losses
Other
Property and equipment
Goodwill
Intangible assets
Derivatives
Other assets
Total Assets
Liabilities and Equity
Deposits
Personal
Business and government
Other
Cheques and other items in transit
Securities sold under repurchase agreements
Derivatives
Other liabilities
Debt
Debt related to securitization activities
Subordinated debentures
Equity
Preferred shares
Common shares
Retained earnings
Share-based payment reserve
Accumulated other comprehensive income
Total Shareholders' Equity
Non-controlling interests
Total Equity
Total Liabilities and Equity
As at
October 31
2019(1)
As at
October 31
2018
116,963
293,856
5,023
415,842
1,341,326
468,671
191,046
18,164
2,019,207
40,366
5,689,833
22,786,894
28,476,727
(110,834)
28,365,893
63,166
85,392
173,748
47,815
212,806
582,927
31,424,235
15,300,505
10,050,856
25,351,361
22,532
29,965
14,016
646,386
712,899
1,913,799
498,494
2,412,293
390,000
731,970
1,785,273
24,309
14,258
2,945,810
1,872
2,947,682
31,424,235
$
$
$
$
73,822
26,825
52,574
153,221
1,325,816
521,825
143,536
93,575
2,084,752
-
5,247,160
21,085,968
26,333,128
(128,529)
26,204,599
59,098
85,168
160,790
2,496
271,339
578,891
29,021,463
14,483,686
9,216,271
23,699,957
28,489
95,126
69,581
531,953
725,149
1,757,854
250,000
2,007,854
265,000
744,701
1,649,196
23,937
(97,082)
2,585,752
2,751
2,588,503
29,021,463
(Note 5)
$
(Note 6)
(Note 7)
(Note 8)
(Note 10)
(Note 11)
(Note 11)
(Notes 12 and 28)
(Note 13)
$
$
(Note 14)
(Notes 7 and 9)
(Notes 12 and 28)
(Note 15)
(Notes 9 and 16)
(Note 16)
(Note 17)
(Note 17)
(Note 18)
(Note 19)
$
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9) (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 Financial Instruments: Classification and
Measurement (IAS 39) and have not been restated.
The accompanying notes are an integral part of the consolidated financial statements.
Robert L. Phillips
Chair of the Board
Chris H. Fowler
President and Chief Executive Officer
73
CWB Financial Group 2019 Annual Report
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended October 31
($ thousands, except per share amounts)
Interest Income
Loans
Securities
Deposits with regulated financial institutions
Interest Expense
Deposits
Debt
Net Interest Income
Non-interest Income
Credit related
Wealth management services
Retail services
Trust services
Gains (losses) on securities, net
Other
Total Revenue
Provision for Credit Losses
Acquisition-related Fair Value Changes
Non-interest Expenses
Salaries and employee benefits
Premises and equipment
Other expenses
Net Income before Income Taxes
Income Taxes
Net Income
Net income attributable to non-controlling interests
Shareholders' Net Income
Preferred share dividends
Common Shareholders' Net Income
Average number of common shares (in thousands)
Average number of diluted common shares (in thousands)
Earnings Per Common Share
Basic
Diluted
2019(1)
2018
(Note 26)
$ 1,379,730
$
1,185,530
30,696
8,274
35,529
4,236
1,418,700
1,225,295
573,479
59,637
633,116
785,584
34,082
19,640
10,627
7,651
301
3,719
76,020
861,604
57,758
7,854
257,966
70,515
77,000
405,481
390,511
102,665
287,846
1,052
286,794
19,854
452,526
47,779
500,305
724,990
32,165
20,371
10,334
7,784
(217)
7,931
78,368
803,358
48,257
20,094
237,228
62,754
73,501
373,483
361,524
96,877
264,647
1,141
263,506
14,250
$
266,940
$
249,256
87,513
87,739
88,806
89,285
$
$
3.05
3.04
2.81
2.79
(Notes 6 and 8)
(Note 27)
(Note 22)
(Note 17)
(Note 23)
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.
The accompanying notes are an integral part of the consolidated financial statements.
74
CWB Financial Group 2019 Annual Report CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended October 31
($ thousands)
Net Income
Other Comprehensive Income (Loss), net of tax
Items that will be subsequently reclassified to net income
Debt securities measured at fair value through other comprehensive income
(2018: Available-for-sale debt and equity securities)
Gains (losses) from change in fair value(2)
Reclassification to net income(3)
Derivatives designated as cash flow hedges
Gains (losses) from change in fair value(4)
Reclassification to net income(5)
Items that will not be subsequently reclassified to net income
Losses on equity securities designated at fair value through other comprehensive income(6)
2019(1)
2018
$
287,846
$
264,647
34,301
(354)
33,947
71,361
(383)
70,978
(14,175)
90,750
(19,945)
158
(19,787)
(26,848)
(994)
(27,842)
n/a
(47,629)
Comprehensive Income
$
378,596
$
217,018
Comprehensive income for the year attributable to:
Shareholders
Non-controlling interests
Comprehensive Income
$
377,544
$
215,877
1,052
1,141
$
378,596
$
217,018
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.
(2) Net of income tax of $12,132 (2018 – $7,351).
(3) Net of income tax of $116 (2018 – $59).
(4) Net of income tax of $26,007 (2018 – $9,930).
(5) Net of income tax of $140 (2018 – $367).
(6) Net of income tax of $4,982 (2018 – n/a).
n/a – not applicable
The accompanying notes are an integral part of the consolidated financial statements.
75
CWB Financial Group 2019 Annual Report CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Years Ended October 31
($ thousands)
Preferred Shares
Balance at beginning of year
Issued
Balance at end of year
Common Shares
Balance at beginning of year
Purchased for cancellation
Issued under dividend reinvestment plan
Transferred from share-based payment reserve on the exercise or exchange of options
Issued on acquisition-related contingent consideration instalment payment
Balance at end of year
Retained Earnings
Balance at beginning of year under IAS 39
Impact of adopting IFRS 9 on November 1, 2018
Balance at beginning of year under IFRS 9
Shareholders' net income
Dividends - Preferred shares
- Common shares
Net premium on common shares purchased for cancellation
Realized losses reclassified from accumulated other comprehensive income
Issuance costs on preferred shares
Increase (decrease) in equity attributable to non-controlling interests ownership change
Balance at end of year
Share-based Payment Reserve
Balance at beginning of year
Amortization of fair value of options
Transferred to common shares on the exercise or exchange of options
Balance at end of year
Accumulated Other Comprehensive Income (Loss)
Debt securities measured at fair value through other comprehensive income
(2018: Available-for-sale debt and equity securities)
Balance at beginning of year under IAS 39
Impact of adopting IFRS 9 on November 1, 2018
Balance at beginning of year under IFRS 9
Other comprehensive income (loss)
Balance at end of year
Derivatives designated as cash flow hedges
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Equity securities designated at fair value through other comprehensive income
Impact of adopting IFRS 9 on November 1, 2018
Balance at beginning of year under IFRS 9
Other comprehensive loss
Realized losses reclassified to retained earnings
Balance at end of year
Total accumulated other comprehensive income (loss)
Total Shareholders' Equity
Non-controlling Interests
Balance at beginning of year
Net income attributable to non-controlling interests
Dividends to non-controlling interests
Partial ownership increase (decrease)
Balance at end of year
Total Equity
(Note 17)
(Note 17)
(Note 27)
(Note 2)
(Note 17)
(Note 17)
(Note 17)
(Note 6)
(Note 18)
(Note 2)
(Note 2)
(Note 6)
(Note 19)
2019(1)
2018
$ 265,000
125,000
390,000
$ 265,000
-
265,000
744,701
(15,326)
1,350
1,245
-
731,970
1,649,196
22,514
1,671,710
286,794
(19,854)
(94,573)
(34,266)
(20,370)
(3,007)
(1,161)
1,785,273
23,937
1,617
(1,245)
24,309
731,885
-
4,248
2,818
5,750
744,701
1,488,634
n/a
n/a
263,506
(14,250)
(88,819)
-
n/a
-
125
1,649,196
24,979
1,776
(2,818)
23,937
(48,962)
12,994
(35,968)
33,947
(2,021)
(29,175)
n/a
n/a
(19,787)
(48,962)
(48,120)
70,978
22,858
(20,278)
(27,842)
(48,120)
(12,774)
(12,774)
(14,175)
20,370
(6,579)
14,258
2,945,810
n/a
n/a
n/a
n/a
n/a
(97,082)
2,585,752
2,751
1,052
(1,071)
(860)
1,872
$ 2,947,682
2,797
1,141
(1,431)
244
2,751
$ 2,588,503
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.
n/a – not applicable
The accompanying notes are an integral part of the consolidated financial statements.
76
CWB Financial Group 2019 Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31
($ thousands)
Cash Flows from Operating Activities
Net income
Adjustments to determine net cash flows:
Provision for credit losses
Current income taxes receivable and payable, net
Accrued interest receivable and payable, net
Depreciation and amortization
Fair value change in contingent consideration
Amortization of fair value of employee stock options
Deferred income taxes, net
(Gains) losses on securities, net
Net gains on CWT strategic transactions
Change in operating assets and liabilities
Deposits, net
Loans, net
Securities sold under repurchase agreements, net
Securities purchased under resale agreements, net
Debt related to securitization activities, net
Other items, net
Cash Flows from Financing Activities
Debentures issued, net of issuance costs
Preferred shares issued, net of issuance costs
Dividends
Common shares purchased for cancellation
Purchases from non-controlling interests
Dividends to non-controlling interests
Contributions by non-controlling interests
Cash Flows from Investing Activities
Interest bearing deposits with regulated financial institutions, net
Securities, purchased
Securities, sales proceeds
Securities, matured
Property, equipment and intangible assets
Acquisition-related contingent consideration instalment payments
Proceeds from CWT strategic transactions
Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year *
* Represented by:
Cash and non-interest bearing deposits with financial institutions
Cheques and other items in transit (included in Cash Resources)
Cheques and other items in transit (included in Other Liabilities)
Cash and Cash Equivalents at End of Year
Supplemental Disclosure of Cash Flow Information
Interest and dividends received
Interest paid
Income taxes paid
2019(1)
2018(2)
$ 287,846
$ 264,647
(Note 8)
57,758
48,257
56,162
(3,456)
41,672
28,415
32,444
29,708
(Note 27)
7,854
20,094
(Note 18)
1,617
1,776
(1,433)
(7,677)
(301)
217
(Note 4)
-
(4,030)
1,651,404
1,796,975
(2,202,000)
(3,024,939)
(65,161)
36,768
(40,366)
-
155,945
531,518
36,547
17,436
19,988
(264,291)
(Note 16)
248,447
-
(Note 17)
121,993
-
(113,077)
(98,821)
(Note 17)
(49,592)
-
(2,708)
-
(1,071)
(1,431)
459
1,316
204,451
(98,936)
(267,031)
477,070
(5,543,483)
(2,892,129)
2,454,694
1,266,827
3,219,365
1,704,328
(49,069)
(44,203)
(Note 27)
(37,368)
(17,250)
(Note 4)
-
4,135
(222,892)
498,778
1,547
97,907
135,551
(37,644)
$ 99,454
$ 97,907
$ 116,963
$ 73,822
5,023
52,574
(22,532)
(28,489)
$ 99,454
$ 97,907
$ 1,428,117
$ 1,237,809
588,740
462,691
80,566
88,116
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.
(2) During fiscal 2019, cash flows from debt related to securitization activities, net was reclassified from Financing Activities to Operating Activities. Comparative figures have been reclassified to conform to the current period presentation.
The accompanying notes are an integral part of the consolidated financial statements.
77
CWB Financial Group 2019 Annual Report NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended October 31, 2019 and 2018
($ thousands, except per share amounts)
1. NATURE OF OPERATIONS AND BASIS OF
E) SIGNIFICANT JUDGMENTS
PRESENTATION
A) REPORTING ENTITY
Canadian Western Bank (CWB) is a publicly traded, federally regulated
Canadian bank headquartered in Edmonton, Alberta. CWB is a diversified
Information on critical judgments in applying accounting policies that have
the most significant effect on the amounts recognized in the consolidated
financial statements is described in Note 8 Loans, Impaired Loans and
Allowance for Credit Losses.
financial services organization serving businesses and individuals across
F) BUSINESS COMBINATIONS
Canada.
The consolidated financial statements were authorized for issue by the
Board of Directors on December 4, 2019.
B) BASIS OF CONSOLIDATION
The consolidated financial statements include the assets, liabilities and
results of operations of CWB and all of its subsidiaries, after the elimination
of intercompany transactions and balances. Subsidiaries are defined as
entities whose operations are controlled by CWB and are corporations in
which CWB is the beneficial owner. Non-controlling interest in subsidiaries
is presented on the consolidated balance sheets as a separate component of
equity that is distinct from shareholders’ equity. The net income attributable
to non-controlling interest in subsidiaries is presented separately in
the consolidated income statements. See Note 31 for details of CWB’s
subsidiaries.
The consolidated financial statements have been prepared on a historic cost
basis, except the revaluation of the following items: financial instruments
classified as fair value through profit or loss, or as fair value through other
comprehensive income and contingent consideration.
C) STATEMENT OF COMPLIANCE
These consolidated financial statements of CWB have been prepared
in accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB) and in
accordance with subsection 308 (4) of the Bank Act and the accounting
requirements of the Office of the Superintendent of Financial Institutions
Canada (OSFI).
Business combinations are accounted for using the acquisition method. The
cost of an acquisition is measured at the fair value of the consideration,
including contingent consideration, given at the acquisition date. Contingent
consideration is a financial instrument and, as such, is remeasured each
period thereafter with the adjustment recorded to acquisition-related fair
value changes in the consolidated statements of income. Acquisition-
related costs are recognized as an expense in the income statement in
the period in which they are incurred. The acquired identifiable assets,
liabilities and contingent liabilities are measured at their fair values at the
date of acquisition. Goodwill is measured as the excess of the aggregate of
the consideration transferred, including any amount of any non-controlling
interest in the acquiree, over the net of the recognized amounts of the
identifiable assets acquired and the liabilities assumed.
CWB elects on a transaction-by-transaction basis whether to measure a
non-controlling interest at its fair value or at its proportionate share of the
recognized amount of the identifiable net assets, at the acquisition date.
G) FUNCTIONAL AND FOREIGN CURRENCIES
The consolidated financial statements are presented in Canadian dollars,
which is CWB’s functional currency. Assets and liabilities denominated in
foreign currencies are translated into Canadian dollars at rates prevailing
at the balance sheet date. Revenue and expenses in foreign currencies
are translated at the average exchange rates prevailing during the period.
Realized and unrealized gains and losses on foreign currency positions are
included in non-interest income.
H) PROVISIONS AND CONTINGENT LIABILITIES
Management exercises judgment in determining whether a past event or
The significant accounting policies used in the preparation of these
transaction may result in the recognition of a provision or the disclosure
financial statements, including the accounting requirements of OSFI, are
of a contingent liability. Provisions are recognized in the consolidated
summarized below and in the following notes.
D) USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with IFRS requires
CWB to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities
financial statements when management determines that it is probable
that an outflow of resources will be required to settle the obligation and
the amount can be reliably estimated, considering all relevant risks and
uncertainties. Management as well as internal and external experts are
involved in estimating any amounts required. The actual costs of resolving
these obligations may be significantly higher or lower than the recognized
as at the date of the consolidated financial statements as well as the reported
provision.
amount of revenues and expenses during the period. Key areas of estimation
where CWB has made subjective judgments, often as a result of matters
that are inherently uncertain, include those relating to the allowance for
credit losses, fair value of financial instruments, impairment of goodwill and
intangible assets, valuation of deferred tax assets and liabilities, impairment
of financial instruments classified as fair value through profit or loss, or
as fair value through other comprehensive income and fair value of stock
options. Therefore, actual results could differ from these estimates.
78
CWB Financial Group 2019 Annual Report I) SPECIFIC ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to
all periods presented in these consolidated financial statements, except as
noted. To facilitate a better understanding of CWB’s consolidated financial
statements, the significant accounting policies are disclosed in the notes,
where applicable, with related financial disclosures by major caption:
Note Topic
Note Topic
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Transition to IFRS 9
Financial instruments
Strategic transactions
Cash resources
Securities
Securities sold under
repurchase agreements and
purchased under resale
agreements
Loans, impaired loans and
allowance for credit losses
Financial assets transferred
but not derecognized
Property and equipment
Goodwill and intangible
assets
Derivative financial
instruments and hedging
activities
Other assets
Deposits
Other liabilities
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Debt
Capital stock
Share-based payments
Non-controlling interests
Contingent liabilities and
commitments
Employee future benefits
Income taxes
Earnings per common
share
Related party
transactions
Interest rate sensitivity
Interest income
Fair value of financial
instruments
Financial instruments -
offsetting
Risk management
Capital management
Subsidiaries
J) CHANGES IN ACCOUNTING POLICIES
IFRS 9 Financial Instruments
CWB adopted IFRS 9 Financial Instruments (IFRS 9) effective November
1, 2018, which replaces IAS 39 Financial Instruments: Recognition and
Measurement (IAS 39). The adoption of IFRS 9 resulted in changes in
accounting policies primarily related to the classification, measurement and
impairment of financial assets. Classification of CWB’s financial liabilities
is unchanged. Additional information on significant accounting policy
changes related to the transition to IFRS 9 are described in Notes 2, 6 and 8.
IFRS 9 was applied on a retrospective basis and as permitted, prior period
comparatives were not restated. Upon transition, an adjustment to opening
retained earnings and accumulated other comprehensive income (AOCI)
was recorded to reflect the application of the new requirements at the
adoption date. Refer to Note 2 for further details on the impact of the
transition to the opening balance sheet on November 1, 2018.
CWB has elected to continue to apply the hedge accounting requirements
of IAS 39. CWB’s policy for hedge accounting is described in Note 12.
i.
Classification and Measurement of Financial Assets
Derivatives continue to be measured at FVTPL under IFRS 9, except to
the extent that they are designated in a hedging relationship, in which
case the IAS 39 hedge accounting requirements continue to apply as
described in Note 12.
Debt Instruments
Debt instruments, including loans and debt securities, are initially
measured at fair value and are subsequently classified and measured
at FVTPL, FVOCI or amortized cost based on the contractual cash flow
characteristics of the instrument and the business model under which
the asset is held.
The intent of the assessment of the contractual cash flow characteristics
of an instrument is to determine if contractual payments to be received
represent solely principal and interest (SPPI), consistent with a basic
lending arrangement. Principal, for the purposes of the test, is defined
as the fair value of the instrument at initial recognition and is subject
to change over its life due to transactions such as repayments and
amortization of related premiums or discounts. Interest represents
consideration for the time value of money, credit risk, other basic
lending risks and costs, such as liquidity risk and administrative costs,
as well as a profit margin. Contractual terms that introduce risks or
volatility that are unrelated to a basic lending arrangement do not
represent cash flows that are SPPI and as a result, the related financial
asset is classified and measured at FVTPL.
For debt instruments that meet the requirements of the SPPI test,
classification at initial recognition is determined based on the business
model under which the assets are managed. Considerations include
how performance of the debt instruments is evaluated, the risks that
affect the performance of the business model, and how those risks
are managed, and the manner in which management is compensated.
Potential business models are as follows:
• Held to collect: Objective is to collect contractual cash flows.
• Held to collect and sell: Objective is to both collect contractual
cash flows and sell the financial assets.
• Held for sale or other business models: Encompasses all other
business models. CWB does not currently hold assets within this
category.
The use of judgment is required in assessing both the contractual cash
flow characteristics and the business model of debt instruments.
Measured at Amortized Cost
Debt instruments measured at amortized cost are managed under
a ‘held to collect’ business model and have contractual cash flows
that satisfy the requirements of the SPPI test. These financial assets
are initially measured at fair value, net of transaction costs, and are
subsequently measured at amortized cost using the effective interest
rate method, net of allowance for credit losses estimated based on the
expected credit loss (ECL) approach.
Initial Recognition and Measurement
Measured at Fair Value through Other Comprehensive Income
Financial assets consist of both debt and equity instruments. Under
IFRS 9, financial assets are initially recognized at fair value and
subsequently measured at fair value through profit or loss (FVTPL),
fair value through other comprehensive income (FVOCI) or amortized
cost.
Debt instruments measured at FVOCI, which are managed under a
‘held to collect and sell’ business model and have contractual cash
flows that represent SPPI, are initially recorded at fair value, net of
transaction costs. Subsequent to initial recognition, unrealized gains
and losses related to the debt instruments are recorded in other
comprehensive income (OCI), net of tax. Impairment losses and
recoveries, estimated using an ECL approach, are recognized in the
79
CWB Financial Group 2019 Annual Report
consolidated statements of income and correspondingly reduce the
cash flows due and those that CWB expects to receive, including
accumulated changes in fair value recorded in OCI. Gains and losses
consideration for the amount and quality of collateral held. EAD
realized on disposal of debt instruments classified at FVOCI are
represents an estimate of the exposure at a future default date, taking
included in the consolidated statements of income.
into account estimated future repayments of principal and draws on
Equity Instruments
Equity instruments are classified and measured at FVTPL unless an
irrevocable election is made to designate non-trading instruments
at FVOCI at the time of initial recognition. If the election is applied,
unrealized gains and losses are recorded in OCI, net of tax, and are not
committed facilities.
For most financial assets, ECL is estimated on an individual basis.
Financial assets for which an allowance for credit losses is estimated
on a collective basis are grouped based on similar credit risk
characteristics.
subsequently reclassified to the consolidated statements of income.
As part of the transition to IFRS 9, CWB updated governance
When realized, gains and losses that arise upon derecognition are
frameworks impacted by the transition to IFRS 9 and implemented new
reclassified from AOCI to retained earnings. Equity securities are not
controls related to key processes and significant areas of judgment. An
subject to an impairment assessment under IFRS 9.
Expected Credit Loss Committee, which includes senior management
ii.
Impairment
Expected Credit Loss Approach
IFRS 9 introduces an ECL approach to estimate the allowance for credit
losses that is applicable for financial assets measured at amortized
cost, debt securities measured at FVOCI, and certain off-balance
sheet loan commitments and financial guarantee contracts which
were previously provided for under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets (IAS 37). The implementation of an
ECL approach under IFRS 9, which results in the recognition of an
allowance for credit losses on financial assets regardless of whether
an actual loss event has occurred, is a significant change from the
representation from Risk, Finance and the business was established
to provide oversight to the IFRS 9 impairment process. The Expected
Credit Loss Committee is responsible to review key inputs and
assumptions used in ECL estimates and assess the appropriateness of
the performing loan allowance for credit losses.
Forward-looking Information
The estimation of ECL and the assessment of SICR consider information
about past events and current conditions as well as reasonable and
supportable projections of future events and economic conditions.
The estimation and application of forward-looking
information
requires significant judgment.
incurred loss model under IAS 39 as described in Note 2.
With consideration of several external sources of information, CWB
The ECL approach categorizes financial assets into three stages based
on changes in credit risk since inception. A financial asset can move
between stages depending on improvement or deterioration of credit
risk.
Performing Assets
• Stage 1: From initial recognition until the date on which the
financial asset experiences a significant increase in credit risk
(SICR), the allowance for credit losses is measured based on
ECL from defaults occurring in the 12 months following the
reporting date.
• Stage 2: A financial asset migrates to Stage 2 when it
formulates a base case view of the future direction of relevant
macroeconomic variables, which is updated quarterly. A representative
range of other possible forecast scenarios is developed to incorporate
multiple probability-weighted outcomes. The base case scenario
represents the best estimate of forecast macroeconomic variables
while other scenarios represent more optimistic or pessimistic
outcomes.
Additional information regarding the incorporation of forward-looking
information and the related judgment and estimation involved in the
process is described in Note 8.
Assessment of Significant Increases in Credit Risk
experiences a SICR since initial recognition and the allowance
At each reporting date, CWB assesses whether a financial asset has
for credit losses is measured based on ECL from defaults
experienced a SICR since initial recognition by comparing the risk
occurring over the remaining life of the asset.
of a default occurring over the asset’s remaining expected life at the
Impaired Assets
• Stage 3: When a financial asset is identified as credit-impaired,
it migrates to Stage 3 and an allowance for credit losses equal
to full lifetime ECL is recognized. Interest income is recognized
on the carrying amount of the asset, net of the allowance for
credit losses.
ECL represents the discounted probability-weighted estimate of cash
shortfalls expected to result from defaults over the relevant time
horizon. ECL estimations are a function of the probability of default
reporting date and the date of initial recognition.
The assessment of changes in credit risk is performed at least
quarterly, generally at the instrument level. Significant judgment is
also required in the application of SICR thresholds. The thresholds
used to define SICR are not expected to change frequently, and will
be reassessed as needed based on significant changes in credit risk
management practices.
Refer to Note 8 for additional information regarding the assessment
of SICR.
(PD), loss given default (LGD) and exposure at default (EAD). PD, which
Expected Life
represents the estimate of the likelihood of default, considers past
events, current market conditions and forward-looking information
over the relevant time horizon. LGD represents an estimate of loss
arising from default based on the difference between the contractual
When measuring ECL, CWB considers the maximum contractual
period over which an exposure to credit risk exists. For most
instruments, the expected life is limited to the remaining contractual
80
CWB Financial Group 2019 Annual Report life, including prepayment and extension options. For certain revolving
IFRS 15 Revenue from Contracts with Customers
credit facilities, the expected life is estimated based on the period
over which CWB is exposed to credit risk and how credit losses are
mitigated by management actions.
Modified Financial Assets
The original terms of a financial asset may be renegotiated or
otherwise modified, resulting in an impact to contractual cash
flows. In particular, in an effort to minimize CWB’s realized losses,
modifications may be granted in situations where a borrower
experiences financial difficulty. Modifications may include payment
deferrals, extension of amortization periods, interest rate reductions,
principal forgiveness, debt consolidation or forbearance. If it is
determined that the modification results in expiry of cash flows, the
original asset is derecognized and a new asset is recognized based on
the new contractual terms.
Where a modification does not result in derecognition, the gross
carrying amount of the financial asset is recalculated as the present
value of the renegotiated or modified contractual cash flows,
discounted at the original effective interest rate, and a gain or loss
is recognized immediately in the consolidated statements of income.
The financial asset continues to be subject to the same assessment
for SICR relative to initial recognition. Expected cash flows arising
from the modified contractual terms are considered when estimating
ECL for the modified asset. Financial assets that are modified while
having an allowance for credit losses equal to lifetime ECL may revert
to having to an allowance for credit losses equal to 12-month ECL after
a period of performance and improvement in the borrower’s financial
condition.
Definition of Default
The definition of default used in the estimation of ECL is consistent
with the definition of default used for internal credit risk management
purposes. Loans are determined to be in default and classified as
impaired when payments are contractually past due 90 days or more,
where CWB has commenced realization proceedings, or where CWB
is of the opinion that the loan should be regarded as impaired based
on objective evidence. Objective evidence that a loan is impaired
may include significant financial difficulty of a borrower, default or
delinquency of a borrower, breach of loan covenants or conditions, or
indications that a borrower will enter bankruptcy.
Financial assets are reviewed on an ongoing basis to assess whether
any should be classified as impaired. Loans that have become impaired
are monitored closely by a specialized team with regular reviews
of each loan and its realization plan. Impaired loans are returned to
performing status when the timely collection of both principal and
interest is reasonably assured and all delinquent principal and interest
payments are brought current.
Write-offs
Financial assets are written off, either partially or in full, against
the related allowance for credit losses when CWB concludes that
there is no realistic prospect of future recovery in respect of those
amounts. When financial instruments are secured, this is generally
after all collateral has been realized or transferred to CWB, or in
certain circumstances, when the net realizable value of any collateral
and other available information suggests that there is no reasonable
expectation of further recovery. In subsequent periods, any recoveries
of amounts previously written off are recorded as a reduction to the
provision for credit losses in the consolidated statements of income.
IFRS 15 Revenue from Contracts with Customers (IFRS 15) was issued in
May 2014, and replaces IAS 18 Revenue, IAS 11 Construction Contracts and
related Interpretations. IFRS 15 provides a single, principles-based five-step
model that applies to all contracts with customers. The standard excludes
from its scope revenue arising from items such as financial instruments
and leases as these fall within the scope of other IFRSs. CWB performed a
detailed analysis on each revenue stream that is within the scope of the new
standard. CWB adopted IFRS 15 using the modified retrospective approach
and has concluded that there is no significant impact in relation to the
adoption of IFRS 15.
K) FUTURE ACCOUNTING CHANGES
A number of standards and amendments have been issued by the IASB,
and the following changes may have an impact on CWB’s future financial
statements.
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 Leases (IFRS 16), which supersedes
IAS 17 Leases (IAS 17). This standard provides principles for the recognition,
measurement, presentation and disclosure of leases. The standard sets
out a single lessee accounting model for all leases by eliminating the
distinction between operating and financing leases. IFRS 16 requires lessees
to recognize a right-of-use asset and lease liability on the consolidated
balance sheets for most leases. Lessees will also recognize depreciation
expense on the right-of-use asset and interest expense on the lease liability
in the consolidated statements of income. Lessor accounting remains
substantially unchanged other than additional disclosure requirements.
IFRS 16 is effective for CWB’s fiscal year beginning November 1, 2019.
There are two methods by which the new standard may be adopted: (1) a full
retrospective approach with a restatement of all prior periods presented, or
(2) a modified retrospective approach with a cumulative-effect adjustment
recognized in opening retained earnings as of the date of adoption. At initial
application, CWB will elect to adopt the modified retrospective option
permitted by IFRS 16, in which the lessee recognizes the cumulative effect,
if any, on initial application in retained earnings as of November 1, 2019,
subject to allowable and elected practical expedients. On initial adoption
CWB intends to use the following recognition exemptions and practical
expedients:
• not apply the requirements of IFRS 16 to short-term and low value leases;
• apply a single discount rate to a portfolio of leases with reasonably
similar characteristics;
• exclude
initial direct costs relating to existing
leases from the
measurement of the right-of-use assets;
• rely on previous assessment of whether leases are onerous in accordance
with IAS 37 immediately before the date of initial application as an
alternative to performing an impairment review;
• use hindsight to determine the lease term where the lease contracts
contain options to extend or terminate the lease; and
• treat existing operating leases with a remaining term of less than 12
months at November 1, 2019 as short-term leases.
CWB has completed the process of assessing existing contractual
relationships to identify leases that will be recorded on the consolidated
balance sheets upon the adoption of IFRS 16. The main impact for CWB
will be recognizing right-of-use assets and lease liabilities for premises
leases. Currently, premises leases are classified as operating leases,
with lease expense recorded over the term of the lease with no asset
or liability recorded on the consolidated balance sheets. Based on
preliminary assessments, CWB expects to recognize right-of-use assets of
approximately $75 million to $85 million, lease liabilities of $90 million to
$100 million and a decrease in the common equity Tier 1 capital ratio of
81
CWB Financial Group 2019 Annual Report Conceptual Framework for Financial Reporting
In March 2018, the IASB issued a revised version of the Conceptual
Framework for Financial Reporting which assists the IASB in developing IFRS
standards and serves as an accounting policy guide when no IFRS standard
applies. The amendments provide revised definitions and recognition
criteria for assets and liabilities, and guidance on different measurement
bases. The IASB also issued amendments to IFRS standards to refer to
the revised framework. The revisions are effective for CWB’s fiscal year
beginning November 1, 2020 with early adoption permitted. CWB is in the
process of assessing the impact of the revised framework.
approximately 10 basis points upon transition to IFRS 16. The adoption of
IFRS 16 is expected to have a nominal impact to ongoing profitability, as
amortization of right-of-use assets and interest expense on lease liabilities
will be mostly offset by a reduction in lease expense previously recognized
in premises and equipment expense. The actual impact of adopting IFRS 16
on November 1, 2019, may differ from these estimates as CWB continues to
review its calculations and refine certain inputs.
Hedge Accounting
In September 2019, the IASB issued amendments to hedge accounting
requirements in IFRS 9, IAS 39 and IFRS 7 Financial Instruments: Disclosures
which address the possible effects of uncertainties created by Inter-bank
Offered Rate (IBOR) reform. The amendments are effective for CWB’s fiscal
year beginning November 1, 2020 with early adoption permitted. CWB is in
the process of assessing the impact of these amendments.
2. TRANSITION TO IFRS 9
Reconciliation of IAS 39 to IFRS 9
The following table details the impact of the transition to IFRS 9 on the
consolidated balance sheets as at November 1, 2018. Reclassification
adjustments reflect the movement of assets between measurement
categories with no impact to shareholders’ equity or change to the assets’
carrying value. Remeasurement adjustments, which include changes to
the allowance for credit losses related to the adoption of the impairment
requirements of IFRS 9, result in a change to the carrying value of the
assets and an impact to shareholders’ equity, net of tax. Refer to Note 1 for
additional information regarding accounting policy changes related to the
transition to IFRS 9.
IAS 39
Measurement
Category
IFRS 9
Measurement
Category
IAS 39
Carrying Value
as at
October 31, 2018
Re-
classification
Re-
measurement
IFRS 9
Carrying Value
as at
November 1,
2018
Assets
Cash resources
Securities
Amortized cost
Available-for-sale n/a
n/a
FVOCI
Amortized cost
$ 126,396
26,825
-
153,221
$
-
(26,825)(2)
26,825 (2)
-
$
(35)(1)
-
-
(35)
$ 126,361
-
26,825
153,186
Available-for-sale n/a
n/a
FVOCI
2,084,752
-
2,084,752
(2,084,752)(3)
2,084,752 (3)
-
-
-
-
-
2,084,752
2,084,752
Loans, net of allowance for credit losses
Amortized cost
Amortized cost
26,204,599
-
19,810 (4)
26,224,409
Other
Total Assets
Liabilities and Equity
Deposits
Other
Debt
Total Liabilities
Equity
Preferred shares
Common shares
Retained earnings
Share-based payment reserve
Accumulated other comprehensive income
Total Shareholders' Equity
Non-controlling interests
Total Equity
Total Liabilities and Equity
578,891
$ 29,021,463
-
-
$
(7,633)(5)
12,142
571,258
$ 29,033,605
$
Amortized cost
Amortized cost
Amortized cost
Amortized cost
$ 23,699,957
725,149
2,007,854
26,432,960
$
-
-
-
-
$
-
(10,592)(6)
-
(10,592)
$ 23,699,957
714,557
2,007,854
26,422,368
265,000
744,701
1,649,196
23,937
(97,082)
2,585,752
2,751
2,588,503
$ 29,021,463
-
-
-
-
-
-
-
-
-
$
-
-
22,514 (7)
-
220 (8)
22,734
-
22,734
12,142
265,000
744,701
1,671,710
23,937
(96,862)
2,608,486
2,751
2,611,237
$ 29,033,605
$
(1) Recognition of an allowance for credit losses related to cash resources measured at amortized cost.
(2) Available-for-sale interest bearing deposits with regulated financial institutions have been reclassified to FVOCI as the securities met the SPPI criteria and are managed in a ‘hold to collect and sell’ business model. Cash and non-interest
bearing deposits with regulated financial institutions as well as cheques and other items in transit continue to be measured at amortized cost.
(3) Available-for-sale debt securities totaling $1,991,177 have been reclassified to FVOCI as the securities met the SPPI criteria and are managed in a ‘hold to collect and sell’ business model. Available-for-sale equity securities of $93,575 have
been designated at FVOCI.
(4) Decrease in the allowance for credit losses related to loans (see the ‘Reconciliation of Allowance for Credit Losses’ below).
(5) Decrease in deferred tax assets of $7,563 combined with the recognition of an allowance for credit losses of $70 related to other financial assets.
(6) Decrease in the allowance for credit losses related to committed but undrawn credit exposures and letters of credit of $11,419 (see the ‘Reconciliation of Allowance for Credit Losses’ below) partially offset by an increase in deferred tax
liabilities of $827.
(7) Cumulative after-tax impact of the adoption of IFRS 9.
(8) After-tax impact of the recognition of an allowance for credit losses related to debt securities measured at FVOCI.
n/a – not applicable.
82
CWB Financial Group 2019 Annual Report
Reconciliation of Allowance for Credit Losses
The reconciliation of CWB’s allowance for credit losses in accordance with IAS 39 and provisions for committed but undrawn credit exposures and letters of
credit in accordance with IAS 37 to the corresponding amount determined under IFRS 9 as at November 1, 2018 follows:
IAS 39 / IAS 37 as at October 31, 2018
IFRS 9 as at November 1, 2018
Specific
Allowance
Collective
Allowance
Total
Re-
measurement
Stage 1
Stage 2
Stage 3
Total
Debt securities at FVOCI(1)(2)
$ -
$ -
$
-
$
301
$ 301
$ -
$ -
$ 301
Loans
27,027
101,502
128,529
(19,810)
57,999
23,693
27,027
108,719
Committed but undrawn credit
exposures and letters of credit(3)
-
18,264
18,264
(11,419)
2,787
4,058
-
6,845
Total(4)
$ 27,027
$
119,766
$
146,793
$
(30,928)
$ 61,087
$
27,751
$
27,027
$ 115,865
(1) The allowance for credit losses on debt securities measured at FVOCI is recorded in AOCI in the consolidated balance sheets.
(2) Previously available-for-sale debt securities under IAS 39.
(3)
(4) Excludes an insignificant allowance for credit losses related to cash resources and other financial assets of $105.
Included in other liabilities in the consolidated balance sheets.
Accounting Policies for Financial Instruments
Under IAS 39
event occurring after the impairment loss was recognized in net income, the
impairment loss was reversed, with the reversal recognized in net income.
The following accounting policies were applied to comparative information
Securities Sold Under Repurchase Agreements and Purchased Under
for CWB’s 2018 fiscal year end as prior periods were not restated upon
Resale Agreements
adoption of IFRS 9.
Cash Resources
Interest bearing deposits with regulated financial institutions included in
cash resources were designated as available-for-sale and reported on the
Securities purchased under resale agreements were designated as
available-for-sale and reported on the consolidated balance sheets at fair
value with changes in fair value reported in other comprehensive income,
net of income taxes.
consolidated balance sheets at fair value with changes in fair value reported
Embedded Derivatives
in other comprehensive income, net of income taxes.
Securities
Available-for-sale securities were accounted for at settlement date and
recorded on the consolidated balance sheets at fair value with changes
in fair value recorded in other comprehensive income, net of income
Certain derivatives embedded in other financial instruments were treated as
separate derivatives when their economic characteristics and risk were not
closely related to those of the host contract and the combined contract was
not carried at fair value. Identified embedded derivatives were separated
from the host contract and were recorded at fair value.
taxes, until the security was sold or became impaired. Interest income
Loans
from securities, which included amortization of premiums and discounts,
was recognized using the effective interest method in the consolidated
Loans, including leases, were recorded at amortized cost and stated net of
statements of income. Dividend income was recognized when the right to
unearned income, unamortized premiums and allowance for credit losses
receive payment was established, which was typically on the ex-dividend
(see Note 8). Interest income was recorded using the effective interest
date.
method.
Securities are purchased with the original intention to hold the instrument
Loans were determined to be impaired when payments were contractually
to maturity or until market conditions render alternative investments
past due 90 days, where CWB had commenced realization proceedings,
more attractive. Gains and losses realized on disposal of securities and
or where CWB was of the opinion that the loan should be regarded as
adjustments to record any impairment in value were included in non-
impaired based on objective evidence. Objective evidence that a loan was
interest income.
At each reporting date, CWB assessed whether there was objective evidence
that available-for-sale securities were impaired. Objective evidence that a
security was impaired included significant financial difficulty of the issuer,
indications that an issuer would enter bankruptcy or the lack of an active
market for a security.
Impairment losses on available-for-sale securities were recognized by
reclassifying the cumulative loss recognized in other comprehensive income
to the income statement as gains (losses) on securities, net. The reclassified
amount was the difference between the cost, net of any principal repayment
and amortization, and the fair value, less any impairment previously
recognized in net income.
If, in a subsequent period, the fair value of an impaired available-for-sale
debt security increased and the increase could be objectively related to an
impaired included significant financial difficulty of the borrower, default
or delinquency of a borrower, breach of loan covenants or conditions, or
indications that a borrower would enter bankruptcy. An exception could be
made where CWB determined that the loan was well secured and in the
process of collection, and the collection efforts were reasonably expected
to result in either repayment of the loan or restoring it to current status
within 180 days from the date the payment went in arrears. All loans were
classified as impaired when a payment was 180 days in arrears other than
loans guaranteed or insured for both principal and interest by the Canadian
government, a province or a Canadian government agency. These loans
were classified as impaired when payment was 365 days in arrears.
Impairment was measured as the difference between the carrying value of
the loan at the time it was classified as impaired and the present value of
the expected cash flows (estimated realizable amount), using the original
effective interest rate of the loan. When the amounts and timing of future
cash flows could not be reliably estimated, either the fair value of the
83
CWB Financial Group 2019 Annual Report security underlying the loan, net of any expected realization costs, or
Specific Allowance
the current market price for the loan was used to measure the estimated
realizable amount. Impaired loans were returned to performing status when
the timely collection of both principal and interest were reasonably assured,
all delinquent principal and interest payments were brought current, and all
charges for loan impairment had been reversed.
Loan fees integral to the yield on the loan, net of directly related costs, were
amortized to interest income using the effective interest method. Premiums
paid on the acquisition of loan portfolios were amortized to interest income
using the effective interest method.
The specific allowance included all the accumulated provisions for losses
on identified impaired loans required to reduce the carrying value of those
loans to their estimated realizable amount. See Note 8 for the identification
process of impaired loans.
If the amount of an impairment loss decreased in a subsequent period, and
the decrease could be objectively related to an event occurring after the
impairment was recognized, the specific loan impairment allowance was
reduced accordingly. The reversal of impairment was recognized in the
consolidated statements of income in provision for credit losses.
Loans were considered past due when a customer had not made a payment
by the contractual due date. These loans were not classified as impaired as
Collective Allowance
they were either less than 90 days past due or well secured and collection
efforts were reasonably expected to result in repayment or restoring it to
current status in accordance with CWB’s policy.
Allowance for Credit Losses
The collective allowance for credit risk included provisions for losses that
had been incurred but had not yet been identified on an individual loan or
account basis by CWB. As soon as information became available which
identified losses on individual loans within the collective group, those
loans were removed from the group and assessed on an individual basis for
The allowance for credit losses was calculated on individual loans (specific
impairment.
allowance) and on groups of loans, committed but undrawn credit
exposures and letters of credit assessed collectively (collective allowance).
The collective allowance for credit risk was established by taking into
The adequacy of the allowance for credit losses was reviewed at least
consideration:
quarterly. The allowance for credit losses related to drawn exposures was
deducted from the outstanding loan balance. The allowance for credit
losses related to committed but undrawn credit exposures and letters of
credit was included with other liabilities. Losses expected from future
events were not recognized.
• historical trends in the loss experience during economic cycles;
• the current portfolio profile;
• historical loss experience in portfolios of similar credit risk characteristics;
• the estimated period between impairment occurring and the loss being
identified; and
• CWB’s management judgment as to whether current economic and
credit conditions were such that the actual level of inherent losses at the
balance sheet date was likely to be greater or less than that suggested by
historical experience.
3. FINANCIAL INSTRUMENTS
As a financial institution, most of CWB’s balance sheet is comprised of
The use of financial instruments exposes CWB to credit, liquidity and
financial instruments and the majority of net income results from gains,
market risk. A discussion of how these are managed can be found in the
losses, income and expenses related to the same.
Risk Management section of the MD&A.
Financial assets include cash resources, securities, securities purchased
Income and expenses are classified as to source, either securities or loans
under resale agreements, loans, derivative financial instruments and certain
for income, and deposits or debt for expense. Gains (losses) on the sale of
other assets. Financial liabilities include deposits, cheques and other items
securities, net and fair value changes in certain derivatives are classified
in transit, securities sold under repurchase agreements, derivative financial
to non-interest income. Contingent consideration fair value changes are
instruments, debt and certain other liabilities.
classified as acquisition-related fair value changes in the consolidated
statements of income.
recorded in other non-interest income on the consolidated statements of
income for the year ended October 31, 2018, reflecting sales proceeds less
the carrying value of assets sold and related transaction costs. The carrying
value of deposits transferred in fiscal 2018 totaled $30,409. The transactions
were completed in fiscal 2018 with no further transfers conducted in fiscal
2019.
4. STRATEGIC TRANSACTIONS
Equipment Loans and Leases and General Commercial
Lending Assets
On January 31, 2018, CWB acquired a portfolio of equipment loans and
leases and general commercial lending assets, which added $845,990
to performing loans at fair value. No goodwill or intangible assets were
included in the purchase. No allowance for credit losses was recorded on
the acquisition date and loans are evaluated for impairment at each balance
sheet date using the same methodology as CWB loans.
Canadian Western Trust (CWT)
On August 16, 2017, CWB announced that CWT, a wholly-owned subsidiary
of CWB, will no longer offer self-directed account services to clients holding
certain securities, and CWT initiated a process to appoint successor trustees
for these accounts. Pre-tax gains of $4,030 related to these transactions are
84
CWB Financial Group 2019 Annual Report 5. CASH RESOURCES
Cash resources include highly liquid investments that are readily convertible
collect and sell’ business model. Changes in fair value are reported in other
to cash and are subject to an insignificant risk of change in value. Cheques
comprehensive income, net of income taxes.
and other items in transit included in cash resources are recorded at
amortized cost and represent the net position of uncleared cheques and
other items in transit.
At October 31, 2019, the fair value of deposits with regulated financial
institutions was $293,856 (October 31, 2018 – $26,825) with $20,355
(October 31, 2018 – $20,310) restricted from use in relation to the
Interest bearing deposits with regulated financial institutions included in
securitization of equipment financing leases and loans.
cash resources are classified and measured at FVOCI as the requirements
of the SPPI test are satisfied and the deposits are managed under a ‘hold to
6. SECURITIES
Classification and Measurement
The securities portfolio consists of both debt securities and preferred shares. The applicable measurement categories are as follows:
Debt Securities
Preferred Shares
Debt securities, which are measured at FVOCI, have contractual cash flows
CWB has made the irrevocable election to measure preferred shares,
that satisfy the requirements of the SPPI test and are purchased with the
which are equity instruments held for long-term investment purposes, at
objective of collecting contractual cash flows and selling the assets in
FVOCI. Dividends from preferred shares are recognized in interest income
response to, or in anticipation of, changes in interest rate, credit or foreign
in the consolidated statements of income. Unrealized gains and losses are
currency risk, funding sources, terms or to meet liquidity requirements.
recorded in OCI, net of tax, and are subsequently transferred directly to
retained earnings if the instrument is sold.
Debt securities measured at FVOCI are initially recorded at fair value, net
of transaction costs. They are subsequently measured at fair value, with
unrealized gains and losses recorded in OCI, net of tax, until the security is
sold. Gains and losses realized upon sale of the securities are recorded in
gains (losses) on securities, net in the consolidated statements of income.
Interest income earned is recorded using the effective interest method.
The analysis of securities at carrying value, by type and maturity or reprice date, follows:
Measured at FVOCI
Interest bearing deposits with regulated financial institutions(1)
Debt securities issued or guaranteed by
Canada
A province or municipality
Other debt securities(2)
Designated at FVOCI
Preferred shares
Total
Available-for-sale
Interest bearing deposits with regulated financial institutions(1)
Debt securities issued or guaranteed by
Canada
A province or municipality
Other debt securities(2)
Preferred shares
Total
(1)
(2)
Included in cash resources on the consolidated balance sheets.
Includes securities issued or guaranteed by the United States of $76,033 (October 31, 2018 – $125,995).
IFRS 9
Maturity/Reprice
Within
1 Year
1 to
3 Years
3 to
5 Years
As at
October 31
2019
$
293,856
$
-
$
-
$
293,856
705,704
608,274
27,348
1,341,326
365,421
93,244
10,006
468,671
150,653
19,803
20,590
191,046
3,670
5,672
8,822
18,164
$
1,519,304
$
726,993
$
66,766
$
2,313,063
IAS 39
Maturity/Reprice
Within
1 Year
1 to
3 Years
3 to
5 Years
As at
October 31
2018
$
26,825
$
-
$
-
$
26,825
322,435
599,537
403,844
1,325,816
55,222
257,475
209,128
521,825
61,205
54,951
27,380
143,536
14,022
57,654
21,899
93,575
$
479,709 $
969,617 $
662,251 $
2,111,577
85
CWB Financial Group 2019 Annual Report Unrealized Gains and Losses
Unrealized gains and losses related to debt securities and cash resources measured at FVOCI and equity securities designated at FVOCI are as follows:
Measured at FVOCI
Interest bearing deposits with regulated financial institutions
Debt securities issued or guaranteed by
Canada
A province or municipality
Other debt securities
Designated at FVOCI
Preferred shares
Total
Available-for-sale
Interest bearing deposits with regulated financial institutions
Debt securities issued or guaranteed by
Canada
A province or municipality
Other debt securities
Preferred shares
Total
IFRS 9
As at October 31, 2019
Amortized
Cost(1)
Unrealized
Gains
Unrealized
Losses
Fair
Value
$ 293,865
$
-
$
9
293,856
1,344,455
468,989
190,803
477
75
291
3,606
1,341,326
393
468,671
48
191,046
26,648
-
8,484
18,164
$ 2,324,760
$
843
$
12,540
$
2,313,063
IAS 39
As at October 31, 2018
Amortized
Cost(1)
Unrealized
Gains
Unrealized
Losses
Fair
Value
$ 26,825
$
-
$
-
$
26,825
1,362,647
531,798
146,610
110,696
-
-
1
-
36,831
1,325,816
9,973
521,825
3,075
143,536
17,121
93,575
$ 2,178,576
$
1
$
67,000
$
2,111,577
(1) The amortized cost of debt securities and cash resources measured at FVOCI is net of an allowance for credit losses of $196 (October 31, 2018 – n/a).
During the year ended October 31, 2019, CWB disposed of preferred shares
income on preferred shares that were held at October 31, 2019 totaled $999.
with a fair value of $56,279. Related to the dispositions, CWB reclassified
Dividend income recognized in the consolidated statements of income
cumulative after-tax realized losses of $20,370 from AOCI to retained
related to preferred shares disposed during the year totaled $1,355.
earnings. Dividend income recognized in the consolidated statements of
Impairment
Impairment losses and recoveries on debt securities measured at FVOCI,
During the year ended October 31, 2019, reversals for credit losses of
estimated using an ECL approach, are recognized in the provision for credit
$103 were recorded in the consolidated statements of income related to a
losses in the consolidated statements of income and correspondingly
reduction in the estimated allowance for credit losses on performing debt
reduce the accumulated changes in fair value recorded in OCI.
securities measured at FVOCI, all of which were in Stage 1 as at October
31, 2019.
86
CWB Financial Group 2019 Annual Report 7. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND PURCHASED
UNDER RESALE AGREEMENTS
Securities sold under repurchase agreements represent the sale of
effected with a simultaneous agreement to sell them back at a specified
Government of Canada securities by CWB effected with a simultaneous
price on a future date, which is generally short term. The difference
agreement to purchase them back at a specified price on a future date,
between the cost of the purchase and the predetermined proceeds to be
which is generally short term. The difference between the proceeds of
received on a resale agreement is recorded as securities interest income.
the sale and the predetermined cost to be paid on a resale agreement is
recorded as deposit interest expense.
Securities sold under repurchase agreements and purchased under
resale agreements are classified and measured at amortized cost on the
Securities purchased under resale agreements represent the purchase
consolidated balance sheets.
of Government of Canada or United States Treasury securities by CWB
8. LOANS, IMPAIRED LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans at Amortized Cost
Loans, including leases, which are measured at amortized cost and
the requirements of the SPPI test. Loan fees integral to the yield, net of
stated net of unearned income, unamortized premiums or discounts and
transaction costs, are amortized to interest income using the effective
allowance for credit losses, are originated or purchased with the objective
interest method.
of collecting contractual cash flows and generate cash flows that satisfy
The composition of CWB’s loan portfolio by geographic region and industry sector follows:
($ millions)
Personal(1)
Business
BC
AB
ON
SK
MB
QC
Other
Total
Composition Percentage
Oct. 31
2019
Oct. 31
2018
$ 1,509
$ 1,558
$ 2,122
$ 261
$ 126
$ -
$ 114
$ 5,690
20 % 20 %
General commercial loans
2,497
2,766
2,339
Equipment financing and leasing(2)
772
1,398
Commercial mortgages
Real estate project loans
2,343
2,160
2,227
1,052
Oil and gas production loans
-
139
1,385
144
275
-
298
463
289
132
16
266
248
137
47
-
269
586
15
17
-
165
8,600
30
28
340
5,192
-
2
-
5,088
3,752
155
18
18
13
1
18
19
15
-
Total(3)
Composition Percentage
October 31, 2019
October 31, 2018
7,839
7,515
4,143
1,198
698
887
507
22,787
$ 9,348
$ 9,073
$ 6,265
$ 1,459
$ 824
$ 887
$ 621
$ 28,477
80
100 % 100 %
80
33% 32 % 22 % 5 % 3 % 3 % 2 % 100 %
34% 32 %
21 % 5 % 3 % 3 % 2 % 100 %
Includes mortgages securitized through the National Housing Act Mortgage Backed Securities program reported on-balance sheet of $837 (October 31, 2018 – $609) (see Note 9).
Includes securitized leases and loans reported on-balance sheet of $1,613 (October 31, 2018 – $1,622) (see Note 9).
(1)
(2)
(3) This table does not include an allocation of the allowance for credit losses.
Credit Quality
Internal Risk Ratings
Within CWB’s loan portfolios, borrowers are assigned a borrower risk
ratings, borrowers that trigger a review based on adverse changes in
rating (BRR) that reflects the credit quality of the obligor using industry and
financial performance and borrowers requiring or requesting changes to
sector-specific risk models and expert credit judgment. BRRs are assessed
credit facilities. Each BRR has a PD calibrated against it, which is estimated
and assigned at the time of loan origination and reviewed at least annually,
based on CWB’s historical loss experience for each risk segment or risk
with the exception of consumer loans and single-unit residential mortgages.
rating level, adjusted for forward-looking information. CWB’s BRR scale
More frequent reviews are conducted for borrowers with weaker risk
broadly aligns to external ratings as follows:
Description
CWB Rating Category
Standard & Poor’s
Moody’s Investor Services
Investment grade or low risk
Non-investment grade or medium risk
Watchlist or high risk
Impaired
1 to 6M
6L to 8L
9H to 10L
11 to 12
AAA to BBB-
BB+ to CCC+
Aaa to Baa3
Ba1 to Caa1
CCC and below
Caa2 and below
Default
Default
87
CWB Financial Group 2019 Annual Report Carrying Value of Exposures by Risk Rating
Gross carrying amounts of loans and the contractual amounts of committed but undrawn credit exposures and letters of credit, categorized based on internal
risk ratings, are as follows:
Loans – Personal
Low risk
Medium risk
Watchlist or high risk
Impaired
Total
Allowance for credit losses
Total, net of allowance for credit losses
Loans – Business
Investment grade or low risk
Non-investment grade or medium risk
Watchlist or high risk
Impaired
Total
Allowance for credit losses
Total, net of allowance for credit losses
Total loans
Allowance for credit losses
Total Loans, Net of Allowance for Credit Losses
Committed but Undrawn Credit Exposures and Letters of Credit
Investment grade or low risk
Non-investment grade or medium risk
Watchlist or high risk
Impaired
Total
Allowance for credit losses
Total, Net of Allowance for Credit Losses
Impaired and Past Due Loans
As at October 31, 2019
Performing
Stage 1
Stage 2
Impaired
Stage 3
Total
$ 2,955,248
$ 48,534
$ -
$ 3,003,782
2,034,651
507,047
-
2,541,698
-
114,085
-
114,085
-
-
30,268
30,268
4,989,899
(1,614)
669,666
(1,469)
30,268
(1,036)
5,689,833
(4,119)
4,988,285
668,197
29,233
5,685,714
1,667,859
32,794
-
1,700,653
20,059,887
617,162
-
20,677,049
-
291,210
-
291,210
-
-
117,982
117,982
21,727,746
(59,957)
941,166
(21,830)
117,982
(24,928)
22,786,894
(106,715)
21,667,789
919,336
93,054
22,680,179
26,717,645
1,610,832
148,250
28,476,727
(61,571)
(23,299)
(25,964)
(110,834)
$26,656,074
$ 1,587,533
$ 122,286
$28,365,893
$ 1,029,967
$ 2,655
$ -
$ 1,032,622
4,518,220
108,812
-
4,627,032
-
19,484
-
19,484
-
-
-
-
5,548,187
(2,601)
130,951
(1,590)
-
-
5,679,138
(4,191)
$ 5,545,586
$ 129,361
$ -
$ 5,674,947
Outstanding gross loans and impaired loans, net of allowance for credit losses, by loan type, are as follows:
IFRS 9
As at October 31, 2019
IAS 39
As at October 31, 2018
Gross
Amount
Gross
Impaired
Amount(1)(2)
Stage 3
Allowance
Net
Impaired
Loans
Gross
Amount
Gross
Impaired
Amount(1)(2)
Specific
Allowance
Net
Impaired
Loans
$ 5,689,833
$ 30,268
$ 1,036
$ 29,232
$ 5,247,160
$ 28,961
$
647
$ 28,314
Personal
Business
General commercial loans
8,599,527
26,030
7,030
19,000
7,458,010
21,815
5,484
16,331
Equipment financing and leasing
5,191,901
43,767
15,134
28,633
4,779,005
47,800
15,606
32,194
Commercial mortgages(3)
5,088,193
22,950
2,764
20,186
4,865,183
29,376
3,290
26,086
Real estate project loans
3,752,480
5,446
-
5,446
3,854,681
9,920
2,000
7,920
Oil and gas production loans
154,793
19,789
-
19,789
129,089
-
-
-
Total
$ 28,476,727
$ 148,250
$
25,964
$ 122,286
$26,333,128
$
137,872
$
27,027
$ 110,845
(1) Under IFRS 9, all loans that are over 90 days past due are considered impaired. Under IAS 39, residential mortgages guaranteed or insured for both principal and interest by the Canadian government, a province, or a Canadian government
agency and loans that were fully secured and in the process of collection were not classified as impaired until payments were 365 or 180 days in arrears, respectively.
(2) Gross impaired loans include foreclosed assets with a carrying value of $4,217 (October 31, 2018 – $6,628). CWB pursues timely realization on foreclosed assets and does not use the assets for its own operations.
(3) Multi-family residential mortgages are included in commercial mortgages.
During the year, interest recognized as income on impaired loans totaled $3,328 (2018 – $5,743).
88
CWB Financial Group 2019 Annual Report
Outstanding impaired loans, net of allowance for credit losses, by provincial location of security are as follows:
Alberta
British Columbia
Ontario
Saskatchewan
Manitoba
Quebec
Other
Total
IFRS 9
As at October 31, 2019
IAS 39
As at October 31, 2018
Gross
Impaired
Amount
Stage 3
Allowance
Net
Impaired
Loans
Gross
Impaired
Amount
Specific
Allowance
Net
Impaired
Loans
$
77,891
$
10,692
$
67,199
$
77,018
$
12,627
$
64,391
17,488
1,349
16,139
13,699
2,069
11,630
20,126
4,157
15,969
16,829
3,016
13,813
10,529
2,181
8,348
8,957
1,330
7,627
11,831
4,795
7,036
9,873
4,006
5,867
6,622
1,886
4,736
4,826
2,345
2,481
3,763
904
2,859
6,670
1,634
5,036
$
148,250
$ 25,964
$
122,286
$
137,872
$
27,027
$
110,845
Loans are considered past due when a customer has not made a payment by the contractual due date. The following table presents the carrying value of loans
that are contractually past due but not classified as impaired:
As at October 31, 2019
1 - 30 days
31 - 60 days
61 - 90 days
More than
90 days(1)
Total
Personal
Business
Total
$ 40,138
143,206
$ 18,902
62,468
$ 591
10,764
$ -
-
$ 59,631
216,438
$ 183,344
$ 81,370
$ 11,355
$ -
$ 276,069
As at October 31, 2018
$ 169,739
$ 49,387
$ 9,779
$ 1,970
$ 230,875
(1) Under IFRS 9, all loans that are over 90 days past due are considered impaired. Under IAS 39, residential mortgages guaranteed or insured for both principal and interest by the Canadian government, a province, or a Canadian government
agency and loans that were fully secured and in the process of collection were not classified as impaired until payments were 365 or 180 days in arrears, respectively.
Allowance for Credit Losses
Allowance for credit losses related to performing loans is estimated using an
looking information, and certain other criteria such as 30 days past due and
ECL approach that incorporates a number of underlying assumptions which
migration to watchlist status.
involve a high degree of management judgment and can have a significant
impact on financial results. The allowance for credit losses is CWB’s most
significant accounting estimate.
Significant key drivers impacting the estimation of ECL, which are
interrelated, include:
Forecasting Forward-looking Information for Multiple Scenarios
Forward-looking information is incorporated into both the assessment
of whether a loan has experienced a SICR since its initial recognition
and the estimation of ECL. The models used to estimate ECL consider
macroeconomic factors that are most closely correlated with credit risk
• changes in internal risk ratings attributable to a borrower or instrument
in the relevant portfolios and are calibrated to consider CWB’s geographic
reflecting changes in credit quality;
diversification.
• thresholds used to determine when a borrower has experienced a SICR;
and
• changes in forward-looking information, specifically related to variables
to which the ECL models are calibrated.
To account for the non-linear nature of projected losses, CWB incorporates
multiple probability-weighted macroeconomic scenarios into the estimation
of ECL. Each scenario includes a projection of all relevant macroeconomic
variables for a five year period. While the base case scenario represents the
The inputs and models used for estimating ECL may not always capture all
best estimate of projected macroeconomic variables, additional scenarios
emerging market conditions at the reporting date and as such, qualitative
represent more optimistic or pessimistic outcomes. To capture a wide range
adjustments based on expert judgment that consider reasonable and
of possible outcomes, CWB simulates multiple macroeconomic scenarios
supportable information may be incorporated.
that are above or below the base case based on historical and current
trends and with consideration for the degree of uncertainty surrounding
Assessment of Significant Increases in Credit Risk
macroeconomic outlooks.
The determination of whether a loan has experienced a SICR has a significant
impact on the estimation of allowance for credit losses as 12-month ECL is
recorded for loans in Stage 1 and lifetime ECL are recorded for loans that
have migrated to Stage 2. Movement between Stages 1 and 2 is impacted
by changes in borrower-specific risk characteristics as well as changes
ECL is sensitive to changes in both the base case scenario as well as the
incorporation of multiple probability-weighted macroeconomic scenarios.
Incorporating multiple probability-weighted macroeconomic scenarios into
ECL estimates resulted in an increase of approximately 9% to the performing
loan allowance for credit losses, relative to the base case scenario, as at
in applicable forward-looking information. The main factors considered
October 31, 2019.
in assessing whether a loan has experienced a SICR are relative changes
in internal risk ratings since initial recognition, incorporating forward-
89
CWB Financial Group 2019 Annual Report
The primary macroeconomic variables, over the next 12 months and the remaining forecast period, incorporated into the estimation of ECL are as follows:
Macroeconomic Variable
Annual GDP growth
Unemployment rate
MLS housing resale price growth (decline)
Three month treasury bill rate
U.S. dollar/Canadian dollar exchange rate
Oil price (U.S. dollar per barrel)
(1) Represents one standard deviation above the base case scenario.
(2) Represents one standard deviation below the base case scenario.
Base Scenario
Optimistic(1)
Pessimistic(2)
Next 12
Months
Remaining
Forecast
Period
Next 12
Months
Remaining
Forecast
Period
Next 12
Months
Remaining
Forecast
Period
1.5%
6.0%
3.0%
1.6%
$
$
1.32
62
$
$
1.7%
6.3%
1.9%
1.8%
1.33
61
2.1%
5.8%
6.0%
2.2%
$
$
1.36
73
$
$
3.1%
5.7%
10.9%
2.7%
1.44
81
1.0%
6.3%
0.1%
1.1%
$
$
1.28
52
$
$
0.4%
7.0%
(7.2)%
0.9%
1.21
40
The primary macroeconomic variables impacting ECL for personal loan
rates and interest rates will generally correlate with higher expected credit
portfolios are unemployment rates and Multiple Listings Service (MLS)
losses while increases in oil price, annual gross domestic product (GDP)
housing resale price growth. Business portfolios are impacted by all of the
growth, and MLS housing resale price growth, and the U.S. dollar/Canadian
variables in the table above, to varying degrees. Increases in unemployment
dollar exchange rate will generally result in lower ECL.
Stage 3 Allowance for Credit Losses
For impaired loans in Stage 3, the allowance for credit losses is measured
either the fair value of the security underlying the loan, net of any expected
as the difference between the carrying value of the loan at the time it is
realization costs, or the current market price for the loan may be used to
classified as impaired and the present value of the cash flows CWB expects
measure the estimated realizable amount. Security can vary by type of
to receive, using the original effective interest rate of the loan. When the
loan and may include real property, working capital, guarantees, or other
amounts and timing of future cash flows cannot be reliably estimated,
equipment.
90
CWB Financial Group 2019 Annual Report Reconciliation
A reconciliation of changes in the allowance for credit losses related to loans, committed but undrawn credit exposures and letters of credit under IFRS 9
follows:
Personal
Balance at beginning of year
Transfers to (from)
Stage 1(1)
Stage 2(1)
Stage 3(1)
Net remeasurement(2)
New originations
Derecognitions and maturities
Provision for (reversal of) credit losses(3)
Write-offs
Recoveries
Balance at end of year
Business
Balance at beginning of year
Transfers to (from)
Stage 1(1)
Stage 2(1)
Stage 3(1)
Net remeasurement(2)
New originations
Derecognitions and maturities
Provision for (reversal of) credit losses(3)
Write-offs
Recoveries
Balance at end of year
Total Allowance for Credit Losses(4)
IFRS 9
2019
Performing
Stage 1
Stage 2
Impaired
Stage 3
Total
$ 1,461
$ 1,181
$ 647
$ 3,289
211
(211)
-
-
(369)
389
(20)
-
(10)
(96)
106
-
(1,236)
594
1,860
1,218
1,870
-
-
1,870
(307)
(377)
(172)
(856)
159
299
1,774
2,232
-
-
(1,422)
(1,422)
-
-
37
37
1,620
1,480
1,036
4,136
$ 59,325
$ 26,570
$ 26,380
$ 112,275
13,802
(13,802)
-
-
(5,780)
6,788
(1,008)
-
(158)
(3,231)
3,389
-
(34,446)
14,896
53,477
33,927
46,846
-
-
46,846
(17,037)
(7,812)
(295)
(25,144)
3,227
(3,161)
55,563
55,629
-
-
(60,844)
(60,844)
-
-
3,829
3,829
62,552
23,409
24,928
110,889
$ 64,172
$ 24,889
$ 25,964
$ 115,025
Represented by:
Loans
Committed but undrawn credit exposures and letters of credit(4)
Total Allowance for Credit Losses(5)
$ 61,571
$ 23,299
$ 25,964
$ 110,834
2,601
1,590
-
4,191
$ 64,172
$ 24,889
$ 25,964
$ 115,025
(1) Represents stage movements prior to remeasurement of the allowance for credit losses.
(2) Represents credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions, including changes in forward-looking
macroeconomic forecasts and qualitative adjustments, and changes due to partial repayment.
Included in the provision for credit losses in the consolidated statements of income.
Included in other liabilities in the consolidated balance sheets.
(3)
(4)
(5) Allowance for credit losses related to debt securities measured at FVOCI, cash resources and other financial assets classified at amortized cost were excluded from the table above. See Note 6 for details related to the allowance for credit
losses on debt securities measured at FVOCI. Cash resources and other financial assets classified at amortized cost are presented in the consolidated balance sheets, net of allowance for credit losses.
The following table shows the changes in the allowance for credit losses under IAS 39:
Balance at beginning of year
Provision for credit losses
Write-offs
Recoveries
Balance at End of Year
Represented by:
IAS 39
2018
Specific
Allowance
Collective
Allowance
$
16,617
47,789
(45,359)
7,980
27,027
$
$
119,298
468
-
-
119,766
$
Loans
Committed but undrawn credit exposures and letters of credit
Total Allowance
$
27,027
-
$
27,027
$
101,502
18,264
119,766
$
Total
$
$
135,915
48,257
(45,359)
7,980
146,793
$
$
128,529
18,264
146,793
91
CWB Financial Group 2019 Annual Report
9. FINANCIAL ASSETS TRANSFERRED BUT NOT DERECOGNIZED
Securitization of equipment financing
leases and loans
CWB securitizes equipment financing leases and loans to third parties.
These securitizations do not qualify for derecognition as CWB continues
to be exposed to certain risks associated with the leases and loans,
therefore CWB has not transferred substantially all of the risk and rewards
of ownership. As the leases and loans do not qualify for derecognition,
the assets are not removed from the consolidated balance sheets and a
securitization liability is recognized within debt related to securitization
activities for the cash proceeds received (see Note 16).
During 2019, CWB securitized equipment financing leases and loans of
$784,125 (2018 – $1,178,726) which were sold to thrid parties for cash
proceeds of $704,392 (2018 – $1,063,792).
Securitization of residential mortgages
CWB securitizes fully insured residential mortgage loans through the
creation of mortgage-backed securities under the National Housing Act
Mortgage Backed Securities (NHA MBS) program sponsored by the
Canada Mortgage and Housing Corporation (CMHC). The mortgage-
backed securities are sold directly to third party investors, sold to the
Canada Housing Trust (CHT) as part of the Canada Mortgage Bond (CMB)
program or are held by CWB. The CHT issues CMBs, which are government
guaranteed, to third party investors and uses resulting proceeds to purchase
NHA MBS from CWB and other mortgage issuers in the Canadian market.
The third party sale of the mortgage pools that comprise the NHA MBS
does not qualify for derecognition as CWB retains the credit and interest
rate risks associated with the mortgages, which represent substantially all
of the risks and rewards associated with the transferred assets. As a result,
the mortgages remain on the consolidated balance sheets as personal loans
and are carried at amortized cost. Cash proceeds from the third party sale
of the mortgage pools, including those sold as part of the CMB program,
are recognized within debt related to securitization activities (see Note 16).
During 2019, CWB securitized residential mortgages of $203,455 which
were sold to the CHT for cash proceeds of $202,871 (2018 – $184,213 sold
for cash proceeds of $181,635) and did not sell any securitized residential
mortgages directly to third party investors (2018 – nil).
Securities sold under repurchase agreements
CWB enters into repurchase agreements under which it sells previously
recognized securities, with a simultaneous agreement to purchase them
back at a specific price on a future date, but retains substantially all of the
credit, price, interest rate, and foreign exchange risks and rewards associated
with the assets (see Note 7). These securities are not derecognized and the
cash proceeds from the sale are recognized within other liabilities on the
consolidated balance sheets.
Details about the nature of transferred financial assets that do not qualify for derecognition and the associated liabilities are as follows:
Transferred Assets that do not Qualify for Derecognition
Securitized leases and loans
Securitized residential mortgages
Securities sold under repurchase agreements
Associated Liabilities(1)
Net Position
As at October 31, 2019
As at October 31, 2018
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$
1,613,426
$
1,616,653
$
1,621,943
$
1,690,933
442,310
440,983
277,942
271,492
29,965
29,965
95,126
95,126
2,085,701
2,087,601
1,995,011
2,057,551
1,943,764
1,965,313
1,852,980
1,786,645
$
141,937
$
122,288
$
142,031
$
270,906
(1) Associated liabilities consist of $1,469,509 related to securitized leases and loans (October 31, 2018 – $1,479,133), $444,290 related to residential mortgages securitized through the NHA MBS program (October 31, 2018 – $278,721) and
$29,965 related to securities sold under repurchase agreements (October 31, 2018 – $95,126).
Additionally, CWB has securitized residential mortgages through the
NHA MBS program totaling $394,342 with a fair value of $393,159 (2018
– $330,599 with a fair value of $322,926) that were not transferred to third
parties.
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CWB Financial Group 2019 Annual Report
10. PROPERTY AND EQUIPMENT
Land is carried at cost. Buildings, equipment and furniture, and leasehold
When components of an item of property and equipment have different
improvements are carried at cost less accumulated depreciation and
useful lives, they are accounted for as separate items. Gains and losses
impairment.
Depreciation is calculated primarily using the straight-line method over the
on disposal are recorded in non-interest income in the period of disposal.
Property and equipment is subject to an impairment review if there are
events or changes in circumstances which indicate that the carrying amount
estimated useful life of the asset, as follows:
may not be recoverable.
• Buildings:
20 years
• Equipment and furniture:
3 to 10 years
• Leasehold improvements:
over the shorter of the term of the lease
and the remaining useful life
Cost
Balance at November 1, 2018
Additions
Disposals
Leasehold
Improvements
Land and
Buildings
Computer
Equipment
Office
Equipment
Total
$ 76,505
$ 18,905
$ 36,701
$ 44,321
$ 176,432
4,277
165
5,713
5,326
15,481
-
(417)
(217)
(495)
(1,129)
Balance at October 31, 2019
80,782
18,653
42,197
49,152
190,784
Accumulated Depreciation and Impairment
Balance at November 1, 2018
Depreciation for the year
Disposals
Balance at October 31, 2019
51,324
6,129
26,140
33,741
117,334
4,389
-
55,713
564
(307)
6,386
3,539
(217)
29,462
2,810
(494)
36,057
11,302
(1,018)
127,618
Net Carrying Amount at October 31, 2019
$ 25,069
$ 12,267
$ 12,735
$ 13,095
$ 63,166
Cost
Balance at November 1, 2017
$ 72,398
$ 18,754
$ 31,444
$ 40,842
$ 163,438
Additions
Disposals
4,179
151
5,262
3,573
13,165
(72)
-
(5)
(94)
(171)
Balance at October 31, 2018
76,505
18,905
36,701
44,321
176,432
Accumulated Depreciation and Impairment
Balance at November 1, 2017
Depreciation for the year
Disposals
Balance at October 31, 2018
47,263
5,580
23,461
31,019
107,323
4,133
549
2,684
2,816
10,182
(72)
-
(5)
(94)
(171)
51,324
6,129
26,140
33,741
117,334
Net Carrying Amount at October 31, 2018
$ 25,181
$ 12,776
$ 10,561
$ 10,580
$ 59,098
93
CWB Financial Group 2019 Annual Report
11. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess
Goodwill is stated at cost less impairment losses. Goodwill is reviewed
of the fair value of the purchase consideration, including any amount of any
for impairment annually or more frequently if there are indications that
non-controlling interest in the acquiree, over the net recognized amounts of
impairment may have occurred. Goodwill is allocated to cash-generating
the identifiable assets, including identifiable intangible assets, and liabilities
units for the purpose of impairment testing considering the business level
assumed. For the purposes of calculating goodwill, fair values of acquired
at which goodwill is monitored for internal management purposes. On this
assets and liabilities are determined by reference to market values or by
basis, CWB’s cash-generating units with goodwill allocated are:
discounting expected future cash flows to present value. This discounting
is performed using either market rates, or risk-free rates with risk-adjusted
expected future cash flows.
• CWB Maxium Financial Inc. (MX);
• CWB National Leasing Inc. (NL);
• CWB McLean & Partners Wealth Management Ltd. (M&P); and
• CWB Wealth Management Ltd. (WM).
Balance at November 1, 2018
Partial ownership change
Balance at October 31, 2019
Balance at November 1, 2017
Partial ownership change
Balance at October 31, 2018
Intangible Assets
MX
NL
M&P
WM
Total
$ 38,869
-
$
35,776
-
$
6,575
13
$
3,948
211
$
85,168
224
$ 38,869
$
35,776
$
6,588
$
4,159
$ 85,392
$ 38,869
-
$
35,776
-
$
7,099
(524)
$
3,925
23
$ 85,669
(501)
$ 38,869
$
35,776
$
6,575
$
3,948
$
85,168
Intangible assets represent identifiable non-monetary assets without
Amortization of acquisition-related intangible assets with finite useful lives
physical substance and are acquired either separately through a business
is reported in other expenses and amortization of internally generated
combination, or generated internally. Intangible assets with a finite useful
software
is
included
in premises and equipment expenses on the
life are recorded at cost less any accumulated amortization and impairment
consolidated statements of income and provided on a straight-line basis
losses. Certain intangible assets, such as trademarks and trade names, have
from the date at which it is available for use as follows:
an indefinite useful life. These indefinite life intangibles are not amortized
but are tested for impairment at least annually or more frequently if events
• Software and related assets:
or changes in circumstances indicate that impairment may have occurred.
• Customer relationships:
The assets’ useful lives are assessed at least annually.
• Non-competition agreements:
• Other:
3 to 15 years
10 to 15 years
4 to 5 years
3 to 5 years
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CWB Financial Group 2019 Annual Report
Cost
Balance at November 1, 2018
Additions
Partial ownership change
Disposals
Software
and Related
Assets
Customer
Relation-
ships
Trademarks
and
Tradenames
Non-
competition
Agreements
Other
Total
$ 184,271
$ 59,211
$ 6,564
$ 11,084
$ 5,150
$ 266,280
34,073
-
-
-
-
34,073
-
4
23
-
-
27
(749)
-
-
-
-
(749)
Balance at October 31, 2019
217,595
59,215
6,587
11,084
5,150
299,631
Accumulated Amortization
Balance at November 1, 2018
Amortization
Disposals
60,066
29,745
-
11,039
4,640
105,490
16,135
4,657
-
20
330
21,142
(749)
-
-
-
-
(749)
Balance at October 31, 2019
75,452
34,402
-
11,059
4,970
125,883
Net Carrying Amount at October 31, 2019
$ 142,143
$ 24,813
$ 6,587
$ 25
$ 180
$ 173,748
Cost
Balance at November 1, 2017
$ 154,761
$ 59,606
$ 6,632
$ 11,153
$ 5,150
$ 237,302
Additions
31,118
-
-
-
-
31,118
Partial ownership change
-
(395)
(68)
(69)
-
(532)
Disposals
(1,608)
-
-
-
-
(1,608)
Balance at October 31, 2018
184,271
59,211
6,564
11,084
5,150
266,280
Accumulated Amortization
Balance at November 1, 2017
Amortization
Disposals
48,462
24,709
-
10,288
4,113
87,572
13,212
5,036
-
751
527
19,526
(1,608)
-
-
-
-
(1,608)
Balance at October 31, 2018
60,066
29,745
-
11,039
4,640
105,490
Net Carrying Amount at October 31, 2018
$ 124,205
$ 29,466
$ 6,564
$ 45
$ 510
$ 160,790
Impairment
The carrying amounts of CWB’s intangible assets with finite useful lives are
• Cash flows are projected based on past experience, actual operating
reviewed at each reporting date to determine whether there is any indication
results and the five-year future business plan. Cash flows for a further 15-
of impairment. If an indication exists, CWB tests for impairment. For
year period are extrapolated using a constant growth rate of 1.7% (2018
goodwill and intangible assets with indefinite useful lives, the impairment
– 2.0%), which is based on the long-term forecast Canadian GDP growth
tests are performed each year.
rates. The forecast period is based on CWB’s long-term perspective with
Impairment testing is performed by comparing the estimated recoverable
amount from a cash-generating unit with the carrying amount of its net
assets, including attributable goodwill. The recoverable amount of an asset
is the higher of its fair value less costs of disposal, and its value in use. If the
respect to the operation of these cash-generating units.
• A pre-tax discount rate of 9.3% (2018 – 10.1%) is applied in determining
the recoverable amounts, which is comprised of a risk-free interest rate
and a market risk premium.
recoverable amount is less than the carrying value, an impairment loss is
The key assumptions described above may change as economic and market
charged to the consolidated statements of income.
conditions change. CWB estimates that reasonable possible changes in
The recoverable amounts for CWB’s cash-generating units are calculated
based on the higher of their value in use and fair value less costs of disposal.
these assumptions are not expected to cause the recoverable amounts of
the cash-generating units to decline below the carrying amounts.
Fair value less costs of disposal is determined by using a market-based
No impairment losses on goodwill or intangible assets were identified
approach of the associated cash-generating unit, whereby the fair value is
during 2019 or 2018.
determined using comparable market transactions for similar businesses.
Value in use is determined by discounting the future cash flows expected
to be generated from the continuing use of the cash-generating unit.
Unless indicated otherwise, value in use is determined similarly as in
the comparative year. The calculation of the value in use is based on the
following key assumptions:
95
CWB Financial Group 2019 Annual Report 12. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate, foreign exchange, bond forward and equity swaps/contracts
highly probable future cash flows attributable to a recognized asset or
such as futures, options, swaps, floors and rate locks are entered into
liability or a forecast transaction (cash flow hedges). On an ongoing basis,
for risk management purposes in accordance with CWB’s asset liability
the derivatives used in hedging transactions are assessed to determine
management policies. It is CWB’s policy not to utilize derivative financial
whether they are effective in offsetting changes in fair values or cash flows
instruments for trading or speculative purposes. Interest rate swaps and
of the hedged items. If a hedging transaction becomes ineffective or if the
floors are primarily used to reduce the impact of fluctuating interest rates.
derivative is not designated as a cash flow hedge, any subsequent change in
Equity swaps are used to reduce earnings volatility related to restricted
the fair value of the hedging instrument is recognized in net income.
share units and deferred share units linked to CWB’s common share price.
Bond forward contracts are used to manage interest rate risk related to
CWB’s participation in the NHA MBS program. Foreign exchange contracts
are used for the purposes of meeting the needs of clients, day-to-day
business and liquidity management.
Use of Derivatives
Potential sources of ineffectiveness can be attributed to the differences
between hedging instruments and the hedged items:
• Mismatches in terms of hedged item and hedging instrument, such as the
repricing dates and frequency of payments.
• The effect of the counterparty and CWB’s own credit risk.
CWB enters into derivative financial instruments for risk management
Interest income received or interest expense paid on derivative financial
purposes. Derivative financial instruments are financial contracts whose
instruments designated as cash flow hedges is accounted for on the accrual
value is derived from an underlying interest rate, foreign exchange rate,
basis and recognized as interest expense over the term of the hedge
equity or commodity instrument or index.
Derivative financial instruments primarily used by CWB include:
• interest rate swaps, which are agreements where two counterparties
exchange a series of payments based on different interest rates applied
to a notional amount;
• bond forward contracts, which are a contractual obligation to purchase
or sell a bond at a predetermined future date;
• foreign exchange forwards and futures, which are contractual obligations
to exchange one currency for another at a specified price for settlement
at a predetermined future date; and
• equity swaps, which are agreements where CWB makes periodic interest
payments to a counterparty and receives the capital gain or loss plus
contract. Premiums on purchased contracts are amortized to interest
expense over the term of the contract. Accrued interest receivable and
payable and deferred gains and losses for these contracts are recorded in
other assets or liabilities as appropriate.
When a hedging instrument expires or is sold, or when a hedge no longer
meets the criteria for hedge accounting, any cumulative gain or loss
existing in other comprehensive income at that time is held separately in
accumulated other comprehensive income until the forecast transaction
is eventually recognized in the consolidated statements of income. When
a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in accumulated other comprehensive income is
immediately reclassified to the consolidated statements of income.
dividends of a notional CWB common share.
Interest Rate Risk
Embedded Derivatives
When derivatives are embedded in other financial instruments or host
contracts, such combinations are known as hybrid instruments. If the host
contract is a financial asset within the scope of IFRS 9, the classification
and measurement criteria are applied to the entire hybrid instrument and
there is no separation of the embedded derivative. If the host contract
is a financial liability or an asset that is not within the scope of IFRS 9,
embedded derivatives are treated as separate derivatives when their
economic characteristics and risk are not closely related to those of the host
contract, unless an election is made to measure the contract at fair value.
Identified embedded derivatives that are separated from the host contract
are recorded at fair value.
Fair Value
Derivative financial instruments are recorded on the balance sheet at fair
value with changes in fair value related to the effective portion of cash
flow interest rate hedges recorded in other comprehensive income, net of
income taxes. Changes in fair value related to the ineffective portion of a
designated accounting hedge, a derivative not designated as an accounting
hedge and all other derivative financial instruments are reported in non-
interest income on the consolidated statements of income.
Designated Accounting Hedges
When designated as accounting hedges by CWB, certain derivative financial
instruments are designated as either a hedge of the fair value of recognized
assets, liabilities or firm commitments (fair value hedges), or a hedge of
Interest rate risk arises when changes in interest rates affect the cash flows,
earnings and values of assets and liabilities. CWB has a policy of interest
rate risk management to maintain an appropriate balance between earnings
volatility and economic value volatility while keeping both within their
respective risk appetite limits. Exposure to interest rate risk is controlled
by managing the size of the static gap positions between interest sensitive
assets and interest sensitive liabilities for future periods. This is achieved
partly by using interest rate swaps and bond forward contracts as a hedge
to interest rate changes.
Only the changes in fair value and cash flows related to changes in
benchmark interest rates are designated as hedges for accounting purposes.
Other risk elements present in these relationships, such as credit risk, have
a less significant impact on changes in fair value and cash flows, and are not
designated as accounting hedges.
The hedging ratio is established by matching the notional amount of the
hedging instrument with the notional amount of the hedged item. The
existence of an economic relationship between the hedging instrument and
hedged item is based on the reference interest rates, tenors, repricing dates
and maturities, and the notional or par amounts.
Equity Risk
Equity risk arises when changes in CWB common share price affects the payout
of share-based payment plans (see Note 18) that have not yet vested. CWB has
a policy to hedge a portion of the earnings volatility related to restricted share
unit (RSU) and deferred share unit (DSU) grants by using equity swaps, where
CWB makes periodic interest payments to a counterparty and receives the
capital gain or loss plus dividends of a CWB common share.
96
CWB Financial Group 2019 Annual Report The following table shows the derivative financial instruments split between those contracts that have a positive fair value (favourable contracts) and those
that have a negative fair value (unfavourable contracts):
As at October 31, 2019
As at October 31, 2018
Favourable Contracts
Unfavourable Contracts
Favourable Contracts
Unfavourable Contracts
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Cash Flow Hedges
Interest rate risk
Interest rate swaps
$ 4,952,000
$ 42,855
$ 1,876,000
$ (13,104)
$ -
$
-
$ 4,908,000
$ (65,130)
Bond forward contracts
-
-
20,000
(91)
15,000
55
-
-
Equity risk
Equity swaps
Fair Value Hedges
Interest rate risk
13,084
3,049
6,184
(159)
9,008
2,203
9,277
(1,339)
Interest rate swaps
19,746
20
20,000
(58)
-
-
-
-
Not Designated as Accounting
Hedges
Foreign exchange contracts
106,575
1,005
164,338
(604)
27,195
238
161,933
(2,307)
Equity swaps
Total
5,319
886
-
-
-
-
5,842
(805)
$ 5,096,724
$
47,815
$ 2,086,522
$ (14,016)
$ 51,203
$ 2,496
$ 5,085,052
$ (69,581)
The aggregate contractual or notional amount of the derivative financial
The average fair values of the derivative financial instruments on hand
instruments on hand, the extent to which instruments are favourable or
during the year are set out in the following table:
unfavourable and, thus, the aggregate fair values of these financial assets
and liabilities can fluctuate significantly from time to time.
Favourable derivative financial instruments (assets)
Unfavourable derivative financial instruments (liabilities)
2019
2018
$
$
40,853
22,174
$
$
9,248
49,001
The following table summarizes the maturities of derivative financial instruments and the weighted average interest rates paid and received on contracts:
As at October 31, 2019
Maturity
As at October 31, 2018
Maturity
1 Year or Less
More than 1 Year
1 Year or Less
More than 1 Year
Notional
Amount
Contractual
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Cash Flow Hedges
Interest rate risk
Interest rate swaps(1)
$2,100,000
1.92% $4,728,000
2.01% $1,070,000
1.72% $3,838,000
1.98%
Bond forward contracts(2)
20,000
-
-
-
15,000
-
-
-
Equity risk
Equity swaps(3)
Fair Value Hedges
Interest rate risk
9,365
2.58% 9,903
2.62% 9,233
2.85% 9,052
2.86%
Interest rate swaps(4)
-
-
39,746
1.72% -
-
-
-
Not Designated as Accounting
Hedges
Foreign exchange contracts(5)
Equity swaps(6)
Total
270,913
-
-
-
189,128
-
-
-
5,319
$2,405,597
2.47% -
-
5,842
2.65% -
-
$4,777,649
$1,289,203
$3,847,052
(1) CWB receives interest at a fixed contractual rate and pays interest on the one-month (30-day) Canadian Bankers’ Acceptance rate. Interest rate swaps designated as accounting cash flow hedges outstanding at October 31, 2019 mature
between November 2019 and September 2024.
(2) Bond forward contracts outstanding at October 31, 2019 mature in December 2019.
(3) Equity swaps designated as accounting hedges outstanding at October 31, 2019 mature between June 2020 and June 2022.
(4)
(5) Foreign exchange contracts outstanding at October 31, 2019 mature between November 2019 and April 2020. The contractual interest rate is not meaningful for foreign exchange contracts.
(6) Equity swaps not designated as accounting hedges outstanding at October 31, 2019 mature in June 2020.
Interest rate swaps designated as accounting fair value hedges outstanding at October 31, 2019 mature in August and December 2022.
97
CWB Financial Group 2019 Annual Report
The following tables present the details of the hedged items categorized by their hedging relationships:
Cash Flow Hedges
Interest rate risk
Variable rate liabilities
Statement of Consolidated
Balance Sheets Line Item
As at October 31, 2019
Changes in Fair Value
Used for Calculating
Hedge Ineffectiveness
AOCI -
Cash Flow Hedges
Deposits - Personal, Deposits -
Business and government
$ 94,881
$ 21,991
Forecasted NHA MBS issuances
n/a
(146)
(224)
Equity risk
Restricted share units
n/a - not applicable
Other - Other liabilities
2,024
1,091
As at October 31, 2019
Carrying Amount of
Hedged Item
Accumulated Amount of Fair
Value Adjustments on the
Hedged Item
Assets
Liabilities
Assets
Liabilities
Consolidated Balance
Sheets Line Item
Changes in Fair Value
Used for Calculating
Hedge Ineffectiveness
Fair Value Hedges
Interest rate risk
Fixed rate assets
$ 40,393
$ -
$ (13)
$ -
Securities - Issued or
guaranted by a province
or municipality, Other
debt securities
$ (38)
The following table contains information regarding the effectiveness of the hedging relationships, as well as the impacts on the consolidated statements of
income and consolidated statements of comprehensive income:
Cash Flow Hedges
Interest rate risk
Interest rate swaps(1)
Bond forward contracts(1)
Equity risk
Equity swaps(2)
Fair Value Hedges
Interest rate risk
Interest rate swaps
2019
Change in Fair
Value of Hedging
Instrument
Hedge
Ineffectiveness
Recognized in
Income
Change in the
Fair Value of the
Hedging Instrument
Recognized in OCI
Amount Reclassified
from AOCI - Cash
Flow Hedges to
Income
$ 94,881
(146)
$ -
-
$ 69,538
(99)
$ (3)
147
2,024
-
1,922
(527)
(38)
-
-
-
(1) Amounts reclassified from OCI into Interest Expense – Deposits
(2) Amounts reclassified from OCI into Non-interest expenses – Salaries and employee benefits
The following table shows a reconciliation of the accumulated other comprehensive income from derivatives designated as cash flow hedges and an analysis
of other comprehensive income relating to hedge accounting:
Accumulated Other Comprehensive Income - Cash Flow Hedges
Balance at beginning of year
Amounts recognized in other comprehensive income:
Interest rate risk - Interest rate swaps and bond forward contracts
Effective portion of changes in fair value
Amounts reclassified to net income
Equity risk - Equity swaps
Effective portion of changes in fair value
Amounts reclassified to net income
Balance at End of Year
At October 31, 2019, hedged cash flows are expected to occur and affect profit or loss within the next five years.
98
2019
$ (48,120)
69,439
144
1,922
(527)
$ 22,858
CWB Financial Group 2019 Annual Report 13. OTHER ASSETS
Accrued interest receivable
Accounts receivable
Deferred tax asset
Prepaid expenses
Financing costs(1)
Derivative collateral receivable
Income tax receivable
Other
Total
(1) Amortization for the year amounted to $3,016 (2018 – $2,502).
14. DEPOSITS
As at
October 31
2019
As at
October 31
2018
$
79,709
$
77,004
63,150
37,868
10,396
6,986
4,070
2,092
8,535
60,533
45,877
9,181
6,480
55,550
7,547
9,167
$
212,806
$
271,339
(Note 22)
(Note 28)
Deposits are accounted for on an amortized cost basis. Costs relating to the issuance of fixed term deposits are amortized over the expected life of the
deposit using the effective interest method.
Payable on demand
Payable after notice
Payable on a fixed date
Total
Payable on demand
Payable after notice
Payable on a fixed date
Total
A summary of all outstanding deposits payable on a fixed date, by contractual maturity date, follows:
Within 1 year
1 to 2 years
2 to 3 years
3 to 4 years
4 to 5 years
Total
As at October 31, 2019
Individuals
Business and
Government
Total
$ 34,296
$ 715,875
$ 750,171
4,452,592
3,420,754
7,873,346
10,813,617
5,914,227
16,727,844
$ 15,300,505
$ 10,050,856
$ 25,351,361
As at October 31, 2018
Individuals
Business and
Government
Total
$ 35,889
$ 716,156
$ 752,045
3,684,259
3,157,875
6,842,134
10,763,538
5,342,240
16,105,778
$ 14,483,686
$ 9,216,271
$ 23,699,957
As at
October 31
2019
As at
October 31
2018
$
6,694,117
$
6,108,436
5,013,286
3,830,943
2,242,094
3,344,859
1,793,324
1,320,789
985,023
1,500,751
$ 16,727,844
$
16,105,778
99
CWB Financial Group 2019 Annual Report 15. OTHER LIABILITIES
Accounts payable and accrued liabilities
Accrued interest payable
Income taxes payable
Derivative collateral payable
Deferred tax liability
Deferred revenue
Allowance for committed but undrawn credit exposures and letters of credit(1)
Leasehold inducements
Contingent consideration
Other
Total
As at
October 31
2019
As at
October 31
2018
$
333,123
$ 290,560
208,548
164,171
60,501
9,794
(Note 28)
19,370
-
(Note 22)
4,716
5,745
4,357
5,534
(Note 8)
4,191
18,264
2,694
3,170
(Note 27)
-
29,814
8,886
4,901
$ 646,386
$
531,953
(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.
16. DEBT
A) DEBT SECURITIES
A summary of outstanding debt related to the securitization of equipment financing leases and loans and residential mortgages by contractual maturity date
follows:
Securitized leases and loans
Securitized residential mortgages
Total
B) SUBORDINATED DEBENTURES
Within
1 Year
1 to 3
Years
3 to
5 Years
As at
October 31
2019
As at
October 31
2018
$ 576,621
88,404
$ 756,426
133,051
$ 136,462
222,835
$ 1,469,509
444,290
$ 1,479,133
278,721
$ 665,025 $
889,477
$ 359,297 $
1,913,799
$ 1,757,854
Financing costs relating to the issuance of subordinated debentures are
The following qualify as bank debentures under the Bank Act and are
amortized over the expected life of the related subordinated debenture
subordinate in right of payment to all deposit liabilities. All redemptions are
using the effective interest method.
subject to the approval of OSFI.
Non-NVCC subordinated debentures
NVCC subordinated debentures(2)
Interest
Rate
3.463%(1)
3.668%
Maturity
Date
Earliest Date
Redeemable
by CWB at Par
Par Value
December 17, 2024
June 11, 2029
December 17, 2019
June 11, 2024
$ 250,000
250,000
(1) These conventional debentures have a 12-year term with a fixed interest rate for the first seven years. Thereafter, if not redeemed, the interest rate would have been reset quarterly at the three month Canadian Dollar Offered Rate (CDOR)
plus 160 basis points.
(2) The balance reported on the consolidated balance sheets as at October 31, 2019 includes unamortized financing costs relating to the issuance of subordinated debentures of $1,506.
On June 11, 2019, CWB issued $250,000 Non-Viability Contingent Capital
principal amount of the debenture plus accrued but unpaid interest times a
(NVCC) subordinated debentures with a fixed annual interest rate of
multiplier of 1.5) by the common share value (the greater of (i) the floor price
3.668% until June 11, 2024. Thereafter, the rate will be set quarterly at the
of $5.00 and (ii) the current market price calculated as the volume-weighted
three-month CDOR plus 199 basis points until maturity on June 11, 2029.
average trading price for the ten consecutive trading days ending on the day
The debentures are redeemable by CWB on or after June 11, 2024, subject
immediately prior to the date of conversion).
to the prior written consent of OSFI.
Upon the occurrence of a trigger event (as defined by OSFI), each
outstanding 3.463% non-NVCC subordinated debentures. The debentures
subordinated debenture will be automatically converted, without the
were redeemed on November 18, 2019 at an aggregate amount of $253,900,
consent of the holders, into CWB common shares. Conversion to common
representative of the early redemption value plus accrued interest.
shares will be determined by dividing the debenture conversion value (the
On October 18, 2019, CWB announced the redemption of all $250,000 of
100
CWB Financial Group 2019 Annual Report
17. CAPITAL STOCK
Authorized:
• An unlimited number of common shares without nominal or par value;
• An unlimited number of first preferred shares, without nominal or
• 33,964,324 class A shares without nominal or par value; and
par value, issuable in series, provided that the maximum aggregate
consideration for all outstanding first preferred shares at any time does
not exceed $1,000,000.
Issued and Fully Paid:
Preferred Shares - Series 5
Outstanding at beginning and end of year
Preferred Shares - Series 7
Outstanding at beginning and end of year
Preferred Shares - Series 9
Outstanding at beginning of year
Issued
Outstanding at end of year
Common Shares
Outstanding at beginning of year
Purchased for cancellation
Issued on exercise or exchange of options(1)
Issued under dividend reinvestment plan
2019
2018
Number of
Shares
Amount
Number of
Shares
Amount
5,000,000
$ 125,000
5,000,000
$ 125,000
5,600,000
140,000
5,600,000
140,000
-
-
-
-
5,000,000
125,000
-
-
5,000,000
125,000
-
-
15,600,000
390,000
10,600,000
265,000
88,952,099
744,701
88,494,353
731,885
(1,829,944)
(15,326)
-
-
77,667
1,245
178,279
2,818
49,889
1,350
119,174
4,248
Issued on acquisition-related contingent consideration instalment payment
(Note 27)
-
-
160,293
5,750
Outstanding at end of year
Share Capital
87,249,711
731,970
88,952,099
744,701
$ 1,121,970
$
1,009,701
(1) Represents shares issued and amounts transferred from the share-based payment reserve to share capital upon cashless settlement of option exercises.
CWB is prohibited by the Bank Act from declaring any dividends on common
regulatory directives issued under the Bank Act. This limitation does not
shares when CWB is or would be placed, as a result of the declaration,
restrict the current level of dividends.
in contravention of the capital adequacy and liquidity regulations or any
A) COMMON SHARES
The normal course issuer bid (NCIB) announced on September 27, 2018,
On September 26, 2019, CWB announced the approval of OFSI and
originally for the purchase of up to 1,767,000 common shares and amended
the Toronto Stock Exchange (TSX) to repurchase for cancellation up to
on April 10, 2019 to 3,534,000 common shares, was for the 12-month period
1,740,000 common shares, representing approximately 2% of the issued
that expired on September 30, 2019. CWB repurchased 1,829,944 common
and outstanding common shares, under a NCIB during the 12-month period
shares at an average price of $27.08 under this NCIB, all in fiscal 2019.
expiring September 30, 2020. No common shares have been repurchased
The total cost of these purchases, including related transaction costs was
under this NCIB.
$49,592.
B) PREFERRED SHARES
PREFERRED SHARES – SERIES 5
On April 30, 2019, CWB elected to reset the NVCC First Preferred Shares
preferential cash dividends in the amount of $0.2688125 per share, when
Series 5 (Series 5 Preferred Shares) annual dividend rate from 4.40% to
declared by the Board of Directors of CWB. CWB may redeem the Series 5
4.30%, representing the five year Government of Canada Bond Yield as at
Preferred Shares, in whole or in part, on April 30, 2024 and on April 30 every
April 1, 2019 plus 276 basis points. Beginning May 1, 2019, holders of Series 5
five years thereafter. All other terms remain unchanged.
Preferred Shares are entitled to receive quarterly fixed rate non-cumulative
PREFERRED SHARES – SERIES 9
On January 29, 2019, CWB issued 5,000,000 non-cumulative, five year
Directors of CWB, for the initial period ending April 30, 2024. The quarterly
rate reset NVCC First Preferred Shares Series 9 (Series 9 Preferred Shares)
dividend represents an annual yield of 6.00% based on the stated issue
at $25.00 per share, for gross proceeds of $125,000. Holders of Series 9
price per share. Thereafter, the dividend rate will reset every five years at
Preferred Shares are entitled to receive a non-cumulative fixed dividend in
404 basis points over the then five year Government of Canada Bond Yield.
the amount of $0.3832 per share on April 30, 2019 and thereafter, dividends
will be at a quarterly rate of $0.375 per share, when declared by the Board of
101
CWB Financial Group 2019 Annual Report NON-VIABILITY CONTINGENT CAPITAL PREFERRED SHARE RIGHTS AND PRIVILEGES
Redemption
Amount
Quarterly
Non-cumulative
Dividend(1)
Annual
Yield(5)
Date
Redeemable/
Convertible(6)(7)
Convertible to(8)
Preferred Shares - Series 5
Preferred Shares - Series 7
Preferred Shares - Series 9
$
$
$
25.00
25.00
25.00
$ 0.2688125(2)
$ 0.390625(3)
$ 0.375(4)
4.30%
6.25%
6.00%
April 30, 2024
July 31, 2021
April 30, 2024
Preferred Shares - Series 6
Preferred Shares - Series 8
Preferred Shares - Series 10
(1) Non-cumulative fixed dividends are payable quarterly as and when declared by the Board of Directors of CWB.
(2) The dividend rate reset on April 30, 2019 and will reset on the date redeemable and every five years thereafter at a level of 276 basis points over the then five year Government of Canada Bond Yield. Prior to the April 30, 2019, the annual yield
was 4.40% representing a quarterly non-cumulative dividend of $0.275 per share.
(3) The dividend rate will reset on the date redeemable and every five years thereafter at a level of 547 basis points over the then five year Government of Canada Bond Yield.
(4) The dividend rate will reset on the date redeemable and every five years thereafter at a level of 404 basis points over the then five year Government of Canada Bond Yield.
(5) Based on the stated issue price per share of $25.00.
(6) Redeemable by CWB, subject to the approval of OSFI, on the date noted and every five years thereafter.
(7) Convertible by the shareholders, subject to certain conditions, on the date noted and every five years thereafter if not redeemed by CWB to an equal number of First Preferred Shares Series 6, Series 8, and Series 10 which are non-
(8)
cumulative, floating rate preferred shares.
If converted, holders of the First Preferred Shares Series 6, Series 8, and Series 10 will be entitled to receive quarterly floating rate dividends as and when declared by the Board of Directors of CWB, which reset quarterly at a rate equal to the
90-day Government of Canada Treasury Bill rate plus 276, 547, and 404 basis points, respectively.
Upon the occurrence of a non-viability trigger event (as defined by OSFI),
share value (the greater of (i) the floor price of $5.00 and (ii) the current
each preferred share will be automatically converted, without the consent
market price calculated as the volume-weighted average trading price for
of the holders, into CWB common shares. Conversion to common shares
the ten consecutive trading days ending on the day immediately prior to the
will be determined by dividing the preferred share conversion value ($25.00
date of the conversion).
per preferred share plus any declared but unpaid dividends) by the common
C) DIVIDENDS
The following dividends were declared by CWB’s Board of Directors and paid by CWB during the year:
$1.08 per common share (2018 – $1.00)
$1.09 per preferred share - Series 5 (2018 – $1.10)
$1.56 per preferred share - Series 7 (2018 – $1.56)
$1.13 per preferred share - Series 9 (2018 – nil)
Total
2019
2018
$
94,573
$
88,819
5,438
5,500
8,750
8,750
5,666
-
$ 114,427
$ 103,069
Subsequent to October 31, 2019, the Board of Directors of CWB declared
and $0.375 per Series 9 preferred share payable on January 31, 2020 to
a dividend of $0.28 per common share payable on January 7, 2020 to
shareholders of record on January 24, 2020. With respect to these dividend
shareholders of record on December 17, 2019, and cash dividends for
declarations, no liability was recorded on the consolidated balance sheets
preferred shares of $0.2688125 per Series 5, $0.390625 per Series 7,
at October 31, 2019.
D) DIVIDEND REINVESTMENT PLAN
Under the dividend reinvestment plan (plan), CWB provides holders of
At the option of CWB, the common shares may be issued from CWB’s
CWB’s common shares and holders of any other class of shares deemed
treasury at an average market price based on the closing prices of a board
eligible by CWB’s Board of Directors with the opportunity to direct cash
lot of common shares on the TSX for the five trading days immediately
dividends paid on any class of their eligible shares towards the purchase of
preceding the dividend payment date, with a discount of between 0% to 5%
additional common shares. Currently, the Board of Directors has deemed
or through the open market at market prices. During the year, 49,889 (2018
that the holders of CWB’s Series 5, Series 7, and Series 9 Preferred Shares
– 119,174) common shares were issued under the plan from CWB’s treasury
are also eligible to participate in the plan. The plan is open to shareholders
with no discount (2018 – no discount). Beginning in the third quarter of 2019,
residing in Canada.
CWB satisfied the requirements of the plan through purchases of common
shares in the open market.
102
CWB Financial Group 2019 Annual Report
18. SHARE-BASED PAYMENTS
A) STOCK OPTIONS
Stock options are accounted for using the fair value method. The estimated
options exercisable into 1,676,604 shares (2018 – 2,833,461) are issued
value is recognized over the applicable vesting period as an increase to
and outstanding. The outstanding options vest within three years and are
both salary expense and share-based payment reserve. When options are
exercisable at a fixed price equal to the average of the market price on the
exercised, the proceeds received and the applicable amount in share-based
day of and the four days preceding the grant date. Options granted after
payment reserve are credited to common shares.
2015 expire within seven years of the grant date. Previously granted options
expire within five years of the grant date. Outstanding options expire from
CWB has authorized 6,321,061 common shares (2018 – 6,398,728) for
issuance under the share incentive plan. Of the amount authorized,
March 2020 to March 2026.
The details of, and changes in, the issued and outstanding options are as follows:
Options
Balance at beginning of year
Granted
Exercised or exchanged
Expired
Forfeited
Balance at End of Year
Exercisable at End of Year
2019
2018
Number
of Options
Weighted
Average
Exercise Price
Number
of Options
Weighted
Average
Exercise Price
2,833,461
$
31.90
3,390,759
$
31.02
380,728
29.43
262,563
(407,134)
25.66
(782,769)
(1,105,653)
(24,798)
38.58
(37,092)
31.50
-
35.15
28.95
36.94
-
1,676,604
718,481
$
$
28.41
2,833,461
24.36
1,628,324
$
$
31.90
34.64
Further details relating to stock options outstanding and exercisable are as follows:
Range of Exercise Prices
$23.70 to $26.13
$29.43 to $29.99
$30.85 to $35.15
Total
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Number of
Options
Number of
Options
Weighted
Average
Exercise
Price
718,481
2.6
$
24.36
718,481
$
24.36
376,409
6.3
29.44
-
-
581,714
4.8
32.74
-
-
1,676,604
4.2
$
28.41
718,481
$
24.36
All exercised options are settled via cashless settlement, which provides the
(2018 – 2.0%), (ii) expected option life of 5.0 (2018 – 5.0) years, (iii) expected
option holder the number of shares equivalent to the excess of the market
annual volatility of 29% (2018 – 28%), and (iv) expected annual dividends of
value of the shares under option, determined at the exercise date, over the
3.7% (2018 – 2.9%). Expected volatility is estimated by evaluating historical
exercise price. During fiscal 2019, option holders exchanged the rights to
volatility of the share price over multi-year periods. The weighted average
407,134 (2018 – 782,769) options and received 77,667 (2018 – 178,279) shares
fair value of options granted was estimated at $4.93 (2018 – $6.48) per
in return by way of cashless settlement.
share.
Salary expense of $1,617 (2018 – $1,776) was recognized relating to the
During the year, $1,245 (2018 – $2,818) was transferred from the share-based
estimated fair value of options granted. The fair value of options granted
payment reserve to share capital, representing the estimated fair value
during the year was estimated using a binomial option pricing model with
recognized for 407,134 (2018 – 782,769) options exercised during the year.
the following variables and assumptions: (i) risk-free interest rate of 1.6%
103
CWB Financial Group 2019 Annual Report B) RESTRICTED SHARE UNITS
Under the RSU plan, certain employees are eligible to receive an award
expense is recognized between the grant date and the date the employee
in the form of RSUs. Each RSU entitles the employee to receive the cash
is eligible to retire.
equivalent of the market value of CWB’s common shares at the vesting
date. Throughout the vesting period, common share dividend equivalents
accrue to the employee in the form of additional units. RSUs vest on each
anniversary of the grant in equal one-third instalments over a period of three
years. Salary expense is recognized over the vesting period except where
the employee is eligible to retire prior to the vesting date, in which case the
During the year, salary expense of $9,683 (2018 – $9,160) was recognized
related to RSUs. As at October 31, 2019, the liability for the RSUs held under
this plan was $10,966 (October 31, 2018 – $10,821). At the end of each period,
the liability is adjusted to reflect changes in the fair value of the RSUs.
Number of RSUs
Balance at beginning of year
Granted
Vested and paid out
Forfeited
Balance at End of Year
C) PERFORMANCE SHARE UNITS
2019
2018
626,814
731,930
410,225
283,083
(337,425)
(367,752)
(24,418)
(20,447)
675,196
626,814
Under the Performance Share Unit (PSU) plan, certain employees are eligible
originally granted and any accrued notional dividends such that the total
to receive an award in the form of PSUs on an annual basis. At the time of
value of the PSUs may vary from 0% to 200% of the value of an equal
a grant, each PSU represents a unit with an underlying value equivalent to
number of CWB common shares.
the value of a CWB common share. Throughout the vesting period, common
share dividend equivalents accrue to the employee in the form of additional
units. Under the PSU plan, each PSU vests at the end of a three year period
and is settled in cash.
During the year, salary expense of $1,643 (2018 – $2,951) was recognized
related to PSUs. As at October 31, 2019, the liability for the PSUs held under
this plan was $4,416 (October 31, 2018 – $5,225). At the end of each period,
the liability and salary expense are adjusted to reflect changes in the fair
At the end of each specified performance period, a multiplier based on
value of the PSUs.
performance targets set at grant date is applied to a portion of the PSUs
Number of PSUs
Balance at beginning of year
Granted
Vested and paid out
Balance at End of Year
D) DEFERRED SHARE UNITS
2019
2018
194,233
209,263
78,789
54,929
(87,652)
(69,959)
185,370
194,233
Under the DSU plan, non-employee directors receive a portion of their
During the year, other non-interest expenses included $1,180 (2018 – $858)
retainer in DSUs. The DSUs are not redeemable until the individual is no
related to the DSUs. As at October 31, 2019, the liability for DSUs held under
longer a director and must be redeemed for cash. Common share dividend
this plan was $6,575 (October 31, 2018 – $5,238). At the end of each period,
equivalents accrue to the directors in the form of additional units. The
the liability and expense are adjusted to reflect changes in the market value
expense related to the DSUs is recorded in the period the award is earned
of the DSUs.
by the director.
Number of DSUs
Balance at beginning of year
Granted
Paid out
Balance at End of Year
104
2019
2018
171,069
172,833
41,002
28,888
(14,860)
(30,652)
197,211
171,069
CWB Financial Group 2019 Annual Report 19. NON-CONTROLLING INTERESTS
Non-controlling interests relate to the following:
CWB Wealth Management Ltd.
CWB McLean & Partners Wealth Management Ltd.
Total
20. CONTINGENT LIABILITIES AND COMMITMENTS
A) CREDIT INSTRUMENTS
As at
October 31
2019
As at
October 31
2018
$
1,091
781
$
2,056
695
$
1,872
$
2,751
In the normal course of business, CWB enters into various commitments and has contingent liabilities, which are not reflected in the consolidated balance
sheets. These items are reported below and are expressed in terms of the contractual amount of the related commitment.
Credit Instruments
Commitments to extend credit
Guarantees and standby letters of credit
Total
As at
October 31
2019
As at
October 31
2018
$ 5,173,866
$
4,748,747
505,272
480,341
$ 5,679,138
$
5,229,088
Commitments to extend credit to customers also arise in the normal course
extending over a period of months. In some instances, authorizations are
of business and include undrawn availability under lines of credit and
never advanced or may be reduced because of changing requirements.
business operating loans of $2,568,449 (October 31, 2018 – $2,374,512) and
Revolving credit authorizations are subject to repayment which, on a pooled
authorized but unfunded loan commitments of $2,605,417 (October 31, 2018
basis, also decreases liquidity risk.
– $2,374,235). In the majority of instances, availability of undrawn business
commitments is subject to the borrower meeting specified financial tests or
other covenants regarding completion or satisfaction of certain conditions
precedent. It is also usual practice to include the right to review and withhold
funding in the event of a material adverse change in the financial condition
of the borrower. The allowance for credit losses related to committed but
Guarantees and standby letters of credit represent CWB’s obligation to
make payments to third parties when a customer is unable to make required
payments or meet other contractual obligations. These instruments carry
the same credit risk, recourse and collateral security requirements as loans
extended to customers and generally have a term that does not exceed one
undrawn credit exposures and letters of credit is included in other liabilities
year.
on the consolidated balance sheets. From a liquidity perspective, undrawn
credit authorizations will be funded over time, with draws in many cases
B) LEASE COMMITMENTS
CWB has obligations under long-term, non-cancellable operating leases for
years. Total costs, including free rent periods and step-rent increases, are
the rental of premises and automated teller machines. The leases typically
expensed on a straight-line basis over the lease term.
run 5 to 15 years, with an option to renew the lease for an additional five
Minimum future lease commitments for each of the five succeeding years and thereafter are as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
$ 14,946
14,795
12,397
11,995
10,508
27,943
$ 92,584
105
CWB Financial Group 2019 Annual Report C) PURCHASE OBLIGATIONS
CWB has contractual obligations related to operating and capital expenditures which typically run one to five years.
Purchase obligations for each of the succeeding years are as follows:
2020
2021
Total
D) GUARANTEES
$ 1,659
1,393
$ 3,052
A guarantee is defined as a contract that contingently requires the
counterparties for costs incurred as a result of various contingencies,
guarantor to make payments to a third party based on (i) changes in an
such as changes in laws and regulations and litigation claims. A maximum
underlying economic characteristic that is related to an asset, liability
potential liability cannot be identified as the terms of these arrangements
or equity security of the guaranteed party, (ii) failure of another party to
vary and generally no predetermined amounts or limits are identified. The
perform under an obligating agreement, or (iii) failure of another third party
likelihood of occurrence of contingent events that would trigger payment
to pay indebtedness when due.
under these arrangements is either remote or difficult to predict and, in the
past, payments under these arrangements have been insignificant.
Significant guarantees provided to third parties include guarantees and
standby letters of credit as discussed above.
No amounts are reflected in the consolidated financial statements related
to these guarantees and indemnifications.
In the ordinary course of business, CWB enters
into contractual
arrangements under which CWB may agree to indemnify the other
party. Under these agreements, CWB may be required to compensate
E) LEGAL AND REGULATORY PROCEEDINGS
In the ordinary course of business, CWB and its subsidiaries are party to
legal and regulatory proceedings. Based on current knowledge, CWB does
not expect the outcome of any of these proceedings to have a material
effect on the consolidated financial position or results of operations.
21. EMPLOYEE FUTURE BENEFITS
All employee future benefits related to CWB’s group retirement savings and
employee share purchase plans are recognized in the periods during which
services are rendered by employees. CWB’s contributions to the group
retirement savings plan and employee share purchase plan totaled $ 16,654
(2018 – $15,038).
106
CWB Financial Group 2019 Annual Report 22. INCOME TAXES
CWB follows the deferred method of accounting for income taxes whereby
or substantively enacted tax rates anticipated to apply to taxable income
current income taxes are recognized for the estimated income taxes
in the years in which those temporary differences are anticipated to be
payable for the current period. Deferred tax assets and liabilities represent
recovered or settled. Changes in deferred taxes related to a change in tax
the cumulative amount of tax applicable to temporary differences between
rates are recognized in income in the period of the tax rate change. All
the carrying amount of the assets and liabilities, and their values for tax
deferred tax assets and liabilities are expected to be realized in the normal
purposes. Deferred tax assets and liabilities are measured using enacted
course of operations.
The provision for income taxes consists of the following:
Consolidated statements of income
Current
Deferred
Other comprehensive income
Tax expense (recovery) related to:
Items that will be subsequently reclassified to net income
Items that will not be subsequently reclassified to net income(1)
Derivatives designated as cash flow hedges
Total
2019
2018
$ 105,140
$ 105,381
(2,475)
(8,504)
102,665
96,877
12,016
(7,410)
(4,982)
n/a
25,867
(10,297)
32,901
(17,707)
$ 135,566
$ 79,170
(1) Amounts for fiscal 2019 have been prepaid in accordance with IFRS 9 (refer to note 1 and 2). Fiscal 2018 comparatives have been prepaid in accordance with IAS 38 and have not been restated.
n/a – not applicable
The combined statutory tax rate changed in 2019 as a result of a decrease in the Alberta provincial tax rate from 12% to 8% over four years, beginning with a
1% decrease on July 1, 2019 with further reductions of 1% on each of January 1, 2020, 2021 and 2022.
A reconciliation of the statutory tax rates and income tax that would be payable at these rates to the effective income tax rates and provision for income taxes
reported in the consolidated statements of income follows:
Combined Canadian federal and provincial income taxes and
statutory tax rate
Increase (decrease) arising from:
Deferred tax related to provincial tax rate increase
Tax-exempt income
Stock-based compensation
Other
Provision for Income Taxes and Effective Tax Rate
Deferred tax balances are comprised of the following:
Deferred Tax Assets
Allowance for credit losses
Leasing income
Deferred loan fees
Deferred deposit broker commission
Other temporary differences
Deferred Tax Liabilities
Intangible assets
Other temporary differences
2019
2018
$ 104,433
26.7%
$ 97,324
26.9%
(1,530)
(634)
428
(32)
$ 102,665
(0.4)
(0.1)
0.1
-
-
-
(1,708)
(0.4)
479
0.1
782
0.2
26.3%
$ 96,877
26.8%
2019
2018
$ 13,527
$ 25,847
21,869
18,608
10,573
12,068
(6,367)
(8,219)
(1,734)
(2,427)
$ 37,868
$ 45,877
$ 3,324
$ 4,373
1,392
1,372
$ 4,716
$ 5,745
107
CWB Financial Group 2019 Annual Report 23. EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings
per share is calculated based on the treasury stock method, which assumes that any proceeds from in-the-money stock options are used to purchase CWB’s
common shares at the average market price during the period.
The calculation of earnings per common share follows:
Numerator
Common shareholders’ net income
Denominator
2019
2018
$ 266,940
$ 249,256
Weighted average number of common shares outstanding - basic
87,512,616
88,806,458
Dilutive instruments:
Stock options(1)
Weighted Average Number of Common Shares Outstanding - Diluted
Earnings Per Common Share
Basic
Diluted
225,988
478,441
87,738,604
89,284,899
$ 3.05
3.04
$ 2.81
2.79
(1) At October 31, 2019, the denominator excludes 958,123 (2018 – 1,368,216) employee stock options with an average exercise price of $33.22 (2018 – $38.76), adjusted for unrecognized stock-based compensation, that is greater than the
average market price.
24. RELATED PARTY TRANSACTIONS
Transactions with and between subsidiary entities are made at normal
and employees and their immediate family at preferred rates. The total
market prices and eliminated on consolidation.
amount outstanding for these deposits is $323,308 (October 31, 2018 –
Preferred Rates and Terms
CWB makes loans, primarily residential mortgages, to its officers and
$313,004).
Key Management Personnel
employees at various preferred rates and terms. The total amount
Key management personnel of CWB are those that have authority and
outstanding for these types of loans is $184,130 (October 31, 2018 –
responsibility for planning, directing and controlling the activities of CWB
$147,886). CWB offers deposits, primarily fixed term deposits, to its officers
and include independent directors of CWB.
Compensation of key management personnel follows:
Salaries, benefits and directors' compensation
Share-based payments (stock options, RSUs, PSUs and DSUs)(1)
Total
(1) Share-based payments are based on the estimated fair value on grant date.
2019
2018
$ 5,168
3,449
$ 5,326
3,132
$ 8,617
$ 8,458
Loans outstanding with key management personnel totaled $259 as at October 31, 2019 (October 31, 2018 – $190). No loans were outstanding with CWB’s
independent directors as at October 31, 2019 and 2018, reflecting CWB’s policies that preclude lending to those directors.
108
CWB Financial Group 2019 Annual Report
25. INTEREST RATE SENSITIVITY
CWB is exposed to interest rate risk as a result of a difference, or gap,
within the risk appetite of CWB. The repricing profile of these assets and
between the maturity or repricing behaviour of interest sensitive assets
liabilities has been incorporated in the table following, which contains the
and liabilities. The interest rate gap is managed by adjusting the repricing
gap position at October 31 for select time intervals. Figures in brackets
behaviour of interest sensitive assets or liabilities to ensure the gap falls
represent an excess of liabilities over assets or a negative gap position.
Asset Liability Gap Positions
($millions)
October 31, 2019
Assets
Cash resources and securities
Loans(1)
Other assets(2)
Derivatives(3)
Total
Liabilities and Equity
Deposits(1)
Securities sold under
repurchase agreements
Other liabilities(2)
Debt
Equity
Derivatives(3)
Total
Interest Rate Sensitive Gap
Cumulative Gap
Cumulative Gap as a
Floating
Rate
and Within
1 Month
1 to 3
Months
3 Months
to 1 Year
Total
Within
1 Year
1 Year to
5 Years
More than
5 Years
Non-
interest
Sensitive
Total
$
752
$
318
$
654
$
1,724
$
744
$
-
$
7
$
2,475
13,195
-
1,298
-
190
510
14,137
2,126
4,484
-
1,475
6,613
18,977
-
2,175
9,184
-
4,738
22,876
14,666
294
-
-
294
(89)
583
270
771
28,366
583
7,183
38,607
8,151
1,536
4,823
14,510
10,869
-
(27)
25,352
30
-
311
-
6,828
-
-
118
-
45
15,320
1,699
-
-
30
-
483
912
-
-
5,306
-
6,873
22,325
-
-
1,499
390
40
12,798
-
-
-
-
-
-
-
683
-
2,558
270
3,484
30
683
2,411
2,948
7,183
38,607
$
$
(1,183)
(1,183)
$
$
427
(756)
$
$
1,307
551
$
$
551
551
$
$
1,868
2,419
$
$
294
2,713
$
$
(2,713)
-
$
$
-
-
Percentage of Total Assets
(3.1)%
(2.0)%
1.4%
1.4%
6.3%
7.0%
-
-
October 31, 2018
Cumulative Gap
Cumulative Gap as a
$ (619)
$ (318)
$ 287
$ 287
$ 2,326
$ 2,526
$ -
$ -
Percentage of Total Assets
(1.8)% (0.9)% 0.8%
0.8%
6.8%
7.4%
-
-
(1) Potential prepayments of fixed rate loans and early redemption of redeemable fixed term deposits have not been estimated. Redemptions of fixed term deposits where depositors have this option are not expected to be material. The majority
of fixed rate loans, mortgages and leases are either closed or carry prepayment penalties.
(2) Accrued interest is excluded in calculating interest sensitive assets and liabilities.
(3) Derivative financial instruments are included in this table at the notional amount.
The effective, weighted average interest rates for each class of financial asset and liability are shown below:
Weighted Average Effective Interest Rates
(%)
October 31, 2019
Total assets
Total liabilities
Floating Rate
and Within
1 Month
4.4%
1.9
Interest Rate Sensitive Gap
2.5%
1 to 3
Months
3.5%
2.3
1.2%
3 Months
to 1 Year
3.8%
2.4
1.4%
Total
Within
1 Year
4.1%
2.1
1 Year to
5 Years
3.7%
2.7
2.0%
1.0%
More than
5 Years
5.3%
-
5.3%
Total
3.9%
2.1
1.8%
October 31, 2018
Total assets
Total liabilities
4.4%
1.7
3.5%
2.3
4.1%
2.2
4.3% 3.6%
1.9
2.5
6.0%
-
4.0%
2.1
Interest Rate Sensitive Gap
2.7%
1.2%
1.9%
2.4%
1.1%
6.0%
1.9%
Based on the current interest rate gap position, it is estimated that a one
of tax, respectively, over the following twelve months. A one percentage
percentage point increase in all interest rates would increase net interest
point decrease in all interest rates would decrease net interest income
income by approximately $4,556 (October 31, 2018 – $6,234) and decrease
by approximately $7,463 (October 31, 2018 – $7,467) and increase other
other comprehensive income $107,812 (October 31, 2018 – $104,554) net
comprehensive income $111,563 (October 31, 2018 – $107,162), net of tax.
109
CWB Financial Group 2019 Annual Report
26. INTEREST INCOME
The composition of CWB’s interest income follows:
Loans measured at amortized cost(1)
Securities
Debt securities measured at FVOCI(1)
Equity securities designated at FVOCI
Securities purchased under resale agreements measured at amortized cost(1)
Deposits with regulated financial institutions measured at FVOCI(1)
Total
(1)
Interest income is calculated using the effective interest method.
2019
$ 1,379,730
26,841
2,354
1,501
8,274
$ 1,418,700
110
CWB Financial Group 2019 Annual Report 27. FAIR VALUE OF FINANCIAL INSTRUMENTS
A) FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT BASIS
The fair value of a financial instrument on initial recognition is normally
Changes in interest rates are the main cause of changes in the fair value
the transaction price (i.e. the value of the consideration given or received).
of CWB’s financial instruments. The carrying value of loans, deposits,
Subsequent to initial recognition, financial instruments measured at fair
subordinated debentures and debt related to securitization activities are
value that are quoted in active markets are based on bid prices for financial
not adjusted to reflect increases or decreases in fair value due to interest
assets and offer prices for financial liabilities. For certain securities and
rate changes as CWB’s intention is to realize their value over time by holding
derivative financial instruments where an active market does not exist, fair
them to maturity.
values are determined using valuation techniques that refer to observable
market data, including discounted cash flow analysis, option pricing models
and other valuation techniques commonly used by market participants, and
non-market observable inputs.
The table below provides the carrying amount of financial instruments
by category as defined in IFRS 9 and by balance sheet heading. The table
sets out the fair values of financial instruments (including derivatives)
using the valuation methods and assumptions referred to below the table.
Several of CWB’s significant financial instruments, such as loans and
The table does not include assets and liabilities that are not considered
deposits, lack an available trading market as they are not typically
financial instruments. The table also excludes assets and liabilities which
exchanged. Therefore, these instruments have been valued assuming they
are considered financial instruments, but are not recorded at fair value and
will not be sold, using present value or other suitable techniques and are
for which the carrying amount approximates fair value.
not necessarily representative of the amounts realizable in an immediate
settlement of the instrument.
October 31, 2019(1)
Financial Assets
Cash resources
Securities(2)
Securities purchased
under resale agreements
Loans(3)
Derivatives
Total Financial Assets
Financial Liabilities
Deposits(3)
Securities sold under
repurchase agreements
Debt
Derivatives
Total Financial Liabilities
October 31, 2018
Financial Assets
Cash resources
Securities
Loans(3)
Derivatives
Total Financial Assets
Financial Liabilities
Deposits(3)
Securities sold under
repurchase agreements
Debt
Contingent consideration
Derivatives
Total Financial Liabilities
IFRS 9
Derivatives
Amortized
Cost
FVOCI
Total
Carrying
Amount
Fair Value
Fair Value
Over (Under)
Carrying
Amount
(Note 5)
(Note 6)
$
-
-
$ 121,986
-
$ 293,856
2,019,207
$ 415,842
2,019,207
$ 415,842
2,019,207
$ -
-
-
-
47,815
47,815
$
40,366
28,450,811
-
$ 28,613,163
-
-
-
$ 2,313,063
40,366
28,450,811
47,815
$ 30,974,041
40,366
28,478,436
47,815
$ 31,001,666
-
27,625
-
$ 27,625
$
-
$ 25,380,204
$
-
$ 25,380,204
$ 25,544,270
$ 164,066
-
-
14,016
$ 14,016
29,965
2,412,293
-
$ 27,822,462
-
-
-
-
$
29,965
2,412,293
14,016
$ 27,836,478
29,965
2,444,034
14,016
$ 28,032,285
-
31,741
-
$ 195,807
IAS 39
Loans and
Receivables,
and
Non-trading
Liabilities
Derivatives
Available-
for-sale
Total
Carrying
Amount
Fair Value
(Note 5)
(Note 6)
$
-
-
-
2,496
$ 2,496
$ -
-
26,390,375
-
$ 26,390,375
$ 153,221
2,084,752
-
-
$ 2,237,973
$ 153,221
2,084,752
26,390,375
2,496
$ 28,630,844
$
153,221
2,084,752
26,551,146
2,496
28,791,615
$
Fair Value
Over (Under)
Carrying
Amount
$ -
-
160,771
-
$ 160,771
$
-
$ 23,743,618
$
-
$ 23,743,618
$ 23,502,200
$ (241,418)
-
-
-
69,581
$ 69,581
-
2,007,854
29,814
-
$ 25,781,286
95,126
-
-
-
$ 95,126
95,126
2,007,854
29,814
69,581
$ 25,945,993
95,126
1,942,472
29,814
69,581
$ 25,639,193
-
(65,382)
-
-
$ (306,800)
(1) For further information on interest rates associated with financial assets and liabilities, including derivative instruments, refer to Note 25.
(2) Under IFRS 9, securities are comprised of $2,001,043 measured at FVOCI and $18,164 designated at FVOCI.
(3) Loans and deposits exclude deferred premiums, deferred revenue and allowance for credit losses, which are not financial instruments.
111
CWB Financial Group 2019 Annual Report The methods and assumptions used to estimate the fair values of financial
goodwill and other intangible assets, deferred tax asset, prepaid and
instruments are as follows:
deferred expenses, financing costs, deferred tax liability, deferred
• Interest bearing deposits with regulated financial institutions and
securities are reported on the consolidated balance sheets at the
fair value disclosed in Notes 5 and 6. Remaining cash resources and
securities purchased under resale agreements are reported at amortized
cost, which is equal to fair value, on the consolidated balance sheets.
These values are based on quoted market prices, if available. Where a
quoted market price is not readily available, other valuation techniques
are based on observable market rates used to estimate fair value.
• Fair value of loans reflect changes in the general level of interest rates
that have occurred since the loans were originated and exclude the
allowance for credit losses. Fair value is estimated by discounting the
expected future cash flows of these loans at current market rates for
loans with similar terms and risks, with the exception of floating rate
loans at October 31, 2018 where, due to a differing estimation method at
that time, the fair value was assumed to be equal to book value.
• With the exception of derivative financial instruments and contingent
consideration, other assets and other
liabilities reported on the
revenue and leasehold inducements.
• For derivative financial instruments where an active market does not
exist, fair values are determined using valuation techniques that refer
to observable market data, including discounted cash flow analysis,
option pricing models and other valuation techniques commonly used
by market participants.
• For contingent consideration, included in other liabilities, where an
active market does not exist, fair value was determined by estimating the
expected value of the contingent consideration, taking into consideration
the potential financial outcomes and their associated probabilities.
• The estimated fair values of deposits are determined by discounting the
contractual cash flows at current market rates for deposits of similar
terms, with the exception of deposits with no stated maturity at October
31, 2018 where, due to a differing estimation method at that time, the fair
values were assumed to be equal to their carrying values.
• The fair values of debt are determined by reference to current market
prices for debt with similar terms and risks.
consolidated balance sheets are either not considered financial
Fair values are based on management’s best estimates based on market
instruments, or are assumed to approximate their carrying value due
conditions and pricing policies at a certain point in time. The estimates are
to their short-term nature. Other assets and other liabilities which are
subjective and involve particular assumptions and matters of judgment and,
not considered financial instruments include property and equipment,
as such, may not be reflective of future fair values.
112
CWB Financial Group 2019 Annual Report Fair Value Hierarchy
CWB categorizes its fair value measurements of financial instruments
inputs that are either observable or can be corroborated by observable
according to a three-level hierarchy. Level 1 fair value measurements
market data for substantially the full term of the assets or liabilities. Level
reflect unadjusted quoted prices in active markets for identical assets and
3 fair value measurements are determined using one or more inputs that
liabilities that CWB can access at the measurement date. Level 2 fair value
are unobservable and significant to the fair value of the asset or liability.
measurements are estimated using observable inputs, including quoted
Unobservable inputs are used to measure fair value to the extent that
market prices for similar assets or liabilities in active markets, quoted prices
observable inputs are not available at the measurement date.
for identical or similar assets or liabilities in inactive markets, and model
As at October 31, 2019
Financial Assets
Cash resources
Securities
Securities purchased under resale agreements
Loans
Derivatives
Total Financial Assets
Financial Liabilities
Deposits
Securities sold under repurchase agreements
Debt
Derivatives
Total Financial Liabilities
As at October 31, 2018
Financial Assets
Cash resources
Securities
Loans
Derivatives
Total Financial Assets
Financial Liabilities
Deposits
Securities sold under repurchase agreements
Debt
Contingent consideration
Derivatives
Total Financial Liabilities
Fair Value
Level 1
Valuation Technique
Level 2
Level 3
$
415,842
2,019,207
40,366
28,478,436
47,815
$ 31,001,666
$ 25,544,270
29,965
2,444,034
14,016
$ 28,032,285
$
$
$
$
139,876
141,070
-
-
-
280,946
$
$
275,966
1,878,137
40,366
-
47,815
2,242,284
$
-
-
-
28,478,436
-
$ 28,478,436
-
-
-
-
-
$ 25,544,270
29,965
2,444,034
14,016
$ 28,032,285
$
$
-
-
-
-
-
Fair Value
Level 1
Level 2
Level 3
Valuation Technique
$
$
153,221
2,084,752
26,551,146
2,496
28,791,615
$ 23,502,200
95,126
1,942,472
29,814
69,581
25,639,193
$
$
$
$
$
144,019
219,570
-
-
363,589
$
$
9,202
1,865,182
-
2,496
1,876,880
-
-
-
-
-
-
$ 23,502,200
95,126
1,942,472
-
69,581
$ 25,609,379
$
$
$
$
-
-
26,551,146
-
26,551,146
-
-
-
29,814
-
29,814
B) LEVEL 3 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
The Level 3 financial liabilities measured at fair value on the consolidated
expected value of the contingent consideration, taking into consideration
balance sheets as at October 31, 2019 are related to the acquisition of CWB
the potential financial outcomes and their associated probabilities. The
Maxium Financial Inc. and the divestiture related to the CWT strategic
following table shows a reconciliation of the fair value measurements
transactions (see Note 4). Fair value was determined by estimating the
related to the Level 3 financial instruments:
Acquisitions
Balance at beginning of year
Acquisition-related fair value changes
Contingent consideration instalment payments(1)
Divestitures
Balance at beginning of year
Divestiture-related fair value changes
Balance at End of Year
2019
2018
$
29,514
7,854
(37,368)
-
$ 32,420
20,094
(23,000)
29,514
300
(300)
-
-
$
500
(200)
300
$ 29,814
(1) Under the terms of the March 2016 purchase agreement relating to the acquisition of CWB Maxium Financial Inc., contingent consideration payment instalments were made annually with determination of the total amount payable based
on CWB Maxium Financial Inc.’s cumulative business performance over a 36-month period ended February 28, 2019. Up to 50% of each contingent consideration payment could have been settled with CWB common shares at the vendor’s
option, provided the average share price over the preceding 20 days exceeded $30.00, with the remainder paid in cash. CWB completed the third instalment and final settlement contingent payments in cash in fiscal 2019. The 2018
instalment was paid with cash totaling $17,250 and the issuance of 160,293 CWB common shares with a fair value of $5,750.
113
CWB Financial Group 2019 Annual Report
28. FINANCIAL INSTRUMENTS - OFFSETTING
The following table provides a summary of financial assets and liabilities
agreements do not meet the netting criteria required by IAS 32 Financial
which are subject to enforceable master netting agreements and similar
Instruments: Presentation as the right to set-off is only enforceable in the
arrangements, as well as financial collateral received and pledged to
event of default or occurrence of other predetermined events.
mitigate credit exposures related to these financial instruments. The
As at October 31, 2019
Financial Assets
Derivatives
Financial Liabilities
Derivatives
As at October 31, 2018
Financial Assets
Derivatives
Financial Liabilities
Derivatives
Amounts not Offset on the Consolidated Balance Sheet
Gross Amounts
Reported on the
Consolidated
Balance Sheet
Impact of
Master Netting
Agreements
Cash
Securities
Received as
Collateral(1)
Collateral(1)(2)
Net Amount
$
47,815
$
13,788
$ 19,370
$ 5,939
$
8,718
$
14,016
$
13,788
$ 228
$ -
$
-
Amounts not Offset on the Consolidated Balance Sheet
Gross Amounts
Reported on the
Consolidated
Balance Sheet
Impact of
Master Netting
Agreements
Cash
Securities
Received as
Collateral(1)
Collateral(1)(2)
Net Amount
$ 2,496
$
2,496
$
-
$
-
$
-
$ 69,581
$
2,496
$ 55,550
$
-
$
11,535
(1) Financial collateral is reflected at fair value. The amount of financial instruments and cash collateral disclosed is limited to the net balance sheet exposure, and any over-collateralization is excluded from the table.
(2) Collateral received in the form of securities is not recognized on the consolidated balance sheets.
29. RISK MANAGEMENT
As part of CWB’s risk management practices, the risks that are significant to
The relevant MD&A sections are identified by shading within boxes and
the business are identified, monitored and controlled. The most significant
the content forms an integral part of these audited consolidated financial
risks include credit risk, market risk, capital risk and operational risk. The
statements.
nature of these risks and how they are managed is provided in the Risk
Management section of the MD&A.
Information on specific measures of risk, including the allowance for credit
losses, derivative financial instruments, interest rate sensitivity, fair value of
As permitted by the IASB, certain aspects of the risk management disclosure
financial instruments and liability for unpaid claims are included elsewhere
related to risks inherent with financial instruments is included in the MD&A.
in these notes to the consolidated financial statements.
30. CAPITAL MANAGEMENT
Capital funds are managed in accordance with policies and plans that are
in accordance with instructions for determining risk-adjusted capital and
regularly reviewed and approved by the Board of Directors and take into
risk-weighted assets, including off-balance sheet commitments. Based on
account forecasted capital needs and markets. The goal is to maintain
the deemed credit risk of each type of asset, a standardized weighting of
adequate regulatory capital to be considered well-capitalized, protect
0% to 150% is assigned. As an example, a loan that is fully insured by CMHC
customer deposits and provide capacity for internally generated growth and
is applied a risk weighting of 0% as CWB’s risk of loss is nil, while uninsured
strategic opportunities that do not otherwise require accessing the public
business loans are assigned a risk weighting of 100% to reflect the higher
capital markets, all while providing a satisfactory return for shareholders.
level of risk associated with this type of asset. The ratio of regulatory capital
CWB has a share incentive plan that is provided to officers and employees
who are in a position to impact the longer term financial success of CWB
as measured by share price appreciation and dividend yield. Note 18 to
the consolidated financial statements details the number of shares under
options outstanding, the weighted average exercise price and the amounts
exercisable at year end.
Regulatory capital and capital ratios are calculated in accordance with the
requirements of OSFI. Capital is managed and reported in accordance with
the requirements of the Basel III Capital Adequacy Accord (Basel III) using the
Standardized approach. OSFI requires banks to measure capital adequacy
to risk-weighted assets is calculated and compared to OSFI’s standards
for Canadian financial institutions. Off-balance sheet assets, such as the
notional amount of derivatives and some credit commitments, are included
in the calculation of risk-weighted assets and both the credit risk equivalent
and the risk-weighted calculations are prescribed by OSFI.
CWB’s required minimum regulatory capital ratios, including a 250 basis
point capital conservation buffer, are 7.0% common equity Tier 1 (CET1),
8.5% Tier 1 and 10.5% Total capital. In addition, OSFI requires banks to
maintain a minimum leverage ratio of 3%. The leverage ratio provides the
ratio of Tier 1 capital to on-balance sheet and off-balance sheet exposures.
114
CWB Financial Group 2019 Annual Report Significant Changes
Basel III rules, effective January 1, 2013, provide for transitional adjustments
During the year, CWB purchased for cancellation 1,829,944 common shares
with certain aspects of the new rules phased in between 2013 and 2019.
at an average price of $27.08 per share for a total cost of $49,592. This
The only available transition allowance in the Basel III capital standards
resulted in a decrease to the capital ratios of approximately 20 basis points.
permitted by OSFI for Canadian banks relates to the multi-year phase
For further details, refer to Note 17.
out of non-qualifying capital instruments. The 2019 inclusion of non-
qualifying capital instruments in regulatory capital under Basel III is capped
at 30% (2018 – 40%) of the balance of non-common equity instruments
outstanding at January 1, 2013. At October 31, 2019, $47,500 (2018 – nil) was
On January 29, 2019, CWB issued First Preferred Shares Series 9 for gross
proceeds of $125,000. This issuance resulted in an increase to the Tier 1
and Total capital ratios of approximately 50 basis points. For further details,
excluded from Total regulatory capital related to outstanding non-NVCC
refer to Note 17.
subordinated debentures. This resulted in a decrease to the Total capital
ratio of approximately 20 basis points.
CWB adopted IFRS 9 on November 1, 2018 and recorded an increase to
shareholders’ equity of $22,734 upon transition, primarily related to the
implementation of the new impairment guidelines. This resulted in an
increase to the CET1 and Tier 1 capital ratios of approximately 10 basis
points and a nominal impact to the Total ratio. For further details, refer to
Notes 1 and 2.
On June 11, 2019, CWB issued $250,000 NVCC subordinated debentures.
This issuance resulted in an increase in the Total capital ratio of approximately
100 basis points. For further details, refer to Note 16.
During the year, CWB complied with all internal and external capital
requirements.
Capital Structure and Regulatory Ratios
Regulatory Capital, Net of Deductions
Common equity Tier 1
Tier 1
Total
Capital Ratios
Common equity Tier 1
Tier 1
Total
Leverage Ratio
Subsequent Event
2019
2018
$ 2,302,551
$ 2,153,019
2,692,714
2,418,231
3,232,807
2,788,048
9.1%
9.2%
10.7
10.3
12.8
8.3
11.9
8.0
On November 18, 2019, CWB redeemed all $250,000 non-NVCC
the Basel III transitional adjustments will no longer be applicable to CWB
subordinated debentures. The redemption will result in a decrease in the
as all remaining issued and outstanding capital instruments are considered
Total capital ratio of approximately 80 basis points. For further details, refer
qualifying capital instruments.
to Note 16. With the redemption of the non-NVCC subordinated debentures,
115
CWB Financial Group 2019 Annual Report
31. SUBSIDIARIES
As at October 31, 2019, CWB, either directly or indirectly through its subsidiaries, controls the following significant subsidiaries.
Canadian Western Bank Subsidiaries(1)
(annexed in accordance with subsection 308 (3) of the Bank Act)
CWB National Leasing Inc.
CWB Maxium Financial Inc.
Address of
Head Office
1525 Buffalo Place
Winnipeg, Manitoba
30 Vogell Road, Suite 1
Richmond Hill, Ontario
Carrying Value of
Voting Shares Owned
by the Bank(4)
$
134,458
30,812
CWB Wealth Management Ltd.(2)
Suite 3000, 10303 Jasper Avenue
30,454
CWB McLean & Partners Wealth Management Ltd.(3)
Canadian Western Financial Ltd.
Edmonton, Alberta
801 10th Ave SW
Calgary, Alberta
Suite 3000, 10303 Jasper Avenue
Edmonton, Alberta
Canadian Western Trust Company
Suite 3000, 10303 Jasper Avenue
19,136
Edmonton, Alberta
Valiant Trust Company
Suite 3000, 10303 Jasper Avenue
8,080
Edmonton, Alberta
(1) Unless otherwise noted, CWB, either directly or through its subsidiaries, owns 100% of the voting shares of each entity.
(2) CWB owns 93.91% of the voting shares of CWB Wealth Management Ltd. (October 31, 2018 – 89.14%).
(3) CWB Wealth Management Ltd. owns 73.70% of CWB Mclean & Partners Wealth Management Ltd. (October 31, 2018 – 73.55%).
(4) The carrying value of voting shares is stated at the cost of CWB’s equity in the subsidiaries in thousands of dollars.
116
CWB Financial Group 2019 Annual Report Shareholder Information
CWB Financial Group
Corporate Headquarters
Suite 3000, 10303 Jasper Avenue NW
CWB Place
Edmonton, AB T5J 3X6
Telephone: (780) 423-8888
Fax: (780) 423-8897
cwb.com
Transfer Agent and Registrar
Computershare
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1
Telephone: (416) 263-9200
Toll-free: 1-800-564-6253
Fax: (888) 453-0330
computershare.com
Stock Exchange Listings
The Toronto Stock Exchange (TSX)
Common Shares: CWB
Series 5 Preferred Shares: CWB.PR.B
Series 7 Preferred Shares: CWB.PR.C
Series 9 Preferred Shares: CWB.PR.D
Shareholder Administration
Computershare serves as Transfer
Agent and Registrar for the common
shares and preferred shares of CWB.
For dividend information, change
in share registration or address,.
lost share certificates, tax forms
or estate transfers, please write or
call the Transfer Agent and Registrar,
or inquire online at computershare.
com.
Duplicated Communications
If you receive, but do not require,
more than one mailing for the
same ownership, please contact
the Transfer Agent and Registrar
to combine the accounts.
Direct Deposit Services
Shareholders may choose to have
cash dividends paid on CWB
common and preferred shares
deposited directly into accounts
held at their financial institution.
To arrange direct deposit service,
please contact the Transfer Agent
and Registrar.
Eligible Dividend Designation
CWB designates all common and
preferred share dividends paid to
Canadian residents as “eligible
dividends”, as defined in the
Income Tax Act (Canada),
unless otherwise noted.
Dividend Reinvestment Plan
CWB’s dividend reinvestment plan
allows common and preferred
shareholders to purchase additional
common shares by reinvesting their
cash dividend without incurring
brokerage and commission fees.
For information about participation
in the plan, please contact the
Transfer Agent and Registrar.
Investor Relations
Shareholders, institutional investors
or research analysts who would like
additional financial information are
asked to contact:
Investor Relations Department
CWB Financial Group
Suite 3000, 10303 Jasper Avenue NW
CWB Place
Edmonton, AB T5J 3X6
Telephone: (800) 836-1886
investorrelations@cwbank.com
More comprehensive investor
information - including supplemental
financial reports, quarterly financial
releases, corporate presentations,
corporate fact sheets and frequently
asked questions - is available in
the Investor Relations section at
cwb.com.
This 2019 Annual Report, along with
our Annual Information Form, Notice
of Annual Meeting of Shareholders
and Proxy Circular, is available on
our website, or will be available in
due course. For additional printed
copies of these reports, please
contact the Investor Relations
Department.
Filings are available on the Canadian
Securities Administrators' website at
sedar.com.
2020 Annual Meeting
The annual meeting of the common
shareholders of Canadian Western
Bank will be held in Edmonton, AB, on
April 2, 2020 at The Fairmont Hotel
Macdonald (Empire Ballroom) at 1:00
p.m. MT (3:00 p.m. ET).
Corporate Secretary
Bindu Cudjoe
Senior Vice President,
General Counsel and
Corporate Secretary
CWB Financial Group
corporatesecretary@cwbank.com
Complaints or Concerns
regarding Accounting, Internal
Accounting Controls or
Auditing Matters
Please contact either:
Carolyn J. Graham
Executive Vice President and Chief
Financial Officer
CWB Financial Group
Telephone: (780) 423-8854
Fax: (780) 969-8326
carolyn.graham@cwbank.com
or
Robert A. Manning
Chairman of the Audit Committee
c/o 210 – 5324 Calgary Trail
Edmonton, AB T6H 4J8
Telephone: (780) 438-2626
Fax: (780) 438-2632
chairoftheboard@cwbank.com
SENIOR OFFICERS
Executive Officers
Chris H. Fowler
President and Chief Executive
Officer
Carolyn J. Graham, FCPA, FCA
Executive Vice President and
Chief Financial Officer
Kelly S. Blackett
Executive Vice President, Human
Resources and Corporate
Communications
Glen Eastwood
Executive Vice President, Business
Transformation
Darrell Jones
Executive Vice President, and
Chief Information Officer
Stephen Murphy
Vlad Ahmad
Senior Vice President,
Operations and Transformation
Matt Rudd, CPA, CA
Senior Vice President, Finance
Allen D. Stephen, CPA, CA
Vice President and
Chief Accountant
Commercial and
Retail Banking
Jeff Bowling
Senior Vice President and
Regional General Manager, Prairies
Blaine Forer
Senior Vice President and
Regional General Manager,
British Columbia
John Steeves
Senior Vice President and Regional
General Manager, Northern Alberta
Mario Furlan
Senior Vice President,
Real Estate and Specialized Lending
Jeff Wright
Senior Vice President,
Client Solutions
CWB National Leasing
Michael Dubowec
President and Chief Executive
Officer
CWB Optimum Mortgage
Rejean Roberge
Vice President
Canadian Western Trust
Scott Scobie
Vice President and General Manager
Executive Vice President, Banking
CWB Wealth Management
H. Bogac (Bogie) Ozdemir
Executive Vice President and
Chief Risk Officer
Senior Corporate Officers
Kelly Martin
Senior Vice President and Chief
Internal Auditor
Niall Boles
David Schaffner
President and
Chief Executive Officer
McLean & Partners
Wealth Management
Kevin Dehod
President and
Chief Executive Officer
Senior Vice President and Treasurer
CWB Maxium Financial
David L. Thompson
Senior Vice President,
Credit Risk Management
Bindu Cudjoe
Senior Vice President,
General Counsel and
Corporate Secretary
Daryl MacLellan
President and Chief Executive
Officer
Ombudsman
Michael Novak
117
CWB Financial Group 2019 Annual Report CWB Optimum Mortgage
Edmonton
#1010, 10303 Jasper Avenue NW
(780) 423-9748
Toll-free: 1-866-441-3775
optimummortgage.ca
(Representation across
Western Canada, Ontario, and
Atlantic Canada)
CWB Maxium Financial
Richmond Hill
30 Vogell Road #1
(905) 780-6150
cwbmaxium.com
CWB Franchise Finance
Mississauga
2000 Argentia Road
Plaza 1, Suite 300
(289) 998-0284
cwbfranchise.com
CWB Wealth
Management
Edmonton
3000, 10303 Jasper Avenue NW
(855) 292-9655
cwbwealth.com
CWB McLean & Partners
Wealth Management
Calgary
801 - 10 Avenue SW
(403) 234-0005
Toll-free: 1-888-665-0005
mcleanpartners.com
CWB Trust Services
Edmonton
1250, 10303 Jasper Avenue NW
(780) 423-8888
canadianwesternfinancial.com
Locations
Canadian Western Bank
Regional Offices
British Columbia
2200, 666 Burrard Street
Vancouver
(604) 669-0081
Blaine Forer
Northern Alberta
201, 12230 JasperAvenue NW
Edmonton
(780) 424-4846
John Steeves
Prairies
606 - 4 Street SW
Calgary
(403) 861-9087
Jeff Bowling
Toronto
1701, 150 King Street
P.O. Box 32
(647) 598-0788
Equipment Financing
3000, 10303 Jasper Avenue NW
Edmonton
(780) 918-9084
Kirby Hill
Real Estate
220, 666 Burrard Street
Vancouver
(604) 669-0081
Mario Furlan
BRANCHES
Alberta
Edmonton Downtown:
Edmonton Main
100, 12230 Jasper Avenue NW
(780) 424-4846
Andy McPherson
103 Street
10303 Jasper Avenue NW
(780) 423-8801
Andy McPherson
Edmonton:
Old Strathcona
7933 - 104 Street NW
(780) 433-4286
Donna Austin
West Point
17603 - 100 Avenue NW
(780) 484-7407
David Hardy
Edmonton South:
South Edmonton Common
2142 - 99 Street NW
(780) 988-8607
Surinder Gakhal
Leduc
5407 Discovery Way
(780) 986-9858
Surinder Gakhal
Calgary Main:
606 - 4 Street SW
(403) 262-8700
Dean Proctor
118
Calgary South:
Calgary Chinook
6606 Macleod Trail SW
(403) 252-2299
Rick Vandergraaf
Calgary Foothills
6127 Barlow Trail SE
(403) 269-9882
Rick Vandergraaf
Strawberry Hill
1, 7548 - 120 Street
(604) 591-1898
Dylan Watson
Vancouver Island:
Courtenay
200, 470 Puntledge Road
(250) 334-8888
Kevin Wilson
Calgary South Trail Crossing
300, 5222 - 130 Avenue SE
(403) 257-8235
Rick Vandergraaf
Victoria
1201 Douglas Street
(250) 383-1206
Kevin Wilson
Calgary:
Calgary Northeast
2810 - 32 Avenue NE
(403) 250-8838
Terri Lawrence
Broker Buying Centre
285, 4000 Glenmore Court SE
(403) 720-8960
David Miller
Grande Prairie
11226 - 100 Avenue
(780) 831-1888
Kyle Small
Lethbridge
744 - 4 Avenue S
(403) 328-9199
Daryn Wenaas
Medicine Hat
101, 2810 - 13 Avenue SE
(403) 527-7321
Daniel Kitching
Red Deer
4822 - 51 Avenue
(403) 341-4000
Rama Alluri
Sherwood Park
251 Palisades Way
(780) 449-6699
Victoria Girardo
St. Albert
300 - 700 St. Albert Trail
(780) 458-4001
Blair Zahara
British Columbia
Vancouver Downtown:
Kitsilano
3190 West Broadway
(604) 732-4262
Brian Korpan
Park Place
100, 666 Burrard Street
(604) 688-8711
Brian Korpan
West Broadway
110, 1333 West Broadway
(604) 730-8818
Brian Korpan
Surrey:
Panorama Ridge
103, 15230 Highway 10
(604) 575-3783
Dylan Watson
Nanaimo
101, 6475 Metral Drive
(250) 390-0088
Kevin Wilson
Abbotsford
100, 2548 Clearbrook Road
(604) 855-4941
Hugh Ellis
Coquitlam
310, 101 Schoolhouse Street
(604) 540-8829
Dave McGregor
Langley
100, 19915 - 64 Avenue
(604) 539-5088
Craig Martin
Richmond
4991 No. 3 Road
(604) 238-2800
Daniel Preto
Kamloops
101, 1211 Summit Drive
(250) 828-1070
Romi Arora
Kelowna
1674 Bertram Street
(250) 862-8008
Bob Brown
Prince George
300 Victoria Street
(250) 612-0123
Tony Stancati
Saskatchewan
Lloydminster
2909 - 50 Avenue
(306) 825-8410
Alan Wells
Regina
1866 Hamilton Street
Hill Tower III
(306) 757-8888
Kelly Dennis
Saskatoon:
Saskatoon City Centre
244 - 2 Avenue South
(306) 477-8888
Kelly Walker
Saskatoon North Landing
101, 2803 Faithfull Avenue
(306) 244-8008
Kelly Walker
Yorkton
5, 259 Hamilton Road
(306) 782-1002
Kelly Denis
Manitoba
Winnipeg:
Winnipeg Downtown
230 Portage Avenue
(204) 956-4669
Mike McAulay
Winnipeg Kenaston
125 Nature Park Way
(204) 452-0939
Chris Voogt
Real Estate:
Vancouver Real Estate
2200, 666 Burrard Street
Vancouver
(604) 669-0081
Jenny Siman
Greater Vancouver
Real Estate Group
100, 5455-152 Street
Surrey
(604) 576-4600
Puneet Agrawal
Edmonton Real Estate
100, 12230 Jasper Avenue NW
Edmonton
(780) 429-6863
George Bawden
Calgary Real Estate
606 - 4 Street SW
Calgary
(403) 750-3591
Ryan Bradley
Corporate Lending:
100, 12230 Jasper Avenue NW
Edmonton
(780) 429-6863
George Bawden
CWB National
Leasing Group
Winnipeg
1525 Buffalo Place
(204) 954-9000
Toll-free: 1-800-665-1326
cwbnationalleasing.com
(Representation across all
provinces and territories in
Canada)
Motive Financial
Edmonton
3000, 10303 Jasper Avenue NW
(780) 441-2249
Toll-free: 1-877-441-2249
motivefinancial.com
CWB Trust Services
Toll-free: 1-800-663-1124
cwt.ca
Vancouver
300, 750 Cambie Street
(604) 685-2081
CWB Financial Group 2019 Annual Report Group
Financial
CWB.COM
Great
Place
To
Work®
Certified
OCT 2019-OCT 2020
CANADA