Canadian Western Bank
Annual Report 2022

Plain-text annual report

Annual Report 2022 About Us CWB Financial Group (CWB) is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our nation-wide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to the competition. Our people take the time to understand our clients and their business, and work as a united team to provide holistic solutions and advice. We are firmly committed to the responsible creation of value for all our stakeholders and our approach to sustainability will support our continued success. Learn more at www.cwb.com. Our Values PEOPLE FIRST RELATIONSHIPS GET RESULTS EMBRACE THE NEW THE HOW MATTERS INCLUSION HAS POWER Caring people are the key to our success. We work as a team and support one another. We always treat each other with respect and have the courage to be candid. Clients choose CWB for the best experience. We build relationships proactively, with intention and consistency. Our results depend on it. Change is everywhere. We seek out new ideas and are committed to continuous learning. We know that better is always possible. How we do things is as important as what we do. We take ownership, and move with urgency and efficiency. We always act with integrity, and balance risk and reward. Diverse teams unleash new ideas and perspectives. We are aware of our own biases. We are proud of who we are, and we are allies for those around us. Connect with us: CWB.COM Why invest in CWB Focused investments in our core capabilities support the unrivaled experience we provide to clients as the best full-service bank for business owners in Canada Our differentiated market position provides significant growth opportunities to serve the full-service needs of more business owners across the country We are a disciplined lender that consistently delivers strong growth with a history of low credit losses through economic cycles We maintain strong capital ratios and expect a successful AIRB transition to unlock the capital strength embedded in our business model TABLE OF CONTENTS Message From President & CEO.....02 Message From Chair of the Board ..08 Management’s Discussion and Analysis ................. 14 Consolidated Financial Statements ............ 61 Shareholder Information ...........110 Five Year Financial Summary ...............111 Strategic Direction We invest in key products, services, processes, and culture to provide an unrivaled client experience, be a career destination for top talent, and optimize our business to deliver enhanced shareholder value. Our strategic direction confirms our path ahead and outlines our key priorities to further strengthen our position as the best full-service bank for business owners in Canada. BEST FULL-SERVICE BANK FOR BUSINESS OWNERS IN CANADA ORGANIZATIONAL GOALS Unrivaled client experience (Clients) Destination for top talent (People) Optimize our business (Investors) OUR FOCUS Inclusive culture & employee experience OUTCOMES Lower-cost funding model AIRB supported by a scalable operating model Elevated digital & payments capabilities Market & segment expansion Differentiated wealth management experience Accelerated growth of full-service client relationships Strong core operating performance with meaningful expansion of return on equity CWB Financial Group 2022 Annual Report | 1 MESSAGE FROM PRESIDENT AND CEO Chris Fowler WE ARE THE BEST BANK FOR BUSINESS OWNERS IN CANADA We have a differentiated strategy as the best full-service bank for business owners and their families. We are obsessed with their success and provide them with an unrivaled client experience that remains consistent through economic cycles. Our winning culture and focus of our teams to deliver that client experience is a competitive advantage, and we are executing on opportunities to win more full-service clients across our Canadian footprint. Our people first culture supports our continued position as a destination for top talent. This year we seamlessly executed our planned succession at the executive team level. I wish Carolyn Graham, Glen Eastwood and Darrell Jones happiness in their retirements and thank each of them for their significant contributions to CWB. I am confident that Carolina Parra, Jeff Wright, John Steeves and Azfar Karimuddin are the right additions to our executive team to continue to deliver a differentiated client experience and award-winning workplace culture. Our collaborative, high-performance culture was recognized again this year by Great Place to Work Canada® as one of this year’s top 20 Best WorkplacesTM in Canada and one of the Best WorkplacesTM for Hybrid Work. General commercial loans represent a broad section of the Canadian economy that we believe is underserved by other banks and is a core strategic target for growth. This category is our largest full-service client opportunity, and we delivered strong results, with 14% loan growth in the last year and 15% average annual loan growth over the last five years in this segment (figure 2). We continued to increase our brand awareness, familiarity, and physical presence in Ontario and are leveraging these improvements to drive market share gains. We delivered another year of very strong growth in Ontario fueled by our existing full-service banking centre in Mississauga and our new banking centre in Markham, which opened this summer. Our teams have grown loans in Ontario by an average of 14% annually over the last five years (figure 1). 2 | CWB Financial Group 2022 Annual Report FIGURE 1 FIGURE 2 FIGURE 3 DIVERSIFYING LOANS BY PROVINCE (%) DIVERSIFYING LOANS BY LENDING SECTOR (%) FUNDING DIVERSIFICATION (%) British Columbia Alberta Ontario Remainder General commercial loans Commercial mortgages Personal loans and mortgages Branch demand and notice Branch term Broker term Equipment financing and leasing Sub debt and capital markets Real estate project loans Oil and gas production loans Securitization WE ARE WELL POSITIONED FOR POTENTIAL VOLATILITY IN ECONOMIC CONDITIONS Economic conditions deteriorated as this year progressed. Rising commodity prices, supply chain pressures, labour shortages and strong global and domestic demand drove persistent levels of inflation. In response, the rapid and significant increase in market interest rates began to cool economic growth and fuel the potential for recessionary conditions to emerge in Canada. Through the volatile economic conditions over the last two years, we have followed a disciplined lending model within a prudent credit risk appetite. We have ended the current year at a historically low level of gross impaired loans, which represented less than 0.50% of total loans, and our provisions for credit losses and write- offs remain well below historical averages (figure 4). and deposit costs stabilize, and we will not deviate from our prudent credit risk management approach to accelerate an expansion of our net interest margin. Over the past several years, we have been strategically focused on diversifying our sources of funding (figure 3). Very strong growth of branch-raised deposits(1), and continued maturation of our debt capital market and securitization funding channels have delivered a significant improvement in the diversity of our funding. Our strategic effort to convert our clients from single product to broader full-service relationships has supported 14% annual growth of branch-raised deposits(1) over the last five years, while we have grown total loans 9% annually over the same period. While our targeted approach for loan growth has delivered very strong credit performance to date, it has put downward pressure on our net interest margin. In the rising interest rate environment, the overall yield on our loan portfolio has not maintained pace with the increase in our deposit costs. We expect this impact to begin to reverse as market interest rates We have been prudently managing our regulatory capital ratios through the use of our at-the-market common equity distribution program. This has enabled us to balance delivering continued strong full-service client growth while also maintaining a conservative capital position to support us through potential volatility in economic conditions. STRONG CREDIT QUALITY % FIGURE 4 0.90 0.60 0.30 0.00 11 12 13 14 15 16 17 18 19 20 21 22 (1) Non-GAAP measure – refer to definitions and detail provided on page 16. Our five-year and ten-year average write-offs as a percentage of average loans(1) are 17 and 18 basis points, respectively. Gross impaired loans as a % of gross loans Write-offs as a % of average loans(1) CWB Financial Group 2022 Annual Report | 3 20222017313533331913122414%OntarioLoans5YR CAGR15%General Commercial Loans5YR CAGR2022201735271820191717915211114%Branch demand and notice deposits 5YR CAGR20222017403334101395211817A FOUNDATION FOR STRONGER CORE FINANCIAL PERFORMANCE Ribbon cutting ceremony at the new Markham Banking Centre in Ontario The accelerated growth in our market share in Ontario will be further supported with the opening of a new banking centre in Toronto’s financial district next year. We are also well- positioned to capitalize on opportunities available for full- service client growth in Western Canada and will leverage our new modern flagship banking centre in downtown Vancouver to support market share growth in British Columbia. With our modern technology infrastructure and a targeted approach to strengthen our digital capabilities, we provide enhanced value to our clients. We successfully launched our new personal and small business digital banking platforms this year to provide clients more time to focus on running their business. Continued enrichment of our digital capabilities broadens our access to stable lower cost funding through enhanced growth of full-service relationships both within and outside our banking centre footprint. Relationship Manager Chris Greenway shows CWB client Mark Halston (President, Ironman Properties Ltd. & Ironman Automotive Ltd.) the new cwb.digital™ small business banking platform. 4 | CWB Financial Group 2022 Annual Report 1,076 REVENUE $ MILLIONS 1,200 1,000 800 600 400 200 0 PRE-TAX, PRE-PROVISON INCOME(1) $ MILLIONS 600 522 500 400 300 200 100 0 3.39 DILUTED EPS $/SHARE 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 18 19 20 21 22 18 19 20 21 22 18 19 20 21 22 (1) Non-GAAP measure – refer to definitions and detail provided on page 16. “ As our clients grow and become successful, we are positioned to grow with them.” In 2022 CWB Wealth harmonized our five legacy private wealth brand identities. Visit cwbwealth.com/foundations-film to learn more. Our expanded wealth offering enables our teams to continue to be our clients’ financial services partner through all stages of their lives. CWB Wealth is positioned to provide a differentiated client experience in Canadian private wealth advisory services and strengthen full-service relationships with successful business families, business executives, and employees of the businesses CWB serves. Today, we are a more resilient bank than ever with a track record of strong performance through economic cycles. I would like to thank our teams for their commitment to delivering an unrivaled experience to our clients and advancing our strategic direction. The enhanced capabilities we have built provide a platform to create sustainable long- term value. To my fellow shareholders, I would like to thank you for your commitment to CWB through a year of strategic investment and prudent risk management to ensure we are well-positioned for the challenges and opportunities that may lie ahead. Looking forward, we are taking a targeted approach in our investments to prudently manage our expenses and return our efficiency ratio closer to historical levels, while driving strong growth of profitable full- service client relationships across our geographic footprint. Our team is poised to deliver upon our significant potential with strong core operating performance next year in line with our financial scorecard, and we have charted a course to reward you with a meaningful expansion of our return on equity by 2024. I would also like to personally thank our clients across Canada for choosing CWB and giving our team the opportunity to be a trusted partner that is obsessed with your success. Chris Fowler President and Chief Executive Officer FINANCIAL SCORECARD Annual Metrics Pre-tax, pre-provision income growth Adjusted ROE(1) Efficiency ratio(1) Performance Targets Greater than 10% 12% by 2024 Less than 50% (1) Non-GAAP measure – refer to definitions and detail provided on page 16. CWB Financial Group 2022 Annual Report | 5 Executive Committee The CWB Financial Group Executive Committee In 2022, we welcomed four outstanding leaders to CWB’s executive team – Carolina Parra, Jeff Wright, John Steeves and Azfar Karimuddin. These appointments build on our legacy of outstanding leadership, positioning us to deliver long-term value for our clients, people, and investors. Front Row (left to right): DARRELL JONES – Former Executive Vice President and Chief Information Officer, CAROLYN GRAHAM – Former Executive Vice President and Chief Risk Officer, KELLY BLACKETT – Chief People & Culture Officer, STEPHEN MURPHY – Group Head, Commercial, Personal & Wealth, CAROLINA PARRA – Chief Risk Officer, JEFF WRIGHT – Group Head, Client Solutions & Specialty Businesses. Back row (left to right): MATT RUDD – Chief Financial Officer, AZFAR KARIMUDDIN – Chief Information Officer, CHRIS FOWLER – President and Chief Executive Officer, JOHN STEEVES – Executive Vice President, Banking 6 | CWB Financial Group 2022 Annual Report CORPORATE GOVERNANCE Board of Directors CWB Financial Group strives to maintain the trust of our stakeholders through high standards of corporate governance. Our risk governance structure, including a complete list of our Board committees and the key responsibilities for each committee can be found on page 47 of this report. CWB’s Management Proxy Circular will be available on our website in February 2023. It will include information on our director nominees, reports of each board committee, and detailed descriptions of our corporate governance practices. Please review our Management Proxy Circular to learn how shareholders can participate in our annual meeting on April 6, 2023. Information regarding our corporate governance practices, including our code of conduct, our director independence standards and our board and committee mandates, is available on our website at cwb.com/corporate-governance We are committed to open communication with stakeholders – please contact us at: ChairoftheBoard@cwbank.com CorporateSecretary@cwbank.com THANK YOU EXECUTIVES From everyone at CWB, we extend a sincere thank you and congratulations to Carolyn Graham, Glen Eastwood, and Darrell Jones as they retire after many years of exceptional service to CWB and our stakeholders. Their significant contributions and leadership have been essential in how we have shaped our culture and transformed our business. ANDREW J. BIBBY Corporate Director DR. MARIE Y. DELORME CEO, The Imagination Group of Companies MARIA FILIPPELLI Corporate Director CHRISTOPHER H. FOWLER President and CEO, Canadian Western Bank LINDA M.O. HOHOL Corporate Director ROBERT A. MANNING President, Cathton Investments Ltd. E. GAY MITCHELL Corporate Director SARAH A. MORGAN- SILVESTER (chair) Corporate Director MARGARET J. MULLIGAN Corporate Director IRFHAN A. RAWJI CEO, MobSquad IAN M. REID Corporate Director GLEN EASTWOOD CAROLYN GRAHAM DARRELL JONES Executive Vice President, Business Transformation Executive Vice President and Chief Risk Officer Executive Vice President and Chief Information Officer (Retired Mar 31, 2022) (Retired Oct 31, 2022) (Retired Oct 31, 2022) CWB Financial Group 2022 Annual Report | 7 MESSAGE FROM CHAIR OF THE BOARD Sarah Morgan- Silvester DEAR FELLOW SHAREHOLDERS I was honoured to be appointed Chair of your Board of Directors this year. The Board continues to provide strong oversight as management executes our winning strategy to deliver the best full-service bank for business owners in Canada, and we are pleased with the significant progress made this year to continue to enhance our capabilities. The Board remains optimistic for the future as our differentiated business model, focus to deliver an unrivaled experience for our business owner client, and targeted growth all position us well to achieve our full potential as we navigate through the risks from the potential economic volatility on the horizon. Our confidence reflects the strength of our teams across the organization, and I’m pleased we seamlessly executed on our planned succession at both the Board level and executive team. I believe we have the right diversity of experience, perspectives and skill sets to effectively address the opportunities and challenges ahead. I am especially proud of how our leaders have given back to their communities. I applaud Dr. Marie Delorme for her award for Excellence in Aboriginal Relations for being a bridge builder who has contributed to making connections between Indigenous people and Canadian society through their professional and voluntary commitments. I would also like to congratulate Chris Fowler on his induction into the Junior Achievement Northern Alberta Business Hall of Fame. The Board continues to provide strong oversight of CWB’s business, including the management of evolving and emerging risks. As part of strengthening oversight of sustainability, we updated Board and subcommittee mandates to further reflect our governance responsibilities in relation to CWB’s approach to address environmental, social and governance (ESG) factors. 8 | CWB Financial Group 2022 Annual Report “ Through her tireless work, commitment and passion, Dr. Marie Delorme has been a catalyst to change and has made an indelible mark on Indigenous relations. A born relationship builder, she has inspired Indigenous people and Canadian society to come together” – RANDY WHITE President of Sysco Canada We remain committed to supporting and engaging with management as they continue to develop and implement CWB’s approach to sustainability. our success. I am excited for the opportunities ahead of us and remain confident in our ability to provide sustainable value for all stakeholders. In closing, on behalf of the Board, I want to express appreciation to my fellow shareholders for their ongoing support and to our clients for the opportunity to be their full-service financial provider. I also want to thank all our CWB team members for your unwavering commitment to Sarah Morgan-Silvester Chair of the board BOB PHILLIPS SANFORD RILEY THANK YOU BOB & SANDY On behalf of the Board, I wish to express our utmost gratitude to Bob Phillips, who retired in April 2022 after 21 years on CWB’s board, including six as Chair. Bob provided extraordinary perspective and guidance throughout his tenure and his leadership has left an indelible mark on CWB. We also wish to express our appreciation to Glen Eastwood, Carolyn Graham, and Darrell Jones for their significant contributions as members of our executive team and wish them the very best in retirement. I would also like to recognize Sanford Riley who retired after 11 years on our Board. Thank you, Sandy, for your invaluable insight and experience toward advancing CWB’s strategic direction, particularly in the development and growth of our wealth management business. Your thoughtful contributions and dedicated service will be missed. CWB Financial Group 2022 Annual Report | 9 Building a Sustainable Future Leaders Carmen, Kate and Rachel help the Talent Acquisition team put their best teal foot forward to tell the CWB story and attract the right talent to build an inclusive and engaged CWB workforce. Our strategy, culture and values guide our approach to sustainability, which includes ESG factors. Our approach is focused to support the ongoing success of our business and the businesses of our clients and we remain firmly committed to long-term value creation for all our stakeholders. ENVIRONMENTAL SOCIAL GOVERNANCE Manage our environmental impact and support our clients through Canada’s transition to net-zero emissions. Support our clients, teams and communities in pursuit of a sustainable and inclusive future. Ensure the highest standards of governance, ethics and integrity to maintain the trust of our stakeholders. For information on our commitment to sustainable value creation for all our stakeholders, see our 2021 Sustainability Report at: www.cwb.com/sustainability-reports. 10 | CWB Financial Group 2022 Annual Report Creating an inclusive and engaged team Our people are the key to our ability to deliver an unrivaled client experience. We are focused to attract and retain top talent, advance our culture and maximize the potential of every member of our diverse workforce. 60% Female 31% Black, Indigenous or racialized persons 6% Persons with disabilities FOSTERING AN INCLUSIVE CULTURE Continued to support our eleven employee-represented groups (ERGs) to create a sense of belonging for all of our team members. Approximately one-third of our people actively engage in our ERGs. Continued to invest in employee training and development focused on inclusion, diversity and unconscious bias, and support learning opportunities facilitated by our ERGs. Increased support for targeted talent sourcing programs to ensure we attract a diverse candidate pool and continued to provide coaching, development opportunities and advocacy for underrepresented groups. CWB Pride members PUTTING OUR PEOPLE FIRST Recognized by Great Place to Work Canada® as one of this year’s top 20 Best WorkplacesTM in Canada, which reflects our commitment to advance a culture that puts people first. Continued to provide an expanded mental health resource and benefit offering, including the celebration of Teal Care Day, which awarded an extra day off for our people to prioritize their overall well-being. Supported flexible work options to meet the diverse needs of our team members and their families, while also recognizing the importance of human connection to provide an unrivaled client experience. Invested more than 48,000 hours in employee training and development, and continued to focus on informal and formal mentorship and career coaching to support internal talent growth. CWB Financial Group 2022 Annual Report | 11 Investing in our communities We take pride in contributing to the growth and success of the communities in which we operate. In 2022, we invested over $2 million in community organizations through donations, sponsorships, disaster relief funding, and employee volunteer grants and matching initiatives, with a focus to promote inclusivity and enable business. FOSTERING INCLUSIVE COMMUNITIES Allocated approximately 70% of our community funding in 2022 to support organizations serving Black and Indigenous communities, immigrants and newcomers to Canada, persons with disabilities and vulnerable youth and women. Took concrete actions towards reconciliation with Indigenous communities. We provided funding to Indigenous transition programs at universities across Canada, supported development of an art space for Indigenous youth healing from trauma, delivered tutoring sessions in Indigenous classrooms and funded the creation of Indigenous storybooks for cultural and language revitalization. Invested in organizations that are focused to positively impact refugee and immigrant communities by providing newcomers to Canada with microlending for accreditation and training, hands-on coaching and access to support services. 12 | CWB Financial Group 2022 Annual Report Marlene (CWB Sharing Circle member) shops at the Indigenous Artisan Market on National Indigenous People’s Day at Telus World of Science. ENABLING BUSINESS Continued to support diverse entrepreneurs to plan, launch and grow their businesses through sponsorship initiatives, including the CWB Business Incubator for Women Entrepreneurs program. Funded cultural awareness training for small- and medium-sized businesses to improve inclusion in the workplace. Provided funding to create a post- secondary entrepreneurial training program that will teach students with diverse learning needs essential skills to start and grow their own businesses. Shamsi (Pamjy Candles) from the CWB Business Incubator for Women Entrepreneurs. Our developing approach to climate change We recognize that we have a part to play in Canada’s transition to net-zero emissions by managing our direct and indirect climate impact, supporting the ongoing success of our clients as they strive to achieve their climate goals and mitigating the risks associated with climate change. 2022 Progress Future Priorities STAYING INFORMED Continued to participate in national climate-related programs, including the Sustainable Finance Action Council and industry working groups focused on climate- related risk management and disclosures. MEASURING OUR IMPACT Implemented a process to measure our Scope 1 and 2 greenhouse gas (GHG) emissions across our national operational footprint to support our ability to develop meaningful and supportable reduction targets in the future. Initiated development of a process to measure our Scope 3 GHG emissions within our lending portfolio, which will be a foundational component of our developing approach to climate change. Continued to embed sustainable practices as we upgrade existing or open new locations. STRENGTHENING GOVERNANCE AND RISK MANAGEMENT Enhanced Board of Director and management oversight of ESG factors. This included updates to Board and committee mandates, and the initiation of an ESG Steering Committee to support the development and execution of our approach to climate change. Continued to integrate environmental and social risk factors, including climate-related risks, into our Risk Management framework. MAPPING A PATH FORWARD Disclose our GHG emissions and develop a reduction plan and targets to support Canada’s transition to net-zero emissions, with an initial focus on our Scope 1 and 2 GHG emissions from our operations. Develop an approach that considers how we will best support our clients through Canada’s transition to net-zero emissions. Further integration of climate risk into our Risk Management framework, risk appetite and policies. As we evolve our approach to climate change, we will continue to enhance our disclosures. For further information, see our Task Force on Climate-related Financial Disclosures (TCFD) reporting within the Social and Environmental Risk section of our MD&A and our 2021 Sustainability Report. CWB Financial Group 2022 Annual Report | 13 Management’s Discussion and Analysis TABLE OF CONTENTS Forward-Looking Statements ..............................................15 Liquidity Management ................................................................... 34 Non-GAAP Measures ..........................................................16 Capital Management ...................................................................... 36 Who We Are ......................................................................17 Growth Strategy ............................................................................. 17 Fiscal 2022 Strategic Highlights ...........................................18 Fiscal 2023 Strategic Priorities .............................................19 CWB Financial Group Performance ......................................20 Select Financial Highlights ............................................................. 20 Summary of Operations ................................................................. 21 Fiscal 2023 Outlook ....................................................................... 22 Net Interest Income ....................................................................... 23 Financial Instruments and Other Instruments ................................ 39 Off-Balance Sheet .......................................................................... 39 Summary of Quarterly Results and Fourth Quarter ................. 40 Fourth Quarter of 2022 .................................................................. 40 Accounting Policies and Estimates .......................................41 Critical Accounting Estimates ........................................................ 41 Changes In Accounting Policies and Financial Statement Presentation .................................................................. 42 Future Changes In Accounting Policies .......................................... 43 Non-Interest Income ...................................................................... 24 Risk Management ...............................................................44 Non-Interest Expenses and Efficiency Ratio .................................. 25 Top Emerged and Emerging Risks .................................................. 44 Income Taxes .................................................................................. 26 Risk Management Overview .......................................................... 45 Comprehensive Income ................................................................. 26 Risk Universe - Report on Principal Risks ....................................... 49 Cash and Securities ........................................................................ 27 Other Risk Factors .......................................................................... 59 Loans .............................................................................................. 28 Credit Quality ................................................................................. 30 Deposits and Funding ..................................................................... 33 Other Assets and Other Liabilities ................................................. 34 Share and Distribution Information ......................................60 Related Party Transactions ..................................................60 Controls and Procedures .....................................................60 14 | CWB Financial Group 2022 Annual Report Management’s Discussion and Analysis This Management’s Discussion and Analysis (MD&A), dated December 1, 2022, should be read in conjunction with the audited consolidated financial statements of Canadian Western Bank (CWB) for the year ended October 31, 2022 and the audited consolidated financial statements and MD&A for the year ended October 31, 2021. Additional information relating to CWB, including the Annual Information Form, is available on SEDAR at www.sedar.com and on our website at www.cwb.com. The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and are presented in Canadian dollars. FORWARD-LOOKING STATEMENTS From time to time, we make written and verbal forward-looking statements. Statements of this type are included in our Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as media releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about our objectives and strategies, targeted and expected financial results and the outlook for CWB’s businesses or for the Canadian economy. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “may increase”, “may impact”, “goal”, “focus”, “potential”, “proposed” and other similar expressions, or future or conditional verbs such as “will”, “should”, “would” and “could”. By their very nature, forward-looking statements involve numerous assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations and conclusions will not prove to be accurate, that our assumptions may not be correct, and that our strategic goals will not be achieved. A variety of factors, many of which are beyond our control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada, including housing market conditions, the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, material changes to trade agreements, transition to the Advanced Internal Ratings Based (AIRB) approach for regulatory capital purposes, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, outbreaks of disease or illness that affect local, national or international economies, changes in accounting standards and policies, information technology and cyber risk, the accuracy and completeness of information we receive about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and our ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors. Additional information about these factors can be found in the Risk Management section of our MD&A. These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. Any forward-looking statements contained in this document represent our views as of the date hereof. Unless required by securities law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by us or on our behalf. The forward-looking statements contained in this document are presented for the purpose of assisting readers in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes. Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect our business are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, we consider our own forecasts, economic data and forecasts provided by the Canadian government and its agencies, as well as certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific. Where relevant, material economic assumptions underlying forward-looking statements are disclosed within the Fiscal 2023 Outlook and Allowance for Credit Losses sections of our MD&A. CWB Financial Group 2022 Annual Report | 15 NON-GAAP MEASURES We use a number of financial measures and ratios to assess our performance against strategic initiatives and operational benchmarks. Some of these financial measures and ratios do not have standardized meanings prescribed by Generally Accepted Accounting Principles (GAAP) and may not be comparable to similar measures presented by other financial institutions. Non-GAAP financial measures and ratios provide readers with an enhanced understanding of how we view our financial performance. These measures and ratios may also provide the ability to analyze trends related to profitability and the effectiveness of our operations and strategies, and are disclosed in compliance with National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. To calculate non-GAAP financial measures, we exclude certain items from our financial results prepared in accordance with IFRS. Adjustments relate to items which we believe are not indicative of underlying operating performance. Our non-GAAP financial measures include: • Adjusted non-interest expenses – total non-interest expenses, excluding pre-tax accelerated amortization of previously capitalized AIRB assets, amortization of acquisition-related intangible assets, and acquisition and integration costs. Accelerated amortization of previously capitalized AIRB assets is a result of a reduction in estimated useful lives of certain previously capitalized AIRB assets. Acquisition and integration costs include direct and incremental costs incurred as part of the execution and integration of the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates that occurred in June 2020. • Adjusted common shareholders’ net income – total common shareholders’ net income, excluding the accelerated amortization of previously capitalized AIRB assets, amortization of acquisition-related intangible assets, and acquisition and integration costs, net of tax. • Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses. The following table provides a reconciliation of our non-GAAP financial measures to our reported financial results. Table 1 - Non-GAAP Measures ($ thousands) Non-interest expenses Adjustments (before tax): Accelerated amortization of previously capitalized AIRB assets Amortization of acquisition-related intangible assets Acquisition and integration costs Adjusted Non-interest Expenses Common shareholders' net income Adjustments (after-tax): Accelerated amortization of previously capitalized AIRB assets(1) Amortization of acquisition-related intangible assets(2) Acquisition and integration costs(3) Adjusted Common Shareholders' Net Income Total revenue Less: Adjusted non-interest expenses (see above) Pre-tax, Pre-provision Income For the three months ended For the year ended October 31 2022 October 31 2021 October 31 2022 October 31 2021 $ 166,783 $ 140,802 $ 581,777 $ 508,718 (16,555) (2,557) (361) - (2,032) (893) (16,555) (10,212) (626) - (8,073) (1,761) $ $ 147,310 67,687 $ $ 137,877 89,998 $ $ 554,384 310,302 $ $ 498,884 327,471 12,549 1,913 270 82,419 279,838 $ $ - 1,485 674 12,549 7,641 470 - 5,901 1,329 $ $ 92,157 $ 330,962 260,624 $ 1,076,287 $ $ 334,701 1,016,033 147,310 137,877 554,384 498,884 $ 132,528 $ 122,747 $ 521,903 $ 517,149 (1) Net of income tax of $4,006 for the three months ended October 31, 2022 (Q4 2021 – nil) and $4,006 for the year ended October 31, 2022 (2021 – nil). (2) Net of income tax of $644 for the three months ended October 31, 2022 (Q4 2021 – $547) and $2,571 for the year ended October 31, 2022 (2021 – $2,172). (3) Net of income tax of $91 for the three months ended October 31, 2022 (Q4 2021 – $219) and $156 for the year ended October 31, 2022 (2021 – $432). Non-GAAP ratios are calculated using the non-GAAP financial measures defined above. Our non-GAAP ratios include: • Adjusted earnings per common share – diluted earnings per common share calculated with adjusted common shareholders’ net income. • Adjusted return on common shareholders’ equity – annualized adjusted common shareholders’ net income divided by average common shareholders’ equity, which is total shareholders’ equity excluding preferred shares and limited recourse capital notes. • Efficiency ratio – adjusted non-interest expenses divided by total revenue. • Operating leverage – growth rate of total revenue less growth rate of adjusted non-interest expenses. Supplementary financial measures are measures that do not have definitions prescribed by GAAP and do not meet the definition of a non-GAAP financial measure or ratio. Our supplementary financial measures include: • Return on assets – annualized common shareholders’ net income divided by average total assets. • Net interest margin – annualized net interest income divided by average total assets. • Return on common shareholders’ equity – annualized common shareholders’ net income divided by average common shareholders’ equity. • Write-offs as a percentage of average loans – annualized write-offs divided by average total loans. • Book value per common share – total common shareholders’ equity divided by total common shares outstanding. • Branch-raised deposits – total deposits excluding broker term and capital market deposits. • Provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at fair value through other comprehensive income (FVOCI) and other financial assets are excluded. • Provision for credit losses on impaired loans as a percentage of average loans – annualized provision for credit losses on impaired loans divided by average total loans. 16 | CWB Financial Group 2022 Annual Report • Provision for credit losses on performing loans as a percentage of average loans – annualized provision for credit losses on performing loans (Stage 1 and 2) divided by average total loans. • Average balances – average daily balances. WHO WE ARE CWB is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our nation-wide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to the competition. Our people take the time to understand our clients and their business, and work as a united team to provide holistic solutions and advice. We are firmly committed to the responsible creation of value for all our stakeholders and our approach to sustainability will support our continued success. GROWTH STRATEGY Our highly engaged teams operate within a client-centric and collaborative culture, with a core focus as the best full-service bank for business owners in Canada. We continue to transform our capabilities to offer a superior full-service client experience through a range of in-person and evolving digital channels. These improving capabilities have accelerated growth of full-service client relationships in targeted segments that fit within our strategic growth objectives and prudent risk appetite. Ongoing strategic execution will create long-term value for shareholders as we deliver strong growth of full-service clients and capitalize on the opportunities available to us as we continue to expand our geographic footprint outside of Western Canada, including an increased presence in the Ontario market. Our differentiated market position and strategy has set the stage for CWB to deliver profitable long-term growth and enhance shareholder returns for years to come. CWB Financial Group 2022 Annual Report | 17 FISCAL 2022 STRATEGIC HIGHLIGHTS Table 2 - Execution Against Strategic Priorities Strategic execution during fiscal 2022 • Successfully launched a personal and small business digital banking platform. The small business platform can integrate with third party accounting platforms and provide our clients with predictive cash flow modelling. Incremental features, including the ability to fully digitally on-board small business clients and provide insights and simulation scenarios that enable small businesses to better understand and manage their cash flow needs and financial health of their operations, will be integrated into the platform next year. • Expanded our presence in the Ontario market, supported by the opening of our new Markham banking centre, building on the success of our first Ontario location in Mississauga in 2020. The targeted expansion in Ontario and enhancement of our digital capabilities supports our ability to deliver an unrivaled client experience to more business owners across Canada. • Consolidated and relocated our regional office and banking centre within downtown Vancouver to a new modern flagship banking centre. The highly visible location on West Georgia provides prominent branding, supports hybrid work, and integrates our business and personal banking, trust services and wealth management teams to provide an elevated client experience and capitalize on an opportunity to grow our market share in British Columbia. • Successfully harmonized our wealth management brands with the launch of CWB Wealth. The launch further integrates our acquired wealth management operations under one brand and strategically positions us to expand full-service client offerings and opportunities, and provide a unique client experience in Canadian private wealth advisory services. • Executed an investment commitment to participate in a venture capital fund managed by a global fintech-focused investor that invests in, and partners with, some of the world’s most innovative financial technology companies. Participation in this fund will provide actionable insights from exposure to emerging trends and partnership opportunities to further elevate our digital client experience and product offering. • Continued to make proactive and targeted investments in development and learning initiatives, recruitment programs and previously announced compensation adjustments to further support our culture and drive continued strong team member retention through a period of elevated competition for talent. • Launched three new employee-represented groups (ERGs) focused on supporting working parents/caregivers, early career professionals and Latin American cultures. Approximately one third of our employee’s actively participate in at least one of our eleven unique ERGs that support inclusion, diversity and mental health within our teams. • We were recognized: o o by Great Place to Work Canada® as one of this year’s top 20 Best WorkplacesTM in Canada and one of the Best WorkplacesTM for Hybrid Work; and, in the Globe and Mail’s 2022 Women Lead Here list, a benchmark that identifies best-in-class executive gender diversity in Canada. These awards reflect our commitment to advance an inclusive culture that puts people first and supports our position as a destination for top talent. • Delivered strong 14% annual loan growth in our general commercial loan portfolio as we executed on our strategic focus of expanding full-service client opportunities. General commercial loans now represent 35% of total loans, up from 33% one year ago. Expansion of full-service client opportunities also supported 8% growth in relationship-based, branch-raised deposits(1). • Achieved robust 11% annual loan growth in Ontario, supported by strong momentum from our Mississauga and newly opened Markham banking centres. Ontario loans now represent 24% of total loans, up from 23% one year ago. • Released our inaugural Sustainability Report, demonstrating our continued commitment to develop and disclose our approach to the environmental, social and governance (ESG) factors that we identify as the most important to our clients, people, communities and investors. • Materially completed the development of revised AIRB tools, incorporating targeted enhancements and the final 2023 Capital Adequacy Requirements (CAR) guidelines. Next year, we will commence the integration of our revised AIRB tools into our business processes and data. Transform and optimize our capabilities to create an unrivaled experience for our clients Drive a positive and inclusive culture and employee experience to create value for our people and remain a career destination for top talent Optimize our business to create value for investors through profitable, long- term growth and sustainable returns (1) Non-GAAP measure – refer to definition and detail provided on page 16. 18 | CWB Financial Group 2022 Annual Report FISCAL 2023 STRATEGIC PRIORITIES Table 3 - Focused Performance to Create Value for our Clients, our People and our Investors Fiscal 2023 strategic priorities Enhance our capabilities to provide an unrivaled experience for more Canadian business owners and their families • Continue to enhance our digital client experience and products to provide clients with an efficient, integrated, and market-competitive process to manage their cash management needs. • Support our teams through enhanced learning, performance management, and actionable insights to continue to deliver an unrivaled experience to our clients and drive high client satisfaction. • Leverage our newly rebranded CWB Wealth operations and provide comprehensive, high-touch offerings for management of our client’s current and future wealth needs, including a full range of financial planning activities. Drive a positive and inclusive culture and employee experience to create value for our people and remain a career destination for top talent • Continue to earn recognition as an employer of choice, and a Great Place to Work CanadaTM. • Continue to invest in our people and culture to attract and retain top talent and enable our teams to be as effective as possible to provide an unrivaled experience to our clients. • Continue to support and expand our employee-represented groups focused on inclusion, diversity and mental health. Optimize our business to create value for investors through profitable, long- term growth and sustainable returns • Leverage our enhanced digital capabilities, client offerings, and unrivaled client experience to grow our full-service client base across Canada, and drive strong branch-raised deposit growth. • Continue to build our brand awareness in Ontario and acquire new full-service clients in the province, supported by our existing full-service banking centres in Markham and Mississauga and a new banking centre expected to open in Toronto’s financial district in fiscal 2023. • Continue to broaden our funding sources to improve funding diversification and optimize our overall cost of funding. • Commence integration of our revised AIRB tools into underlying business processes and data to provide an efficient and scalable operating platform as a model-enabled bank, and make meaningful progress towards obtaining approval to transition to the AIRB approach. Once our AIRB tools have been successfully implemented across the business, we will operate them for a sufficient period of time to support a successful resubmission of our application. CWB Financial Group 2022 Annual Report | 19 CWB FINANCIAL GROUP PERFORMANCE SELECT FINANCIAL HIGHLIGHTS Table 4 - Select Annual Financial Information ($ thousands, except ratios and per share amounts) Results from Operations Total revenue Pre-tax, pre-provision income(1) Common shareholders' net income Common Share Information Earnings per share Basic Diluted Adjusted(1) Cash dividends paid Book value(1) Performance Measures(1) Return on common shareholders' equity Adjusted return on common shareholders' equity Return on assets Net interest margin Efficiency ratio Operating leverage Credit Quality(1) Provision for credit losses on total loans as a percentage of average loans(2) Provision for credit losses on impaired loans as a percentage of average loans(2) Balance Sheet Assets Loans (before the allowance for credit losses) Deposits 2022 2021 2020 Change from 2021 $ 1,076,287 521,903 310,302 $ 1,016,033 517,149 327,471 $ 897,395 469,318 248,956 $ 60,254 4,754 (17,169) 6 % 1 (5) 3.39 3.39 3.62 1.22 33.48 10.1 % 10.8 0.79 2.41 51.5 (5.2) 0.14 0.10 3.74 3.73 3.81 1.16 33.10 11.6 % 11.8 0.92 2.49 49.1 (3.3) 0.09 0.17 2.86 2.86 2.93 1.15 31.76 9.3 % 9.5 0.76 2.45 47.7 (2.7) 0.32 0.18 (0.35) (0.34) (0.19) 0.06 0.38 (9) (9) (5) 5 1 (150) bp (100) (13) (8) 240 (190) 5 (7) 11 % 9 10 $ 41,440,143 35,905,622 33,019,047 $ 37,323,176 32,900,951 29,975,739 $ 33,937,865 30,167,719 27,310,354 $ 4,116,967 3,004,671 3,043,308 (1) Non-GAAP measure – refer to definitions and detail provided on page 16. (2) Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit. bp – basis point Financial Highlights of 2022 (compared to 2021) • Loan growth of 9%, including 11% growth in Ontario, which reflects the continued execution against our geographic diversification objectives, and 14% in the general commercial loan portfolio as we executed on our strategic focus of expanding full-service client opportunities. • Branch-raised deposit growth of 8%, as strong growth from new full-service clients was partially dampened by reductions in the deposit balances of other clients. • Common shareholders’ net income of $310 million was down 5%, and diluted earnings per common share was down 9%, primarily driven by an increase in the provision for credit losses on performing loans. • Pre-tax, pre-provision income of $522 million was up 1%. • Total revenue increased 6% and reflected a 5% increase in net interest income and a 10% increase in non-interest income. • Efficiency ratio increased to 51.5% compared to 49.1% as expense growth outpaced revenue growth as we made several strategic investments this year, which will benefit revenue growth in future periods. • Provision for credit losses on total loans as a percentage of average loans of 14 basis points was five basis points higher than last year primarily due to an increase in the performing loan provision, reflecting a deterioration in the forward-looking macroeconomic outlook, compared to a recovery recognized in the prior year. • Provision for credit losses on impaired loans of ten basis points was down seven basis points from last year. Gross impaired loans represented 0.46% of gross loans, down from 0.61% last year and reflect historically low levels. • Basel III regulatory capital ratios under the Standardized approach for calculating risk-weighted assets of 8.8% common equity Tier 1 (CET1), 10.6% Tier 1 and 12.1% Total capital were relatively stable compared to the prior year. 20 | CWB Financial Group 2022 Annual Report SUMMARY OF OPERATIONS As fiscal 2022 commenced, the Canadian economy continued on its path to recovery from the impacts of the COVID-19 pandemic. As the year progressed, rising commodity prices, supply chain pressures, labour shortages and strong global and domestic demand drove persistent levels of inflation, with the Russian invasion of Ukraine creating incremental global economic uncertainty. The rapid and significant increase in market interest rates began to cool economic growth and fuel the potential for recessionary conditions to emerge in Canada. Against this backdrop, we delivered strong strategic execution and a prudent and targeted approach to growth that positions us strongly to capitalize on the opportunities in front of us and manage through the potential economic volatility that may be on the horizon. Leveraging the experience and skillset of our teams, enhanced client offerings and expanded physical presence, we generated targeted loan growth of 9% within our prudent risk appetite. We strategically target general commercial clients to reflect our focus to increase full-service client relationships across our national footprint, and our teams delivered 14% annual growth in this portfolio. Our number of full-service clients, who have a core banking relationship with us, increased this year, and 8% growth of branch- raised deposits reflected strong growth from new clients partially offset by reductions in the deposit balances of existing customers. We also continued to focus on our geographic diversification strategy, with loan growth of 11% in Ontario with strong momentum building from our Mississauga and newly opened Markham banking centres. Annual revenue increased 6%. Net interest income increased 5% due to the benefit of 9% annual loan growth, partially offset by an eight basis point decrease in net interest margin. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs over the last year driven by the higher market interest rate environment. Our fixed term deposit portfolio has repriced faster to reflect higher market interest rates than our fixed term loans, which have a longer average duration. Loan yields have also been slower to reflect the changes in market interest rates due to high competition for new lending. Net interest margin was also negatively impacted by a change in our lending mix to comparatively lower-yielding borrowers and portfolios. Non-interest income increased 10% and reflected higher foreign exchange revenue recorded within ‘other’ non-interest income, higher credit related fees and higher wealth management fees, partially offset by lower net gains on security sales. Borrower credit performance remained very strong, with impaired loans as a percentage of gross loans of 0.46% at October 31, 2022, reflecting historical lows. Our total annual provision for credit losses represented 14 basis points as a percentage of average loans, compared to nine basis points last year. We recognized a four basis point provision related to performing loans(1), driven by a deterioration in macroeconomic forecasts, compared to an eight basis point recovery in the prior year. The provision for credit losses on impaired loans of ten basis points was seven basis points lower than last year and remained well below our five-year average of 19 basis points. We remain confident in our strong credit risk management framework, including well-established underwriting standards, the secured nature of our lending portfolio with conservative loan-to-value ratios, and proactive approach to working with clients through difficult and uncertain periods. Total non-interest expenses of $582 million were up 14% ($73 million). The increase included $17 million of costs related to the accelerated amortization of intangible assets as a result of a reduction in estimated useful lives of certain previously capitalized AIRB assets. Adjusted non-interest expenses(1) increased 11%, which was driven by our continued strategic priorities, including investment in our people, AIRB tools and processes, digital capabilities, the harmonization of our wealth management brands with the launch of CWB Wealth, our new banking centres in Markham, Ontario and downtown Vancouver and expanded client offerings to optimize our business, deliver an unrivaled experience to our clients, and accelerate full-service client growth. Growth of non-interest expenses outpaced total revenue growth, resulting in an efficiency ratio of 51.5% compared to 49.1% last year and reflects several strategic investments made this year, which will benefit revenue growth in future periods. Diluted earnings per common share of $3.39 and adjusted earnings per common share of $3.62 declined 9% and 5%, respectively. Our return on common shareholders’ equity (ROE) of 10.1% and adjusted ROE of 10.8% decreased 150 basis points and 100 basis points, respectively. Lower adjusted ROE and the decrease in our adjusted common shareholders’ net income(1) was primarily driven by an increase in the provision for credit losses on performing loans. Pre-tax, pre-provision income increased 1%. Our CET1 capital ratio at October 31, 2022 of 8.8%, was consistent with last year. Including Tier 1 and Total capital ratios of 10.6%, and 12.1%, respectively, all of our capital ratios remain above both internal and regulatory minimums. To support strong loan growth while prudently managing our regulatory capital ratios in the current environment, we issued 4,725,271 common shares during the year at an average price of $29.86 per share for net proceeds of $138 million under our at-the-market (ATM) common equity distribution programs. (1) Non-GAAP measure – refer to definitions and detail provided on page 16. CWB Financial Group 2022 Annual Report | 21 FISCAL 2023 OUTLOOK Economic Conditions Current economic forecasts anticipate lower gross domestic product (GDP) growth through 2023 and a moderate to sharp decline in housing prices, reflecting the impact of Bank of Canada policy interest rate increases enacted in fiscal 2022. The labour market is also expected to be impacted, with unemployment rates forecast to steadily increase in 2023. Policy interest rate increases by the Bank of Canada are expected to taper in fiscal 2023. Expectations of potential recessionary conditions in Canada over the next year continue to evolve with the timing and magnitude remaining uncertain at this time. Outlook of expected financial performance We have a demonstrated history of delivering strong, stable financial results against volatile economic backdrops. We target and win new full-service clients through economic cycles by delivering an unrivaled client experience with a consistent and prudent risk management approach. Looking ahead to fiscal 2023, we expect to deliver: Annual Metric Loan growth Branch-raised deposits growth Pre-tax, pre-provision income growth Efficiency ratio Fiscal 2023 expectations High single-digit percentage growth Double-digit percentage growth Double-digit percentage growth Less than 50% Adjusted earnings per common share growth Low to mid single-digit percentage growth Adjusted ROE 10 to 11% In fiscal 2023, we expect our teams to continue to deliver strong full-service client growth in strategically targeted segments and within our risk appetite. We expect to deliver high single-digit annual percentage overall loan growth, with stronger growth in the strategically targeted general commercial portfolio, where prudent. Our loan growth in 2023 will continue to be focused on portfolios that support further full-service client opportunities that remain within our strict underwriting and pricing criteria. We will also continue to target further geographic diversification and expect strong loan growth in Ontario as we continue to leverage our Mississauga and Markham banking centres and further expand our presence with the opening of our Toronto financial district banking centre in fiscal 2023. We expect double-digit annual percentage growth of branch-raised deposits as we continue to execute on our strategic focus to leverage lower-cost funding channels and further diversify our funding sources. Very strong growth of new branch-raised deposits is expected to be supported by our enhanced digital capabilities. We also expect continued diversification of funding sources to include strong contributions from our capital market and securitization channels. In fiscal 2022, the rapid increase in Bank of Canada policy interest rates drove a compression in lending spreads as increases in asset yields lagged the increase in deposit costs over the last year. The shorter duration of our fixed term deposit products, as compared to our fixed term loan products, our deposit book was quicker to reflect the impact of the rising interest rate environment. Based on the assumption of a more stable interest rate environment in fiscal 2023, our net interest margin is expected to increase over the next year to reflect the combined benefit of normalized lending spreads and the impact of fixed term loans continuing to re- price at the current market interest rates. Our approach to expense management in fiscal 2023 will focus on execution of our most important strategic priorities, with prudent management of discretionary expenses. We expect lower growth of non-interest expenses next year and we will manage to an annual efficiency ratio below 50%, with positive operating leverage(1). Credit performance in fiscal 2022 was strong as we recognized a provision for credit losses of 14 basis points as a percentage of total loans, below our normal historical range of 18 to 23 basis points. We expect that the combined impacts of the conclusion of COVID-19 government support programs, rapidly rising interest rates and a deteriorating economic outlook will drive an increase in the provision for credit losses next year. Our prudent approach and leveraging our enhanced credit risk management tools and processes supports our expectation that our provision for credit losses will remain within our strong historical range of 18 to 23 basis points next year, likely on the higher end of that range given potential economic volatility. With all other assumptions constant and as described above, a provision for credit losses in the high end of our historical range drives annual adjusted earnings per common share percentage growth in the low-single digits and adjusted ROE around the mid-point of a 10 to 11% range. On this same basis, a provision for credit losses in the low end of our historical range drives annual adjusted earnings per common share percentage growth in the mid-single digits and adjusted ROE that approaches 11%. (1) Non-GAAP measure – refer to definitions and detail provided on page 16. 22 | CWB Financial Group 2022 Annual Report NET INTEREST INCOME Net interest income is the difference between interest 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. Table 5 - Net Interest Income ($ thousands) Assets Cash, securities and deposits with financial 2022 2021 Average Balance(1) Mix Interest Interest Rate Average Balance(1) Mix Interest Interest Rate institutions $ 4,106,837 11 % $ 36,915 0.90 % $ 3,898,805 11 % $ 20,947 0.54 % Securities purchased under resale agreements Loans Personal Business Total interest bearing assets Other assets Total Assets Liabilities Deposits Personal 143,701 6,687,336 27,153,241 33,840,577 38,091,115 948,188 - 17 70 87 98 2 1,964 1.37 56,345 211,531 1,311,495 1,523,026 1,561,905 - 3.16 4.83 4.50 4.10 0.00 6,079,394 24,931,015 31,010,409 34,965,559 811,430 - 17 70 87 98 2 111 0.20 210,483 1,086,471 1,296,954 1,318,012 - 3.46 4.36 4.18 3.77 0.00 $ 39,039,303 100 % $ 1,561,905 4.00 % $ 35,776,989 100 % $ 1,318,012 3.68 % $ 16,023,732 41 % $ 325,291 2.03 % $ 15,508,125 43 % $ 246,614 1.59 % Business and government Securities sold under repurchase agreements Other liabilities Debt Shareholders' equity Non-controlling interests 15,334,691 31,358,423 50,470 711,081 3,282,776 3,636,553 - 39 80 - 2 9 9 - 220,166 545,457 679 3,159 72,634 - - 1.44 1.74 1.35 0.44 2.21 0.00 0.00 13,408,510 28,916,635 31,826 671,260 2,708,222 3,448,826 220 37 80 - 2 8 10 - 114,004 360,618 45 2,809 62,177 - - Total Liabilities and Equity $ 39,039,303 100 % $ 621,929 1.59 % $ 35,776,989 100 % $ 425,649 Total Assets/Net Interest Income $ 39,039,303 $ 939,976 2.41 % $ 35,776,989 $ 892,363 0.85 1.25 0.14 0.42 2.30 0.00 0.00 1.19 % 2.49 % (1) Non-GAAP measure – refer to definitions and detail provided on page 16. Net interest income of $940 million was up 5% ($48 million) from last year. Growth was primarily driven by a 9% increase in average interest-earning assets, partially offset by an eight basis point decrease in net interest margin. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs over the last year driven by the higher market interest rate environment. Net interest margin was also negatively impacted by a change in our lending mix to comparatively lower- yielding borrowers and portfolios. The yield on average cash, securities and deposits with financial institutions of 0.90% increased 36 basis points primarily due to increases in market interest rates following the Bank of Canada policy interest rate changes. The average balance of cash, securities and deposits as a percentage of total assets was relatively consistent year-over- year. Average loan yields increased 32 basis points to 4.50% primarily due to a 107 basis point increase in average prime rate, driven by the Bank of Canada policy interest rate increases during the year. The increase in average prime rate immediately impacted our floating rate loan yields, which represent about one third of our loan portfolio, while our fixed rate loan portfolio will continue to trend upwards as loans originated prior to the policy interest rate increases roll off and are replaced with new lending at higher rates. Loan yields have also been slower to reflect the full impact of market interest rate changes due to high competition for new lending. Lower personal loan yields reflect the combined impact of timing of policy rate increases on our personal loan portfolio, which is almost entirely fixed rate, and our strategic focus towards loans with low loan-to-value and borrowers with stronger beacon scores, which attract lower loan yields. Average deposit costs were up 49 basis points to 1.74% and the overall cost of average interest-bearing liabilities and equity increased 40 basis points to 1.59%, primarily due to market interest rate increases, which also resulted in deposit pricing changes on certain administered rate products. The increase in market interest rates immediately impacted our floating rate deposits, which represent about one third of our deposit portfolio. The proportional increase in deposits compared to loan yields is primarily due to the impact of our fixed term deposit portfolio repricing faster to reflect higher market interest rates than our fixed term loans, which have a longer average duration. CWB Financial Group 2022 Annual Report | 23 NON-INTEREST INCOME Table 6 - Non-interest Income ($ thousands) 2022 2021 Change from 2021 Wealth management services $ 61,928 $ 59,490 $ Credit related Retail services Trust services Gains (losses) on securities, net Other(1) Total Non-interest Income 40,449 10,264 9,991 (67) 13,746 38,411 10,007 8,988 2,978 3,796 2,438 2,038 257 1,003 (3,045) 4 % 5 3 11 nm 9,950 262 $ 136,311 $ 123,670 $ 12,641 10 % (1) Primarily consists of foreign exchange gains/losses and other miscellaneous non-interest revenues. nm – not meaningful Non-interest income of $136 million was up 10% ($13 million) primarily due to higher foreign exchange revenue recorded in ‘other’ non-interest income and reflects a strengthening U.S. dollar. The increase in wealth management service fees was primarily driven by higher average assets under management. Higher credit related fees were driven by loan growth and an increase in administration fees associated with our enhanced credit card offerings, for which we do not retain the underlying credit risk of the cards or carry outstanding balances on our balance sheet. Higher trust services fees reflect an increase in transaction volumes in the current year, primarily driven by higher than normal activity as customers re-balanced their portfolios in the rising interest rate environment. The increase in non-interest income was partially offset by lower net gains on security sales, which were elevated in the prior year from the re-balancing of our cash and securities portfolio through the market disruptions that followed the COVID-19 pandemic. 24 | CWB Financial Group 2022 Annual Report NON-INTEREST EXPENSES AND EFFICIENCY RATIO Table 7 - Non-interest Expenses and Efficiency Ratio ($ thousands) 2022 2021 Change from 2021 Salaries and Employee Benefits Salaries Employee benefits Premises Depreciation Rent Other Equipment and Software Depreciation Other General Professional fees and services Regulatory costs Marketing and business development Amortization of acquisition-related intangible assets Banking charges Employee recruitment and training Loan-related credit reports Travel Communications Capital and business taxes Staff relations Acquisition and integration costs Other Total Non-interest Expenses Efficiency Ratio bp – basis point $ $ 286,130 59,613 345,743 271,946 53,190 325,136 $ 18,439 11,213 4,622 34,274 52,197 41,214 93,411 30,264 13,262 10,366 10,212 9,915 6,169 3,588 2,735 2,167 2,038 1,947 626 15,060 108,349 581,777 $ 17,802 10,388 3,983 32,173 32,422 31,359 63,781 20,517 12,894 10,339 8,073 8,036 4,187 3,370 895 2,094 1,530 1,501 1,761 12,431 87,628 $ 508,718 $ 51.5 % 49.1 % 14,184 6,423 20,607 637 825 639 2,101 19,775 9,855 29,630 5 % 12 6 4 8 16 7 61 31 46 9,747 368 27 2,139 1,879 1,982 218 1,840 73 48 3 - 26 23 47 6 206 3 508 33 446 30 (1,135) 2,629 20,721 73,059 (64) 21 24 14 % 240 bp Total non-interest expenses of $582 million were up 14% ($73 million). The increase included $17 million of costs related to the accelerated amortization as a result of a reduction in estimated useful lives of certain previously capitalized AIRB assets, concurrent with the completion of a material portion of our revised AIRB tools. Adjusted non-interest expenses increased 11%, which was driven by our continued strategic execution, including investment in our people, AIRB tools and processes digital capabilities, the harmonization of our wealth management brands with the launch of CWB Wealth, our new banking centres in Markham, Ontario and downtown Vancouver and expanded client offerings to optimize our business, deliver an unrivaled experience to our clients, and accelerate full-service client growth. CWB Financial Group 2022 Annual Report | 25 Salaries and employee benefits increased 6% ($21 million) mainly due to hiring activity to support overall business growth, our Ontario expansion, and execution of strategic priorities, along with annual and one-time salary increments. Higher salaries and employee benefits were partially offset by lower share-based compensation expense associated with a lower share price in the current year. Premises increased 7% ($2 million) and reflect expenses associated with our continued physical geographic expansion, including our new banking centres in Markham, Ontario and downtown Vancouver. Equipment and software costs were up 46% ($30 million) primarily due to the accelerated amortization of intangible assets of previously capitalized AIRB assets. Excluding the accelerated depreciation of intangible assets, equipment and software costs were up 20%, primarily driven by our ongoing investments in technology infrastructure to position ourselves for future growth and to improve our client and employee experience, and higher depreciation expense associated with previous capital expenditures incurred to support our strategic execution. General non-interest expenses were up 24% ($21 million) primarily due to higher professional fees and services associated with our strategic execution, including costs related to the development of AIRB tools and processes and the harmonization of our wealth management brands with the launch of CWB Wealth. We also incurred higher travel costs associated with the reduction in COVID-19 restrictions, higher amortization of acquisition-related intangible assets due to the brand launch of CWB Wealth and concurrent retirement of legacy wealth management brands, an increase in employee recruitment and training costs, reflecting the increase in competition for talent and a return to in-person learning, and higher banking charges driven by expansion of our credit card offerings. These increases were partially offset by lower acquisition and integration costs associated with our previously executed wealth acquisition. INCOME TAXES The efficiency ratio was 51.5% compared to 49.1%, as expense growth outpaced revenue growth as we have made several strategic investments this year, which will benefit revenue growth in future periods. Figure 1 - Number of Full-time Equivalent Employees (1) Approximately half of the fiscal 2020 increase related to the wealth acquisition The current year effective income tax rate of 24.9% was 70 basis points lower than last year, primarily due to a non-recurring adjustment that reduced the tax expense recorded in the current year. On November 4, 2022, the Canadian Government introduced Bill C-32 as the Fall Economic Statement Implementation Act, which includes legislation to increase the federal corporate income tax rate by 1.5% on taxable income above $100 million for banking and life insurance groups. The Bill is not yet substantively enacted. Based on the proposed legislation, it will not result in a significant impact to our effective tax rate for the year, if enacted, as the increase in current tax expense will be partially offset by the impact of re-measuring applicable net deferred tax assets at the higher tax rate. Deferred tax assets and liabilities represent the cumulative amount of tax applicable to temporary differences between the carrying amount of assets and liabilities, and their values for tax purposes. Our deferred income tax assets and liabilities relate primarily to the performing loan allowance for credit losses and intangible assets. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates anticipated to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Changes in deferred income taxes related to a change in tax rates are recognized as income in the period of the tax rate change. COMPREHENSIVE INCOME Comprehensive income is comprised of net income and other comprehensive income (OCI), all net of taxes. Our OCI includes changes in unrealized gains and losses on debt securities measured at FVOCI and equity securities designated at FVOCI, and fair value changes for derivative instruments designated as cash flow hedges. Comprehensive income of $192 million was down 26% ($66 million) due to a $46 million reduction in OCI and a $20 million decrease in net income. Lower OCI, net of tax, was driven by lower changes in fair value of debt securities measured at FVOCI ($55 million) and derivatives designated as cash flow hedges ($33 million), partially offset by lower losses reclassified to net income ($43 million), as the prior year reflected elevated losses associated with the impact of adjusting certain balance sheet management activities in response to a shift in our funding mix. Our debt securities portfolio, which is classified at FVOCI, is comprised of bonds issued or guaranteed by federal (Canada or United States), provincial or municipal governments used exclusively for liquidity management purposes and typically held to maturity. Fluctuations in value are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. 26 | CWB Financial Group 2022 Annual Report Table 8 - Comprehensive Income ($ 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 Unrealized losses from change in fair value Reclassification to net income, of (gains) losses in the year Derivatives designated as cash flow hedges Losses from change in fair value Reclassification to net income, of gains (losses) in the year Items that will not be subsequently reclassified to net income Unrealized gains (losses) on equity securities designated at fair value through other comprehensive income Comprehensive Income CASH AND SECURITIES 2022 2021 Change from 2021 $ 336,896 $ 357,253 $ (20,357) (89,817) 8 (89,809) (38,852) (16,508) (55,360) (167) (145,336) (34,949) (3,316) (38,265) (6,197) (56,121) (62,318) 1,053 (99,530) $ 191,560 $ 257,723 $ (54,868) 3,324 (51,544) (32,655) 39,613 6,958 (1,220) (45,806) (66,163) Cash, securities and securities purchased under resale agreements totaled $4.6 billion at October 31, 2022, compared to $3.7 billion last year. The cash and securities portfolio is primarily comprised of high-quality debt instruments that are used exclusively for liquidity management purposes, are not held for trading purposes and are typically held to maturity. The balance and mix of cash and securities are managed as part of our overall liquidity management process. Refer to the Liquidity Management section of our MD&A for additional information. Table 9 - Unrealized Gains and Losses on Debt Securities and Cash Resources Measured at FVOCI and Equity(1) ($ thousands) Measured at FVOCI Interest bearing deposits with financial institutions(2) Debt securities issued or guaranteed by Canada A province or municipality Other debt securities issued by United States Treasury Designated at FVOCI Other equity securities Total Measured at FVOCI Interest bearing deposits with financial institutions(2) Debt securities issued or guaranteed by Canada A province or municipality Other debt securities issued by United States Treasury Designated at FVOCI Other equity securities Total As at October 31, 2022 Gross Unrealized Gains Gross Unrealized Losses Amortized Cost Fair Value $ 26,833 $ - $ - $ 26,833 4,047,037 465,377 157,393 414 67 - 136,630 16,497 8,671 3,910,821 448,947 148,722 8,972 4,705,612 $ $ 1,617 2,098 $ 284 162,082 $ 10,305 4,545,628 As at October 31, 2021 Gross Unrealized Gains Gross Unrealized Losses Amortized Cost Fair Value $ 21,344 $ - $ - $ 21,344 3,001,582 409,583 199,255 4,651 $ 3,636,415 $ 420 209 362 1,430 2,421 39,712 3,084 818 2,962,290 406,708 198,799 - 6,081 $ 43,614 $ 3,595,222 (1) Excludes financial instruments measured at amortized cost, including cash, non-interest bearing deposits with financial institutions and cheques and other items in transit of $89 million (October 31, 2021 – $107 million) and securities purchased under resale agreements of nil (October 31, 2021 – $30 million). Included in cash resources on the consolidated balance sheets. (2) CWB Financial Group 2022 Annual Report | 27 Fluctuations in the value of securities are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. Net unrealized losses, before tax, recorded on the consolidated balance sheet at October 31, 2022 totaled $160 million, compared to net unrealized losses of $41 million last year. The increase in net unrealized losses on cash and securities compared to the prior year is primarily driven by the significant and rapid increase in market interest rates in the current year. During the year and in line with our liquidity management strategies and risk appetite, we recognized nominal net losses on security sales in earnings, compared to $3 million of net gains on security sales in the prior year, which were elevated from the re-balancing of our cash and securities portfolio through the market disruptions that followed the COVID-19 pandemic. We regularly review the level of unrealized losses on securities. Impairment charges on debt securities are reflected in net gains (losses) on securities only in the case of an issuer credit event. We have no direct investment in any sovereign debt or other securities issued outside of Canada or the United States. Refer to Table 30 – Valuation of Financial Instruments of our MD&A for additional information on significant financial assets and liabilities reported at fair value. LOANS Table 10 - Outstanding Loans by Portfolio ($ millions) General commercial loans Commercial mortgages Personal loans and mortgages Equipment financing and leasing Real estate project loans Oil and gas production loans Total Outstanding Loans(1) 2022 12,430 7,446 6,952 5,546 3,200 332 35,906 $ $ 2021 Change from 2021 10,895 7,039 6,396 5,286 2,871 414 32,901 $ $ 1,535 407 556 260 329 (82) 3,005 14 % 6 9 5 11 (20) 9 % $ $ (1) Total loans outstanding by lending sector exclude the allowance for credit losses. Total loans, excluding the allowance for credit losses, increased 9% ($3.0 billion) compared to last year. Growth by lending sector was consistent with our ongoing efforts to increase full-service relationships across our national footprint. We delivered very strong growth in our strategically targeted general commercial portfolio, which increased 14% ($1.5 billion) this year, primarily reflecting strong growth in Alberta, British Columbia and Ontario. 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. Growth in commercial mortgages of 6% ($407 million) primarily reflected strong new lending volumes in Ontario and British Columbia with high-quality borrowers and exposures consistent with our risk appetite. Personal loans and mortgages increased 9% ($556 million) primarily due to growth in uninsured mortgages, which benefited from strong new origination volumes with prudent loan-to-value ratios and strong average beacon scores. The equipment financing and leasing portfolio increased 5% ($260 million), primarily in Alberta, and was negatively impacted by ongoing supply chain pressures and elevated payouts. Real estate project loan growth of 11% ($329 million) was driven by an increase in project starts in British Columbia and Ontario. Lending in real estate project loans has focused on the strongest tier of our risk appetite, which are borrowers with strong, resilient balance sheets and track records of completing similar projects. Oil and gas production loans, which primarily reflect participation in syndicated facilities that remain within our prudent risk appetite, were down 20% ($82 million), primarily due to an elevated level of payouts and paydowns. Our exposures to oil and gas service and production businesses represent approximately 2% and 1% of total loans, respectively. The shift in the mix of our portfolio (see Figure 2) reflected strong execution against our strategy as we capitalized on full-service client opportunities within our risk appetite and across a broad range of industries. Very strong growth in our strategically targeted general commercial loans increased the proportion of loans to 35% at October 31, 2022, compared to 33% last year. The proportion of loans in equipment financing and leasing decreased to 15% from 16% last year, as new loan growth was negatively impacted by ongoing supply chain pressures and elevated payouts. The proportion of loans in commercial mortgages also decreased to 21%, from 22% last year, and our remaining portfolios remained relatively consistent with the prior year. Figure 2 - Outstanding Loans by Portfolio (October 31, 2021 in brackets) 28 | CWB Financial Group 2022 Annual Report The shift in our portfolio based on the location of security (see Figure 3) reflected strong execution on our strategic growth objectives across our geographic footprint. Very strong growth in the Ontario market, supported by strong momentum from our Mississauga and newly opened Markham banking centres, increased the proportion of loans to 24% at October 31, 2022, compared to 23% last year. Figure 3 - Geographical Distribution of Outstanding Loans based on Location of Security (October 31, 2021 in brackets) 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. Table 11 - Outstanding Loans by Industry Sector(1) (% at October 31) Real estate operations Consumer loans and residential mortgages Construction Finance and insurance Transportation and storage Hotel/motel Retail trade Health and social services Agriculture Manufacturing Professional, scientific and technical services Oil and gas service Oil and gas production Accommodation and food services Logging/forestry Wholesale trade Utilities All other Total (1) Based on North American Industry Classification System (NAICS) codes. 2022 2021 21 % 19 18 9 7 5 3 3 2 2 2 2 1 1 1 1 1 2 21 % 19 18 8 7 5 4 3 2 2 2 1 1 1 1 1 1 3 100 % 100 % CWB Financial Group 2022 Annual Report | 29 CREDIT QUALITY IMPAIRED LOANS Loans are determined to be in default and classified as impaired when payments are contractually past due 90 days or more, when we have commenced realization proceedings, or when we are 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. Table 12 - Change in Gross Impaired Loans ($ thousands) Gross impaired loans, beginning of year New formations Reductions, impaired accounts paid down or returned to performing status Write-offs Total(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 $ $ $ $ $ $ 2022 202,324 150,723 (155,759) (30,615) 166,673 82,314 280 256 0.46 % $ $ $ 2021 257,141 199,514 (196,231) (58,100) 202,324 77,227 330 282 0.61 % Change from 2021 (54,817) (48,791) 40,472 27,485 (35,651) 5,087 (50) (26) (21) % (24) (21) (47) (18) % 7 % (15) (9) (15) bp (1) Gross impaired loans include foreclosed assets held for sale with a carrying value of $2,010 (October 31, 2021 – $2,253). We pursue timely realization of foreclosed assets and do not use the assets for our own operations. (2) Total number of accounts excludes CWB National Leasing. bp – basis point The dollar level of gross impaired loans at October 31, 2022 totaled $167 million, down from $202 million last year. This amount represented 0.46% of gross loans compared to 0.61% last year. The level of gross impaired loans fluctuates as loans become impaired and are subsequently resolved, and does not directly reflect the dollar value of expected write-offs given tangible security held in support of lending exposures. Compared to the prior year, gross impaired loans decreased across all provinces with the exception of Quebec and Manitoba. Gross impaired loans also declined across most portfolios, with the exception of our commercial mortgage and personal loan and mortgage portfolios. New formations of impaired loans totaled $151 million, compared to $200 million last year. Strong resolutions of $156 million this year were compared to $196 million last year, and reflect our ongoing proactive management of the loan portfolio by our Special Asset Management Unit, a team that specializes in resolving troubled loans and minimizing credit losses. We regularly review the overall loan portfolio and undertake credit decisions on a case-by-case basis to provide early identification of possible adverse trends. Our strong credit risk management framework, including well-established underwriting standards, the secured nature of our lending portfolio with conservative loan-to-value ratios, and proactive approach to working with clients through difficult periods has continued to be an effective approach. This is demonstrated by our history of low write-offs as a percentage of average loans, including through past periods of economic volatility. Refer to the Risk Management section of this MD&A for additional information. 30 | CWB Financial Group 2022 Annual Report ALLOWANCE FOR CREDIT LOSSES Allowances for credit losses are maintained in response to identified and expected credit losses (ECL) in the loan portfolio. The performing loan allowance (Stage 1 and 2), which is our most significant accounting estimate, consists of expected credit losses for losses in the portfolio that are not presently identifiable on an account-by-account basis. The allowance for impaired loans consists of the amounts required to reduce the carrying value of individually identified impaired loans to their 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. At October 31, 2022, the total allowance for credit losses of $167 million consisted of $120 million for performing loans and $47 million related to impaired loans (Stage 3). One year ago, the total allowance for credit losses of $146 million consisted of $107 million for performing loans and $39 million related to impaired loans. The change in the allowance for credit losses compared to last year, with the allowance for impaired loans split by loan portfolio, is provided in the following table. Table 13 - Allowance for Credit Losses ($ thousands) Impaired loan allowance (Stage 3) General commercial loans Equipment financing and leasing Commercial mortgages Personal loans and mortgages Real estate project loans Oil and gas production loans Performing loan allowance (Stage 1 and 2) Total Represented by: Loans Committed but undrawn credit exposures and letters of credit(2) Total 2022 Opening Balance Provision for (Recovery of) Credit Losses Write-Offs, net of Recoveries(1) $ $ 27,081 5,587 5,224 485 920 - 39,297 106,553 $ 145,850 $ 16,161 3,302 12,932 302 (477) (69) 32,151 13,884 46,035 $ (10,773) (2,101) (11,422) (647) 117 69 (24,757) - $ (24,757) 2022 Ending Balance 32,469 6,788 6,734 140 560 - 46,691 120,437 167,128 161,818 5,310 167,128 $ $ $ $ (1) Recoveries in fiscal 2022 totaled $5,858 (2021 – $12,669). (2) 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. Performing loan allowance The performing loan allowance is estimated based on 12-month expected credit losses for loans in Stage 1, while loans in Stage 2 require the recognition of lifetime expected credit losses. The proportion of performing loans in Stage 2 was 20%, compared to 9% last year. The increase in Stage 2 loans primarily reflects a deterioration in the forward- looking macroeconomic forecast, due to an anticipated decline in housing prices, significantly higher mortgage interest rates and higher expected unemployment rates, rather than a deterioration of borrower-specific credit quality. The performing loan allowance of $120 million increased 13% from the prior year, primarily due to a deterioration in the forward-looking macroeconomic forecast, associated with anticipated lower GDP growth, worsening housing prices and higher unemployment rates. The macroeconomic forecast in the current year, which is based on an average of the large Canadian banks’ macroeconomic forecasts, reflects a slowdown in the economic recovery and the potential for recessionary conditions to arise. GDP growth in 2023, while expected to remain positive, is forecast to moderate as the impact of elevated inflation and commodity prices, supply chain pressures and the full year impact of rapid increases in interest rates will likely negatively affect business and consumer spending and subsequently limit the potential for expanded economic growth. The labour market is also expected to cool, with unemployment rates expected to increase through 2023. A moderate to sharp decline in housing price growth is expected in 2023, and reflects the impact of the rapid increase in policy interest rates in 2022. Oil prices are expected to remain relatively stable with current levels through the forecast period. For further details on the economic factors incorporated into the estimation of the performing loan allowance, see Note 6 of the audited consolidated financial statements for the year ended October 31, 2022. Key economic variables incorporated into our ECL models are inherently prone to volatility on a forward-looking basis. Measures to curtail inflation, global geopolitical uncertainty and the impact of the conclusion of government support programs on the Canadian economy could result in negative revisions to expected economic assumptions. Hindsight cannot be used, so while these evolving assumptions may result in future forecasts that differ from those used in the ECL estimation at October 31, 2022, those changes will be reflected in future periods. In estimating the performing loan allowance, we continue to supplement our modeled ECL to reflect expert credit judgments. These expert credit judgments account for the variability in the results provided by the models and consider the lagging impacts of typical credit cycles, where loan defaults occur in periods subsequent to the onset of a decline in macroeconomic conditions. Impaired loan allowance The allowance for impaired loans (Stage 3) was $47 million, compared to $39 million last year. Given the larger average exposure size within our commercial portfolios in comparison to personal loans, our impaired loan allowances and provisions for credit losses may fluctuate as loans become impaired and are subsequently resolved. In determining allowances for impaired loans, we establish estimates through detailed analysis of both the overall quality and ultimate marketability of the security held against each impaired account on a case-by-case basis. CWB Financial Group 2022 Annual Report | 31 PROVISION FOR CREDIT LOSSES The provision for credit losses as a percentage of average loans of 14 basis points consisted of a ten basis point provision related to impaired loans and a four basis point provision related to performing loans. This compared to a nine basis point provision for credit losses last year, including a 17 basis point charge related to impaired loans and an eight basis point recovery related to performing loans. In dollar terms, the provision for credit losses of $46 million compared to $27 million last year. The provision for credit losses on impaired loans was a $32 million charge compared to a $51 million charge last year, while the provision for credit losses on performing loans was a $14 million charge compared to a recovery of $24 million last year. For additional information on the estimation of the performing loan allowance, refer to the Allowance for Credit Losses section of our MD&A. Quarterly write-offs fluctuate as loans become impaired and are subsequently resolved. Our approach to managing credit risk has proven to be very effective and write-offs as a percentage of average loans of nine basis points remained well below our five-year average of 19 basis points. Table 14 - Provision for Credit Losses (as a percentage of average loans) Provision for credit losses on total loans Provision for credit losses on impaired loans Write-offs(2) 2022 0.14 % 0.10 0.09 IFRS 9 2021 0.09 % 0.17 0.19 2020 0.32 % 0.18 0.17 2019 0.21 % 0.21 0.23 IAS 39(1) 2018 0.20 % 0.19 0.18 (1) Fiscal 2018 was prepared in accordance with IAS 39 Financial Instruments: Recognition and Measurement and have not been restated. (2) Non-GAAP measure – refer to definitions and detail provided on page 16. PAST DUE LOANS Loans are considered past due when a customer has not made a payment by the contractual due date. Table 15 - Past Due Loans As at October 31, 2022 Personal Business Total 1 - 30 days $ 62,119 $ 112,008 31 - 60 days 28,338 $ 48,970 61 - 90 days 1,152 $ 45,845 Total 91,609 206,823 $ 174,127 $ 77,308 $ 46,997 $ 298,432 As at October 31, 2021 $ 98,893 $ 34,499 $ 3,716 $ 137,108 Past due performing loans of $298 million were 118% higher than prior year. Past due loans were at historical lows at the prior year-end. Over the last year borrower credit performance began to normalize. Past due performing loans as a percentage of total gross loans are now relatively consistent with pre-COVID-19 pandemic levels. 32 | CWB Financial Group 2022 Annual Report DEPOSITS AND FUNDING Table 16 - Deposits ($ thousands) Personal Business and government Deposit brokers Capital markets Total % of Total Personal Business and government Deposit brokers Capital markets Total % of Total Demand Notice Term 2022 Total % of Total $ 35,688 $ 6,654,784 $ 3,957,977 $ 10,648,449 32 % 1,314,615 - - 6,456,577 - - 2,457,809 7,639,305 4,502,292 10,229,001 7,639,305 4,502,292 31 23 14 $ 1,350,303 $ 13,111,361 $ 18,557,383 $ 33,019,047 100 % 4 % 40 % 56 % 100 % Demand Notice Term 2021 Total % of Total $ 41,271 $ 7,274,688 $ 2,847,594 $ 10,163,553 34 % 1,310,964 5,838,025 - - - - 1,945,920 6,386,296 4,330,981 9,094,909 6,386,296 4,330,981 30 21 15 $ 1,352,235 $ 13,112,713 $ 15,510,791 $ 29,975,739 100 % 4 % 44 % 52 % 100 % We delivered strong execution against our funding diversification strategy during the year. Total deposits of $33.0 billion were up 10% ($3.0 billion). Personal deposits increased 5% ($485 million) and business and government deposits increased 12% ($1.1 billion) during the year, reflecting strong growth in our fixed term deposits, primarily driven by our full-service banking centres. Table 17 - Deposits by Source (as a percentage of total deposits at October 31) Branch-raised Deposit brokers Capital markets Total 2022 63 % 23 14 100 % 2021 64 % 21 15 100 % References to branch-raised deposits within our MD&A include all deposits generated through our full-service banking centres, as well as deposits raised via CWB Trust Services and Motive Financial. Accelerated branch-raised business and personal deposit growth is an ongoing strategic focus for us as success in this area provides a lower cost of funding with the opportunity to generate transaction fee revenue. 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. Refer to the Liquidity Management section of our MD&A for additional information. We have consistently delivered strong growth of relationship-based, branch-raised deposits over the past several years. Branch-raised deposits of $20.9 billon increased 8% ($1.6 billion) from last year, with 34% growth in our fixed term deposits. Demand and notice deposits remained relatively consistent year-over-year. We delivered strong new demand and notice deposit growth as we continued to capitalize on full-service client opportunities by attracting new clients both within and outside of our banking centre footprint. The net new demand and notice deposit growth was offset by a decline in other client deposit balances and a shift in existing client deposits to branch- raised term deposits, which reflects a shift in client preference in the rising rate environment. Nearly all of our annual branch-raised deposit growth was generated from our banking centres. Branch-raised deposits comprised 63% of total deposits at October 31, 2022, compared to 64% last year. CWB Trust Services raises deposits through notice accounts, including cash balances held in registered accounts as well as corporate trust deposits, and fixed term deposits through our branch network. CWB Trust Services deposits grew 1% ($53 million) from the prior year, as new and existing client additions were partially offset by clients moving uninvested funds towards short-term deposits reflective of uncertain economic conditions and the rising rate environment. Motive Financial deposits remained relatively stable with last year. Other types of deposits are primarily sourced through a deposit broker network and debt capital markets. Capital market deposits increased $0.2 billion from last year, and represented 14% of total deposits, compared to 15% in the prior year. The broker deposit market remains an efficient and liquid source of funding. Although these funds are subject to commissions, this cost is countered by a reduced dependence on a more extensive branch network and the benefit of generating insured fixed-term retail deposits over a wide geographic base. We only raise fixed term deposits through this funding channel, with terms to maturity between one and five years, and do not offer a High Interest Savings Account (HISA) product. Broker-sourced deposits increased 20% from last year and represent 23% of total deposits, up from 21% last year. We continue to invest in our securitization capabilities and participate in lease securitization vehicles, the NHA MBS program and the Canada Mortgage Bond (CMB) program. The gross amount of securitized leases and loans was $2.1 billion, compared to $1.9 billion one year ago. The gross amount of mortgages securitized under the NHA MBS program was $1.4 billion, consistent with last year. Funding from the securitization of leases, loans and mortgages totaled $1.2 billion (2021 – $1.4 billion) during the year, including $1.0 billion (2021 – $1.0 billion) of equipment leases and loans, and $0.2 billion (2021 – $0.5 billion) from participation in the CMB program. CWB Financial Group 2022 Annual Report | 33 OTHER ASSETS AND OTHER LIABILITIES Other assets at October 31, 2022 totaled $1.1 billion compared to $831 million last year, driven by an increase in accounts receivable, higher fair values of favourable derivative contracts used for interest rate risk management purposes, and higher property and equipment, primarily associated with our new Vancouver and Markham banking centres. Other liabilities totaled $1.2 billion at October 31, 2022 compared to $798 million last year, with the increase primarily related to higher securities sold under repurchase agreements and an increase in the liability recognized for unfavourable derivative contracts used for interest rate risk management purposes. LIQUIDITY MANAGEMENT We maintain a conservative liquid asset profile. Our cash and securities portfolio is comprised of high-quality debt instruments, primarily issued or guaranteed by federal (Canada or United States), provincial or municipal governments, and short-term money market instruments. A schedule outlining our securities portfolio at October 31, 2022 is provided in Note 4 of the audited consolidated financial statements. For additional information on the governance and risk management related to liquidity and funding risk, refer to the Liquidity and Funding Risk section of our MD&A. Table 18 - Liquid Assets ($ thousands) 2022 2021 Change from 2021 Cash and non-interest bearing deposits with financial institutions $ 81,228 $ Interest bearing deposits with financial institutions Cheques and other items in transit Government of Canada, provincial and municipal debt, term to maturity one year or less Government of Canada, provincial and municipal debt, term to maturity more than one year NHA mortgage-backed securities(1) Other securities Securities (sold) purchased under (repurchase) resale agreements 26,833 7,918 115,979 2,051,914 2,307,854 229,052 159,027 (247,354) 4,500,493 $ 87,853 21,344 19,262 128,459 90,435 3,278,563 499,908 204,880 30,048 4,103,834 (6,625) 5,489 (11,344) (12,480) 1,961,479 (970,709) (270,856) (45,853) (277,402) 396,659 384,179 4,116,967 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 $ 4,616,472 $ 4,232,293 $ 41,440,143 $ 37,323,176 $ $ 11 % 11 % - % $ 4,387,420 $ 3,732,385 $ 655,035 11 % 10 % 1 % $ 33,019,047 $ 29,975,739 $ 3,043,308 14 % 14 % - % (1) Includes securitized mortgages that were not transferred to third parties. These are reported in loans at amortized cost on the consolidated balance sheets. The composition of total liquid assets supports ongoing compliance with the OSFI Liquidity Adequacy Requirements (LAR) guideline. Liquid assets, as defined by OSFI, comprised of cash, deposits, securities (sold) purchased under (repurchase) resale agreements and marketable debt securities, totaled $4.6 billion at October 31, 2022 (October 31, 2021 – $4.2 billion). Liquid assets represented 11% of total assets, consistent with last year, and 14% of total deposit liabilities at year end, also consistent with last year. Our liquidity management is based on an internal stressed cash flow model, with the level of cash and securities driven primarily by the term structure of both assets and liabilities, and the liquidity structure of liabilities. In the prior year, we adopted the final version of Guideline B-6: Liquidity Principles (Guideline B-6), which complements the LAR guideline and sets out OSFI's expectations for how deposit-taking institutions should manage liquidity risk, with no significant impact on our liquidity management. In fiscal 2022, we continued to maintain very prudent levels of liquidity. Other key elements of the composition of liquid assets at October 31, 2022 compared to the prior year include: • Maturities within one year comprise 42% (October 31, 2021 – 8%), with the increase from the prior year in response to changes in market interest rates; • Government of Canada, provincial and municipal debt securities and unencumbered NHA MBS comprise 99% (October 31, 2021 – 92%); and, • Cash and deposits with financial institutions comprise 3% (October 31, 2021 – 3%). 34 | CWB Financial Group 2022 Annual Report A summary of all outstanding deposits by contractual maturity date is presented in the two following tables. Table 19 - Deposit Maturities Within One Year ($ millions) October 31, 2022 Demand deposits Notice deposits Deposits payable on a fixed date Total October 31, 2021 Total Table 20 - Total Deposit Maturities ($ millions) October 31, 2022 Demand deposits Notice deposits Deposits payable on a fixed date Within 1 Year $ 1,350 $ 13,112 8,378 1 to 2 Years - - 5,006 $ Total October 31, 2021 Total $ $ 22,840 $ 5,006 $ 21,520 $ 3,928 $ 2 to 3 Years - - 2,440 2,440 2,261 Within 1 Month 1 to 3 Months 3 Months Cumulative to 1 Year Within 1 Year $ 1,350 $ - $ - $ 10,974 695 333 1,335 1,805 6,348 13,019 $ 1,668 $ 8,153 $ 12,492 $ 1,474 $ 7,554 $ 3 to 4 Years - - 853 $ 853 $ 1,111 $ 4 to 5 Years - - 1,314 1,314 652 $ $ $ More than 5 Years $ - - 566 566 $ 504 $ $ $ $ $ $ 1,350 13,112 8,378 22,840 21,520 Total 1,350 13,112 18,557 33,019 29,976 A breakdown of deposits by source is provided in Table 16 and 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. Additional sources of liquidity include deposits raised through broker channels, issuances of senior deposit notes, instruments that qualify as regulatory capital and securitization activity. A summary of the subordinated debentures outstanding is presented in the following table. Table 21 - Subordinated Debentures Outstanding ($ thousands) Series F NVCC subordinated debentures Series G NVCC subordinated debentures Interest Rate(1) 3.668% 4.840% Maturity Date June 11, 2029 June 29, 2030 Reset Spread(1) 199 bp 410.2 bp Earliest Date Redeemable by CWB at Par June 11, 2024 $ June 29, 2025 Par Value(2) 250,000 125,000 (1) The interest rate will be paid until the earliest date redeemable, after which the interest rate will reset quarterly at the reset spread basis points over the then three-month Bankers’ Acceptance rate. (2) The balance reported on the consolidated balance sheet as at October 31, 2022 includes unamortized financing costs related to the issuance of subordinated debentures of $1,198 (October 31, 2021 - $1,778). bp – basis point 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. Further details can be found in Note 7 and 14 of the audited consolidated financial statements for the year ended October 31, 2022. CWB Financial Group 2022 Annual Report | 35 CAPITAL MANAGEMENT We maintain a capital structure that both optimizes our cost of capital and supports ongoing profitable growth and strategic execution. 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 forecast capital needs with consideration of anticipated profitability, asset growth and composition, market and economic conditions, regulatory changes, and common and preferred share dividends. The goal is to maintain adequate regulatory capital to be considered well-capitalized and protect customer deposits, while providing a satisfactory return for shareholders. We have established target capital levels that are informed by our Internal Capital Adequacy Assessment Process (ICAAP) and stress tests, and are deemed prudent to effectively manage risks, including potential capital shocks from unexpected macroeconomic and/or CWB-specific events. We continued to comply with all internal and external capital requirements in 2022. ATM Program On June 1, 2022, we re-established an ATM program to allow the periodic issuance up to a total of $150 million of common shares, at our discretion and if needed, at the prevailing market price, under a prospectus supplement to the CWB short-term base shelf prospectus which expires on July 1, 2024. Under the existing ATM program, we have issued 2,667,171 common shares for gross proceeds of $66 million, or net proceeds of $65 million after commissions and other issuance costs. The ATM program was re-established following the termination of the previous ATM program on May 31, 2021, due to the sale of most of the $150 million common shares approved under the previous program. We continue to utilize our ATM program to support strong loan growth as we navigate current and future economic volatility, while prudently managing our regulatory capital ratios, and driving positive contributions to earnings per common share and ROE. Table 22 - ATM Usage Common shares issued(1) Average price per share Gross proceeds Net proceeds(2) $ 2022 4,725,271 29.86 $ 141,098 138,392 2021 2,052,600 35.55 72,969 71,353 (1) During the six months ended April 30, 2022, we issued 2,058,100 common shares at an average price of $36.46 per share for gross proceeds of $75,038, or net proceeds of $73,767 after sales commissions and other issuance costs, under our previous ATM program. Subsequent to April 30, 2022, all shares issued were under the new program. (2) Gross proceeds less sales commissions and other issuance costs. Share-based Payments We provide a share-based 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 16 of the audited consolidated financial statements for the year ended October 31, 2022 provides details related to the number of options outstanding, the weighted average exercise price and the amounts exercisable at year end. BASEL III CAPITAL ADEQUACY ACCORD OSFI requires Canadian financial institutions to manage and report regulatory capital in accordance with the Basel III capital management framework. We currently report regulatory capital ratios using the Standardized approach for calculating risk-weighted assets, which requires us to carry significantly more capital for certain credit exposures compared to requirements under the AIRB methodology. For this reason, regulatory capital ratios of banks that utilize the Standardized approach are not directly comparable with the large Canadian banks and other financial institutions that utilize the AIRB methodology. Our required minimum regulatory capital ratios, including a 250 basis point capital conservation buffer, are 7.0% CET1, 8.5% Tier 1 and 10.5% Total capital. REGULATORY UPDATES Basel III Reforms and Pillar 3 Disclosures On January 31, 2022, OSFI released the finalized 2023 CAR guidelines related to the implementation of Basel III reforms in Canada, which includes adjustments to the calculation of risk-weighted assets under both the Standardized approach and the internal ratings-based approach to credit risk, operational risk, and credit valuation adjustments, as well as to the AIRB capital floors. On the same date, OSFI released the Small and Medium-Sized Deposit-taking Institutions (SMSBs) Capital and Liquidity Requirements, which considers proportionality and provides simplified capital and liquidity requirements for SMSBs of various sizes. OSFI also released the final Pillar 3 Disclosure Guideline, which lists the disclosures required for SMSBs and their respective implementation date. Based on our total assets, we will qualify as a Category I SMSB. The CAR 2023 guidelines and associated disclosure requirements become effective on February 1, 2023. Our preparation to adopt the CAR 2023 guidelines remains in progress. We continue to estimate that the overall impact will likely be moderately positive to our regulatory capital ratios upon adoption, but will depend on our loan portfolio composition at that time. Under the CAR 2023 guidelines, certain commercial loan exposures attract a lower risk-weight compared to the existing guidelines, which we intend to leverage to lower the risk-weight density of our loan growth subsequent to adoption. Assurance Guideline on Capital, Leverage, and Liquidity Returns In November 2022, OSFI released a new assurance guideline on capital, leverage and liquidity returns. Starting for the fiscal 2025 year end, CWB will be required to, within 90 days of fiscal year end, obtain an external auditor opinion on the numerator and denominator that calculate the Basel Capital Adequacy Reporting (BCAR), Leverage Requirement Return (LRR), and the Liquidity Coverage Ratio (LCR) to provide to OSFI. 36 | CWB Financial Group 2022 Annual Report REGULATORY CAPITAL AND CAPITAL ADEQUACY RATIOS Table 23 - Capital Structure and Regulatory Ratios at Year End ($ thousands) Regulatory Capital, Net of Deductions Common equity Tier 1(1) Tier 1(1) Total Capital Ratios Common equity Tier 1 Tier 1 Total Leverage Ratio(2) 2022 2021 Change from 2021 $ 2,861,456 3,436,456 3,925,118 $ 2,601,438 3,176,438 3,650,366 $ 260,018 260,018 274,752 8.8 % 8.8 % - bp 10.6 12.1 8.1 10.8 12.4 8.6 (20) (30) (50) (1) In Q2 2020, OSFI introduced transitional arrangements related to the capital treatment of performing loan allowances, resulting in a portion of allowances that would otherwise be included in Tier 2 capital to be included, subject to a scaling factor set at 50% for fiscal 2021 and 25% for fiscal 2022. The implementation of this transitional arrangement, net of related tax, resulted in a $6 million increase to CET1 and Tier 1 capital (October 31, 2021 – $6 million) and had a negligible impact on the CET1 and Tier 1 ratios at October 31, 2022 (October 31, 2021 – negligible impact). The transitional arrangement has no impact on the Total capital ratio. (2) Sovereign-issued securities that qualify as High Quality Liquid Assets under the Liquidity Adequacy Requirements guideline were temporarily excluded from the leverage ratio exposure measure until December 31, 2021. This temporary exclusion positively impacted our leverage ratio by approximately 30 basis points as at October 31, 2021. bp – basis point Our CET1 capital ratio of 8.8% was stable compared to last year as the impact of retained earnings growth and common shares issued under our ATM program were offset by the combined impact of strong risk-weighted asset growth and a reduction in accumulated other comprehensive income (AOCI) related to a decline in the fair value of derivatives designated as cash flow hedges and an increase in the unrealized loss on debt securities measured at FVOCI as a result of an upward shift in market interest rates that reduced the fair value of our core liquidity portfolio. We intend to hold these debt securities until maturity, where they are settled at their face value. The Tier 1 and Total capital ratios declined 20 and 30 basis points, respectively, as strong risk-weighted asset growth and the decline in AOCI outweighed the impact of retained earnings growth and common shares issued under our ATM program. Our Basel III leverage ratio of 8.1% was very strong compared to the regulatory minimum of 3.0%, where a higher ratio indicates lower leverage. Table 24 - Regulatory Capital ($ thousands) Common Equity Tier 1 Capital Instruments and Reserves Directly issued qualifying common share capital plus related share-based payment reserve Retained earnings Accumulated other comprehensive income and other reserves(1) Common equity Tier 1 capital before regulatory adjustments Regulatory adjustments to Common equity Tier 1(2) Common equity Tier 1 capital Additional Tier 1 Capital Instruments Directly issued capital instruments qualifying as Additional Tier 1 instruments Additional Tier 1 capital Tier 1 capital Tier 2 Capital Instruments and Allowances Directly issued capital instruments General allowance for credit losses(3) Tier 2 capital before regulatory adjustments Total capital (1) Excludes AOCI related to derivatives designated as cash flow hedges. (2) CET1 deductions include goodwill and intangible assets and transitional arrangements related to the capital treatment of the performing loan allowance, net of related tax. (3) Excludes the portion of the performing loan allowance that is included in CET1 capital under transitional arrangements. 2022 2021 $ $ 983,527 2,317,146 (121,025) 3,179,648 (318,192) 2,861,456 835,451 2,120,795 (31,049) 2,925,197 (323,759) 2,601,438 575,000 575,000 575,000 575,000 3,436,456 3,176,438 373,802 114,860 488,662 373,222 100,706 473,928 $ 3,925,118 $ 3,650,366 CWB Financial Group 2022 Annual Report | 37 Table 25 - Risk-Weighted Assets ($ thousands) Corporate Sovereign Bank Retail residential mortgages Other retail Excluding small business entities Small business entities Equity Undrawn commitments Operational risk Derivative exposures Other As at October 31, 2022 As at October 31, 2021 Table 26 - Risk-Weighting Category ($ thousands) Cash, Securities and Resale Agreements Loans Other Items $ - 4,336,608 100,630 190,238 $ 23,369,672 16,941 4,479 7,115,548 $ $ - - - - - - - - - - - 140,398 5,320,304 10,305 546,553 - - 230,759 - - - - 143,279 19,059 949,655 Risk- Weighted Assets $ 23,262,046 3,388 24,605 1,992,858 97,604 4,009,523 10,305 546,631 1,790,993 9,881 670,166 Total 23,369,672 4,353,549 105,109 7,305,786 140,398 5,320,304 10,305 546,553 143,279 19,059 1,180,414 $ $ 4,627,476 $ 36,754,959 3,725,667 $ 33,573,547 $ $ 1,111,993 930,493 $ $ 42,494,428 $ 32,418,000 38,229,707 $ 29,500,491 0% 20% 35% 50% 75% 100% 150% and greater Balance Weighted 2,018 $ - $ - - 5,606,072 - $ - - - - $ 23,164,526 $ - - 23,171 - 4,479 12,132 64,745 $ 23,369,672 $ 23,262,046 3,388 24,605 1,992,858 4,353,549 105,109 7,305,786 - - 815 Corporate Sovereign Bank Retail residential mortgages Other retail Excluding small business entities Small business entities Equity Undrawn commitments Operational risk Derivative exposures Other $ 138,383 $ 4,336,608 - 1,663,596 10,112 35,151 - - - - 553,204 16,941 100,630 - 205 1,389 - - - 18,564 7,922 - - - - - - - - - - - - - - 130,078 5,190,675 - - - 1 59,374 - 46,790 10,305 546,396 - - 517,610 3 46,299 - 157 143,279 494 42,304 140,398 5,320,304 10,305 546,553 143,279 19,059 1,180,414 97,604 4,009,523 10,305 546,631 1,790,993 9,881 670,166 As at October 31, 2022 $ 6,737,054 $ 147,669 $ 5,606,072 $ - $ 5,403,299 $ 24,302,238 $ 298,096 $ 42,494,428 $ 32,418,000 As at October 31, 2021 $ 5,742,447 $ 175,113 $ 5,030,099 $ - $ 5,052,422 $ 21,896,363 $ 333,263 $ 38,229,707 $ 29,500,491 AIRB TRANSITION UPDATE We have materially completed the development of revised AIRB tools, incorporating targeted enhancements and the final 2023 CAR guidelines. Next year, we will commence integration of our revised AIRB tools into our business processes and data. Once our AIRB tools have been successfully implemented across the business, we will operate them for a sufficient period of time to support a successful resubmission of our application. Our transition to the AIRB approach for regulatory capital purposes is one of our key strategic priorities, as it will support our long-term growth and diversification aspirations with a sustainable and scalable operating model. Measuring our credit risk using an AIRB approach is expected to boost our capital ratios, as risk-weighted assets will be calculated more accurately using risk-sensitive models that reflect our strong underwriting track record. This will put us on more equal footing with our large bank competitors and allow us to enhance return on capital. Our historically strong credit performance will be elevated through use of our new tools and processes by leveraging better analytical information to identify high-quality lending opportunities through improved risk-based pricing capabilities and broaden our addressable market. BOOK VALUE PER COMMON SHARE Book value per common share at October 31, 2022 of $33.48 was up 1% from $33.10 last year. Compared to last year, the increase primarily reflects sustained common shareholders’ net income generation partially offset by a decline in AOCI and an increase in common shares outstanding. 38 | CWB Financial Group 2022 Annual Report FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS Financial assets include cash resources, securities, securities purchased under resale agreements, loans, derivatives and certain other assets. Financial liabilities include deposits, securities sold under repurchase agreements, derivatives, debt and certain other liabilities. The use of financial instruments exposes CWB to credit, liquidity and market risk. A discussion of how these are managed can be found in the Risk Management section of our MD&A. Further information on how the fair value of financial instruments is determined is included in the Financial Instruments Measured at Fair Value discussion in the Accounting Policies and Estimates section of our MD&A. Income and expenses are classified as to source, either securities or loans for income, and deposits or debt for expense. Gains (losses) on the sale of securities and fair value changes in certain derivatives are classified to non-interest income. DERIVATIVE FINANCIAL INSTRUMENTS More detailed information on the nature of derivative financial instruments is shown in Note 10 of the audited consolidated financial statements for the year ended October 31, 2022. The notional amounts of derivative financial instruments are not reflected on the consolidated balance sheets. Table 27 - Derivative Financial Instruments ($ thousands) Notional Amounts Interest rate swaps designated as cash flow hedges(1) Interest rate swaps designated as fair value hedges(2) Equity swaps designated as cash flow hedges(3) Equity swaps not designated as accounting hedges(4) Foreign exchange contracts not designated as accounting hedges(5) Total 2022 2021 $ 6,070,000 355,020 19,756 8,066 144 $ 3,415,000 380,143 19,450 8,886 136,530 $ 6,452,986 $ 3,960,009 Interest rate swaps designated as accounting cash flow hedges outstanding at October 31, 2022 mature between November 2022 and December 2028. Interest rate swaps designated as accounting fair value hedges outstanding at October 31, 2022 mature between October 2024 and September 2028. (1) (2) (3) Equity swaps designated as accounting hedges outstanding at October 31, 2022 mature between June 2023 and June 2025. (4) Equity swaps not designated as accounting hedges outstanding at October 31, 2022 mature in June 2023. (5) Foreign exchange contracts outstanding at October 31, 2022 mature between November 2022 and December 2022. The active use of interest rate swap contracts remains an integral component to manage the interest rate gap position. Derivative financial instruments are entered into only for CWB’s own account. We do not act as an intermediary in derivatives markets. Transactions are entered into on the basis of industry standard contracts with approved counterparties subject to periodic and at least annual review, including an assessment of the credit worthiness of the counterparty. As part of our structural Market Risk Management Policy the use of derivative financial instruments are approved, reviewed and monitored on a regular basis by the Group Asset Liability Committee (ALCo), and are reviewed and approved by the Board Risk Committee no less than annually. OFF-BALANCE SHEET Off-balance sheet items include assets under management, advisement and administration. Table 28 - Off-balance sheet items ($ thousands) Wealth Management(1) Assets under management and administration Assets under advisement(2) Assets Under Administration - Other 2022 2021 $ 7,825,003 $ 8,687,136 1,824,961 2,067,069 13,943,199 14,031,042 (1) Certain comparative figures have been reclassified to conform with the current period's presentation. (2) Primarily comprised of assets under advisement related to our Indigenous Services wealth management business. Wealth management assets under management and administration were $7.8 billion at year end compared to $8.7 billion one year ago, as the addition of new clients and asset growth with existing clients was more than offset by a decrease in the market value of underlying assets. Indigenous Services assets under advisement of $1.8 billion was down from $2.1 billion last year, primarily due to a decrease in the market value of underlying assets, partially offset by the asset growth from new and existing clients. Other assets under administration totaled $13.9 billion at October 31, 2022 (October 31, 2021 – $14.0 billion). The decrease from last year reflected lower market value of underlying assets, partially offset by new and existing client growth in CWB Trust Services. Other off-balance sheet items are comprised of standard industry credit instruments (guarantees, standby letters of credit and commitments to extend credit) and contractual purchase obligations. We do not utilize, nor do we have exposure to, collateralized debt obligations or credit default swaps. For additional information regarding other off-balance sheet items refer to Note 17 of the audited consolidated financial statements for the year ended October 31, 2022. CWB Financial Group 2022 Annual Report | 39 SUMMARY OF QUARTERLY RESULTS AND FOURTH QUARTER QUARTERLY RESULTS The financial results for each of the last eight quarters are summarized in Table 29. Detailed MD&A along with unaudited interim consolidated financial statements for each quarter, except for the fourth quarters, are available for review on SEDAR at www.sedar.com and on our website at www.cwb.com. Copies of the quarterly reports to shareholders can also be obtained, free of charge, by contacting InvestorRelations@cwbank.com. Table 29 - Quarterly Financial Highlights ($ thousands, except per share amounts) Results from Operations Net interest income Non-interest income Total revenue Pre-tax, pre-provision income(1) Common shareholders' net income Earnings per share Basic Diluted Adjusted(1) Return on common shareholders' equity Adjusted return on common shareholders' equity(1) Return on assets(1) Net interest margin(1) Efficiency ratio(1) Provision for credit losses on total loans as a percentage of average loans(1)(2) Provision for credit losses on impaired loans as a percentage of average loans(1)(2) Q4 2022 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2021 $ 240,202 39,636 279,838 132,528 67,687 $ 240,593 $ 226,109 32,652 258,761 119,919 74,164 31,119 271,712 132,346 80,809 $ 233,072 32,904 265,976 137,110 87,642 $ 229,925 30,699 260,624 122,747 89,998 $ 230,021 33,194 263,215 137,586 86,280 $ 216,964 30,142 247,106 126,342 71,956 $ 215,453 29,635 245,088 130,474 79,237 0.72 0.72 0.88 8.6 % 0.88 0.88 0.90 10.4 % 0.82 0.82 0.84 10.0 % 0.98 0.97 0.99 11.6 % 1.01 1.01 1.03 12.2 % 0.99 0.98 1.01 12.1 % 0.83 0.82 0.84 10.6 % 0.91 0.91 0.93 11.3 % 10.5 0.66 2.33 52.6 0.14 - 10.7 0.81 2.43 51.3 0.16 0.12 10.3 0.79 2.42 53.7 0.14 0.14 11.8 0.93 2.47 48.5 0.11 0.12 12.5 0.97 2.47 52.9 (0.12) (0.04) 12.3 0.94 2.51 47.7 0.11 0.20 10.8 0.84 2.53 48.9 0.20 0.27 11.5 0.91 2.47 46.8 0.18 0.24 (1) Non-GAAP measure – refer to definitions and detail provided on page 16. (2) Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit. FOURTH QUARTER OF 2022 Q4 2022 VS. Q4 2021 Common shareholders’ net income of $68 million and diluted earnings per common share of $0.72 decreased 25% and 29%, respectively. Adjusted common shareholders’ net income of $82 million and adjusted earnings per common share of $0.88 decreased 11% and 15%, respectively. The decline in adjusted common shareholders’ net income was primarily driven by an increase in the provision for credit losses on performing loans compared to the recovery we recognized in the prior year. Pre-tax, pre- provision income of $133 million was up 8%. Total revenue of $280 million grew 7%, which reflected a 4% increase in net interest income and 29% increase in non-interest income. Net interest income of $240 million increased due to the benefit of 9% annual loan growth, partially offset by a 14 basis point decrease in net interest margin. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs over the last year driven by the higher market interest rate environment, and the impact of a proportional shift in our funding mix towards higher-cost fixed term deposits. Our fixed term deposit portfolio has repriced faster to reflect higher market interest rates than our fixed term loans, which have a longer average duration. Loan yields have also been slower to reflect the changes in market interest rates due to high competition for new lending. Net interest margin was also negatively impacted by higher average liquidity and a change in our lending mix to comparatively lower-yielding borrowers and portfolios. Non- interest income growth reflects higher foreign exchange revenue recorded within ‘other’ non-interest income and higher credit-related fees, partially offset by lower wealth management fees due to market value declines that reduced average assets under management. The provision for credit losses on total loans of 14 basis points was 26 basis points higher than last year, primarily due to a 22 basis point increase in the performing loan provision, which was an eight basis point recovery in the prior year and reflected an improving macroeconomic outlook associated with the ongoing economic recovery at that point in time. The current year performing loan provision of 14 basis points reflected the impact of a deterioration in the forward-looking macroeconomic outlook. We recognized a nil provision for credit losses on impaired loans, compared to a four basis point recovery last year, and gross impaired loan balances represented 0.46% of gross loans, down from 0.61% one year ago and reflect historically low levels. Non-interest expenses of $167 million were up 18%, which included a $17 million impact from the accelerated amortization due to a reduction in estimated useful lives of certain previously capitalized AIRB assets, concurrent with the completion of a material portion of our revised AIRB tools. Adjusted non-interest expenses increased 7%, and we delivered positive operating leverage this quarter. We continued to make targeted investments in strategic priorities, including our AIRB tools and processes, digital capabilities, client offerings and our new banking centres in Markham, Ontario and downtown Vancouver as we optimize our business, deliver an unrivaled experience to our clients, and accelerate full-service client growth. 40 | CWB Financial Group 2022 Annual Report Q4 2022 VS. Q3 2022 Common shareholders’ net income and diluted earnings per common share decreased 16% and 18%, respectively, as higher revenues and a lower provision for credit losses was more than offset by an increase in non-interest expenses, including the impact of accelerated amortization of previously capitalized AIRB assets. Adjusted common shareholders’ net income and adjusted earnings per common share decreased 1% and 2%, respectively. Pre-tax, pre-provision income remained unchanged compared to prior quarter. Total revenue increased 3%, primarily due to a 27% increase in non-interest income driven by higher foreign exchange revenue recorded within ‘other’ non-interest income and higher credit related fees, partially offset by lower wealth management fees. Net interest income was consistent with last quarter as the benefit of 2% sequential loan growth was offset by a ten basis point decline in net interest margin. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs driven by the higher market interest rate environment. Our fixed term deposit portfolio has repriced faster to reflect higher market interest rates than our fixed term loans, which have a longer average duration. Loan yields have also been slower to reflect the changes in market interest rates due to high competition for new lending. Net interest margin was also negatively impacted by higher average liquidity compared to the previous quarter and a change in our lending mix to comparatively lower-yielding borrowers and portfolios. Our provision for credit losses on total loans as a percentage of average loans was two basis points below last quarter due to lower impaired loan provisions, partially offset by a higher performing loan provision due to a further deterioration in the forward-looking macroeconomic outlook. Lower impaired loan provisions reflected the reversal of provisions related to previously impaired loans that were resolved with lower than expected realized losses, combined with a decline in new impaired loan formations. Gross impaired loan balances represented 0.46% of gross loans, down from 0.53% last quarter. Non-interest expenses increased 17%, including additional costs related to the accelerated amortization of previously capitalized AIRB assets, as discussed in the comparison to the same quarter last year. Adjusted non-interest expenses increased 6%, primarily due to continued investments in our strategic priorities, including our AIRB tools and processes and the harmonization of our wealth management brands with the launch of CWB Wealth. We also incurred a full quarter impact of the compensation adjustments provided to our entry and mid-level team members in the prior quarter along with customary seasonal increases in advertising, community investment and employee training costs. ADJUSTED ROE AND ROA The fourth quarter return on common shareholders’ equity (ROE) of 8.6% was down 360 basis point compared to last year and 180 basis points compared to last quarter. Adjusted ROE of 10.5% was down 200 basis points from last year, which reflected a decrease in our adjusted common shareholders’ net income primarily driven by an increase in the provision for credit losses on performing loans, and higher average common shareholders’ equity. Sequentially, adjusted ROE was down 20 basis points reflecting the decrease in our adjusted common shareholders’ net income and higher common shareholders’ equity. The fourth quarter return on assets (ROA) of 0.66% was 31 basis points below the same quarter last year and 15 basis points lower on a sequential basis, reflecting lower common shareholders’ net income and higher average assets. EFFICIENCY RATIO The fourth quarter efficiency ratio was 52.6% compared to 52.9% last year and 51.3% last quarter. ACCOUNTING POLICIES AND ESTIMATES CRITICAL ACCOUNTING ESTIMATES CWB’s significant accounting policies are outlined in Note 1 of the audited consolidated financial statements for the year ended October 31, 2022, with related financial note disclosures by major caption. The policies discussed below are considered particularly important, as they require management to make significant estimates or judgments, some of which may relate to matters that are inherently uncertain. ALLOWANCE FOR CREDIT LOSSES An allowance for credit losses is maintained to absorb ECL for both performing assets and impaired assets based on management’s estimate at the balance sheet date and forward-looking information. Under IFRS 9, the allowance for credit losses related to performing and impaired assets is estimated using an ECL approach that represents the discounted probability-weighted estimate of cash shortfalls expected to result from defaults over the relevant time horizon. To do this, the ECL approach incorporates a number of underlying assumptions which involve a high degree of management judgment and can have a significant impact on financial results. Significant key drivers impacting the estimation of ECL, which are interrelated, include: • Internal risk ratings attributable to a borrower or instrument reflecting changes in credit quality; • Estimated realizable amount of future cash flows on Stage 3 loans; • Thresholds used to determine when a borrower has experienced a significant increase in credit risk; and, • Forward-looking information, specifically related to variables to which the ECL models are calibrated. The inputs and models used to estimate ECL may not always capture all emerging market conditions and as such, qualitative adjustments based on expert credit judgments that consider reasonable and supportable information may be incorporated. These expert credit judgments account for the variability in the results provided by the models and consider the lagging impacts of typical credit cycles, where loan defaults occur in periods subsequent to the onset of a decline in macroeconomic conditions. 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. Additional information on the process and methodology for determining the allowance for credit losses can be found in the discussions of Credit Quality section of our MD&A and in Note 6 of the audited consolidated financial statements for the year ended October 31, 2022. CWB Financial Group 2022 Annual Report | 41 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE Cash resources, securities, and derivative financial instruments are reported on the consolidated balance sheets at fair value. We categorize our 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 liabilities that we can access at the measurement date. Level 2 fair value measurements are estimated using observable inputs, including quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model inputs that are either observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 fair value measurements are determined using one or more inputs that are unobservable and significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement date. The following table summarizes the significant financial assets and liabilities recorded on the consolidated balance sheets at fair value. Notes 2, 3, 4, 5, 6, 10, 12, 14, 22 and 24 of the audited consolidated financial statements for the year ended October 31, 2022 provide additional information regarding these financial instruments. Table 30 - Valuation of Financial Instruments ($ thousands) As at October 31, 2022 Financial Assets Cash resources Securities Loans Derivatives Total Financial Assets Financial Liabilities Deposits Securities sold under repurchase agreements Debt Derivatives Total Financial Liabilities As at October 31, 2021 Financial Assets Cash resources Securities Securities purchased under resale agreements Loans Derivatives Total Financial Assets Financial Liabilities Deposits Debt Derivatives Total Financial Liabilities Fair Value Level 1 Level 2 Level 3 Valuation Technique $ 115,979 $ 115,979 $ - $ 4,518,795 35,478,626 110,521 1,003,840 - - 3,514,955 - 110,521 - - 35,478,626 - 40,223,921 $ 1,119,819 $ 3,625,476 $ 35,478,626 $ $ 32,414,786 $ 247,354 3,417,350 156,081 $ 36,235,571 $ - $ - - - - $ 32,414,786 $ 247,354 3,417,350 156,081 36,235,571 $ Valuation Technique - - - - - Fair Value Level 1 Level 2 Level 3 $ $ $ $ $ 128,459 3,573,878 30,048 33,138,017 52,862 $ 128,459 207,209 - - - - $ - - - 33,138,017 - 3,366,669 30,048 - 52,862 36,923,264 $ 335,668 $ 3,449,579 $ 33,138,017 30,118,635 $ 3,058,090 36,068 33,212,793 $ - $ - - - $ 30,118,635 $ 3,058,090 36,068 33,212,793 $ - - - - CHANGES IN ACCOUNTING POLICIES AND FINANCIAL STATEMENT PRESENTATION INTEREST RATE BENCHMARK REFORM Various interest rates and other indices that are deemed to be benchmarks, including the London Interbank Offered Rate (LIBOR), have been the subject of international regulatory guidance and proposals for reform. Regulators in various jurisdictions have advocated for the transition from Interbank Offered Rates (IBORs) to alternative benchmark rates, based upon risk-free rates informed by actual market transactions. In March 2021, the Financial Conduct Authority confirmed that most USD LIBOR tenors will cease to be provided beginning June 30, 2023. In December 2021, the Canadian Alternative Reference Rate working group (CARR) recommended to CDOR’s administrator that the Canadian Dollar Offered Rate (CDOR) should also cease calculation and publication. On May 16, 2022, the CDOR administrator, Refinitiv Benchmark Services (UK) Limited (Refinitiv), announced the cessation of CDOR by June 28, 2024, consistent with CARR’s recommendations. CARR has proposed a two-stage plan for the adoption of Canadian Overnight Repo Rate Average (CORRA) as the replacement benchmark rate and has announced it will develop a one- and three-month Term CORRA benchmark which is expected to be published late in the third calendar quarter of 2023. OSFI also announced that it expects all new derivative contracts and securities to transition to alternative rates by June 30, 2023, with no new CDOR exposure being booked after that date, with limited permitted exceptions. OSFI also expects loans referencing CDOR to transition by June 28, 2024, and financial institutions to prioritize system and model updates to accommodate the use of CORRA prior to June 28, 2024. In response to interest rate benchmark reform, the IASB issued two phases of amendments to accounting standards. We adopted Phase 1 amendments to hedge accounting requirements in IFRS 9 Financial Instruments (IFRS 9), IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), IFRS 7 Financial Instruments: Disclosures (IFRS 7) and IFRS 16 Leases (IFRS 16) on November 1, 2020. These amendments apply until IBOR-based cash flows transition to new risk-free rates or when the applicable hedging relationships are discontinued. 42 | CWB Financial Group 2022 Annual Report On November 1, 2021, we adopted Phase 2 amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16. The Phase 2 amendments focus on accounting and disclosure matters that will arise once an existing benchmark is replaced with an alternative benchmark rate. The amendments were applied retrospectively, and had no impact on our opening shareholders’ equity upon adoption. Phase 2 amendments provide practical expedients if contract modifications result directly from IBOR reform and occur on an economic equivalent basis. In these cases, changes to the interest rate of the financial assets or liabilities that are required by IBOR reform may be accounted for by updating the effective interest rate prospectively, to reflect the change in the interest rate benchmark rather than being recognized as an immediate gain or loss. Any other changes to the basis for determining contractual cash flows are determined in accordance with our existing accounting policies for loan modifications as described in Note 2 of the audited consolidated financial statements. Phase 2 amendments also allow for a temporary relief from hedge accounting requirements under IAS 39. Changes in existing hedge relationships that are a direct result of IBOR reform may be reflected in the hedge documentation without the need to discontinue the hedging relationship. For aspects of hedge accounting not covered by the amendments and hedges that are not directly impacted by IBOR reform, the accounting policies as described in Note 10 of the audited consolidated financial statements continue to apply. As IBORs are widely referenced, the transition presents a number of risks to us and the industry as a whole. These risks, such as increased volatility, lack of liquidity and uneven fallback practices, may impact market participants. In addition to these inherent risks, we are exposed to operational risk arising from the renegotiation of contracts and readiness to issue and trade products referencing alternative reference rates. Our cross functional IBOR Reform working group continues to coordinate an orderly transition to alternative reference rates. During the year, we completed the remediation of our USD LIBOR referenced contracts by incorporating appropriate fallback language or by replacing the referenced rates with the Secured Overnight Financing Rate (SOFR), with appropriate spread adjustments. We also ceased the issuance of new USD LIBOR products at the end of calendar 2021. In 2022, the working group incorporated CDOR transition into our plans, which include incorporating appropriate contract fallback language, supporting the introduction of new products referencing CORRA or other alternative rates post-transition, preparing to cease the issuance of CDOR-based financial instruments, transitioning legacy CDOR-based contracts and preparing for overall operational readiness. The working group monitors recommendations from industry groups and regulatory bodies, and engages with industry associations and counterparties regarding transition of CDOR to CORRA as we update our transition plans. The working group provides periodic updates to senior management and the Asset and Liability Committee and quarterly to the Audit Committee of the Board of Directors regarding the status of transition plans for migrating our CDOR and USD LIBOR products and upgrading systems and processes. FUTURE CHANGES IN ACCOUNTING POLICIES A number of standards and amendments have been issued by the IASB, and the following changes may have an impact on our future financial statements. IFRS 12 INCOME TAXES In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 Income Taxes). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, there is recognition of a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. CWB will adopt the amendments effective for our fiscal year beginning November 1, 2022. We have assessed the amendment and determined that there will be no significant impact upon adoption. IFRS 17 INSURANCE CONTRACTS In May 2017, the IASB issued IFRS 17 Insurance Contracts which will replace IFRS 4 Insurance Contracts. In June 2020, the IASB issued amendments to IFRS 17 aimed at helping companies implement the Standard and to defer the effective date. In December 2021, the IASB issued a narrow-scope amendment to the transition requirements in IFRS 17, providing insurers with an option aimed at improving the usefulness of information to investors on initial application of IFRS 17 by presenting comparative information about financial assets, using a classification overlay approach on a basis that is more consistent with how IFRS 9 will be applied in future reporting periods. This Standard introduces consistent accounting for all insurance contracts. The Standard requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than when it receives premiums. The new Standard and its amendments are effective for our fiscal year beginning November 1, 2024 and we are assessing the potential impacts on our consolidated financial statements. CWB Financial Group 2022 Annual Report | 43 RISK MANAGEMENT The shaded areas of this section 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. The shaded areas presented on pages 44 to 53 form an integral part of the audited consolidated financial statements for the year ended October 31, 2022. TOP EMERGED AND EMERGING RISKS We monitor emerged and emerging risks that may affect our future results and take action to mitigate potential impacts. Our top emerged and emerging risks are those that could have negative implications for our operations and financial results as underlying operating conditions and external factors continue to evolve. Particular attention has been given to the following: GENERAL BUSINESS AND ECONOMIC CONDITIONS Our financial performance is impacted by general business and economic conditions across Canada. The ongoing, and future impacts, of elevated economic uncertainty has increased certain risk factors that may impact our financial results. Potential for near-term volatility has increased over the past year and current economic forecast anticipate a slowing of the economic recovery next year with the potential for recessionary conditions to emerge. Several business and economic factors may affect the markets in which we operate. These conditions may include factors such as: elevated and prolonged levels of inflation; energy and commodity prices; the impact of supply chain disruptions; rapid changes in interest rates; real estate prices; adverse global economic events and/or elevated economic uncertainties; exchange rates; levels of consumer, business and government spending; levels of consumer, business and government debt; unemployment rates; labour constraints; and consumer and business confidence. Extended periods of economic uncertainty have the potential to adversely impact our credit risk and could potentially result in higher credit loss experience in future periods. Prolonged adverse economic conditions also have the potential to negatively impact the market value of underlying collateral securing our loans. For details on how we manage the associated risks, refer to the Credit Risk and Market Risk sections. CYBERSECURITY RISK Cybersecurity risks remain elevated due to the potential for heightened malicious activity combined with the increased use of remote access platforms as our teams and many of our clients have adopted flexible work arrangements. We continue to be subject to elevated risks from cyber attacks and data breaches due to our reliance on remote connectivity, public digital platforms to conduct day-to-day business activities and increased use of third-party service providers. The adoption of emerging technologies, such as cloud computing, requires continued focus and investment to manage risks effectively. We remain vigilant to maintain the effectiveness of our internal controls to mitigate increased information and cybersecurity risks. For more details on how we manage these risks, refer to the Operational Risk section of our MD&A. EXECUTION RISK We have undertaken major projects in alignment with our strategic direction, including a digital transformation, enhancements to our client offerings, strengthening our underlying technology and cybersecurity infrastructure, and an ongoing transition to AIRB. Successful strategic execution is dependant on our ability to effectively manage change across CWB to achieve desired outcomes. Failure to successfully manage strategic execution could have a material adverse impact on our business, financial condition, and results of operations. Resource capacity constraints driven by our focus on strategic execution have the potential to create operational challenges and impact our ability to serve our clients in a timely and effective manner. For details on how we manage these risks, refer to the Business and Strategic Risk section of our MD&A. OUTSOURCING AND THIRD-PARTY RISK We continue to strategically use third-party service providers to expedite our access to new technologies, increase efficiencies, and improve competitiveness and performance. Our continued reliance on highly specialized third parties exposes us to the risk of business disruption and financial loss stemming from the breakdown of third-party service provider processes and controls. For details on how we manage these risks, refer to the Operational Risk section of our MD&A. PEOPLE RISK Our ability to execute on our strategic and growth objectives is dependent on our people. This risk is heightened as competition for specialized talent in our key markets has increased, which may impact our ability to attract and retain team members. For more details on how we manage these risks, refer to the Operational Risk section of our MD&A. REGULATORY RISK The introduction of new or revised regulations continues to drive increased investment across CWB to meet additional requirements from our regulators. Financial and other reforms that have come into effect or are coming into effect, such as anti-money laundering, privacy, and consumer protection regulations, continue to require operational focus. In addition, we continue to monitor the impact and implications of OSFI regulatory guidance to be finalized in 2023 focused on risks and resilience related to operations, governance, and culture for all financial institutions. For details on how we manage these risks, refer to the Regulatory Compliance and Legal Risk section of our MD&A. CLIMATE RISK Climate-related risks continue to evolve and emerge driven by Canada’s commitment to transition to a net-zero economy by 2050 and the physical risks associated with severe weather events, which could result in a broad range of impacts on our business or the businesses of our clients. In addition to the potential for elevated credit, operational and strategic risks driven by climate factors, legal, regulatory or reputation risks could also arise from our and our clients planned approach to address climate change. For more details on how we manage these risks, refer to the Social and Environmental Risk section, under Business and Strategic Risk, of our MD&A. 44 | CWB Financial Group 2022 Annual Report RISK MANAGEMENT OVERVIEW We maintain an integrated and disciplined approach to risk management. Effective risk management supports the creation of long-term shareholder value by providing a framework to balance the prudent management of our risks with delivering sustainable risk-adjusted returns for our shareholders. Our Risk Management framework, which is developed and maintained by our Group Risk Management (GRM) function, encompasses risk culture, risk governance, risk appetite, and risk management policies, processes and tools. The framework also provides independent review and oversight across the enterprise on risk-related issues. Our Risk Management framework guides us in prudent and measured risk-taking aligned with our strategic objectives, which include an effective balance of risk and reward. This requires continuous consideration, understanding and responsible management of all key risks at both the strategic and operational levels. Each team member must make common-sense business decisions in line with our strategic objectives and within clearly defined and prudent risk appetites, along with regulatory and legal requirements. We have demonstrated our ability to effectively manage risks, including through periods of financial uncertainty, underpinned by a strong risk culture and a disciplined risk management approach; however, not all risks are within our direct control. A description of key internal and external risk factors we consider is included in the Top Emerged and Emerging Risks and Risk Universe – Report on Principal Risks sections. We actively evaluate existing and potential risks to develop, implement and continually enhance appropriate risk mitigation strategies. Managing risk is a shared responsibility across CWB. 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 our risk culture, contributes to effective risk management, and encourages continuous improvement of risk management practices. Our three lines of defence framework is described in Table 31. Table 31 - Three Lines of Defence Framework First Line Second Line Third Line Business and Support Areas GRM and Other Corporate Oversight Functions Internal Audit • Own and manage all risks within their lines of • Establish a Risk Management framework to • Provide independent assurance to the Audit business. • Pursue suitable business opportunities within their established risk appetite and limits. provide a consistent and integrated view of risk exposures across CWB. • Set key risk metrics on which risk appetite and Committee on the effectiveness and appropriateness of (and adherence to) the Risk Management framework. • Act within the delegated risk-taking authority as limits are based. set out in established policies. • Establish policies, standards, processes and • Establish appropriate operating guidelines and internal control structures in accordance with risk policies. practices that address all significant risks across CWB. • Independently assess, quantify, monitor, control and report all significant risk exposures against the risk appetite and limits. • Provide independent oversight, effective challenge and independent assessment of risk. • Independently audit first and second lines and report on their effectiveness regarding respective functional responsibilities. • Independently review adherence to controls, policies, standards, guidelines and regulations. • Identify operational weaknesses; recommend and track remediation actions. RISK MANAGEMENT PRINCIPLES Our risk management principles are based on the premise that we are in the business of accepting risks for an appropriate return. We do not seek to eliminate financial risk but seek to manage risk appropriately and optimize risk-adjusted returns. In conducting our business activities, we will take financial risks that are aligned with our strategic objectives in a manner that supports the responsible and efficient delivery of products and services to valued clients and is expected to create sustainable, long-term value for shareholders and other stakeholders. Risk-taking and risk management activities across all our operations are guided by the following principles: • Three Lines of Defence - Ongoing commitment to a three lines of defence framework, with independent oversight and effective challenge from the second line, and an independent and effective Internal Audit function comprising the third line of defence; • Balance Risk and Reward - 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 detective controls; • Understand and Manage Risks - Establish operational resilience through use of common sense, sound judgment and fulsome risk-based processes to ensure that risks are thoroughly understood, measured and managed within the confines of well-communicated risk tolerances; • Protect our Brand - An enterprise-wide view of risk and the acceptance of risks required to build the business with continuous consideration for how those risks may affect our reputation; • Shared Accountability - A risk culture in which 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; and, • Client Focus - Recognition that strong client relationships reduce risks by ensuring that the risks we accept as part of doing business are well understood, and that the services provided are suitable for, and understood by, our clients. CWB Financial Group 2022 Annual Report | 45 RISK MANAGEMENT FRAMEWORK The primary goal of risk management is to ensure that the outcomes of risk-taking are consistent with our overall risk appetite, our strategic growth objectives, and related business activities. The Risk Management framework provides the foundation for achieving this goal. Its key elements include risk culture, risk governance, risk appetite, and risk management policies, processes and tools. We utilize the ISO 31000 Standard for Risk Management as a comprehensive framework to help ensure risk is managed effectively and efficiently. Figure 4 - Risk Management Framework RISK CULTURE Our strong risk culture emphasizes transparency and accountability. Our risk culture is the core of the Risk Management framework, including risk management principles and accountabilities as defined within a three lines of defence framework. Key elements that influence and support our risk culture include: • Tone from the Top - Demonstrated throughout CWB and emphasized by the actions of senior management and the Board of Directors, which send consistent and clear messages throughout the organization; • Values Alignment - Supported by CWB’s core values, which emphasize that how we do things is as important as what we do, and that we always act with integrity as we strive to balance risk and reward; • Accountability - An environment where the first, second and third lines of defence can freely escalate risk issues and concerns, and issues are discussed openly and acted upon appropriately. We have zero tolerance for inappropriate risk taking in violation of our core values, risk appetite and reputational risk management principles; and, • People Management - Performance and compensation structures that align with our desired risk behaviours and reinforce our values. Our risk culture is supported by maintenance of effective risk management principles, policies, processes, and tools with oversight provided to guide business practices and risk-taking activities of all employees in support of CWB’s reputation and adherence to all legal and regulatory requirements. On an annual basis, our employees are required to complete formal training on key risk topics, including ethical behaviour, regulatory compliance risk, cybersecurity, and various other operational risks. By taking this mandatory training, all employees develop a basic knowledge of risk management in support of our risk culture. We have an established Code of Conduct that describes standards of conduct to which all directors, officers, and employees must adhere and attest to on an annual basis, an anonymous ethical concerns hotline, and we conduct a periodic, confidential enterprise-wide Risk Culture survey. 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 our risk culture, contributes to effective risk management, and encourages continuous improvement of risk management practices. Our three lines of defence framework is described in Table 31. 46 | CWB Financial Group 2022 Annual Report RISK GOVERNANCE Governance Structure The foundation of our Risk Management framework is a governance approach, consistent with OSFI’s Corporate Governance Guideline, which includes a robust committee structure and a comprehensive set of corporate policies and risk limits approved by the Board of Directors, or its committees, as well as supporting corporate standards and operating guidelines. The Risk Management framework is governed through a hierarchy of committees and individual responsibilitie s as outlined in Figure 5. Figure 5 - CWB’s Risk Management Framework Board of Directors - Responsible for setting the CWB Strategic Direction and overseeing management. The Board, either directly or through its committees, is responsible for oversight in the following areas: strategic planning, risk appetite, identification and management of risk, capital management, promotion of a culture of integrity, internal controls, evaluation of senior management and succession planning, public disclosure, corporate governance and environmental, social, and governance (ESG) factors. Board Risk Committee - Assists the Board in fulfilling its oversight responsibilities in relation to CWB’s risk appetite and delegation of limits, identification and management of risk (excluding regulatory compliance), 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. Board Governance and Conduct Review Committee - Assists the Board in fulfilling its oversight responsibilities in relation to legal, regulatory compliance and reputation risk, including conduct review and consumer matters, development of CWB's corporate governance policies and practices, and director nomination and succession planning. Board Audit Committee - Assists the Board in fulfilling its oversight responsibilities for the integrity of CWB’s financial reporting, effectiveness of internal controls over financial reporting, the performance of the Internal Audit function and external audit quality. Board Human Resources Committee - Provides oversight of people risks, including employment practices and workplace health and safety, and ensures compensation programs appropriately align to, and support, CWB’s risk appetite. 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 subcommittees, as well as the GRM and other corporate functions. Chief Risk Officer (CRO) - As head of GRM, responsible to provide independent review and oversight of enterprise-wide risks and leadership on risk issues, development and maintenance of the Risk Management framework, which includes key risk metrics and risk policies, and fostering a strong risk culture across CWB. The CRO reports functionally to the Board Risk Committee. Group Disclosure Committee - Supports CEO/CFO certification over public disclosures. Responsible for reviewing CWB’s internal control over financial reporting and disclosure controls and procedures to help ensure the accuracy, completeness and timeliness of public disclosures. Executive Risk Committee - Provides risk oversight and governance at the highest level of management. The Executive Risk Committee reviews and discusses significant risk issues and action plans that arise in executing CWB’s strategy. The Committee is chaired by the CRO and membership includes the full Executive Committee. CWB Financial Group 2022 Annual Report | 47 Subcommittees of the Executive Risk Committee - The various subcommittees provide oversight of the processes whereby the risks assumed across CWB are identified, measured, monitored, held within delegated limits and reported in accordance with policy guidelines. They include: Group Credit Risk Committee - Approves loans within delegated limits and is responsible for ensuring that appropriate credit standards and guidelines are in place. An escalation subcommittee of the Group Credit Risk Committee considers risk-adjusted pricing exceptions and reputational issues that may be relevant to specific loans; Group Asset Liability Committee (ALCo) - Reviews and approves operational guidelines and programs for liquidity management, funding sources, investments, foreign exchange risk, interest rate risk and derivative risk; Group Capital Risk Committee - Responsible for the oversight of capital adequacy, CWB’s regulatory capital plan, ICAAP and stress testing; Group Non-Financial Risk Committee - Reviews the Operational Risk Management framework, operational loss reporting and business continuity plans. Reviews action plans for mitigating and strengthening the management of operational risk; Group Forecasting Committee - Develops an enterprise-wide view of the economic outlook; and, Model Risk Committee - Develops and oversees CWB’s Model Risk Management framework and model deployment. The following oversight functions provide key support within the Risk Management framework: • Risk Management - The CRO, who reports functionally to the Board Risk Committee, leads a diverse team of risk management professionals organized to provide independent oversight of risk management, risk governance and control. As the second line of defence, the mandate of the GRM function is to provide independent oversight of risk-taking decisions, independent assessment of risk and effective challenge to the business. This function establishes the Risk Management framework to identify, measure, aggregate and report on all material risks managed by the first line within our three lines of defence framework. This includes oversight of risk governance policies, establishment of risk appetites and key risk metrics, and development of risk infrastructure, including risk management processes and tools. The risk management function supports a disciplined approach to risk-taking in fulfilling its responsibilities for transactional approval and portfolio management, risk reporting, stress testing, modelling and risk education. • Finance - The CFO, who reports functionally to the Audit Committee, leads a team responsible for the development of financial strategies that support our ability to maximize sustainable shareholder value, and the production of reliable and timely reporting of financial information to management, the Board of Directors, shareholders, regulators, and other stakeholders. The team provides independent oversight of processes to manage financial reporting, external credit ratings, certain regulatory reporting and tax. • Legal, 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 policies, and standards used by the first and second lines of defence to identify, measure, mitigate and report on significant risks. • Internal Audit - Reporting directly to the Audit Committee, internal audit is the third line of defence in the Risk Management framework, responsible to provide management and the Board of Directors with objective, independent assurance as well as advice on the effectiveness and efficiency of governance, risk management, and internal control processes and systems. • 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. RISK APPETITE 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. Risk appetites for key risk types are established based on both quantitative and qualitative factors by GRM and other corporate functions, as the second line, endorsed by senior management and ultimately approved by the Board of Directors. The Risk Appetite framework is forward-looking and aligns with our strategic growth objectives, including consideration for our regulatory capital plan and budget processes. Key components of our Risk Appetite framework include: • Risk Capacity - The maximum level of risk we can assume before breaching regulatory or other stakeholders constraints; • Risk Appetite - The aggregate level and type of risk we are willing to assume; and, • Risk Limits - The allocation of risk to specific risk categories, business units and lines of business, at the portfolio or product level. The allocation of our risk appetite across CWB is established starting with limits at the Board Risk Committee level, with smaller limits assigned through levels of the organization supported by the establishment of delegated authorities limits which represent the maximum level of risk permitted for a line of business, portfolio, individual or group and are used to govern ongoing operations prudently within Board approved risk appetites. Key attributes of our overall risk appetite include the following: • An appropriately conservative risk culture that is prevalent throughout CWB, from the Board of Directors to senior management to front-line employees; • A philosophy to only take risks that are aligned with our strategic growth 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; and, • Targeted financial and operational performance, which supports maintenance of satisfactory credit ratings to maintain competitive access to funding. 48 | CWB Financial Group 2022 Annual Report RISK MANAGEMENT POLICIES, PROCESSES AND TOOLS Our Risk Management framework is supported by processes and tools that are used together to manage risk across CWB. We design risk management processes to complement CWB’s overall size, level of complexity, risk profile and philosophy regarding risk. Risk management processes and tools are regularly reviewed and updated to ensure consistency with risk-taking activities, and relevance to the business and our strategic execution. Policies and Limits To support effective communication, implementation, and governance of our Risk Management framework, GRM and other corporate teams, as the second line of defence, codify processes and operational requirements in comprehensive risk management policies, standards, frameworks, and protocols. The first line of defence implements these into directives and procedures. Such first and second line governance documentation promotes the application of a consistent approach to manage risk exposures across CWB. All risk policies are developed by the second line and approved by the Board of Directors, or one of its committees, on an annual basis. Underlying risk management standards, frameworks and protocols are approved by executive management in accordance with our corporate policy framework. Limits govern and control risk-taking activities within our risk appetite and tolerances established by senior management and approved by the Board of Directors. Limits establish accountability throughout the risk-taking process and the level or conditions under which transactions may be approved. Risk Measurement The measurement of risk is a key component of our Risk Management framework. We use a variety of techniques to support our quantitative risk measurement activities, including models, stress testing, and scenario and sensitivity analysis. The measurement methodologies may apply to a group of risks or a single risk type and are supported by an assessment of qualitative factors to ensure the level of risks are within our risk appetite. We employ models for a number of risk measurement and management processes, including the determination of credit risk-ratings, pricing decisions, financial reporting, informed decision-making and stress testing. The use of models is subject to a strong governance framework that covers all stages of the model life cycle, including development, independent pre-implementation review, approval and post-implementation review. The development, design, independent review and testing, and approval of models is subject to formal policies. Stress Testing Stress testing is a risk management method that assesses the potential effects on our financial results and financial position, including capital and liquidity positions, of a series of specified changes in risk factors, corresponding to severe but plausible events. We conduct stress testing of relevant risk metrics on a regular basis to enable the identification and monitoring of potential vulnerabilities. Stress testing occurs at both the enterprise-wide level and individual risk level to allow for the assessment of the potential impact on our earnings and capital resulting from significant changes in market conditions, the credit environment, liquidity demands, or other risk factors. The results from stress testing help inform our risk appetite and related limits, contingency planning, and appropriate capital and funding levels. Periodic sensitivity testing also ensures that we continue to operate within risk limits. Our enterprise-wide stress tests evaluate key balance sheet, profitability, capital, leverage, and liquidity impacts arising from risk exposures and changes in earnings. The results are used by senior management and the Board of Directors to understand our performance drivers under stress, and review stressed capital, leverage, and liquidity ratios against regulatory thresholds and internal limits. The results are also incorporated into our ICAAP and capital planning process. Input from across CWB is integrated to develop an enterprise-wide view of the impacts of stress scenarios, including both operating and oversight functions. Enterprise-wide stress testing during fiscal 2022 focused on the analysis of the impact to regulatory capital ratios under multiple stress scenarios with varying pessimistic forecast conditions. This testing supported our assessment of the adequacy of our capital and resiliency of our earnings. Ongoing stress testing and scenario analyses within specific areas, such as liquidity risk, interest rate risk, and loan loss provisioning, supplement and support our enterprise-wide analyses. Risk Monitoring and Reporting Risk transparency, monitoring and reporting are critical components of our Risk Management framework that allow senior management, committees and the Board of Directors to manage risk and provide oversight. We continuously monitor our risk exposures to ensure business activities are operating within Board approved limits or guidelines as defined by our Risk Appetite framework. GRM monitors our 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 ensure we remain within the approved risk appetite. Risk reporting includes an overview of the key risks that we currently face, along with associated metrics, and highlights our most significant risks to provide senior management, committees and the Board of Directors with timely, actionable and forward-looking information. This reporting includes materials to facilitate assessment of these risks relative to our risk appetite and the relevant limits. RISK UNIVERSE - REPORT ON PRINCIPAL RISKS We pursue opportunities and the associated risks that are aligned with our strategic growth objectives and are expected to create sustainable long-term value for shareholders and other stakeholders. While our operations are exposed to numerous types of risk, certain risks, identified as principal risks, have the greatest potential to materially impact our operations and financial performance. These risks materially comprise CWB’s risk universe, as defined as part of our Risk Management framework. A Risk Register is maintained to facilitate the assessment of the level of inherent risk, control effectiveness and residual risk in support of the management of our principal risks within our risk appetite. Our principal risks include the following: Credit Risk Market Risk Liquidity and Funding Risk Capital Risk Operational Risk Regulatory Compliance and Legal Risk Business and Strategic Risk Reputation Risk CWB Financial Group 2022 Annual Report | 49 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 CWB 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 Our credit risk results from granting loans and leases to businesses and individuals. Our credit risk management culture reflects the combination of policies, standard practices, experience and management attitudes that support prudent growth within chosen industries and geographic markets. Underwriting standards are designed to ensure an appropriate balance of risk and return and are supported by established loan exposure limits in areas of demonstrated lending expertise. To minimize potential loss, most of our loans are secured by tangible collateral. Our approach to managing credit risk has proven to be very effective, and we have a history of low write-offs as a percentage of average loans, including through past periods of financial uncertainty. Our strategy is to maintain a quality, secured and diversified loan portfolio with experienced personnel who provide a hands-on approach in granting credit, account management and timely action when problems develop. We target lending to small- and medium-sized businesses, and to individuals. We continue to pursue further geographic and industry diversification through growth of full-service client relationships in targeted industries across our national geographic footprint. Relationship banking and ‘know your client’ are important tenets of effective account management. Earning an appropriate financial return for the level of risk is also fundamental. For additional information, refer to the Loans and Credit Quality sections of our MD&A. Risk Governance Credit risk is managed under the three lines of defence framework and oversight is provided by the Board Risk Committee. Our lending business lines and support areas assess and manage credit risk associated with their activities as the first line of defence. The credit approval process is centrally controlled, with all credit requests that exceed predefined thresholds submitted to Credit Risk Management for adjudication, as the second line of defence. Credit Risk Management is independent of the originating business. Independent review of the adequacy and effectiveness of governance, risk management and control over credit risk is provided by Internal Audit as the third line of defence, with direct reporting provided to senior management and the Audit Committee. Risk Management We have comprehensive credit risk management policies, approved by the Board Risk Committee, that cover risk concentration limits, approval of credit applications by authority level, assignment of risk ratings based on a standard classification system, ongoing management and monitoring requirements, management of less than satisfactory loans and risk-based pricing decisions. Our lending business is supported by qualified and experienced teams. Credit policies, standards, guidelines, and delegated lending authorities and limits are well-communicated across our business lines to lenders and other teams engaged in the credit granting process. The Board Risk Committee delegates discretionary lending limits to the CEO and CRO, for further specific delegation to senior officers. Requests for credit approval beyond the lending limit of the CEO/CRO are referred to the Group Credit Risk Committee or the Board Risk Committee’s Loan Adjudication Panel. Risk diversification is addressed by establishing portfolio limits by geographic area, industry sector and product. Our policy limit loans to connected corporate borrowers to not more than 10% of our shareholders’ equity. Under the Enterprise Risk Appetite policy, the single credit risk exposure lending limit is $75 million. Our credit risk appetite for certain quality connections with investment grade credit ratings of A- or better, that confirm debt service capacity and loan security from more than one source is $200 million. The connection limit is $150 million for borrowers with credit ratings of BBB+. CWB clients with larger borrowing requirements that would otherwise be within our credit risk appetite are accommodated through loan syndications with other financial institutions. On a quarterly basis, we complete a review of risk diversification by geographic area, industry sector and product measured against assigned portfolio limits. We employ a variety of risk measurement methodologies to measure and quantify credit risk for our business and personal credit portfolios. Within our loan portfolios, borrowers are assigned a borrower risk rating (BRR) that reflects the credit quality of the obligor using industry and sector-specific risk models and expert credit judgment. Our credit risk rating systems are designed to assess and quantify the risk inherent in credit activities in an accurate and consistent manner. The resulting ratings and scores are then used for both client- and transaction-level risk decision-making and as key inputs for risk measurement. The secured nature of our lending portfolio with conservative loan-to-value ratios reduces our credit risk exposure. The extent of risk mitigation provided by borrower-provided security depends on the amount, type and quality of the collateral. Security can vary by type of loan and may include real property, working capital, guarantees, or other equipment. Specific requirements related to collateral valuation and management are set out within our credit risk management standards. All credit risk exposures are subject to regular monitoring. At least annually, we perform a review of credit risk-rating classifications for our business and personal exposures, with the exception of personal loans and single-unit residential mortgages, to support early detection of credit migration or unsatisfactory loans. Management of higher-risk loans is delegated to the Special Asset Management Unit, a specialized loan workout team that performs regular monitoring and close management of these loans. The CRO reports quarterly to the Executive Risk Committee and the Board Risk Committee to provide a summary of key information on credit risk, including material credit transactions, compliance with limits, portfolio trends and impaired loans. Reporting on significant unsatisfactory accounts is completed on a quarterly basis, which includes an overview of action plans for each unsatisfactory account, a watchlist report on accounts with evidence of weakness and an impaired loan report covering loans that show impairment to the point where a loss is possible. 50 | CWB Financial Group 2022 Annual Report Credit-related Environmental Risk While our day-to-day operations do not have a material impact on the environment, we face certain environmental risks including the risk of loss if a borrower is unable to repay loans due to environmental clean up costs, and the risk of damage to our reputation resulting from the same. To manage these risks, and help mitigate our overall impact on the environment, we evaluate potential environmental risks as part of the credit granting process. If potential environmental risks are identified that cannot be resolved to our satisfaction, the loan application will be denied. Where financing is provided, Internal Audit provides third line oversight of the adherence to related lending policies. Reports on environmental inspections and findings are provided quarterly to the Board Risk Committee. For details on our evolving approach to climate risk, refer to the Business and Strategic Risk section. 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 interest rate risk in the banking book (IRRBB) and foreign exchange risk. Risk Overview Our most significant market risks are those related to changes in interest rates. We do not have a trading book and do not undertake market activities such as market making, arbitrage or proprietary trading and, therefore, do not have direct risks related to those activities. We maintain a cash and securities portfolio that is comprised of high-quality debt instruments issued or guaranteed by federal (Canada or United States), provincial or municipal governments which are used exclusively for liquidity management purposes and typically held to maturity. These instruments are subject to price fluctuations based on movements in interest rates and volatility in financial markets. We have limited direct exposure to foreign exchange risk. Risk Governance Market risk is managed in accordance with the approved Market Risk Management policy, second line standard and accompanying first line directive. The Market Risk Management policy is reviewed by ALCo and the Executive Risk Committee and approved by the Board Risk Committee every three years, at a minimum. As the first line of defence, our Treasury team owns and manages our market risk on a daily basis. ALCo provides tactical and strategic direction and is responsible for ongoing oversight, review and endorsement of operational guidelines. The Market Risk, Liquidity and Profitability Oversight function provides independent second line monitoring and reporting of market risk exposure against our risk appetite to ALCo, the Executive Risk Committee and the Board Risk Committee. 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. Risk Overview IRRBB arises when changes in interest rates affect the cash flows, earnings and values of assets and liabilities. The objective of IRRBB management is to maintain an appropriate balance between earnings volatility and economic value volatility, while keeping both within their respective risk appetite limits. IRRBB arises due to the duration mismatch between assets and liabilities. Adverse interest rate movements may cause a reduction in earnings, and/or a reduction in the economic value of our assets, and/or an increase in the economic value of our liabilities. IRRBB 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 debt 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 loans. 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. The sensitivity of our 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. Economic value provides a perspective on the sensitivity of our net worth to fluctuations in interest rates. Risk Management IRRBB 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. Our Market Risk Management policy, which includes IRRBB, establishes risk tolerance limits, defines a management framework to ensure the ongoing identification, measurement, monitoring and control of IRRBB, and defines authority levels and responsibilities. We manage the economic value of the balance sheet within a range around a target duration. Management of the benchmark duration is the responsibility of the first line of defence and is managed within Board approved limits, with the resulting risk exposure maintained within our risk appetite. CWB Financial Group 2022 Annual Report | 51 The duration limits consider an appropriate trade-off between: • Earnings volatility and volatility in the value of our 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. IRRBB is measured using standard parallel interest rate shocks and historical simulations to evaluate earnings and economic value sensitivity, stress testing and gap analysis, in addition to other traditional risk metrics, including: • Earnings at Risk (EaR) - the potential reduction in net interest income due to adverse interest rate movements over a one-year horizon. • Economic Value of Equity at Risk (EVaR) - the potential reduction in economic value of CWB’s equity due to adverse interest rate movements. 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). IRRBB exposure 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 supported by stress testing of the asset liability portfolio structure, duration analysis and dollar estimates of net interest income sensitivity after hedging activity for periods of up to one year. The interest rate gap is measured at least monthly. The Executive Risk Committee and ALCo regularly review internal reporting on the measurement outcomes of IRRBB and hedging strategies, which provide monitoring of EaR and EVaR, in addition to stress testing, gap analysis and other market risk metrics. A summary report is provided to the Board Risk Committee each quarter. Note 22 of the audited consolidated financial statements provides the static gap position at October 31, 2022 for select time intervals and information on the estimated impact of a one-percentage point increase or decrease in interest rates on net interest income and other comprehensive income. The analysis in Note 22 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 estimates provided in Note 22 are based on a number of assumptions and factors, which include: • A constant structure in the interest sensitive asset liability portfolio; • Behavioural assumptions are applied to indeterminate assets and 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. We maintain an asset liability structure and interest rate sensitivity within our established policies through pricing and product initiatives, as well as the use of interest rate swaps and other appropriate strategies. 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. Risk Management We have established policies that include limits on the maximum allowable differences between U.S. dollar assets and liabilities. We measure the difference daily and manage it through use of U.S. dollar forward contracts or other means. Our Market Risk Management policy includes monitoring of our U.S. dollar liquidity exposures. Deviations from compliance with policy, if any, are reported to ALCo and the Board Risk Committee. In providing financial services to our customers, we have assets and liabilities denominated in U.S. dollars. At October 31, 2022, assets denominated in U.S. dollars were 3% (2021 – 3%) of total assets and U.S. dollar liabilities were 3% (2021 – 3%) of total liabilities. We do not buy or sell currencies other than U.S. dollars other than to meet specific client needs. We have no material exposure to currencies other than U.S. dollars. 52 | CWB Financial Group 2022 Annual Report LIQUIDITY AND FUNDING RISK Liquidity risk is the risk that we cannot meet a demand for cash or fund our financial obligations in a cost-effective 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. Risk Overview We maintain a conservative approach to managing our exposure to liquidity and funding risk, including holding a portfolio of high-quality liquid 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 approach designed to ensure we manage 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; • Broad funding access, including preserving and growing full-service client relationships to maintain a reliable base of core deposits and continual access to diversified sources of funding; • A comprehensive group-wide contingency funding plan supported by a pool of unencumbered high-quality liquid assets and marketable securities that would provide assured access to liquidity in a crisis. Our contingency funding plan also considers access to programs put in place by the Bank of Canada to support liquidity in the financial system during times of market disruption and volatility; 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. For additional information, refer to the Liquidity Management section of our MD&A. Risk Governance Liquidity risk is managed in accordance with our Liquidity Risk Management policy, which is reviewed by ALCo and the Executive Risk Committee and approved by the Board Risk Committee every three years, at a minimum. The Board Risk Committee delegates liquidity risk management authorities to senior management and our Treasury team, as the first line of defence, is responsible for managing liquidity and funding risk. ALCo provides tactical and strategic direction and is responsible for ongoing oversight, review and endorsement of operational guidelines. The Market Risk, Liquidity and Profitability Oversight function, as the second line of defence is responsible for independent oversight and reporting of liquidity risk exposure against our risk appetite to ALCo, the Executive Risk Committee and the Board Risk Committee. Risk Management Our Liquidity Risk Management policy establishes a target for minimum liquidity, sets the monitoring regime, and defines authority levels and responsibilities. Limit setting establishes acceptable thresholds for liquidity risk. We actively pursue diversification of our deposit liabilities by source, type of depositor, instrument and term. Supplementary funding sources currently include securitization and capital market issuances. 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. Our liquidity model measures and forecasts cash inflows and outflows, including any cash flows related to applicable off-balance sheet activities over various risk scenarios. 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. We perform liquidity stress testing on a regular basis to evaluate the potential effect of both CWB-specific and systemic 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. We stress test liquidity as per the OSFI LAR guideline. Stress test results are reviewed by ALCo and considered in making liquidity management decisions. Liquidity stress testing has many purposes, including, assisting the Board Risk Committee and senior management to 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. A contingency funding 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 event. Treasury is responsible for liquidity risk analysis, measurement, stress testing, monitoring, and reporting to both ALCo and the Board Risk Committee. Market Risk, Liquidity and Profitability Oversight teams provide second line monitoring. CWB Financial Group 2022 Annual Report | 53 Contractual Obligations We enter into contracts in the normal course of business that give rise to commitments of future minimum payments that may affect our liquidity position. In addition to the obligations related to deposits and subordinated debentures discussed in the Deposits and Liquidity Management sections of our MD&A, as well as Notes 12, 13, 14 and 17 of the audited consolidated financial statements, the following table summarizes purchase obligations outstanding at October 31, 2022 for operating and capital expenditures. Table 32 - Contractual Obligations ($ thousands) October 31, 2022 October 31, 2021 Credit Ratings Within 1 Year $ $ 38,972 24,740 $ $ 1 to 3 Years 14,842 9,704 More than 4 Years $ $ 5,299 - $ $ Total 59,113 34,444 Our ability to efficiently access capital markets funding on a cost-effective basis is partially dependent upon the maintenance of satisfactory credit ratings. Such credit ratings 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 are largely determined by the quality of earnings, the 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. There can be no assurance that our credit ratings and the corresponding outlook will not be changed, potentially resulting in adverse consequences for funding capacity or access to capital markets. Changes in credit ratings may also affect the ability and/or the cost of establishing normal course derivative or hedging transactions. 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 withdrawal at any time by the rating organization. The following table summarizes our current credit ratings issued by DRBS Morningstar, as well as the corresponding rating agency outlook. Table 33 - DBRS Morningstar Credit Ratings Short-term instruments R1 (low) Stable Long-term senior debt and long-term deposits Subordinated debentures (NVCC) Preferred shares (NVCC) Limited recourse capital notes (NVCC) A (low) Stable BBB (low) Stable Pfd-3 Stable BB (high) Stable Rating Outlook 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 Capital management involves an ongoing process to determine, allocate and maintain appropriate amounts of capital. The objective of capital management is to ensure: • 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. Risk Governance The Board approves the annual regulatory capital plan, and the Board Risk Committee approves the periodic ICAAP and Capital Risk Management policy. The Group Capital Risk Committee is responsible for capital risk management. The CRO oversees the demand side of capital management, including risk capital and economic capital. The CFO is responsible for the supply side of capital management. Risk Management Our Capital Risk Management policy establishes a framework to manage our capital requirements, including the definition of roles and responsibilites as well as reporting and monitoring requirements. We have established target capital levels, which are informed by our ICAAP and stress tests, that are deemed prudent to effectively manage risks, and are well above regulatory minimums. Regulatory ratios are calculated under the Standardized approach for credit risk and reported to senior management and the Board of Directors on a recurring basis, at least quarterly. On an annual basis, we complete a regulatory capital plan, which includes a three-year capital projection. To monitor capital risk, we utilize models to analyze the likely capital impact of projected operations, various balance sheet and income statement scenarios, approaches used to calculate regulatory capital, and/or significant transactions. A quarterly update on both capital demand and capital supply risk is provided to the Board Risk Committee. The Risk Management and Finance teams comprise the core ICAAP team and are closely involved in capital management, and follow the process and principles outlined in the Stress Testing section of our MD&A. For additional information, refer to the Capital Management section of our MD&A. 54 | CWB Financial Group 2022 Annual Report  OPERATIONAL RISK Operational Risk is defined as the risk of loss resulting from people, inadequate or failed internal processes and systems or from external events. This includes legal risk but excludes strategic and reputational risk. Risk Overview Operational risk is inherent in all of our business activities, including our full-service business and personal banking, specialized financing, wealth management offerings, and trust services. We are exposed to operational risk from internal business activities, external threats and business activities performed or enhanced by third party service providers. Effective management of operational risk improves our operational resilience while limiting potential losses that may result from process and control failures, theft and fraud, unauthorized transactions by employees, regulatory non-compliance, business disruption, information security breaches, cybersecurity threats, exposure to risks related to third-party relationships, and damage to physical assets. Its impact can be financial loss, loss of reputation, loss of competitive position, regulatory scrutiny, or failure in the management of other risks. While operational risk cannot be eliminated, proactive operational risk management is a key strategy to mitigate this risk. The primary financial measure of operational risk is actual losses incurred. Risk Governance The Group Non-Financial Risk Committee is responsible for operational risk management. We have an Operational Risk Management policy and related standards to ensure that all employees understand their responsibilities with respect to operational risk management. The Operational Risk Management policy encompasses a common language of risk coupled with programs and methodologies for identification, measurement, control and management of operational risk. Our management of operational risk follows the three lines of defence governance model. Business and support areas are the first line of defense and are fully accountable to manage and mitigate the operational risks associated with their activities. The Group Non-Financial Risk Committee oversees the implementation and adoption of the Operational Risk Management policy and facilitates the involvement of relevant stakeholders in the first and second lines of defense across CWB. Group Risk Management, as the second line, is responsible for the continual enhancement of the Operational Risk Management framework and supporting standards. The Board Risk Committee has ultimate oversight and approves the Operational Risk Management policy. Risk Management We apply various risk management frameworks and standards to manage and mitigate operational risks. Management remains close to operations, which helps to facilitate effective internal communication and operational control. Our operational risk management processes are focused to continue to strengthen our risk culture by promoting greater awareness and understanding of operational risk across all three lines of defence and providing ongoing training and communication. We maintain a continued focus to enhance operational risk management processes as risks evolve. Our Operational Risk Management standard describes how the principles of the Operational Risk Management policy are put into practice and defines accountabilities and required participation from various teams across the three lines of defence. The framework sets out the processes to identify, assess, monitor, measure, report and communicate on operational risks. Key elements of the framework include: • Common definitions - We incorporate standard risk terms and key operational risk definitions in our Operational Risk Management standard and supporting policies. We have adopted a Risk Taxonomy that is the basis for all operational risk management reporting, with loss events and identified risks categorized consistently. • Risk control assessments - We utilize Risk Control Assessments (RCA) to develop a forward-looking view of operational risk exposure based on proactive identification of key sources of operational risk exposures. The results of RCAs are aggregated across CWB to evaluate the key sources of operational risks and compare relative exposures from different business activities; • Risk reporting - Loss data monitoring is important to maintain awareness of identified operational risks and to assist management to take 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 opportunities for training and education; • New initiative risk assessments - Integrated with our change management process, the assessment requires initiative owners to proactively identify key risks and conduct detailed RCAs for high risk new initiatives; • Key risk indicators - We utilize key risk indicators to monitor the main drivers of exposure associated with key operational risks, which can also provide insight into control weaknesses and help to determine residual risk. Risk and performance indicators are used to identify risk trends and prompt actions and mitigation plans to be undertaken; and, • Scenario analysis - We utilize scenario analysis to identify potential operational risk events and assess their potential impact on CWB. Scenario analysis is an effective tool to consider potential sources of operational risk and the need for enhanced risk management controls or mitigation solutions. In addition to the second line Operational Risk Management standard, we maintain several additional standards aligned with our Operational Risk Management policy to manage and mitigate specific types of differentiated operational risks. The regulatory framework requires certain amounts of capital to be allocated to support operational risk. We use the Standardized approach to measure the notional risk- weighted asset that we hold against operational risk. CWB Financial Group 2022 Annual Report | 55 Key Operational Risks PEOPLE RISK People risk means the potential for loss or harm arising from ineffective practices related to people, culture and employment. Failure to effectively manage people risk can result in operational disruptions and uncertainty, failure to meet strategic objectives, injury or harm to individuals, or damage to CWB’s brand. We intend to continually attract and retain qualified team members to successfully execute against our strategic priorities. 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. Human Resource guidelines and processes are in place to establish accountability in relation to people risk, to ensure team members are adequately trained to perform the tasks for which they are responsible, and to enable talent attraction, development, and retention. Our 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 our brand awareness in the markets where we operate. We complement this with a specialized and knowledgeable approach to talent acquisition, a robust focus on employee engagement, effective communication and employee listening strategies, proactive organizational change management, a competitive total rewards offering with differentiated benefits, flexible work arrangements, comprehensive learning and development opportunities and a proactive focus on succession planning. TECHNOLOGY AND CYBERSECURITY RISK Technology Risk Technology risk is the risk of loss or harm related to the operational performance, confidentiality, integrity and availability of our information, systems and infrastructure. We are dependent upon technology and supporting infrastructure, such as voice, data, systems and network access. In addition to internal resources, various third parties provide key infrastructure, and application services to support our operations. 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. We have several projects underway focused on increasing our digital capabilities which may potentially increase risk exposure related to information systems and technology. Ongoing diligence is required to ensure systems are resilient and secure from threats. We continuously identify and assess key services to ensure potential failure points are highlighted and related risk is mitigated in the best possible way (i.e. upgrades, enhancements, new products). We rely on technology that incorporates built-in controls such as configuration management, change management, capacity management along with information security management programs. With a significant number of our team members working remotely reflecting the new hybrid work environment, our dependence on remote access to information technology and supporting infrastructure remains elevated. We regularly monitor, assess and revise our business continuity approach and response to ensure our ability to maintain critical operations through periods of business disruption. Our Information Services team has worked diligently to ensure our teams have uninterrupted remote access to required technology and infrastructure through our secure platforms. Our Information Services team also continues to partner with GRM to apply further rigour and enhanced governance of the identification and evaluation of potential risks in the technology environment. Cybersecurity Risk Cybersecurity risk is the risk of loss or harm due to compromise 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. Our Cyber Risk Management standard provides a consistent enterprise-wide approach to efficiently and effectively manage cyber risk while supporting CWB to achieve our strategic objectives. We manage information security risk by ensuring appropriate technologies, processes and tools are effectively designed and implemented to help prevent, detect, and respond to threats as they emerge and evolve. We continually enhance our processes to align with the changing regulatory environment such as OSFI’s B-13 Technology and Cyber Risk Management. Our Information Security Office continues to enhance our comprehensive suite of controls to protect CWB’s operations, our customer and corporate data 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 cybersecurity program through penetration testing and control evaluation exercises conducted by independent third parties, the continuous monitoring of our environment for indications of control weakness by a team of dedicated resources, and mandatory training sessions for all team members. As we continue to enhance our digital capabilities, a focus to advance our cybersecurity enables our growth trajectory. By implementing and benchmarking the effectiveness of our industry-proven cybersecurity risk and control frameworks, we ensure our ability to safely deliver services to our clients through digital channels. OUTSOURCING AND THIRD-PARTY RISK Outsourcing and third-party risk is 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. To manage this risk, we rely on our Third-party Risk Management framework, which reflects a risk-based approach to centrally identify, assess, manage and monitor third-party risk and leverages the three lines of defence model. We continued to mature our third-party risk management processes and tools this year, particularly in relation to the assessment of the internal control environment of potential service providers prior to entering into an engagement, with a focus on technology providers. Third-party Risk Management will continue to be a focus to continue to enhance our operational resilience and to ensure continued delivery of critical operations during times of disruption. DATA RISK Data risk is the risk, whether direct or indirect, that arises from reliance on data to support our ability to make informed decisions and develop accurate reporting and analytics for senior management, our Board of Directors, regulators, or customer facing and/or marketing purposes. Potential risks can relate to data management, data taxonomy, metadata, governance, access, or data that is incomplete, inaccurate, untimely and/or inaccessible. Data is considered a key strategic asset and the volume, value, and type of data we rely on has increased in recent years. As data is produced and consumed by different business lines and geographies across CWB, an effective, collaborative, and holistic approach to data risk management has been implemented to minimize reputation, regulatory and financial risk. Our Data Governance framework and supporting protocols reflect a risk-based approach to support oversight and management of critical data elements to enable greater coordination and consistency of our data. We continue to enhance and mature our data remediation processes and data quality monitoring tools. Our ongoing programs related to data protection and access management also ensure that data is only accessible when directly relevant to the team member’s role. 56 | CWB Financial Group 2022 Annual Report MODEL RISK Model risk is 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. Model risk can originate from inappropriate specifications, incorrect parameter estimates, flawed hypotheses and/or assumptions, mathematical computation errors, inaccurate, inappropriate or incomplete data, inappropriate, improper or unintended usage and inadequate monitoring and/or controls. The Model Risk Committee provide oversight of model risk. Our Model Risk Management standard describes the overarching principles and procedures that provide the framework for managing model risk. The standard also defines roles and responsibilities for key stakeholders involved in the Model Risk Management cycle. All models, whether developed internally or vendor-supplied, are covered by this standard. REGULATORY COMPLIANCE AND LEGAL RISK Regulatory compliance and legal risk is the risk of loss or harm created by failing to comply with or satisfy the laws, regulations or prescribed practices that apply to CWB. Regulatory compliance and legal risk does not include risk arising from non-conformance with ethical standards. Failure to manage these risks may result in civil or criminal litigation, administrative penalties, supervisory findings, enforcement actions, financial loss, restricted business activities, increased regulatory supervision or intervention or the imprisonment or regulatory examination of officers and directors, an inability to execute our strategic 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. REGULATORY COMPLIANCE RISK Our businesses are highly regulated through the laws, regulations and prescribed practices 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 in both requirements 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. Further, new regulatory regimes are being introduced for privacy and data management, consumer protection, third-party risk management and technology oversight which enhance the complexity of compliance. 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 standard and developed supporting protocols to manage regulatory compliance risk across the enterprise. LEGAL RISK Legal risk is 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. 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. FINANCIAL CRIME RISK Safeguarding our customers, employees, information and assets from exposure to criminal risk is an important priority for us. Financial crime risk is the potential for loss or harm resulting from a failure to comply with criminal laws and includes acts by employees or third parties against us and acts by external parties using CWB to engage in unlawful conduct, such as fraud, theft, money laundering, violence, cyber crime, bribery, and corruption. Our Regulatory Compliance team maintains a strong focus on key regulatory compliance areas such as privacy, anti-money laundering, anti-terrorist financing and consumer protection regulations. 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. BUSINESS AND STRATEGIC RISK Strategic risk is the risk that CWB or particular business areas will make inappropriate business or strategic choices, or will be unable to successfully execute processes to achieve our strategic priorities. Strategic risk includes business risk, which arises from the specific business activities we undertake, and the effects they could have on our financial results. The Board of Directors is responsible for providing oversight of strategic risk and effective challenge and approval of our strategic plan on an annual basis. We develop a strategic plan based on an assessment of emerging market trends, the competitive environment, potential risks and other key issues. Our strategy is focused on targeted growth of our business through a combination of organic growth and strategic acquisitions. The strength of our organic growth depends on the execution of enhancements to our client experience, products, and processes that continues to attract and retain clients. The ability to successfully grow through acquisition will depend on several 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. To mitigate this risk, we rely on an effective project management process supported by a designated committee comprised of representatives of senior management. CWB Financial Group 2022 Annual Report | 57 SOCIAL AND ENVIRONMENTAL RISK Social and environmental risk is the potential for loss or harm resulting from social or environmental impacts or concerns related to our business or our clients. This risk involves a broad spectrum of issues, including climate change, pollution and waste, energy and other resource usage, human rights, diversity, equity and inclusion, labour standards, and the strength of the communities we operate in. We recognize the importance of social and environmental risk management practices and processes, and continue to advance our understanding of the impact these risks may have on our business and the business of our clients. Our Board of Directors and its committees provide oversight of these risks and their impacts on our enterprise- wide strategy. Under the leadership of the CFO, we have a cross-functional sustainability team that is responsible to identify and prioritize social and environmental issues based on engagement with our clients, people, and investors, and to develop an implementation plan for our overarching approach to sustainability, which includes social and environmental factors, aligned with our strategic direction. The sustainability team provides regular updates and education on emerging trends related to social and environmental risks and market developments to our Board of Directors. Industry practises related to the identification, assessment and management of social and environmental risk are evolving at a rapid pace, especially those related to climate- related risks, and we continue to monitor and respond to emerging regulatory and supervisory frameworks, guidance, and consultation. Our GRM function is responsible for the ongoing development of policies and processes to identify, assess, monitor, and report on social and environmental risks. Identified social and environmental risks are managed through our business policies and procedures across CWB. In 2022, CWB Wealth became a signatory of the United Nations Principles for Responsible Investment (UN PRI), which supports integration of social and environmental factors into our investment analysis and decision-making processes for our wealth business. Environmental risks within our lending portfolio are managed through our credit granting process (see the Credit Risk section above). Further information on our approach to environmental risks specifically related to climate change are included in the TCFD Disclosure section below. We are committed to providing transparent and timely disclosures related to social and environmental risks to facilitate consistent and comparable reporting across all industries. We published our inaugural Sustainability Report in 2022, which included disclosure on our approach and performance to address significant social and environmental risks and reflected our phased adoption of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, further discussed below, and the Sustainability Accounting Standards Board (SASB) standards. As we move forward, we will continue to advance our disclosures as our approach to sustainability evolves. Further information on our approach to sustainability is available in our 2021 Sustainability Report, located on our website at www.cwb.com/sustainability-reports. TCFD Disclosure Governance Board Oversight The Board of Directors and its committees provide oversight to social and environmental risks and opportunities, including the impact of climate change. The Board of Directors oversees our enterprise-wide approach to climate change and related disclosures included within our Sustainability Report, and monitors progress on the integration of climate factors into our ongoing strategy. As the topic of climate change requires a multidisciplinary approach, each board committee also provides oversight of climate-related factors that are specific to their respective responsibilities. In 2022, the committee mandates were expanded to include specific oversight responsibilities related to social and environmental factors. The Board and its committees regularly receive reporting on and discuss a range of climate-related issues, which include our approach to climate change and progress towards measurement of our operational and financed greenhouse gas emissions, current and emerging trends related to climate-related risks, the evolving regulatory landscape, and increased stakeholder focus and engagement. Management Oversight In 2022, we established an ESG Steering Committee focused on the design and execution of our approach to integrate climate factors into our strategy and operations, as part of the development of a comprehensive approach to sustainability. The ESG Steering Committee consists of each member of our executive team, and is supported by our sustainability team, who engages with internal stakeholders and works closely with the GRM function to establish appropriate working groups tasked with the development of various components of our approach to climate change. Our Executive Risk Committee provides oversight of our developing approach to identify, assess, monitor and report on climate-related risks, with support and input from the GRM function. Strategy We recognize that we have a part to play in Canada’s transition to net-zero emissions by managing our direct and indirect climate impact, exploring ways to support our clients in achieving their climate goals and mitigating the risks associated with climate change. As we progress the development of our sustainability approach, our strategy will incorporate short-, medium-, and long-term goals targeted to address specific climate-related issues that could have a significant financial impact on our operations, or the operations of our clients. We are committed to measure and manage our greenhouse gas emissions, with an initial focus on our operational emissions across our national footprint, to support our ability to develop meaningful and supportable reduction targets in the future. In addition to continued efforts to measure and manage our own carbon footprint, we are focused to develop a deeper understanding of the risks and opportunities that climate change presents for our clients. As we move forward, we plan to expand our greenhouse gas emissions estimates to encompass the financed emissions within our lending portfolio, with consideration for data and measurement methodology limitations, which we believe will be a foundational component of our developing approach to climate change. Through this process, we will continue to assess the credibility, reliability, comparability and decision-making usefulness of greenhouse gas emissions estimation approaches and data sources and consider how they may be leveraged as we enhance our approach to climate risk management. To remain well-informed on climate-related issues and emerging trends and support the development of our approach to climate change, our teams provide representation on industry groups and national and local climate-related programs. We participate in the Sustainable Finance Action Council, which advises on movement towards mandatory climate change disclosures, the development of a climate risk taxonomy within the context of Canada’s capital markets and addressing the climate data needs and capacity within the financial sector. 58 | CWB Financial Group 2022 Annual Report Risk Management Climate risk is a subset of environmental risk that encompasses the risk of financial loss or reputational damage that results from the physical and transition impacts of climate change, which may adversely impact our operations, or the operations of our clients. • Transition to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputation risk to organizations over time. • Physical risks related to climate change can be event-driven or due to longer-term shifts in climate patterns. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. We have limited direct physical risk exposure based on our modest physical footprint through banking centres and corporate office space across Canada. We regularly monitor, assess and revise our business continuity approach and response to ensure our ability to maintain critical operations through periods of business disruption. We have minimal indirect physical and transition risk exposure through our current lending activities, although we expect this risk will evolve and emerge over time. Our lending portfolio diversification by geography and industry has increased significantly over the past several years, which mitigates the risk of over-exposure to any one sector or region that might be exposed to climate-related risks. We continue to advance our capabilities and approach to climate-related risk management. In 2022, we updated our Risk Management framework to incorporate social and environmental risk into our risk universe and climate-related risk was added to our Risk Register to facilitate the assessment of the level of inherent risk, control effectiveness and residual risk. We are committed to continue to advance our risk management practises to support identification, management, and reporting of climate-related risks and integration of climate-related risks into our policies and procedures. Metrics and Targets As we continue our phased adoption of the TCFD recommendations, we are committed to identify, measure, and disclose climate-related metrics and targets, beginning with a focus on our greenhouse gas emissions across our operational footprint. We are also committed to manage our operational footprint through practices targeted to benchmark and reduce the amount of energy we consume, increase materials recovered and recycled, and manage ecological maintenance products. As we expand our banking centre footprint and upgrade existing locations, we maintain a focus on sustainability and opportunities to reduce our environmental impact. Progress on our approach to climate change, including the development of related metrics and targets, is further discussed within our Sustainability Report located on our website at www.cwb.com/sustainability-reports. REPUTATION RISK Reputation risk is the risk of loss or harm to our 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. 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. Negative public opinion could adversely affect our ability to attract and retain clients and/or employees and could expose us to litigation and/or regulatory action. We manage risks to our reputation by considering the potential reputational impact of all business activities, strategic plans, transactions and initiatives, product and service offerings, as well as day-to-day decision-making and conduct. Responsibility for managing the impact of operational (and other) risks on our reputation extends to all of our teams, including senior management and the Board of Directors. All directors, officers and employees have a responsibility to conduct their activities in accordance with our personal code of conduct policies, in a manner that minimizes operational risks and aligns to our three lines of defence framework. We actively promote a culture that encourages employees to raise concerns and supports them in doing so. OTHER RISK FACTORS In addition to the risks described above, other risk factors may adversely affect our businesses and financial results. 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 transitioning from the Standardized to AIRB approach for regulatory capital management will not affect the attributes or behaviour of our competitors, we expect this transition to enhance our competitiveness by enabling more risk-sensitive pricing. 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. CWB Financial Group 2022 Annual Report | 59 ADEQUACY OF CWB’S RISK MANAGEMENT FRAMEWORK The Risk Management framework is comprised of various policies, processes and tools for managing risk exposure. There can be no assurance that the framework to manage risks, including the framework’s underlying assumptions, will be effective under all conditions and circumstances. If the Risk Management framework proves ineffective, we 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 will 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 or business spending and saving habits, timely development and introduction of new products, and the anticipation of and success in managing the associated risks. SHARE AND DISTRIBUTION INFORMATION As at November 25, 2022, there were 94,326,112 common shares and 1,871,717 stock options outstanding. We evaluate common share dividends considering the strength of our capital position and capital requirements under the Standardized approach to support ongoing strong risk-weighted asset growth. The following dividends on common and preferred shares were declared by the Board of Directors and paid during the year: $1.22 per common share (2021 – $1.16) $1.08 per preferred share - Series 5 (2021 – $1.08) $1.50 per preferred share - Series 9 (2021 – $1.50) $nil per preferred share - Series 7 (2021 – $1.17) Total $ 2022 2021 111,245 $ 5,376 7,500 - 101,421 5,375 7,500 6,563 $ 124,121 $ 120,859 Subsequent to October 31, 2022, the Board of Directors of CWB declared a dividend of $0.32 per common share payable on January 5, 2023 to shareholders of record on December 15, 2022, and cash dividends of $0.2688125 per Series 5 and $0.375 per Series 9 preferred share all payable on January 31, 2023 to shareholders of record on January 24, 2023. With respect to these dividend declarations, no liability was recorded on the consolidated balance sheets at October 31, 2022. On April 30, 2022 and October 31, 2022, Series 1 NVCC Limited Recourse Capital Notes (LRCN) note holders received semi-annual coupon payments of $30, per $1,000 principal amount of notes outstanding, reflecting total payments of $11 million, recorded in common shareholders’ net income on an after-tax basis. On January 31, 2022 and July 31, 2022, Series 2 NVCC LRCN note holders received semi-annual coupon payments of $25 per $1,000 principal amount of notes outstanding, reflecting total payments of $8 million. Further information is provided in Note 15 of the audited consolidated financial statements for the year ended October 31, 2022. RELATED PARTY TRANSACTIONS Transactions with and between subsidiary entities are made at normal market prices and eliminated on consolidation. We provide banking services to our officers and employees, including key management personnel, and their immediate family at various preferred rates and terms. Key management personnel are those that have authority and responsibility for planning, directing and controlling our activities and include our independent directors. Further information is provided in Note 21 of the audited consolidated financial statements for the year ended October 31, 2022. CONTROLS AND PROCEDURES As of October 31, 2022, an evaluation was carried out on the effectiveness of CWB’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO have certified that the design and operating effectiveness of CWB’s disclosure controls and procedures were effective. Also at October 31, 2022, an evaluation was carried out on the effectiveness of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. Based on that evaluation, the CEO and CFO have certified that the design and operating effectiveness of 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. Prior to its release, this MD&A was reviewed by the Audit Committee and, on the Audit Committee’s recommendation, approved by the Board of Directors of CWB. 60 | CWB Financial Group 2022 Annual Report Consolidated Financial Statements TABLE OF CONTENTS Management’s Responsibility for Financial Reporting .............62 Consolidated Statements of Comprehensive Income .................... 68 Independent Auditors’ Report ..............................................63 Consolidated Statements of Changes In Equity ............................. 69 Consolidated Financial Statements ......................................66 Consolidated Balance Sheets ......................................................... 66 Notes to Consolidated Financial Statements ..........................71 Consolidated Statements of Cash Flows ....................................... 70 Consolidated Statements of Income .............................................. 67 CWB Financial Group 2022 Annual Report | 61 Consolidated Financial Statements MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The consolidated financial statements of Canadian Western Bank (CWB) and related financial information presented in this annual report have been prepared by management who are responsible for the integrity and fair presentation of the information presented, which includes the consolidated 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 consolidated financial statements, MD&A and related financial information reflect amounts which must, of necessity, be based on informed estimates and judgments of management with appropriate consideration to materiality. The financial information represented elsewhere in this annual report is fairly presented and consistent with the consolidated financial statements. Management has designed the accounting system and related internal controls, and supporting procedures are maintained to provide reasonable 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 system of internal controls is also supported by our internal audit function, which carries out periodic internal audits of all aspects of CWB’s operations. The Chief Internal Auditor has full and free access to the Audit Committee and to the external auditors. The Audit Committee, appointed by the Board of Directors, is comprised entirely of independent directors who are not officers or employees of CWB. The Audit 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 results of the external audit. The Audit Committee also meets regularly with the Chief Financial Officer, Chief Internal Auditor and the external auditors without management present. 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 and reporting to the Board of Directors, those related party transactions which may have a material impact on CWB. 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 1, 2022 R. Matthew Rudd Chief Financial Officer 62 | CWB Financial Group 2022 Annual Report INDEPENDENT AUDITORS’ REPORT To the Shareholders of Canadian Western Bank OPINION We have audited the consolidated financial statements of Canadian Western Bank (the Entity), which comprise: • the consolidated balance sheets as at October 31, 2022 and October 31, 2021 • the consolidated statements of income for the years then ended • the consolidated statements of comprehensive income for 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, 2022 and October 31, 2021, and its consolidated financial performance, and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). 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 ethical 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. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended October 31, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report. ASSESSMENT OF THE ALLOWANCE FOR CREDIT LOSSES FOR LOANS Description of the matter We draw attention to Notes 2 and 7 to the financial statements. The Entity’s allowance for credit losses (ACL) for loans is $161,818 thousand as at October 31, 2022. The Entity’s ACL is determined using an expected credit loss (ECL) approach that 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 (PD), loss given default (LGD) and exposure at default (EAD). In establishing the ACL, the Entity’s approach incorporates a number of underlying assumptions which involve a high degree of management judgment: • Internal risk ratings attributable to a borrower reflecting changes in credit quality • Estimated realizable amount of future cash flows on Stage 3 loans • Thresholds used to determine when a borrower has experienced a significant increase in credit risk • Forward-looking information, specifically related to variables to which the ECL models are calibrated Qualitative adjustments based on expert credit judgment are also incorporated to capture emerging market conditions. Why the matter is a key audit matter We identified the assessment of the ACL for loans as a key audit matter. Significant auditor judgment was required because of the significant management judgments described above in determining the ACL, which is subject to a high degree of measurement uncertainty. Significant auditor effort and specialized skills and knowledge were required to assess the Entity’s ACL methodology. How the matter was addressed in the audit The following were the primary procedures we performed to address this key audit matter. We evaluated the design and tested the operating effectiveness of certain controls over the Entity’s ACL process, including controls related to: • Assignment at origination and periodic assessment of internal risk ratings • Monitoring and reporting of delinquencies • Monitoring and approval of forward-looking information incorporated into ECL models • Monitoring of security underlying Stage 3 loans, determination of the estimated realizable amount of future cash flows, and the approval of corresponding ACL CWB Financial Group 2022 Annual Report | 63 We involved credit risk and economics professionals with specialized skills and knowledge who assisted in: • Assessing the models for the PD, EAD and LGD inputs by evaluating the methodology for compliance with relevant accounting standards • Assessing the methodology for identifying whether there has been a significant increase in credit risk for compliance with relevant accounting standards • Checking the accuracy of a selection of ECL model-generated results • Assessing the Entity’s qualitative adjustments based on expert credit judgment by applying our knowledge of the industry and credit judgment to assess management’s judgments • Assessing the Entity’s forward-looking information incorporated into ECL models by comparing to external macroeconomic data • Assessing the Entity’s model performance monitoring methodology and output For a selection of loans, we developed an independent estimate of the risk rating using the Entity’s internal risk ratings scale and compared that to the Entity’s assigned internal risk rating. For a selection of loans, we tested the Entity’s assessment of whether there has been a significant increase in credit risk. For a selection of Stage 3 loans, we developed an independent estimate of the realizable amount of future cash flows by inspecting documentation of security underlying the loan, current market prices for comparable security, and reports prepared by the Entity’s external valuation experts. OTHER INFORMATION Management is responsible for the other information. Other information comprises: • the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. • the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “2022 Annual Report”. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility 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. We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions and the “2022 Annual Report” as at the date of this auditors’ report. 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. 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. Those charged with governance are responsible for overseeing the Entity‘s financial reporting process. 64 | CWB Financial Group 2022 Annual Report 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 our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, 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 concern. If we conclude that a material uncertainty exists, we are required 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 statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. • Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. KPMG LLP Chartered Professional Accountants The engagement partner on the audit resulting in this auditors’ report is Arnold Singh Edmonton, Canada December 1, 2022 CWB Financial Group 2022 Annual Report | 65 CONSOLIDATED BALANCE SHEETS ($ thousands) Assets Cash Resources Cash and non-interest bearing deposits with financial institutions Interest bearing deposits with financial institutions Cheques and other items in transit Securities Issued or guaranteed by Canada Issued or guaranteed by a province or municipality Other securities 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 Limited recourse capital notes Common shares Retained earnings Share-based payment reserve Accumulated other comprehensive (loss) income Total Equity Total Liabilities and Equity The accompanying notes are an integral part of the consolidated financial statements. Sarah Morgan-Silvester Chair of the Board Chris H. Fowler President and Chief Executive Officer 66 | CWB Financial Group 2022 Annual Report (Notes 3 and 4) $ (Note 4) (Note 5) (Note 6) As at October 31 2022 As at October 31 2021 $ 81,228 26,833 7,918 87,853 21,344 19,262 115,979 128,459 3,910,821 448,947 159,027 2,962,290 406,708 204,880 4,518,795 3,573,878 - 30,048 6,951,826 28,953,796 35,905,622 (161,818) 6,395,524 26,505,427 32,900,951 (141,429) 35,743,804 32,759,522 (Note 8) (Note 9) (Note 9) (Notes 10 and 25) (Note 11) 153,026 138,701 223,921 110,521 435,396 1,061,565 130,698 138,701 227,845 52,862 281,163 831,269 $ 41,440,143 $ 37,323,176 (Note 12) $ 17,181,571 15,837,476 $ 15,198,820 14,776,919 33,019,047 29,975,739 (Notes 5 and 7) (Notes 10 and 25) (Note 13) (Notes 7 and 14) (Note 14) (Note 15) (Note 15) (Note 15) (Note 16) 33,187 247,354 156,081 789,599 1,226,221 3,088,097 373,802 3,461,899 250,000 325,000 956,061 2,317,146 27,466 (142,697) 3,732,976 50,110 - 36,068 712,309 798,487 2,641,843 373,222 3,015,065 250,000 325,000 809,435 2,120,795 26,016 2,639 3,533,885 $ 41,440,143 $ 37,323,176 CONSOLIDATED STATEMENTS OF INCOME For the Years Ended October 31 ($ thousands, except per share amounts) Interest Income Loans Securities Deposits with financial institutions Interest Expense Deposits Debt Net Interest Income Non-interest Income Wealth management services Credit related Retail services Trust services (Losses) gains on securities, net Other Total Revenue Provision for Credit Losses 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 and limited recourse capital note distributions 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 The accompanying notes are an integral part of the consolidated financial statements. 2022 2021 (Note 23) $ 1,523,026 $ 1,296,954 37,043 1,836 20,541 517 1,561,905 1,318,012 546,136 75,793 621,929 939,976 61,928 40,449 10,264 9,991 (67) 13,746 136,311 360,663 64,986 425,649 892,363 59,490 38,411 10,007 8,988 2,978 3,796 123,670 (Note 18) 1,076,287 1,016,033 (Notes 4 and 6) 45,997 27,055 (Notes 16 and 18) (Note 18) (Note 19) (Note 15) (Note 20) (Note 20) 345,743 127,685 108,349 581,777 448,513 111,617 336,896 - 336,896 26,594 325,136 95,954 87,628 508,718 480,260 123,007 357,253 290 356,963 29,492 $ 310,302 $ 327,471 91,431 91,490 87,579 87,845 $ 3.39 $ 3.74 3.39 3.73 CWB Financial Group 2022 Annual Report | 67 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 Unrealized losses from change in fair value(1) Reclassification to net income, of (gains) losses in the year(2) Derivatives designated as cash flow hedges Losses from change in fair value(3) Reclassification to net income, of (gains) losses in the year(4) Items that will not be subsequently reclassified to net income Unrealized gains (losses) on equity securities designated at fair value through other comprehensive income(5) Comprehensive Income Comprehensive income for the year attributable to: Shareholders Non-controlling interests Comprehensive Income (1) Net of income tax of $27,855 (2021 – $10,777). (2) Net of income tax of $6 (2021 – $1,028). (3) Net of income tax of $11,969 (2021 – $1,924). (4) Net of income tax of $5,045 (2021 – $16,566). (5) Net of income tax of $39 (2021 – $326). The accompanying notes are an integral part of the consolidated financial statements. 2022 2021 $ 336,896 $ 357,253 (Note 10) (89,817) 8 (89,809) (38,852) (16,508) (55,360) (34,949) (3,316) (38,265) (6,197) (56,121) (62,318) (167) (145,336) 1,053 (99,530) $ 191,560 $ 257,723 $ 191,560 $ 257,433 - 290 $ 191,560 $ 257,723 68 | CWB Financial Group 2022 Annual Report CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended October 31 ($ thousands) Preferred Shares Balance at beginning of year Redeemed Balance at end of year Limited Recourse Capital Notes Balance at beginning of year Issued Balance at end of year Common Shares Balance at beginning of year Issued under at-the-market common equity distribution program Issued under dividend reinvestment plan Transferred from share-based payment reserve on the exercise or exchange of options Balance at end of year Retained Earnings Balance at beginning of year Shareholders' net income Dividends and other distributions - Preferred shares and limited recourse capital notes - Common shares Issuance costs on at-the-market common equity distribution program Issuance costs on limited recourse capital notes Realized gains reclassified from accumulated other comprehensive income 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 (Loss) Income Debt securities measured at fair value through other comprehensive income Balance at beginning of year Other comprehensive loss Balance at end of year Derivatives designated as cash flow hedges Balance at beginning of year Other comprehensive loss Balance at end of year Equity securities designated at fair value through other comprehensive income Balance at beginning of year Other comprehensive income Realized gains reclassified to retained earnings Balance at end of year Total accumulated other comprehensive (loss) income Total Shareholders' Equity Non-controlling Interests Balance at beginning of year Net income attributable to non-controlling interests Dividends to non-controlling interests Ownership change Balance at end of year Total Equity The accompanying notes are an integral part of the consolidated financial statements. (Note 15) $ (Note 15) (Note 15) (Note 15) (Note 15) (Note 15) (Note 4) (Note 16) (Note 4) 2022 2021 $ 250,000 - 250,000 390,000 (140,000) 250,000 325,000 - 325,000 809,435 141,098 5,005 523 956,061 2,120,795 336,896 (26,594) (111,245) (2,706) - - - 2,317,146 26,016 1,973 (523) 27,466 (32,140) (89,809) (121,949) 33,688 (55,360) (21,672) 1,091 (167) - 924 (142,697) 175,000 150,000 325,000 730,846 72,969 4,064 1,556 809,435 1,907,739 356,963 (29,492) (101,421) (1,616) (1,710) 35 (9,703) 2,120,795 25,749 1,823 (1,556) 26,016 6,125 (38,265) (32,140) 96,006 (62,318) 33,688 73 1,053 (35) 1,091 2,639 3,732,976 3,533,885 - - - - - 862 290 (320) (832) - $ 3,732,976 $ 3,533,885 CWB Financial Group 2022 Annual Report | 69 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: Depreciation and amortization Provision for credit losses Accrued interest receivable and payable, net Current income taxes receivable and payable, net Deferred income taxes, net Amortization of fair value of employee stock options Losses (gains) on securities, net Change in operating assets and liabilities Deposits, net Debt related to securitization activities, net Securities sold under repurchase agreements, net Securities purchased under resale agreements, net Accounts payable and accrued liabilities Loans, net Derivative collateral receivable and payable, net Other items, net Net Cash from (used in) Operating Activities Cash Flows from Financing Activities Common shares issued, net of issuance costs Dividends and limited recourse capital note distributions Repayment of lease liabilities Limited recourse capital notes issued, net of issuance costs Preferred shares redeemed Non-controlling interests, ownership change, dividends and contributions Net Cash from (used in) Financing Activities Cash Flows from Investing Activities Interest bearing deposits with financial institutions, net Securities, purchased Securities, sales proceeds Securities, matured Property, equipment and intangible assets Net Cash from (used in) Investing Activities 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 The accompanying notes are an integral part of the consolidated financial statements. 70 | CWB Financial Group 2022 Annual Report (Notes 8 and 9) (Notes 4 and 6) (Note 16) (Note 15) (Note 15) (Note 15) 2022 2021 $ 336,896 $ 357,253 80,848 45,997 28,904 16,967 6,493 1,973 67 3,043,308 446,254 247,354 30,048 9,295 (3,029,428) (78,128) 5,219 1,192,067 138,392 (132,834) (14,353) - - - (8,795) (5,489) (3,263,551) 1,941,850 242,124 (99,252) (1,184,318) (1,046) 57,005 55,959 $ $ 81,228 7,918 (33,187) 55,959 $ $ $ $ 58,297 27,055 (51,080) (42,232) (2,716) 1,823 (2,978) 2,665,385 590,163 (65,198) 20,036 76,487 (2,778,663) (59,472) 8,327 802,487 71,353 (126,849) (15,944) 148,290 (140,000) (11,889) (75,039) 233,107 (12,390,535) 8,276,968 3,204,506 (56,031) (731,985) (4,537) 61,542 57,005 87,853 19,262 (50,110) 57,005 $ 1,567,080 $ 551,698 86,860 1,369,762 473,584 128,385 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended October 31, 2022 and 2021 ($ thousands, except per share amounts) 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION A) REPORTING ENTITY Canadian Western Bank (CWB) is a publicly traded, federally regulated Canadian bank headquartered at Suite 3000, 10303 Jasper Avenue, Edmonton, Alberta. We are a full- service financial institution in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our clients with full-service business and personal banking, specialized financing, wealth management offerings, and trust services. The consolidated financial statements were authorized for issue by the Board of Directors on December 1, 2022. 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 we are 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 28 for details of CWB’s significant subsidiaries. The consolidated financial statements have been prepared on a historic cost basis, except the revaluation of financial instruments classified as fair value through profit or loss, or as fair value through other comprehensive income. 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). These consolidated financial statements also comply with subsection 308 (4) of the Bank Act and the accounting requirements of the Office of the Superintendent of Financial Institutions Canada (OSFI). The significant accounting policies used in the preparation of these financial statements, including the accounting requirements of OSFI, are summarized below and in the following notes. D) USE OF ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with IFRS requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the date of the consolidated financial statements as well as the reported amount of revenues and expenses during the period. Key areas of estimation where we have 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 other comprehensive income, and fair value of stock options. Therefore, actual results could differ from these estimates. E) SIGNIFICANT JUDGMENTS Information on critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements relate to the allowance for credit losses and are described in Note 6. F) BUSINESS COMBINATIONS 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. We elect 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 our 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. CWB Financial Group 2022 Annual Report | 71 H) PROVISIONS AND CONTINGENT LIABILITIES Management exercises judgment in determining whether a past event or transaction may result in the recognition of a provision or the disclosure of a contingent liability. Provisions are recognized in the consolidated 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 may be involved in estimating any amounts required. The actual costs of resolving these obligations may be significantly higher or lower than the recognized provision. 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 our 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 Financial instruments 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 Other assets Deposits Other liabilities Debt Capital stock J) CHANGES IN ACCOUNTING POLICIES Interest Rate Benchmark Reform 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Share-based payments Contingent liabilities and commitments Other income and other expenses 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 Comparative figures Various interest rates and other indices that are deemed to be benchmarks, including the London Interbank Offered Rate (LIBOR), have been the subject of international regulatory guidance and proposals for reform. Regulators in various jurisdictions have advocated for the transition from Interbank Offered Rates (IBORs) to alternative benchmark rates, based upon risk-free rates informed by actual market transactions. In March 2021, the Financial Conduct Authority confirmed that most USD LIBOR tenors will cease to be provided beginning June 30, 2023. In December 2021, the Canadian Alternative Reference Rate working group (CARR) recommended to CDOR’s administrator that the Canadian Dollar Offered Rate (CDOR) should also cease calculation and publication. On May 16, 2022, the CDOR administrator, Refinitiv Benchmark Services (UK) Limited (Refinitiv), announced the cessation of CDOR by June 28, 2024, consistent with CARR’s recommendations. CARR has proposed a two-stage plan for the adoption of Canadian Overnight Repo Rate Average (CORRA) as the replacement benchmark rate and has announced it will develop a one- and three-month Term CORRA benchmark which is expected to be published late in the third calendar quarter of 2023. OSFI also announced that it expects all new derivative contracts and securities to transition to alternative rates by June 30, 2023, with no new CDOR exposure being booked after that date, with limited permitted exceptions. OSFI also expects loans referencing CDOR to transition by June 28, 2024, and financial institutions to prioritize system and model updates to accommodate the use of CORRA prior to June 28, 2024. In response to interest rate benchmark reform, the IASB issued two phases of amendments to accounting standards. We adopted Phase 1 amendments to hedge accounting requirements in IFRS 9 Financial Instruments (IFRS 9), IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), IFRS 7 Financial Instruments: Disclosures (IFRS 7) and IFRS 16 Leases (IFRS 16) on November 1, 2020. These amendments apply until IBOR-based cash flows transition to new risk-free rates or when the applicable hedging relationships are discontinued. On November 1, 2021, we adopted Phase 2 amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16. The Phase 2 amendments focus on accounting and disclosure matters that will arise once an existing benchmark is replaced with an alternative benchmark rate. The amendments were applied retrospectively, and had no impact on our opening shareholders’ equity upon adoption. Phase 2 amendments provide practical expedients if contract modifications result directly from IBOR reform and occur on an economic equivalent basis. In these cases, changes to the interest rate of the financial assets or liabilities that are required by IBOR reform may be accounted for by updating the effective interest rate prospectively, to reflect the change in the interest rate benchmark rather than being recognized as an immediate gain or loss. Any other changes to the basis for determining contractual cash flows are determined in accordance with our existing accounting policies for loan modifications as described in Note 2 of these audited consolidated financial statements. Phase 2 amendments also allow for a temporary relief from hedge accounting requirements under IAS 39. Changes in existing hedge relationships that are a direct result of IBOR reform may be reflected in the hedge documentation without the need to discontinue the hedging relationship. For aspects of hedge accounting not covered by the amendments and hedges that are not directly impacted by IBOR reform, the accounting policies as described in Note 10 of these audited consolidated financial statements continue to apply. As IBORs are widely referenced, the transition presents a number of risks to us and the industry as a whole. These risks, such as increased volatility, lack of liquidity and uneven fallback practices, may impact market participants. In addition to these inherent risks, we are exposed to operational risk arising from the renegotiation of contracts and readiness to issue and trade products referencing alternative reference rates. 72 | CWB Financial Group 2022 Annual Report Our cross functional IBOR Reform working group continues to coordinate an orderly transition to alternative reference rates. During the year, we completed the remediation of our USD LIBOR referenced contracts by incorporating appropriate fallback language or by replacing the referenced rates with the Secured Overnight Financing Rate (SOFR), with appropriate spread adjustments. We also ceased the issuance of new USD LIBOR products at the end of calendar 2021. In 2022, the working group incorporated CDOR transition into our plans, which include incorporating appropriate contract fallback language, supporting the introduction of new products referencing CORRA or other alternative rates post-transition, preparing to cease the issuance of CDOR-based financial instruments, transitioning legacy CDOR-based contracts and preparing for overall operational readiness. The working group monitors recommendations from industry groups and regulatory bodies, and engages with industry associations and counterparties regarding transition of CDOR to CORRA as we update our transition plans. The working group provides periodic updates to senior management and the Asset and Liability Committee and quarterly to the Audit Committee of the Board of Directors regarding the status of transition plans for migrating our CDOR and USD LIBOR products and upgrading systems and processes. The following table presents the gross outstanding balances of our non-derivative financial assets and liabilities, and notional amounts of our derivatives that are indexed to CDOR and USD LIBOR as at October 31, 2022 and November 1, 2021, which were due to mature after their announced cessation dates. In the normal course of business, our exposures may continue to fluctuate. ($ thousands) Non-derivative Financial Assets Securities Loans Non-derivative Financial Liabilities Deposits - business and government Debt - subordinated debentures Derivative Financial Instruments(4) Notional/gross outstanding amounts October 31, 2022 November 1, 2021 CDOR(1, 2) Maturing after June 2024 USD LIBOR(3) Maturing after June 2023 CDOR(1, 2) Maturing after June 2024 USD LIBOR(3) Maturing after June 2023 $ $ $ $ $ - $ 1,254,038 1,254,038 $ - $ 125,000 125,000 $ 2,127,716 $ - $ 295,527 295,527 - $ 350,349 $ 350,349 $ - - - - $ $ $ - $ 125,000 125,000 $ 2,172,469 $ - 339,760 339,760 - - - - (1) While the six-month and 12-month tenors of CDOR were discontinued on May 17, 2021, we did not hold significant positions referencing these tenors at October 31, 2022 and November 1, 2021. (2) Excludes undrawn loan commitments. As at October 31, 2022, the total outstanding undrawn loan commitments that can potentially be drawn in CDOR beyond the announced cessation date of June 28, 2024 is $49 million (November 1, 2021 – less than $1 million). (3) Excludes undrawn loan commitments. As at October 31, 2022 and November 1, 2021, the total outstanding undrawn loan commitments that can potentially be drawn in USD LIBOR beyond the announced cessation dates of June 30, 2023 is less than $1 million. (4) Derivative financial instruments are comprised of interest rate swaps referencing CDOR and USD LIBOR that we use to manage interest rate risk. As at October 31, 2022 and November 1, 2021, all of these instruments were designated in hedge relationships. 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 our future financial statements. IFRS 12 Income Taxes In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 Income Taxes). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, there is recognition of a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. CWB will adopt the amendments effective for our fiscal year beginning November 1, 2022. We have assessed the amendment and determined that there will be no significant impact upon adoption. IFRS 17 Insurance Contracts In May 2017, the IASB issued IFRS 17 Insurance Contracts which will replace IFRS 4 Insurance Contracts. In June 2020, the IASB issued amendments to IFRS 17 aimed at helping companies implement the Standard and to defer the effective date. In December 2021, the IASB issued a narrow-scope amendment to the transition requirements in IFRS 17, providing insurers with an option aimed at improving the usefulness of information to investors on initial application of IFRS 17 by presenting comparative information about financial assets, using a classification overlay approach on a basis that is more consistent with how IFRS 9 will be applied in future reporting periods. This Standard introduces consistent accounting for all insurance contracts. The Standard requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than when it receives premiums. The new Standard and its amendments are effective for our fiscal year beginning November 1, 2024 and we are assessing the potential impacts on our consolidated financial statements. CWB Financial Group 2022 Annual Report | 73 2. FINANCIAL INSTRUMENTS Financial assets include cash resources, securities, securities purchased under resale agreements, loans, derivatives and certain other assets. Financial liabilities include deposits, cheques and other items in transit, securities sold under repurchase agreements, derivatives, debt and certain other liabilities. 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 the MD&A. CLASSIFICATION AND MEASURMENT OF FINANCIAL ASSETS Initial Recognition and Measurement Financial assets consist of both debt and equity instruments. 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. Derivatives are measured at FVTPL, except to the extent that they are designated in a hedging relationship, in which case the IAS 39 hedge accounting requirements are applied as described in Note 10. 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. Measured at Fair Value through Other Comprehensive Income 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 consolidated statements of income and correspondingly reduce the accumulated changes in fair value recorded in OCI. Gains and losses realized on disposal of debt instruments classified at FVOCI are included in the consolidated statements of income. 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 subsequently reclassified to the consolidated statements of income. When realized, gains and losses that arise upon derecognition are reclassified from accumulated other comprehensive income (AOCI) to retained earnings. Equity securities are not subject to an impairment assessment. IMPAIRMENT Expected Credit Loss Approach The ECL approach categorizes financial assets into three stages based on changes in credit risk since initial recognition of the asset. 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 experiences a SICR subsequent to initial recognition and the allowance for credit losses is measured based on ECL from defaults occurring over the remaining life of the asset. 74 | CWB Financial Group 2022 Annual Report 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 (PD), loss given default (LGD) and exposure at default (EAD). PD, which 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 cash flows due and those that CWB expects to receive, including consideration for the amount and quality of collateral held. EAD represents an estimate of the exposure at a future default date, taking into account estimated future repayments of principal and draws on 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. 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. With consideration of several external sources of information, we formulate 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. Additional information regarding the incorporation of forward-looking information and the related judgment and estimation involved in the process is described in Note 6. Assessment of Significant Increases in Credit Risk At each reporting date, we assess whether a financial asset has experienced a SICR since initial recognition by comparing the risk of a default occurring over the asset’s remaining expected life at the 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 6 for additional information regarding the assessment of SICR. Expected Life When measuring ECL, we consider the maximum contractual period over which an exposure to credit risk exists. For most instruments, the expected life is limited to the remaining contractual life, including prepayment and extension options. For certain revolving credit facilities, the expected life is estimated based on the period over which we are 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 our 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, when we have commenced realization proceedings, or when we are 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 we conclude that there is no realistic prospect of future recovery in respect of those amounts. When financial assets are secured, this is generally after all collateral has been realized or transferred to us, 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. CWB Financial Group 2022 Annual Report | 75 3. CASH RESOURCES Cash resources include highly liquid investments that are readily convertible to cash and are subject to an insignificant risk of change in value. Cheques and other items in transit included in cash resources are recorded at amortized cost. Interest bearing deposits with financial institutions included in 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 collect and sell’ business model. Changes in fair value are reported in other comprehensive income, net of tax. At October 31, 2022, $27,378 (October 31, 2021 – $25,078) of cash was restricted from use in relation to the securitization of equipment financing leases and loans. 4. SECURITIES Debt securities, which are measured at FVOCI, have contractual cash flows that satisfy the requirements of the SPPI test and are purchased with the objective of collecting contractual cash flows and selling the assets in response to, or in anticipation of, changes in interest rate, credit or foreign currency risk, funding sources, terms or to meet liquidity requirements. 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. Equity securities are equity instruments held for long-term investment purposes. We have made the election to measure equity securities at FVOCI. Unrealized gains and losses are recorded in OCI, net of tax, and are subsequently transferred directly to retained earnings. The analysis of securities at carrying value, by type and maturity or reprice date, follows: Maturity/Reprice Within 1 Year 1 to 3 Years 3 to 5 Years Greater than 5 Years No Specific Maturity As at October 31 2022 As at October 31 2021 Measured at FVOCI Interest bearing deposits with financial institutions(1) Debt securities issued or guaranteed by Canada A province or municipality Other debt securities issued by United States Treasury Designated at FVOCI Other equity securities $ 26,833 $ - $ - $ - $ - $ 26,833 $ 21,344 1,805,669 246,245 25,055 1,828,140 202,702 123,667 271,535 - - 5,477 - - - - - 3,910,821 448,947 148,722 2,962,290 406,708 198,799 - - - - 10,305 10,305 6,081 Total $ 2,103,802 $ 2,154,509 $ 271,535 $ 5,477 $ 10,305 $ 4,545,628 $ 3,595,222 (1) Included in cash resources on the consolidated balance sheets. 76 | CWB Financial Group 2022 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 financial institutions(1) Debt securities issued or guaranteed by Canada A province or municipality Other debt securities issued by United States Treasury Designated at FVOCI Other equity securities Total Measured at FVOCI Interest bearing deposits with financial institutions(1) Debt securities issued or guaranteed by Canada A province or municipality Other debt securities issued by United States Treasury Designated at FVOCI Other equity securities Total As at October 31, 2022 Gross Unrealized Gains Gross Unrealized Losses Amortized Cost(2) Fair Value $ 26,833 $ - $ - $ 26,833 4,047,037 465,377 157,393 8,972 $ 4,705,612 $ 414 67 - 1,617 2,098 136,630 16,497 8,671 3,910,821 448,947 148,722 284 10,305 $ 162,082 $ 4,545,628 As at October 31, 2021 Gross Unrealized Gains Gross Unrealized Losses Amortized Cost(2) Fair Value $ 21,344 $ - $ - $ 21,344 3,001,582 409,583 199,255 4,651 $ 3,636,415 $ 420 209 362 1,430 2,421 39,712 3,084 818 2,962,290 406,708 198,799 - 6,081 $ 43,614 $ 3,595,222 Included in cash resources on the consolidated balance sheets. (1) (2) The amortized cost of debt securities and cash resources measured at FVOCI is net of an allowance for credit losses of $498 (October 31, 2021 – $536). IMPAIRMENT Impairment losses and recoveries on debt securities measured at FVOCI, estimated using an ECL approach, are recognized in the provision for credit losses in the consolidated statements of income and correspondingly reduce the accumulated changes in fair value recorded in OCI. During the year ended October 31, 2022, reversals of the provision for credit losses of $38 (October 31, 2021 – provision of $187) were recorded in the consolidated statements of income related to a change in the estimated allowance for credit losses on performing debt securities measured at FVOCI, all of which were in Stage 1 as at October 31, 2022 and 2021. 5. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND PURCHASED UNDER RESALE AGREEMENTS Securities sold under repurchase agreements represent the sale of Government of Canada securities or United States Treasury securities by CWB effected with a simultaneous agreement to purchase them back at a specified price on a future date, which is generally short term. The difference between the proceeds of the sale and the predetermined cost to be paid on a resale agreement is recorded as deposit interest expense. Securities purchased under resale agreements represent the purchase of Government of Canada or United States Treasury securities by CWB effected with a simultaneous agreement to sell them back at a specified price on a future date, which is generally short term. The difference between the cost of the purchase and the predetermined proceeds to be received on a resale agreement is recorded as securities interest income. Securities sold under repurchase agreements and purchased under resale agreements are classified and measured at amortized cost in the consolidated balance sheets. CWB Financial Group 2022 Annual Report | 77 6. LOANS, IMPAIRED LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AT AMORTIZED COST Loans, including leases, which are measured at amortized cost and stated net of unearned income, unamortized premiums or discounts and allowance for credit losses, are originated or purchased with the objective of collecting contractual cash flows and generating cash flows that satisfy the requirements of the SPPI test. Loan fees integral to the yield, net of transaction costs, are amortized to interest income using the effective interest method. The composition of our loan portfolio by geographic region and industry sector follows: ($ millions) Personal(1) Business General commercial loans Commercial mortgages Equipment financing and leasing(2) Real estate project loans Oil and gas production loans Total(3) Composition Percentage October 31, 2022 October 31, 2021 BC AB ON SK QC MB Other Total Composition Percentage Oct. 31 2022 Oct. 31 2021 $ 1,694 $ 1,881 $ 2,823 $ 275 $ - $ 157 $ 122 $ 6,952 19 % 19 % 3,786 3,794 881 1,473 64 9,998 3,903 2,667 1,476 1,021 268 9,335 3,413 536 1,359 469 - 5,777 461 246 464 113 - 344 60 724 70 - 1,284 1,198 344 143 278 54 - 819 179 - 364 - - 12,430 7,446 5,546 3,200 332 543 28,954 35 21 15 9 1 81 33 22 16 9 1 81 $ 11,692 $ 11,216 $ 8,600 $ 1,559 $ 1,198 $ 976 $ 665 $ 35,906 100 % 100 % 33 % 33 % 31 % 31 % 24 % 23 % 4 % 5 % 3 % 3 % 3 % 3 % 2 % 2 % 100 % 100 % Includes mortgages securitized through the National Housing Act Mortgage Backed Securities program reported on-balance sheet of $1,386 (October 31, 2021 – $1,381) (see Note 6). Includes securitized leases and loans reported on-balance sheet of $2,125 (October 31, 2021 – $1,927) (see Note 7). (1) (2) (3) This table does not include an allocation of the allowance for credit losses. CREDIT QUALITY Internal Risk Ratings Within our loan portfolios, borrowers are assigned a borrower risk rating (BRR) that reflects the credit quality of the obligor using industry and sector-specific risk models and expert credit judgment. BRRs are assessed and assigned at the time of loan origination and reviewed at least annually, with the exception of consumer loans and single unit residential mortgages. More frequent reviews are conducted for borrowers with weaker risk ratings, borrowers that trigger a review based on adverse changes in financial performance and borrowers requiring or requesting changes to credit facilities. Each BRR has a PD calibrated against it, which is estimated based on our historical loss experience for each risk segment or risk rating level, adjusted for forward-looking information. Our BRR scale broadly aligns to external ratings as follows: Description Investment grade or low risk Non-investment grade or medium risk Watchlist or high risk Impaired CWB Rating Category Standard & Poor’s Moody’s Investor Services 1 to 6M 6L to 8L 9H to 10L 11 to 12 AAA to BBB- BB+ to CCC+ CCC and below Default Aaa to Baa3 Ba1 to Caa1 Caa2 and below Default 78 | CWB Financial Group 2022 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 As at October 31, 2022 Performing Stage 1 Stage 2 Impaired Stage 3 $ $ 4,100,671 2,154,159 - - 6,254,830 (1,043) 6,253,787 $ 67,113 392,303 225,098 - 684,514 (2,749) 681,765 2,976,113 19,218,875 - - 22,194,988 (48,736) 22,146,252 28,449,818 (49,779) 525,305 5,409,412 669,900 - 6,604,617 (62,599) 6,542,018 7,289,131 (65,348) $ - - - 12,482 12,482 (140) 12,342 - - - 154,191 154,191 (46,551) 107,640 166,673 (46,691) Total 4,167,784 2,546,462 225,098 12,482 6,951,826 (3,932) 6,947,894 3,501,418 24,628,287 669,900 154,191 28,953,796 (157,886) 28,795,910 35,905,622 (161,818) Total Loans, Net of Allowance for Credit Losses $ 28,400,039 $ 7,223,783 $ 119,982 $ 35,743,804 Committed but Undrawn Credit Exposures and Letters of Credit Investment grade or low risk Non-investment grade or medium risk Watchlist or high risk Total Allowance for credit losses Total, Net of Allowance for Credit Losses $ $ 2,065,808 3,009,255 - 5,075,063 (1,507) $ 97,635 2,447,483 27,284 2,572,402 (3,803) $ 5,073,556 $ 2,568,599 $ - - - - - - $ 2,163,443 5,456,738 27,284 7,647,465 (5,310) $ 7,642,155 CWB Financial Group 2022 Annual Report | 79 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 As at October 31, 2021 Performing Stage 1 Stage 2 Impaired Stage 3 $ $ 3,851,098 1,354,940 - - 5,206,038 (923) 5,205,115 1,771,484 22,773,391 - - 24,544,875 (61,764) 24,483,111 29,750,913 (62,687) $ 80,027 874,797 223,011 - 1,177,835 (2,289) 1,175,546 128,663 1,054,469 586,747 - 1,769,879 (37,156) 1,732,723 2,947,714 (39,445) $ - - - 11,651 11,651 (485) 11,166 - - - 190,673 190,673 (38,812) 151,861 202,324 (39,297) Total 3,931,125 2,229,737 223,011 11,651 6,395,524 (3,697) 6,391,827 1,900,147 23,827,860 586,747 190,673 26,505,427 (137,732) 26,367,695 32,900,951 (141,429) Total Loans, Net of Allowance for Credit Losses $ 29,688,226 $ 2,908,269 $ 163,027 $ 32,759,522 Committed but Undrawn Credit Exposures and Letters of Credit Investment grade or low risk Non-investment grade or medium risk Watchlist or high risk Total Allowance for credit losses Total, Net of Allowance for Credit Losses $ $ 1,219,787 5,284,394 - 6,504,181 (2,865) $ 8,934 137,800 17,044 163,778 (1,556) $ 6,501,316 $ 162,222 $ - - - - - - $ 1,228,721 5,422,194 17,044 6,667,959 (4,421) $ 6,663,538 80 | CWB Financial Group 2022 Annual Report Impaired and Past Due Loans Outstanding gross loans and impaired loans, net of allowance for credit losses, by loan type, are as follows: As at October 31, 2022 Gross Impaired Amount(1) Stage 3 Allowance Gross Amount As at October 31, 2021 Net Impaired Loans Gross Amount Gross Impaired Amount(1) Stage 3 Allowance Net Impaired Loans Personal $ 6,951,826 $ 12,482 $ 140 $ 12,342 $ 6,395,524 $ 11,651 $ 485 $ 11,166 Business General commercial loans Commercial mortgages(2) Equipment financing and leasing Real estate project loans Oil and gas production loans 12,430,457 7,446,273 5,546,163 3,199,515 331,388 28,953,796 82,879 36,435 22,965 11,912 - 154,191 32,469 6,734 6,788 560 - 46,551 50,410 29,701 16,177 11,352 - 107,640 10,894,735 7,039,459 5,286,538 2,871,195 413,500 26,505,427 100,546 29,296 40,488 20,343 - 190,673 27,081 5,224 5,587 920 - 38,812 73,465 24,072 34,901 19,423 - 151,861 Total $ 35,905,622 $ 166,673 $ 46,691 $ 119,982 $ 32,900,951 $ 202,324 $ 39,297 $ 163,027 (1) Gross impaired loans include foreclosed assets with a carrying value of $2,010 (October 31, 2021 – $2,253). We pursue timely realization on foreclosed assets and do not use the assets for our own operations. (2) Multi-family residential mortgages are included in commercial mortgages. Outstanding impaired loans, net of allowance for credit losses, by provincial location of security are as follows: Alberta Ontario British Columbia Saskatchewan Quebec Manitoba Other Total $ As at October 31, 2022 As at October 31, 2021 Gross Impaired Amount Stage 3 Allowance Net Impaired Loans Gross Impaired Amount Stage 3 Allowance 75,398 $ 51,369 21,029 4,757 4,628 1,632 7,860 20,980 $ 22,192 699 1,165 757 308 590 54,418 $ 29,177 20,330 3,592 3,871 1,324 7,270 88,390 $ 56,858 37,001 6,288 2,965 812 10,010 17,457 $ 17,341 2,685 869 549 195 201 Net Impaired Loans 70,933 39,517 34,316 5,419 2,416 617 9,809 $ 166,673 $ 46,691 $ 119,982 $ 202,324 $ 39,297 $ 163,027 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, 2022 Personal Business Total As at October 31, 2021 ALLOWANCE FOR CREDIT LOSSES 1 - 30 days $ 62,119 $ 112,008 31 - 60 days 28,338 $ 48,970 61 - 90 days 1,152 $ 45,845 Total 91,609 206,823 $ 174,127 $ 77,308 $ 46,997 $ 298,432 $ 98,893 $ 34,499 $ 3,716 $ 137,108 Allowance for credit losses related to performing loans is estimated using an ECL approach that incorporates a number of underlying assumptions which involve a high degree of management judgment and can have a significant impact on financial results. The allowance for credit losses is our most significant accounting estimate. Significant key drivers impacting the estimation of ECL, which are interrelated, include: • Internal risk ratings attributable to a borrower reflecting changes in credit quality; • Estimated realizable amount of future cash flows on Stage 3 loans; • Thresholds used to determine when a borrower has experienced a SICR; and, • 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 at the reporting date and as such, qualitative adjustments based on expert credit judgment that consider reasonable and supportable information may be incorporated. CWB Financial Group 2022 Annual Report | 81 Assessment of Significant Increases in Credit Risk 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 is 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 in applicable forward-looking information. The main factors considered in assessing whether a loan has experienced a SICR are relative changes in internal risk ratings since initial recognition, incorporating forward-looking information, and certain other criteria such as 30 days past due and migration to watchlist status. Forecasting Forward-looking Information 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 in the relevant portfolios and are calibrated to consider our geographic diversification. The forward-looking macroeconomic scenario described below is calibrated to an average of the large Canadian banks’ macroeconomic forecasts and reflects our best estimate as at October 31, 2022 based on information and facts available. The forecast reflects the tightening of monetary policy through higher interest rates and assumes modest economic growth. Hindsight cannot be used, so while these evolving assumptions may result in future forecasts that differ from those used in the ECL estimation as at October 31, 2022, those changes will be reflected in future quarters. The primary macroeconomic variables, for the next year and the remaining forecast period thereafter, used to estimate ECL are as follows: Macroeconomic Variable GDP growth, year over year Unemployment rate Housing price growth, year over year Three-month treasury bill rate U.S. dollar/Canadian dollar exchange rate WTI oil price (U.S. dollar per barrel) Forecast October 31 2023 1 % 6 (12) 3.6 1.29 93 $ $ Remaining Forecast Period 2 % 7 (1) 2.4 1.26 91 The primary macroeconomic variables impacting ECL for personal loan portfolios are unemployment rates and Multiple Listings Service (MLS) housing resale price growth. Business portfolios are impacted by all of the variables in the table above, to varying degrees. Increases in unemployment rates and interest rates will generally correlate with higher ECL while increases in annual gross domestic product (GDP) growth, the WTI oil price, MLS housing price growth, and the U.S. dollar/Canadian dollar exchange rate will generally result in lower ECL. ECL is sensitive to changes in both the scenario described above as well as the incorporation of multiple macroeconomic scenarios. Our models include a simulation incorporating a large volume of alternate macroeconomic scenarios into our ECL estimate. This approach resulted in an increase of approximately $9 million (October 31, 2021 – $4 million) to the performing loan allowance for credit losses at October 31, 2022, relative to using only the forecast scenario presented above. In estimating the performing loan allowance, we continue to supplement our modeled ECL to reflect expert credit judgments. These expert credit judgments account for the variability in the results provided by the models and consider the impact of both tail-risk events and the lagging impacts of typical credit cycles, where loan defaults occur in periods subsequent to the onset of a decline in macroeconomic conditions. These expert credit judgments also allow us to incorporate the estimated impact of the unprecedented levels of government stimulus and support, and the impacts of their withdrawal, which cannot be modelled using historical data as they have not occurred in the past. Stage 3 Allowance for Credit Losses For impaired loans in Stage 3, the allowance for credit losses is measured for each loan as the difference between the carrying value of the loan at the time it is classified as impaired and the present value of the cash flows we expect to receive, using the original effective interest rate of the loan. When the amounts and timing of future cash flows cannot be reliably estimated, either the fair value of the security underlying the loan, net of any expected realization costs, or the current market price for the loan may be used to measure the estimated realizable amount. Security can vary by type of loan and may include real property, working capital, guarantees, or other equipment. 82 | CWB Financial Group 2022 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 follows: Personal Balance at beginning of year Transfers to (from) (1) Stage 1 Stage 2 Stage 3 Net remeasurement(2) New originations Derecognitions and maturities Provision for credit losses(3) Write-offs Recoveries Balance at end of year Business Balance at beginning of year Transfers to (from) (1) Stage 1 Stage 2 Stage 3 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 Represented by: Loans Committed but undrawn credit exposures and letters of credit(4) Total Allowance for Credit Losses(5) As at October 31, 2022 Performing Stage 1 Stage 2 Impaired Stage 3 Total $ 928 $ 2,299 $ 485 $ 3,712 202 (393) - (805) 1,292 (177) 119 - - 1,047 (202) 393 (1,860) 2,864 - (716) 479 - - 2,778 - - 1,860 (1,467) - (91) 302 (697) 50 140 - - - 592 1,292 (984) 900 (697) 50 3,965 $ 64,624 $ 38,702 $ 38,812 $ 142,138 5,661 (7,500) (51) (46,815) 55,864 (21,544) (14,385) - - 50,239 (5,661) 7,500 (12,993) 56,062 - (17,237) 27,671 - - 66,373 - - 13,044 19,583 - (778) 31,849 (29,918) 5,808 46,551 $ $ $ 51,286 $ 69,151 $ 46,691 $ 49,779 $ 65,348 $ 1,507 3,803 $ 46,691 - 51,286 $ 69,151 $ 46,691 $ - - - 28,830 55,864 (39,559) 45,135 (29,918) 5,808 163,163 167,128 161,818 5,310 167,128 (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 4 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. CWB Financial Group 2022 Annual Report | 83 Personal Balance at beginning of year Transfers to (from)(1) Stage 1 Stage 2 Stage 3 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) (1) Stage 1 Stage 2 Stage 3 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 Represented by: Loans Committed but undrawn credit exposures and letters of credit(4) Total Allowance for Credit Losses(5) As at October 31, 2021 Performing Stage 1 Stage 2 Impaired Stage 3 Total $ 1,346 $ 5,376 $ 829 $ 7,551 1,809 (574) - (2,960) 1,655 (348) (418) - - 928 (1,809) 574 (1,219) 345 - (968) (3,077) - - 2,299 - - 1,219 (474) - (170) 575 (1,153) 234 485 - - - (3,089) 1,655 (1,486) (2,920) (1,153) 234 3,712 $ 57,503 $ 66,053 $ 33,306 $ 156,862 18,778 (8,239) (56) (39,506) 63,670 (27,526) 7,121 - - 64,624 (18,778) 8,315 (10,494) 13,841 - (20,235) (27,351) - - - (76) 10,550 41,406 - (1,862) 50,018 (56,947) 12,435 38,702 38,812 $ $ $ 65,552 $ 41,001 $ 39,297 $ 62,687 $ 39,445 $ 2,865 1,556 $ 39,297 - 65,552 $ 41,001 $ 39,297 $ - - - 15,741 63,670 (49,623) 29,788 (56,947) 12,435 142,138 145,850 141,429 4,421 145,850 84 | CWB Financial Group 2022 Annual Report 7. FINANCIAL ASSETS TRANSFERRED BUT NOT DERECOGNIZED SECURITIZATION OF EQUIPMENT FINANCING LEASES AND LOANS We securitize equipment financing leases and loans to third parties. These securitizations do not qualify for derecognition as we continue to be exposed to certain risks associated with the leases and loans, therefore we have 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 14). During 2022, we securitized equipment financing leases and loans of $1,136,679 (2021 – $1,071,280), which were sold to third parties for cash proceeds of $1,019,557 (2021 – $962,718). SECURITIZATION OF RESIDENTIAL MORTGAGES We securitize 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 us. The CHT issues CMBs, which are government guaranteed, to third party investors and uses resulting proceeds to purchase NHA MBS from us 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 we retain 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 14). During 2022, we securitized residential mortgages of $231,266 (2021 – $483,099) which were sold to the CHT for cash proceeds of $220,381 (2021 – $478,254). SECURITIES SOLD UNDER REPURCHASE AGREEMENTS We enter into repurchase agreements under which we sell previously recognized securities, with a simultaneous agreement to purchase them back at a specific price on a future date, but retain substantially all of the credit, price, interest rate, and foreign exchange risks and rewards associated with the assets (see Note 5). 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, 2022 As at October 31, 2021 Carrying Value Fair Value Carrying Value Fair Value $ 2,124,604 1,156,550 247,354 3,528,508 3,335,451 $ 2,114,958 $ 1,926,944 $ 1,149,055 247,354 3,511,367 3,288,191 880,647 - 2,807,591 2,641,843 1,928,736 870,493 - 2,799,229 2,656,176 $ 193,057 $ 223,176 $ 165,748 $ 143,053 (1) Associated liabilities consist of $1,935,812 related to securitized lease and loans (2021 – $1,756,210), $1,152,285 related to residential mortgages securitized through the NHA MBS program (2021 – $885,633), and $247,354 related to securities sold under repurchase agreements (2021 – $nil). Additionally, we have securitized residential mortgages through the NHA MBS program totaling $229,052 with a fair value of $227,568 (2021 – $499,908 with a fair value of $494,144) that were not transferred to third parties. CWB Financial Group 2022 Annual Report | 85 8. PROPERTY AND EQUIPMENT Land is carried at cost. Buildings, equipment and furniture, and leasehold improvements are carried at cost less accumulated depreciation and impairment. Right-of-use assets primarily reflect leases of branches and office premises, and are measured at an amount equal to the lease liability adjusted by any prepaid or accrued lease payments. Lease liabilities are measured at the present value of the remaining lease payments discounted at our weighted average incremental borrowing rate. Depreciation is calculated primarily using the straight-line method over the estimated useful life of the asset, as follows: • Buildings: 20 years • Computer and office equipment and furniture: 3 to 10 years • Leasehold improvements: over the shorter of the term of the lease and the remaining useful life • Right-of-use assets: over the earlier of the lease term and the expected life. If ownership will transfer to us or we are reasonably certain to exercise a purchase option at the end of the lease term, the expected life of the right-of-use asset is used. When components of an item of property and equipment have different useful lives, they are accounted for as separate items. Gains and losses 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 may not be recoverable. Cost Balance at November 1, 2021 Additions Lease modifications Disposals Balance at October 31, 2022 Accumulated Depreciation and Impairment Balance at November 1, 2021 Depreciation Lease modifications Disposals Balance at October 31, 2022 Leasehold Improvements Land and Buildings Computer Equipment Office Equipment Right of Use Asset $ 90,137 $ 15,953 - (4,386) 101,704 19,016 $ 35 - - 19,051 62,181 5,078 - (4,386) 62,873 7,528 574 - - 8,102 49,977 $ 3,356 - (33) 53,300 37,674 3,483 - (33) 41,124 51,274 $ 4,883 - (3,476) 91,169 $ 17,153 5,284 - 52,681 113,606 39,498 2,842 - (3,476) 38,864 23,994 12,359 - - 36,353 Net Carrying Amount at October 31, 2022 $ 38,831 $ 10,949 $ 12,176 $ 13,817 $ 77,253 $ Cost Balance at November 1, 2020 Additions Lease modifications Disposals Balance at October 31, 2021 Accumulated Depreciation and Impairment Balance at November 1, 2020 Depreciation Lease modifications Disposals Balance at October 31, 2021 $ 86,005 $ 6,106 - (1,974) 90,137 59,185 4,970 - (1,974) 62,181 18,955 $ 61 - - 19,016 6,952 576 - - 7,528 47,921 $ 49,103 $ 86,388 $ 2,211 - (155) 49,977 33,255 4,574 - (155) 37,674 3,180 - (1,009) 51,274 37,673 2,834 - (1,009) 39,498 2,973 2,129 (321) 91,169 11,958 11,905 452 (321) 23,994 Net Carrying Amount at October 31, 2021 $ 27,956 $ 11,488 $ 12,303 $ 11,776 $ 67,175 $ Total 301,573 41,380 5,284 (7,895) 340,342 170,875 24,336 - (7,895) 187,316 153,026 288,372 14,531 2,129 (3,459) 301,573 149,023 24,859 452 (3,459) 170,875 130,698 86 | CWB Financial Group 2022 Annual Report 9. GOODWILL AND INTANGIBLE ASSETS GOODWILL Goodwill arises on the acquisition of subsidiaries and represents the excess of the fair value of the purchase consideration, including any amount of any non-controlling interest in the acquiree, over the net recognized amounts of the identifiable assets, including identifiable intangible assets, and liabilities assumed. For the purposes of calculating goodwill, fair values of acquired assets and liabilities are determined by reference to market values or by 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. Goodwill is stated at cost less impairment losses. Goodwill is allocated to cash-generating units (CGU) for the purpose of impairment testing considering the business level at which goodwill is monitored for internal management purposes. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group of assets. On this basis, CWB’s CGUs with goodwill allocated are: • Wealth Management (WM); • CWB Maxium Financial Inc. (MX); and, • CWB National Leasing Inc. (NL). Balance at October 31, 2022 Balance at November 1, 2020 Ownership change Balance at October 31, 2021 WM MX NL Total $ 64,056 $ 38,869 $ 35,776 $ 138,701 WM NL MX Total $ $ 63,611 $ 38,869 $ 35,776 $ 138,256 445 - - 445 64,056 $ 38,869 $ 35,776 $ 138,701 CWB Financial Group 2022 Annual Report | 87 INTANGIBLE ASSETS Intangible assets represent identifiable non-monetary assets without physical substance and are acquired either separately through a business combination, or generated internally. Intangible assets with a finite useful life are recorded at cost less any accumulated amortization and impairment losses. Certain intangible assets, such as trademarks and trade names, have an indefinite useful life. These indefinite life intangibles are not amortized but are tested for impairment at least annually. The assets’ useful lives are assessed at least annually. Amortization of acquisition-related intangible assets with finite useful lives is reported in other expenses and amortization of internally generated software is included in premises and equipment expenses on the consolidated statements of income and recorded on a straight-line basis from the date at which it is available for use as follows: • Software and related assets: 3 to 15 years • Customer relationships: 10 to 15 years • Non-competition agreements: 4 to 5 years • Other: 3 to 5 years Cost Balance at November 1, 2021 Additions Disposals Balance at October 31, 2022 Accumulated Amortization Balance at November 1, 2021 Amortization Disposals Balance at October 31, 2022 Software and Related Assets Customer Relationships Trademarks and Tradenames Non- competition Agreements Other Total $ 295,778 52,588 (22,511) 325,855 118,764 46,284 (22,511) 142,537 90,442 - - 90,442 48,396 8,128 - 56,524 8,785 - - 8,785 - 2,100 - 2,100 11,084 - - 11,084 11,084 - - 11,084 5,150 - - 5,150 5,150 - - 5,150 411,239 52,588 (22,511) 441,316 183,394 56,512 (22,511) 217,395 Net Carrying Amount at October 31, 2022 $ 183,318 $ 33,918 $ 6,685 $ - $ - $ 223,921 Cost Balance at November 1, 2020 Additions Ownership change Disposals Balance at October 31, 2021 Accumulated Amortization Balance at November 1, 2020 Amortization Disposals Balance at October 31, 2021 Software and Related Assets Customer Relationships Trademarks and Tradenames Non- competition Agreements Other Total $ 257,108 $ 39,823 - (1,153) 295,778 94,551 25,366 (1,153) 118,764 89,749 $ - 693 - 90,442 40,374 8,022 - 48,396 8,726 $ - 59 - 8,785 - - - - 11,084 $ - - - 11,084 11,079 5 - 11,084 5,150 $ - - - 5,150 5,105 45 - 5,150 371,817 39,823 752 (1,153) 411,239 151,109 33,438 (1,153) 183,394 Net Carrying Amount at October 31, 2021 $ 177,014 $ 42,046 $ 8,785 $ - $ - $ 227,845 IMPAIRMENT The carrying amounts of our intangible assets with finite useful lives are reviewed at each reporting date to determine whether there is any indication of impairment. If an indication exists, we test for impairment. Goodwill and intangible assets with indefinite useful lives are tested for impairment annually or more frequently if events or changes in circumstances indicate impairment. Impairment testing is performed by comparing an asset’s carrying amount with its recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the CGU to which the asset belongs will be determined and compared to the carrying amount of the CGU’s net assets, including attributable goodwill. Goodwill is tested for impairment at the level of a CGU or a group of CGUs. If the recoverable amount is less than the carrying value, an impairment loss is charged to the consolidated statements of income. The recoverable amounts for our CGUs are calculated based on the higher of their value in use and fair value less costs of disposal. Value in use is determined by discounting the future cash flows expected to be generated from the continuing use of the CGU. Fair value less costs of disposal is the amount obtainable from the sale of a CGU in an orderly transaction between market participants, less disposal costs. The fair value of a CGU is estimated using valuation techniques such as a discounted cash flow method or market-based approaches where the fair value of a CGU is determined using comparable market transactions for similar businesses. In the 2022 and 2021 annual impairment tests, the recoverable amounts of our CGUs are based on their value in use with the exception of the WM CGU, which is based on fair value less costs of disposal. 88 | CWB Financial Group 2022 Annual Report WM CGU The recoverable amount of the WM CGU was based on fair value less cost to sell using a discounted cash flow method. Cash flows are projected based on forecast results of the business for a five-year period, adjusted to approximate the market considerations of a prospective buyer. Beyond five years, cash flows are assumed to increase at a terminal growth rate of 3.8% (4.0% in 2021) based on management’s expectations of real GDP growth and inflation rates. Forecast cash flows are discounted at rate of 12.5% (12.5% in 2021). MX and NL CGUs The recoverable amount of these CGUs was based on their value in use in the current and comparative period. We calculate value in use using a discounted cash flow method. Cash flows are projected based on forecast results of the business for a five-year period including the capital required to support future cash flows. Key drivers of cash flows include net interest margins and average interest-earning assets. Beyond five years, cash flows are assumed to increase at a terminal growth rate of 3.8% (4.0% in 2021) based on management’s expectations of real GDP growth and inflation rates. Forecast cash flows are discounted at pre-tax rates ranging from 19.3% to 19.6% (18.7% to 19.4% in 2021). The key assumptions described above may change as economic and market conditions change. We estimate that reasonable possible changes in these assumptions are not expected to cause the recoverable amounts of the cash-generating units to decline below the carrying amounts. No impairment losses on goodwill or intangible assets were identified during 2022 or 2021. 10. DERIVATIVE FINANCIAL INSTRUMENTS Derivative instruments are entered into for risk management purposes in accordance with our asset liability management policies. It is our policy not to utilize derivative financial instruments for trading or speculative purposes. Interest rate swaps and floors are primarily used to reduce the impact of fluctuating interest rates. Equity swaps are used to reduce earnings volatility related to restricted share units and deferred share units linked to our common share price. Bond forward contracts are used to manage interest rate risk related to our 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 We enter into derivative financial instruments for risk management purposes. Derivative financial instruments are financial contracts whose value is derived from an underlying interest rate, foreign exchange rate, equity or commodity instrument or index. Derivative financial instruments primarily used by us 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 dividends of a notional CWB common share. 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. Changes in fair value related to the effective portion of cash flow interest rate hedges are recorded in other comprehensive income, net of tax, and changes in fair value interest rate hedges are recorded in net interest income. 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 Under IAS 39, when designated as accounting hedges by us, 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 highly probable future cash flows attributable to a recognized asset or liability or a forecast transaction (cash flow hedges). On an ongoing basis, the derivatives used in hedging transactions are assessed to determine whether they are effective in offsetting changes in fair values or cash flows of the hedged items. If a hedging transaction becomes ineffective or if the derivative is not designated as a cash flow hedge, any subsequent change in the fair value of the hedging instrument is recognized in net income. CWB Financial Group 2022 Annual Report | 89 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 our own credit risk Interest income received or interest expense paid on derivative financial instruments designated as cash flow hedges is accounted for on the accrual basis and recognized as interest expense over the term of the hedge 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. INTEREST RATE RISK Interest rate risk arises when changes in interest rates affect the cash flows, earnings and values of assets and liabilities. Under our interest rate risk management policies, we 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 our common share price affects the payout of share-based payment plans (see Note 16) that have not yet vested. We have a policy to hedge a portion of the earnings volatility related to restricted share unit (RSU) and deferred share unit (DSU) grants through the use of equity swaps, where we make periodic interest payments to a counterparty and receive the capital gain or loss plus dividends of a CWB common share. 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, 2022 As at October 31, 2021 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 $ 1,135,000 $ 83,465 $ 4,935,000 $ (151,084) $ 2,235,000 $ 35,872 $ 1,180,000 $ (35,798) Equity risk Equity swaps Fair Value Hedges Interest rate risk 3,522 100 16,234 (3,776) 19,450 7,670 - - Interest rate swaps 355,020 26,950 - - 361,561 7,946 18,582 (187) Not Designated as Accounting Hedges Foreign exchange contracts Equity swaps 144 - 6 - - 8,066 - (1,221) 341 8,886 6 1,368 136,189 - (83) - Total $ 1,493,686 $ 110,521 $ 4,959,300 $ (156,081) $ 2,625,238 $ 52,862 $ 1,334,771 $ (36,068) The aggregate contractual or notional amount of the derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable and, thus, the aggregate fair values of these financial assets and liabilities can fluctuate significantly from time to time. The average fair values of the derivative financial instruments on hand during the year are set out in the following table: Favourable derivative financial instruments (assets) Unfavourable derivative financial instruments (liabilities) 2022 2021 $ $ 83,371 $ 51,490 89,040 $ 15,996 90 | CWB Financial Group 2022 Annual Report 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, 2022 Maturity As at October 31, 2021 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) $ 1,125,000 2.01 % $ 4,945,000 2.32 % $ 665,000 1.75 % $ 2,750,000 1.51 % Equity risk Equity swaps(2) Fair Value Hedges Interest rate risk 9,933 - % 9,823 - % 9,928 - % 9,522 - % Interest rate swaps(3) - - % 355,020 1.16 % 18,582 1.48 % 361,561 1.16 % Not Designated as Accounting Hedges Foreign exchange contracts(4) Equity swaps(5) 144 8,066 - - % - - - - 136,530 8,886 - - % - - - - Total $ 1,143,143 $ 5,309,843 $ 838,926 $ 3,121,083 Interest rate swaps designated as accounting cash flow hedges outstanding at October 31, 2022 mature between November 2022 and December 2028. (1) (2) Equity swaps designated as accounting hedges outstanding at October 31, 2022 mature between June 2023 and June 2025. The contractual interest rate is not meaningful for equity swaps. (3) (4) Foreign exchange contracts outstanding at October 31, 2022 mature between November 2022 and December 2022. The contractual interest rate is not meaningful for foreign exchange contracts. (5) Equity swaps not designated as accounting hedges outstanding at October 31, 2022 mature in June 2023. The contractual interest rate is not meaningful for equity swaps. Interest rate swaps designated as accounting fair value hedges outstanding at October 31, 2022 mature between October 2024 and September 2028. The following tables present the details of the hedged items categorized by their hedging relationships: Cash Flow Hedges Interest rate risk Variable rate assets and liabilities Forecasted NHA MBS issuances Equity risk Restricted share units Cash Flow Hedges Interest rate risk Variable rate assets Forecasted NHA MBS issuances Equity risk Restricted share units n/a - not applicable Consolidated Balance Sheets Line Item As at October 31, 2022 Changes in Fair Value Used for Calculating Hedge Ineffectiveness Loans, Deposits n/a $ (67,693) $ - Other liabilities (11,346) Consolidated Balance Sheets Line Item As at October 31, 2021 Changes in Fair Value Used for Calculating Hedge Ineffectiveness Loans, Deposits n/a $ (94,961) $ - Other liabilities 9,170 AOCI - Cash Flow Hedges (19,218) (859) (1,595) AOCI - Cash Flow Hedges 33,332 (1,709) 2,065 CWB Financial Group 2022 Annual Report | 91 Carrying Amount of Hedged Item Accumulated Amount of Fair Value Adjustments on the Hedged Item Consolidated Balance Sheets Line Item Changes in Fair Value Used for Calculating Hedge Ineffectiveness As at October 31, 2022 $ 329,812 $ (26,930) Securities, Loans $ 19,191 Carrying Amount of Hedged Item Accumulated Amount of Fair Value Adjustments on the Hedged Item Consolidated Balance Sheets Line Item Changes in Fair Value Used for Calculating Hedge Ineffectiveness As at October 31, 2021 $ 374,471 $ (7,540) Securities, Loans $ 11,760 Fair Value Hedges Interest rate risk Fixed rate assets Fair Value Hedges Interest rate risk Fixed rate assets 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: 2022 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, Net of Tax – Cash Flow Hedges to Income $ (67,693) $ - $ (31,283) $ - - 326 (21,268) 524 (11,346) - (7,895) 4,236 19,191 - - - 2021 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 , Net of Tax - Cash Flow Hedges to Income $ (94,961) $ - $ (17,033) $ - - 9,170 - 1,373 9,463 (48,425) (603) (7,093) 11,760 - - - 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 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 (1) Amounts reclassified from OCI into net interest income. (2) Amounts reclassified from OCI into non-interest expenses. 92 | CWB Financial Group 2022 Annual Report 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, net of tax: 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 11. OTHER ASSETS Accounts receivable Accrued interest receivable Derivative collateral receivable Deferred tax assets Income tax receivable Prepaid expenses Financing costs(1) Other Total (1) Amortization for the year amounted to $5,042 (2021 – $3,835). 12. DEPOSITS 2022 $ 33,688 $ 2021 96,006 (30,957) (20,744) (7,895) 4,236 $ (21,672) $ (15,660) (49,028) 9,463 (7,093) 33,688 $ (Note 25) (Note 19) (Note 19) As at October 31 2022 As at October 31 2021 135,840 $ 116,281 72,810 42,248 31,669 17,647 13,590 5,311 53,156 74,954 13,310 50,772 47,768 14,055 13,879 13,269 $ 435,396 $ 281,163 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 More than 5 years Total As at October 31, 2022 Individuals $ 35,688 $ 6,654,784 10,491,099 Business and Government 1,314,615 $ 6,456,577 8,066,284 Total 1,350,303 13,111,361 18,557,383 $ 17,181,571 $ 15,837,476 $ 33,019,047 As at October 31, 2021 Individuals $ 41,271 $ 7,274,688 7,882,861 Business and Government 1,310,964 $ 5,838,025 7,627,930 Total 1,352,235 13,112,713 15,510,791 $ 15,198,820 $ 14,776,919 $ 29,975,739 As at October 31 2022 As at October 31 2021 $ 8,378,041 $ 7,054,012 5,006,300 2,440,222 852,884 1,314,457 565,479 3,928,322 2,261,152 1,111,274 652,183 503,848 $ 18,557,383 $ 15,510,791 CWB Financial Group 2022 Annual Report | 93 13. OTHER LIABILITIES Accounts payable and accrued liabilities Accrued interest payable Lease liabilities(1) Derivative collateral payable Deferred tax liabilities Allowance for committed but undrawn credit exposures and letters of credit Income taxes payable Deferred revenue Other Total As at October 31 2022 As at October 31 2021 $ (Note 25) (Note 19) (Note 6) 438,180 $ 197,486 98,795 21,800 6,567 5,310 4,000 3,467 13,994 $ 789,599 $ 428,885 127,255 86,513 40,428 8,598 4,421 3,132 4,954 8,123 712,309 (1) The discounted value of lease liabilities is presented above. Future minimum commitments related to our lease liabilities on an undiscounted basis are $13,687 for fiscal 2023, $16,895 for fiscal 2024, $16,639 for fiscal 2025, $12,366 for fiscal 2026, $10,559 for fiscal 2027, and $57,383 for fiscal 2028, and thereafter. 14. 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 Within 1 Year 613,192 $ 184,168 1 to 3 Years 959,371 $ 609,422 3 to 6 Years As at October 31 2022 363,249 $ 358,695 1,935,812 $ 1,152,285 As at October 31 2021 1,756,210 885,633 797,360 $ 1,568,793 $ 721,944 $ 3,088,097 $ 2,641,843 $ $ B) NON-VIABILITY CONTINGENT CAPITAL (NVCC) SUBORDINATED DEBENTURES Financing costs relating to the issuance of subordinated debentures are amortized over the expected life of the related subordinated debenture using the effective interest method. The following qualify as bank debentures under the Bank Act and are subordinate in right of payment to all deposit liabilities. All redemptions are subject to the approval of OSFI. Series F Series G Interest Rate(1) 3.668% 4.840% Maturity Date Reset Spread(1) Earliest Date Redeemable by CWB at Par Par Value(2) June 11, 2029 199 bp June 11, 2024 $ 250,000 June 29, 2030 410.2 bp June 29, 2025 125,000 (1) The interest rate will be paid until the earliest date redeemable, after which the interest rate will reset quarterly at the reset spread basis points over the then three-month Bankers’ Acceptance rate. (2) The balance reported on the consolidated balance sheet as at October 31, 2022 includes unamortized financing costs related to the issuance of subordinated debentures of $1,198 (2021 - $1,778). bp – basis points Upon the occurrence of a trigger event (as defined by OSFI), each subordinated debenture will be automatically converted, without the consent of the holders, into CWB common shares. Conversion to common shares will be determined by dividing the debenture conversion value (the principal amount of the debenture plus accrued but unpaid interest times a multiplier of 1.5) by the common share value (the greater of (i) the floor price of $5.00 and (ii) the current market price calculated as the volume weighted average trading price for the ten consecutive trading days ending on the day immediately prior to the date of conversion). 94 | CWB Financial Group 2022 Annual Report 15. CAPITAL STOCK AUTHORIZED • An unlimited number of common shares without nominal or par value; • 33,964,324 class A shares without nominal or par value; and, • An unlimited number of first preferred shares, without nominal or 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 of year Redeemed Outstanding at end of year Preferred Shares - Series 9 Outstanding at beginning and end of year Outstanding at End of Year – Preferred Shares Limited Recourse Capital Notes - Series 1(1) Outstanding at beginning and end of year Limited Recourse Capital Notes - Series 2(2) Outstanding at beginning of year Issued Outstanding at end of year Outstanding at End of Year – Limited Recourse Capital Notes Common Shares Outstanding at beginning of year Issued under at-the-market common equity distribution program Issued under dividend reinvestment plan Issued on exercise or exchange of options(3) Outstanding at End of Year – Common Shares Total 2022 Number of Shares 2021 Amount Number of Shares Amount 5,000,000 $ 125,000 5,000,000 $ 125,000 - - - - - - 5,600,000 (5,600,000) 140,000 (140,000) - - 5,000,000 10,000,000 125,000 250,000 5,000,000 125,000 10,000,000 250,000 175,000 175,000 175,000 175,000 150,000 - 150,000 325,000 89,390,335 4,725,271 164,251 46,255 94,326,112 150,000 - 150,000 325,000 809,435 141,098 5,005 523 956,061 - 150,000 150,000 325,000 - 150,000 150,000 325,000 87,099,831 2,052,600 117,000 120,904 730,846 72,969 4,064 1,556 89,390,335 809,435 $ 1,531,061 $ 1,384,435 (1) (2) In connection with the issuance of LRCN Series 1, on October 30, 2020, we issued $175,000 of First Preferred Shares Series 11 at a price of $1,000 per Series 11 Preferred Share. The Series 11 Preferred Shares were issued to a Limited Recourse Trust to be held as trust assets in connection with the LRCN structure. The Series 11 Preferred Shares and corresponding Trust investment are eliminated on consolidation. In connection with the issuance of LRCN Series 2, on March 25, 2021, we issued $150,000 of First Preferred Shares Series 12 at a price of $1,000 per Series 12 Preferred Share. The Series 12 Preferred Shares were issued to a Limited Recourse Trust to be held as trust assets in connection with the LRCN structure. The Series 12 Preferred Shares and corresponding Trust investment are eliminated on consolidation. (3) Represents shares issued and amounts transferred from the share-based payment reserve to share capital upon cashless settlement of options exercised. We are prohibited by the Bank Act from declaring any dividends on common shares when we are or would be placed, as a result of the declaration, in contravention of the capital adequacy and liquidity regulations or any regulatory directives issued under the Bank Act. This limitation does not restrict the current level of dividends. A) At-the-market (ATM) Common Equity Distribution Program On June 1, 2022, we established a new ATM program that allows us to incrementally issue up to $150 million worth of common shares, at our discretion, at the prevailing market price. The ATM program was re-established following the termination of our previous ATM program effective May 31, 2021, under a prospectus supplement to the CWB short-form base shelf prospectus, and expires July 1, 2024. Common shares issued(1) Average price per share Gross proceeds Net proceeds(2) $ 2022 4,725,271 29.86 $ 141,098 138,392 2021 2,052,600 35.55 72,969 71,353 (1) During the six months ended April 30, 2022, we issued 2,058,100 common shares at an average price of $36.46 per share for gross proceeds of $75,038, or net proceeds of $73,767 after sales commissions and other issuance costs, under our previous ATM program. Subsequent to April 30, 2022, all shares issued were under the new program. (2) Gross proceeds less sales commissions and other issuance costs. CWB Financial Group 2022 Annual Report | 95 B) Preferred Shares NVCC Preferred Share Rights and Privileges Redemption Amount Quarterly Non-cumulative Dividend(1) Series 5 Series 9 $ $ 25.00 25.00 $ 0.2688125 $ 0.375 Reset Spread(2) 276 bp 404 bp Annual Yield(3) 4.30% 6.00% Date Redeemable/ Convertible(4) Convertible to(2)(5) April 30, 2024 Preferred Shares - Series 6 April 30, 2024 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 will reset on the date redeemable and every five years thereafter at a level of the reset spread basis points over the then five-year Government of Canada Bond Yield. (3) Based on the stated issue price per share of $25.00. (4) Redeemable by CWB, subject to the approval of OSFI, on the date noted and every five years thereafter. Convertible by the shareholders, subject to certain conditions, on the date noted and every five years thereafter if not (5) redeemed by CWB to an equal number of First Preferred Shares Series 6 and Series 10 which are non-cumulative, floating rate preferred shares. If converted, holders of the First Preferred Shares Series 6 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. bp – basis points Upon the occurrence of a non-viability trigger event (as defined by OSFI), each preferred share will be automatically converted, without the consent of the holders, into CWB common shares. Conversion to common shares will be determined by dividing the preferred share conversion value ($25.00 per preferred share plus any declared but unpaid dividends) by the common share value (the greater of (i) the floor price of $5.00 and (ii) the current market price calculated as the volume-weighted average trading price for the ten consecutive trading days ending on the day immediately prior to the date of the conversion). If a trigger event were to occur, based on a floor price of $5.00, the preferred shares would be converted into approximately 50 million CWB common shares, assuming no accrued interest and no declared and unpaid dividends. C) Limited Recourse Capital Notes (LRCN) Series 1 Series 2 Redemption Amount $ $ 1,000 1,000 Interest Rate Issue Date Maturity Date 6.00% 5.00% October 30, 2020 March 25, 2021 April 30, 2081 July 31, 2081 Reset Spread(1) 562.1 bp 394.9 bp Earliest Date Redeemable April 30, 2026 July 31, 2026 (1) The interest rate will reset on the date redeemable and every five years thereafter at a level of the reset spread basis points over the then five-year Government of Canada Bond Yield. bp – basis points Semi-annual interest payments on our Series 1 LRCNs, of $30 per $1,000 principal amount of Series 1 LRCNs were paid on April 30, 2022 and October 31, 2022, for an aggregate total of $7,988 (2021 – $8,044), after tax. Semi-annual interest payments on our Series 2 LRCNs, of $25 per $1,000 principal amount of Series 2 LRCNs were paid on January 31, 2022 and July 31, 2022, for an aggregate total of $5,730 (2021 – $2,010), after tax. In the event of (i) non-payment of interest on any interest payment date, (ii) non-payment of the redemption price in the case of an LRCN redemption, (iii) non-payment of principal at the maturity date, or (iv) an event of default on the notes, noteholders will have recourse limited to receipt of a proportionate amount of Series 11 Preferred Shares for the Series 1 LRCNs and Series 12 Preferred Shares for the Series 2 LRCNs. The delivery of the corresponding preferred shares will represent the full and complete extinguishment of our obligations under the LRCNs. The preferred shares are held by a third party trustee in a consolidated trust, CWB LRT (Limited Recourse Trust). LRCNs are redeemable on or prior to maturity on each five-year anniversary, subject to OSFI approval. The corresponding preferred shares would be redeemed at the same time. The terms of the preferred shares and LRCNs include NVCC provisions necessary for them to qualify as Tier 1 regulatory capital under Basel III. Upon the occurrence of a trigger event (as defined by OSFI), LRCNs will be automatically redeemed by the delivery of common shares after an automatic conversion of the preferred shares. Conversion to common shares will be determined by dividing the share value of the preferred shares (including declared and unpaid dividends) by the common share value (the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted average trading price for the ten consecutive trading days ending on the day immediately prior to the date of conversion). If a trigger event were to occur, based on a floor price of $5.00, the Series 1 LRCNs and Series 2 LRCNs would be converted into approximately 35 million and 30 million CWB common shares, respectively, assuming no accrued interest and no declared and unpaid dividends. LRCN are compound instruments with both equity and liability features as payments of interest and principal in cash are made at our discretion. Semi-annual interest payments on the LRCNs are recorded when payable. Non-payment of interest and principal in cash does not constitute an event of default and will trigger a delivery of preferred shares. The liability component of the notes has a nominal value and, as a result, the full proceeds received are presented as equity. D) Dividends The following dividends on common and preferred shares were declared by the Board of Directors and paid during the year: $1.22 per common share (2021 – $1.16) $1.08 per preferred share - Series 5 (2021 – $1.08) $1.50 per preferred share - Series 9 (2021 – $1.50) $nil per preferred share - Series 7 (2021 – $1.17) Total $ $ 2022 111,245 5,376 7,500 - 2021 101,421 5,375 7,500 6,563 $ 124,121 $ 120,859 Subsequent to October 31, 2022, the Board of Directors of CWB declared a dividend of $0.32 per common share payable on January 5, 2023 to shareholders of record on December 15, 2022, and cash dividends of $0.2688125 per Series 5 and $0.375 per Series 9 preferred share all payable on January 31, 2023 to shareholders of record on January 24, 2023. With respect to these dividend declarations, no liability was recorded on the consolidated balance sheets at October 31, 2022. 96 | CWB Financial Group 2022 Annual Report E) Dividend Reinvestment Plan Under the Dividend Reinvestment Plan (the plan), we provide holders of our common shares and holders of any other class of shares deemed eligible by our Board of Directors with the opportunity to direct cash dividends paid on any class of their eligible shares towards the purchase of additional common shares. Currently, the Board of Directors has deemed that the holders of all common and preferred shares are eligible to participate in the plan. The plan is open to shareholders residing in Canada. At our option, the common shares may be issued from our treasury at an average market price based on the closing prices of a board lot of common shares on the TSX for the five trading days immediately preceding the dividend payment date, with a discount of 0% to 5% or through the open market at market prices. During the year, 164,251 common shares were issued under the plan from our treasury, with no discount (2021 – 117,000). 16. SHARE-BASED PAYMENTS A) STOCK OPTIONS The estimated fair value of stock options measured at the grant date is recognized over the applicable vesting period as an increase to both salary expense and share-based payment reserve. When options are exercised, the proceeds received and the applicable amount in share-based payment reserve are credited to common shares. We have authorized 6,124,606 common shares (2021 – 6,170,861) for issuance under the share incentive plan. Of the amount authorized, options exercisable into 1,871,717 shares (2021 – 1,716,084) are issued and outstanding. The outstanding options vest within three years and are exercisable at a fixed price equal to the average of the market price on the day of and the four days preceding the grant date. Outstanding options expire from March 2023 to December 2028, each with an expiry date that is within seven years of the grant date. The details of, and changes in, the issued and outstanding options are as follows: Options Balance at beginning of year Granted Exercised or exchanged Forfeited Expired Balance at End of Year Exercisable at End of Year Further details relating to stock options outstanding and exercisable are as follows: 2022 2021 Weighted Average Exercise Price 30.04 37.03 25.76 32.04 31.86 31.63 30.29 Number of Options 1,716,084 363,378 (134,739) (65,501) (7,505) 1,871,717 828,134 $ $ $ Weighted Average Exercise Price 29.39 29.07 26.02 31.89 - 30.04 29.80 Number of Options 1,788,818 359,048 (393,696) (38,086) - 1,716,084 647,859 $ $ $ Range of Exercise Prices $23.70 $29.07 to $31.93 $35.15 to $37.03 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 124,654 1,199,978 547,085 1,871,717 0.4 3.8 4.8 3.8 $ $ 23.70 30.31 36.35 31.63 124,654 $ 503,586 199,894 828,134 $ 23.70 30.00 35.15 30.29 All exercised options are settled via cashless settlement, which provides the option holder the number of shares equivalent to the excess of the market value of the shares under option, determined at the exercise date, over the exercise price. During fiscal 2022, option holders exchanged the rights to 134,739 (2021 – 393,696) options and received 46,255 (2021 – 120,904) shares in return by way of cashless settlement. Salary expense of $1,973 (2021 – $1,823) was recognized relating to the estimated fair value of options granted. The fair value of options granted during the year was estimated using a binomial option pricing model with the following variables and assumptions: (i) risk-free interest rate of 1.2% (2021 – 0.5%), (ii) expected option life of 5.0 (2021 – 5.0) years, (iii) expected annual volatility of 34% (2021 – 35%), and (iv) expected annual dividends of 3.3% (2021 – 4.0%). Expected volatility is estimated by evaluating historical volatility of the share price over multi-year periods. The weighted average fair value of options granted was estimated at $7.06 (2021 – $5.87) per share. During the year, $523 (2021 – $1,556) was transferred from the share-based payment reserve to share capital, representing the estimated fair value recognized for options exercised during the year. CWB Financial Group 2022 Annual Report | 97 B) RESTRICTED SHARE UNITS Under the RSU plan, certain employees are eligible to receive an award in the form of RSUs. Each RSU entitles the employee to receive the cash equivalent of the market value of our 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 expense is recognized between the grant date and the date the employee is eligible to retire. During the year, salary expense of $10,564 (2021 – $9,545) was recognized related to RSUs. As at October 31, 2022, the liability for the RSUs held under this plan was $8,721 (October 31, 2021 – $14,833). 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 2022 686,972 499,043 (354,182) (52,664) 779,169 2021 765,036 304,945 (353,356) (29,653) 686,972 Under the Performance Share Unit (PSU) plan, certain employees are eligible to receive an award in the form of PSUs on an annual basis. At the time of a grant, each PSU represents a unit with an underlying value equivalent to the value of a 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. At the end of each specified performance period, a multiplier based on performance targets set at grant date is applied to a portion of the PSUs originally granted and any accrued notional dividends such that the total value of the PSUs may vary from 0% to 200% of the value of an equal number of our common shares. During the year, salary expense of $790 (2021 – $4,709) was recognized related to PSUs. As at October 31, 2022, the liability for the PSUs held under this plan was $4,674 (October 31, 2021 – $6,246). At the end of each period, the liability and salary expense are adjusted to reflect changes in the fair value of the PSUs. Number of PSUs Balance at beginning of year Granted Vested and paid out Forfeited Balance at End of Year D) DEFERRED SHARE UNITS 2022 285,416 131,448 (73,785) (8,800) 334,279 2021 200,681 146,465 (50,411) (11,319) 285,416 Under the DSU plan, non-employee directors receive a portion of their retainer in DSUs. Each DSU represents a unit with an underlying value equivalent to the value of one common share. The DSUs are not redeemable until the individual is no longer a director and must be redeemed for cash. Common share dividend equivalents accrue to the directors in the form of additional units. The expense related to the DSUs is recorded in the period the award is earned by the director. During the year, other non-interest expenses included $1,659 (2021 – $1,810) related to the DSUs. As at October 31, 2022, the liability for DSUs held under this plan was $7,244 (October 31, 2021 – $10,707). At the end of each period, the liability and expense are adjusted to reflect changes in the market value of the DSUs. Number of DSUs Balance at beginning of year Granted Paid out Balance at End of Year 2022 270,438 59,057 2021 258,386 53,355 (23,826) (41,303) 305,669 270,438 98 | CWB Financial Group 2022 Annual Report 17. CONTINGENT LIABILITIES AND COMMITMENTS A) CREDIT INSTRUMENTS In the normal course of business, we enter into various commitments and have 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. Commitments to extend credit Guarantees and standby letters of credit Total As at October 31 2022 7,216,652 $ 430,813 As at October 31 2021 6,244,862 423,097 7,647,465 $ 6,667,959 $ $ Commitments to extend credit to customers also arise in the normal course of business and include undrawn availability under lines of credit and business operating loans of $3,101,155 (October 31, 2021 – $2,896,613) and authorized but unfunded loan commitments of $4,115,497 (October 31, 2021 – $3,348,249). 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 undrawn credit exposures and letters of credit is included in other liabilities on the consolidated balance sheets. From a liquidity perspective, undrawn credit authorizations will be funded over time, with draws in many cases extending over a period of months. In some instances, authorizations are never advanced or may be reduced because of changing requirements. Revolving credit authorizations are subject to repayment which, on a pooled basis, also decreases liquidity risk. Guarantees and standby letters of credit represent our 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 year. B) PURCHASE OBLIGATIONS We have 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: 2023 2024 2025 2026 2027 Total C) LEASE COMMITMENTS $ $ 38,972 11,336 3,506 3,335 1,964 59,113 During the year ended October 31, 2022, we entered into a lease for a new corporate office in Edmonton, commencing January 1, 2026. Future minimum commitments related to the lease on an undiscounted basis are $7,135 for fiscal 2026 and a remaining total of $132,058 for fiscal 2027 and thereafter. D) GUARANTEES A guarantee is defined as a contract that contingently requires the guarantor to make payments to a third party based on (i) changes in an underlying economic characteristic that is related to an asset, liability or equity security of the guaranteed party, (ii) failure of another party to perform under an obligating agreement, or (iii) failure of another third party to pay indebtedness when due. Significant guarantees provided to third parties include guarantees and standby letters of credit as discussed above. In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the other party. Under these agreements, we may be required to compensate counterparties for costs incurred as a result of various contingencies, such as changes in laws and regulations and litigation claims. A maximum potential liability cannot be identified as the terms of these arrangements vary and generally no predetermined amounts or limits are identified. The likelihood of occurrence of contingent events that would trigger payment under these arrangements is either remote or difficult to predict and, in the past, payments under these arrangements have been insignificant. No amounts are reflected in the consolidated financial statements related to these guarantees and indemnifications. E) LEGAL AND REGULATORY PROCEEDINGS In the ordinary course of business, CWB and our subsidiaries are party to legal and regulatory proceedings. Based on current knowledge, we do not expect the outcome of any of these proceedings to have a material effect on the consolidated financial position or results of operations. CWB Financial Group 2022 Annual Report | 99 18. OTHER INCOME AND OTHER EXPENSES A) OTHER NON-INTEREST INCOME Other non-interest income primarily consists of foreign exchange gains/losses $13,328 (2021 – $3,611) and other miscellaneous non-interest revenues $418 (2021 – $185). B) OTHER EXPENSES A summary of other non-interest expenses broken down by significant categories follows: Professional fees and services Regulatory costs Marketing and business development Amortization of acquisition-related intangible assets Banking charges Employee recruitment and training Loan-related credit reports Travel Communications Capital and business taxes Staff relations Acquisition and integration costs Other Total C) EMPLOYEE FUTURE BENEFITS $ 2022 30,264 $ 13,262 10,366 10,212 9,915 6,169 3,588 2,735 2,167 2,038 1,947 626 15,060 $ 108,349 $ 2021 20,517 12,894 10,339 8,073 8,036 4,187 3,370 895 2,094 1,530 1,501 1,761 12,431 87,628 All employee future benefits related to our group retirement savings and employee share purchase plans are recognized in the periods during which services are rendered by employees and are included in salaries and employee benefits non-interest expenses. Our contributions to the group retirement savings plan and employee share purchase plan totaled $22,352 (2021 – $19,965). 100 | CWB Financial Group 2022 Annual Report 19. INCOME TAXES We follow the deferred method of accounting for income taxes whereby current income taxes are recognized for the estimated income taxes payable for the current period. Deferred tax assets and liabilities represent the cumulative amount of tax applicable to temporary differences between the carrying amount of the assets and liabilities, and their values for tax purposes. 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 anticipated to be recovered or settled. Changes in deferred taxes related to a change in tax rates are recognized in income in the period of the tax rate change. All deferred tax assets and liabilities are expected to be realized in the normal 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 not subsequently reclassified to net income Items that will be subsequently reclassified to net income Derivatives designated as cash flow hedges Total 2022 2021 $ 105,678 $ 125,793 5,939 111,617 (2,786) 123,007 (39) (27,849) (17,014) (44,902) $ 66,715 $ 326 (11,805) (18,490) (29,969) 93,038 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: Change in tax rate Tax-exempt income Stock-based compensation Adjustments arising from prior year tax filings Other 2022 2021 $ 111,720 24.9 % $ 119,599 24.9 % 210 (60) 347 (2,486) 1,886 - - 0.1 (0.6) 0.5 (520) (75) 430 1,940 1,633 (0.1) - 0.1 0.4 0.3 Provision for Income Taxes and Effective Tax Rate $ 111,617 24.9 % $ 123,007 25.6 % Deferred tax balances are comprised of the following: Deferred Tax Assets Allowance for credit losses Lease liabilities Leasing income Deferred loan fees Intangible assets Employee benefits Non-capital losses Other temporary differences Deferred Tax Liabilities Property and equipment Right of use asset Intangible assets Deferred deposit broker commission Other temporary differences Net deferred tax balances are reported in the Consolidated Balance Sheets as follows: Deferred tax assets Deferred tax liabilities As at October 31 2022 As at October 31 2021 $ 20,209 $ 23,297 16,435 14,301 7,936 5,154 3,834 8,699 99,865 30,769 18,189 6,466 4,832 3,928 64,184 $ 35,681 $ 2022 42,248 $ (6,567) 35,681 $ $ $ 19,463 20,399 18,003 13,256 7,936 7,177 3,483 12,258 101,975 29,049 15,051 8,368 3,578 3,755 59,801 42,174 2021 50,772 (8,598) 42,174 CWB Financial Group 2022 Annual Report | 101 20. 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 our common shares at the average market price during the period. The calculation of earnings per common share follows: Numerator Common shareholders’ net income Denominator Weighted average number of common shares outstanding - basic Dilutive instruments: Stock options(1) Weighted Average Number of Common Shares Outstanding - Diluted Earnings Per Common Share Basic Diluted 2022 2021 $ 310,302 $ 327,471 91,430,832 87,578,859 59,093 265,893 91,489,925 $ 87,844,752 3.39 $ 3.39 3.74 3.73 $ $ (1) At October 31, 2022, the denominator excludes 1,103,697 (2021 – 580,865) employee stock options with an average exercise price of $35.14 (2021 – $33.06), adjusted for unrecognized stock-based compensation, that is greater than the average market price. 21. RELATED PARTY TRANSACTIONS Transactions with and between subsidiary entities are made at normal market prices and eliminated on consolidation. PREFERRED RATES AND TERMS We make loans, primarily residential mortgages, to our officers and employees at various preferred rates and terms. The total amount outstanding for these types of loans is $219,074 (October 31, 2021 – $170,961). We offer deposits, primarily fixed term deposits, to our officers and employees and their immediate family at preferred rates. The total amount outstanding for these deposits is $342,376 (October 31, 2021 – $325,201). KEY MANAGEMENT PERSONNEL Key management personnel are those that have authority and responsibility for planning, directing and controlling our activities and include our independent directors. 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. 2022 6,222 $ 4,585 10,807 $ $ $ 2021 5,405 4,117 9,522 Loans outstanding with key management personnel totaled $444 as at October 31, 2022 (October 31, 2021 – $235). No loans were outstanding with our independent directors as at October 31, 2022 and 2021. 102 | CWB Financial Group 2022 Annual Report 22. INTEREST RATE SENSITIVITY We are exposed to interest rate risk as a result of a difference, or gap, between the maturity or repricing behaviour of interest sensitive assets and liabilities. The interest rate gap is managed by adjusting the repricing behaviour of interest sensitive assets or liabilities to ensure the gap falls within our risk appetite. The repricing profile of these assets and liabilities has been incorporated in the following table, which contains the gap position at October 31 for select time intervals. Figures in brackets represent an excess of liabilities over assets or a negative gap position. ASSET LIABILITY GAP POSITIONS ($millions) October 31, 2022 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 Floating Rate and Within 1 Month 1 Month to 3 Months 3 Months to 1 Year $ 380 16,224 - 1,575 $ 125 1,377 - 535 18,179 2,037 $ 1,682 5,126 - 583 7,391 Total Within 1 Year 2,187 22,727 - 2,693 27,607 $ 1 Year to 5 Years 2,429 12,850 - 3,310 18,589 $ 14,757 2,095 5,162 22,014 10,454 247 - 68 - 4,900 19,972 - - 162 - 28 2,285 - - 640 - - 5,802 1,589 (452) $ $ 247 - 870 - 4,928 28,059 - - 2,592 575 1,434 15,055 (452) (452) $ $ 3,534 3,082 $ $ More than 5 Years Non- interest Sensitive $ 18 (185) 1,061 - 894 - 979 - 3,158 - 4,115 $ 1 352 - 450 803 573 - - - - 91 664 139 3,221 $ $ (3,221) $ - $ Total 4,635 35,744 1,061 6,453 47,893 247 979 3,462 3,733 6,453 47,893 - - (22) 33,019 Interest Rate Sensitive Gap Cumulative Gap $ $ (1,793) (1,793) $ $ (248) (2,041) $ $ Cumulative Gap as a Percentage of Total Assets October 31, 2021 Cumulative Gap Cumulative Gap as Percentage of Total Assets (3.7) % (4.3) % (0.9) % (0.9) % 6.4 % 6.7 % - % - % $ 421 $ (328) $ (1,092) $ (1,092) $ 2,819 $ 3,038 $ - $ 1.0 % (0.8) % (2.6) % (2.6) % 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. WEIGHTED AVERAGE EFFECTIVE INTEREST RATES The effective, weighted average interest rates for each class of financial asset and liability are shown below: October 31, 2022 Total assets Total liabilities Floating Rate and Within 1 Month 1 Month to 3 Months 3 Months to 1 Year Total Within 1 Year 1 Year to 5 Years More than 5 Years Total 6.0 % 3.3 % 3.5 % 5.2 % 3.5 % 2.9 % 4.5 % 3.3 3.1 2.6 3.2 3.0 2.1 3.1 Interest Rate Sensitive Gap 2.7 % 0.2 % 0.9 % 2.0 % 0.5 % 0.8 % 1.4 % October 31, 2021 Total assets Total liabilities 2.9 % 3.9 % 3.9 % 3.2 % 3.1 % 2.4 % 3.2 % 0.7 1.2 1.5 0.9 2.0 1.7 1.3 Interest Rate Sensitive Gap 2.2 % 2.7 % 2.4 % 2.3 % 1.1 % 0.7 % 1.9 % Based on the current interest rate gap position, it is estimated that a one-percentage point increase in interest rates would increase net interest income by approximately $1,559 (October 31, 2021 – insignificant) and a one-percentage point decrease in interest rates would decrease net interest income by approximately $3,429 (October 31, 2021 – insignificant). The analysis 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 common shareholders’ net income from changes in market interest rates depends 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. CWB Financial Group 2022 Annual Report | 103 A one-percentage point increase in interest rates would decrease OCI $87,691 (October 31, 2021 – $66,052), net of tax and a one-percentage point decrease in interest rates would increase OCI by $90,586 (October 31, 2021 – $67,710), net of tax. The estimates are based on a number of assumptions and factors, which include: a constant structure in the interest sensitive asset and liability portfolios; interest rate changes affecting interest sensitive assets and liabilities by proportionally the same amount, except floor levels for various deposit liabilities and certain floating rate loans, and applied at the appropriate repricing dates; and, no early redemptions. 23. INTEREST INCOME The composition of our interest income follows: Loans measured at amortized cost(1) Securities Debt securities measured at FVOCI(1) Securities purchased under resale agreements measured at amortized cost(1) Equity securities designated at FVOCI Deposits with financial institutions measured at FVOCI(1) Total (1) Interest income is calculated using the effective interest method. 24. FAIR VALUE OF FINANCIAL INSTRUMENTS A) FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT BASIS 2022 2021 $ 1,523,026 $ 1,296,954 35,079 1,964 - 1,836 20,419 111 11 517 $ 1,561,905 $ 1,318,012 The fair value of a financial instrument on initial recognition is normally the transaction price (i.e. the value of the consideration given or received). Subsequent to initial recognition, financial instruments measured at fair value that are quoted in active markets are based on bid prices for financial assets and offer prices for financial liabilities. For certain securities and 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, and non- market observable inputs. Several of our significant financial instruments, such as loans and deposits, lack an available trading market as they are not typically exchanged. Therefore, these instruments have been valued assuming they will not be sold, using present value or other suitable techniques and are not necessarily representative of the amounts realizable in an immediate settlement of the instrument. Changes in interest rates are the main cause of changes in the fair value of our financial instruments. The carrying value of loans, deposits, subordinated debentures and debt related to securitization activities are not adjusted to reflect increases or decreases in fair value due to interest rate changes as our intention is to realize their value over time by holding them to maturity. 104 | CWB Financial Group 2022 Annual Report The following table 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. The table does not include assets and liabilities that are not considered financial instruments. The table also excludes assets and liabilities which are considered financial instruments, but are not recorded at fair value and for which the carrying amount approximates fair value. Financial Assets Cash resources Securities(2) Loans(3) Derivatives Total Financial Assets Financial Liabilities Deposits(3) Securities sold under repurchase agreements Debt Derivatives (Note 3) $ (Note 4) $ $ Derivatives Amortized Cost FVOCI Total Carrying Amount Fair Value Under Carrying Amount Fair Value October 31, 2022 - $ 89,146 $ 26,833 $ 115,979 $ 115,979 $ - - 110,521 - 4,518,795 35,938,139 - - - 4,518,795 35,938,139 110,521 4,518,795 35,478,626 110,521 - - (459,513) - 110,521 $ 36,027,285 $ 4,545,628 $ 40,683,434 $ 40,223,921 $ (459,513) - $ 33,034,978 $ - $ 33,034,978 $ 32,414,786 $ (620,192) - - 156,081 247,354 3,461,899 - - - - 247,354 3,461,899 156,081 247,354 3,417,350 156,081 - (44,549) - Total Financial Liabilities $ 156,081 $ 36,744,231 $ - $ 36,900,312 $ 36,235,571 $ (664,741) Derivatives Amortized Cost FVOCI October 31, 2021 Total Carrying Amount Fair Value Fair Value Over Carrying Amount Financial Assets Cash resources Securities(2) Securities purchased under (Note 3) $ (Note 4) - - - 52,862 - $ 107,115 $ 21,344 $ 128,459 $ 128,459 $ - 3,573,878 3,573,878 3,573,878 - - - resale agreements Loans(3) Derivatives Total Financial Assets Financial Liabilities Deposits(3) Debt Derivatives 30,048 32,903,208 - - - - 30,048 30,048 32,903,208 33,138,017 234,809 52,862 52,862 - $ $ 52,862 $ 33,040,371 $ 3,595,222 $ 36,688,455 $ 36,923,264 $ 234,809 - $ 29,982,829 $ - $ 29,982,829 $ 30,118,635 $ 135,806 - 3,015,065 36,068 - - - 3,015,065 36,068 3,058,090 36,068 43,025 - Total Financial Liabilities $ 36,068 $ 32,997,894 $ - $ 33,033,962 $ 33,212,793 $ 178,831 (1) For further information on interest rates associated with financial assets and liabilities, including derivative instruments, refer to Note 22. (2) Securities are comprised of $4,508,490 (2021 - $3,567,797) measured at FVOCI and $10,305 (2021 - $6,081) designated at FVOCI. (3) Loans and deposits exclude deferred premiums, deferred revenue and allowance for credit losses, which are not financial instruments. The methods and assumptions used to estimate the fair values of financial instruments are as follows: • Interest bearing deposits with financial institutions and securities are reported on the consolidated balance sheets at the fair value disclosed in Notes 3 and 4. 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 derivative financial instruments and contingent consideration, financial instruments included within other assets and other liabilities reported on the consolidated balance sheets have carrying values that closely approximate fair value. • 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. • The estimated fair values of deposits are determined by discounting the contractual cash flows at current market rates for deposits of similar terms. • The fair values of debt are determined by reference to current market prices for debt with similar terms and risks. Fair values are based on our best estimates based on market conditions and pricing policies at a certain point in time. The estimates are subjective and involve particular assumptions and matters of judgment and, as such, may not be reflective of future fair values. CWB Financial Group 2022 Annual Report | 105 Fair Value Hierarchy We categorize our 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 liabilities that we can access at the measurement date. Level 2 fair value measurements are estimated using observable inputs, including quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model inputs that are either observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 fair value measurements are determined using one or more inputs that are unobservable and significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement date. Valuation Technique Fair Value Level 1 Level 2 Level 3 $ 115,979 $ 115,979 $ - $ 4,518,795 35,478,626 110,521 1,003,840 - - 3,514,955 - 110,521 - - 35,478,626 - 40,223,921 $ 1,119,819 $ 3,625,476 $ 35,478,626 32,414,786 $ 247,354 3,417,350 156,081 $ 36,235,571 $ - $ - - - - $ 32,414,786 $ 247,354 3,417,350 156,081 36,235,571 $ - - - - - Valuation Technique Fair Value Level 1 Level 2 Level 3 $ 128,459 $ 3,573,878 30,048 33,138,017 52,862 128,459 $ 207,209 - - - - $ 3,366,669 30,048 - 52,862 - - - 33,138,017 - 36,923,264 $ 335,668 $ 3,449,579 $ 33,138,017 30,118,635 $ 3,058,090 36,068 $ 33,212,793 $ - $ - - - $ 30,118,635 $ 3,058,090 36,068 33,212,793 $ - - - - $ $ $ $ As at October 31, 2022 Financial Assets Cash resources Securities Loans Derivatives Total Financial Assets Financial Liabilities Deposits Securities sold under repurchase agreements Debt Derivatives Total Financial Liabilities As at October 31, 2021 Financial Assets Cash resources Securities Securities purchased under resale agreements Loans Derivatives Total Financial Assets Financial Liabilities Deposits Debt Derivatives Total Financial Liabilities 106 | CWB Financial Group 2022 Annual Report 25. FINANCIAL INSTRUMENTS - OFFSETTING The following table provides a summary of financial assets and liabilities which are subject to enforceable master netting agreements and similar arrangements, as well as financial collateral received and pledged to mitigate credit exposures related to these financial instruments. The agreements do not meet the netting criteria required by IAS 32 Financial Instruments: Presentation as the right to offset is only enforceable in the event of default or occurrence of other predetermined events. Amounts not Offset on the Consolidated Balance Sheet Gross Amounts Reported on the Consolidated Balance Sheet Impact of Master Netting Agreements Cash Collateral(1) Securities Received as Collateral(1)(2) Net Amount 110,521 $ 82,923 $ 21,309 $ 6,289 $ - 156,081 $ 82,923 $ 71,822 $ - $ 1,336 Amounts not Offset on the Consolidated Balance Sheet Gross Amounts Reported on the Consolidated Balance Sheet Impact of Master Netting Agreements Cash Collateral(1) Securities Received as Collateral(1)(2) 52,862 $ 17,589 $ 35,259 $ 36,068 $ 17,589 $ 13,310 $ - - $ $ Net Amount 14 5,169 $ $ $ $ As at October 31, 2022 Financial Assets Derivatives Financial Liabilities Derivatives As at October 31, 2021 Financial Assets Derivatives Financial Liabilities Derivatives (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. 26. RISK MANAGEMENT As part of our risk management practices, the risks that are significant to the business are identified, monitored and controlled. The nature of these risks and how they are managed is provided in the Risk Management section of the MD&A. As permitted by the IASB, certain aspects of the risk management disclosure related to risks inherent with financial instruments is included in the MD&A. The relevant MD&A sections are identified by shading within boxes and the content forms an integral part of these audited consolidated financial statements. Information on specific measures of risk, including the allowance for credit losses, derivative financial instruments, interest rate sensitivity, fair value of financial instruments and liability for unpaid claims are included elsewhere in these notes to the consolidated financial statements. 27. CAPITAL MANAGEMENT Capital funds are managed in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors and take into account forecast capital needs with consideration of anticipated profitability, asset growth, market and economic conditions, regulatory changes, and common and preferred share dividends. The goal is to maintain adequate regulatory capital to be considered well-capitalized and protect customer deposits, while providing a satisfactory return for shareholders. We have a share incentive plan that is provided to officers and employees who are in a position to impact our longer-term financial success as measured by share price appreciation and dividend yield. Note 16 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 in accordance with instructions for determining risk-adjusted capital and risk-weighted assets, including off-balance sheet commitments. Based on the deemed credit risk of each type of asset, a standardized weighting of 0% to 150% is assigned. As an example, a loan that is fully insured by CMHC is applied a risk weighting of 0% as our risk of loss is nil, while uninsured business loans are assigned a risk weighting of 100% to reflect the higher level of risk associated with this type of asset. The ratio of regulatory capital 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. Our 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 3.0%. The leverage ratio provides the ratio of Tier 1 capital to on-balance sheet and off- balance sheet exposures. During the year, we complied with all external capital requirements. CWB Financial Group 2022 Annual Report | 107 CAPITAL STRUCTURE AND REGULATORY CAPITAL RATIOS Regulatory Capital, Net of Deductions Common equity Tier 1(1) Tier 1(1) Total Capital Ratios Common equity Tier 1 Tier 1 Total Leverage Ratio(2) 2022 2021 $ 2,861,456 $ 2,601,438 3,436,456 3,925,118 3,176,438 3,650,366 8.8 % 8.8 % 10.6 12.1 8.1 10.8 12.4 8.6 (1) In Q2 2020, OSFI introduced transitional arrangements related to the capital treatment of performing loan allowances, resulting in a portion of allowances that would otherwise be included in Tier 2 capital to be included, subject to a scaling factor set at 50% for fiscal 2021 and 25% for fiscal 2022. The implementation of this transitional arrangement, net of related tax, resulted in an $5,576 increase to CET1 and Tier 1 capital (October 31, 2021 – $5,847) and had a negligible impact on the CET1 and Tier 1 ratios at October 31, 2022 (October 31, 2021 – negligible impact). The transitional arrangement has no impact on the Total capital ratio. (2) Sovereign-issued securities that qualify as High Quality Liquid Assets under the Liquidity Adequacy Requirements guideline were temporarily excluded from the leverage ratio exposure measure until December 31, 2021. This temporary exclusion positively impacted our leverage ratio by approximately 30 basis points at October 31, 2021. 28. SUBSIDIARIES As at October 31, 2022, we, either directly or indirectly through our subsidiaries, control the following significant subsidiaries: Canadian Western Bank Subsidiaries(1) (Annexed in accordance with subsection 308 (3) of the Bank Act) Address of Head Office 1525 Buffalo Place Winnipeg, Manitoba Suite 3000, 10303 Jasper Avenue Edmonton, Alberta 801 10th Ave SW Calgary, Alberta Suite 3000, 10303 Jasper Avenue Edmonton, Alberta Suite 1, 30 Vogell Road Richmond Hill, Ontario Suite 3000, 10303 Jasper Avenue Edmonton, Alberta Suite 3000, 10303 Jasper Avenue Edmonton, Alberta Carrying Value of Voting Shares Owned by CWB(2) $ 134,458 118,660 30,812 19,136 10,582 CWB National Leasing Inc. CWB Wealth Management Ltd. CWB Wealth Partners Ltd. Canadian Western Financial Ltd. CWB Maxium Financial Inc. Canadian Western Trust Company Valiant Trust Company (1) We, either directly or through our subsidiaries, own 100% of the voting shares of each entity. (2) The carrying value of voting shares is stated at the cost of our equity in the subsidiaries in thousands of dollars. 29. COMPARATIVE FIGURES Certain prior year figures have been reclassified to conform to the current year’s presentation. 108 | CWB Financial Group 2022 Annual Report page left intentionally blank CWB Financial Group 2022 Annual Report | 109 Complaints or Concerns regarding Accounting, Internal Accounting Controls or Auditing Matters Please contact either: Chief Financial Officer Canadian Western Bank CFO@cwbank.com or Chair of the Audit Committee Canadian Western Bank Audit.Committee@cwb.com Corporate Secretary Monique Petrin Nicholson Senior Vice President, General Counsel and Corporate Secretary corporatesecretary@cwbank.com Shareholder Information CWB Financial Group Corporate Headquarters Suite 3000, 10303 Jasper Avenue NW Canadian Western Bank Place Edmonton, AB T5J 3X6 Telephone: (780) 423-8888 Fax: (780) 423-8897 cwb.com 2023 Annual Meeting The annual meeting of the common shareholders of Canadian Western Bank will be held on April 6, 2023, at 1:00 p.m. MT (3:00 p.m. ET). Transfer Agent and Registrar Computershare Trust Company of Canada 8th Floor, 100 University Avenue 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 9 Preferred Shares: CWB.PR.D 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. Shareholdings and Dividends Contact Information regarding your shareholdings and dividends, including changes to share registrations or addresses, lost share certificates, tax forms or estate transfers may be obtained by contacting the transfer agent. 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. 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. 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. Investor Relations Contact For financial information inquiries, please contact: Investor Relations CWB Financial Group Suite 3000, 10303 Jasper Avenue NW Canadian Western Bank Place Edmonton, AB T5J 3X6 Telephone: (800) 836-1886 investorrelations@cwbank.com This 2022 Annual Report, along with our Annual Information Form, Notice of Annual Meeting of Shareholders and Management 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 also available on the Canadian Securities Administrators’ website at sedar.com Further information regarding the Bank’s listed securities is available on our website www.cwb.com/investor-relations Resolving concerns We are proud of our reputation and encourage you to tell us if you think we have been unsuccessful in dealing with you properly and fairly in any aspect of our business. Please see our website for steps to resolve your complaint. www.cwb.com/about-us/resolving-your- concerns 110 | CWB Financial Group 2022 Annual Report Five Year Financial Summary (1) ($ thousands, except per share amounts) Results of Operations Net interest income Non-interest income Total revenue Pre-tax, pre-provision income(1) Common shareholders’ net income Common Share Information Earnings per share Basic Diluted Adjusted(1) Cash dividends paid Book value(1) Market price High Low Close Common shares outstanding (thousands) Performance Measures(1) Return on common shareholders’ equity Adjusted return on common shareholders’ equity Return on assets Net interest margin Efficiency ratio Credit Quality(1) Provision for credit losses on total loans as a percentage of average loans(2) Provision for credit losses on impaired loans as a percentage of average loans(2) Balance Sheet Assets Loans(3) Deposits Debt Shareholders’ equity Off-Balance Sheet Wealth Management(4) 2022 2021 2020(7) 2019(8) 2018 $ 939,976 $ 892,363 $ 799,411 $ 785,584 $ 724,990 136,311 1,076,287 521,903 310,302 123,670 1,016,033 517,149 327,471 3.39 3.39 3.62 1.22 33.48 41.56 21.21 23.70 94,326 3.74 3.73 3.81 1.16 33.10 40.21 24.37 39.59 89,390 97,984 897,395 469,318 248,956 2.86 2.86 2.93 1.15 31.76 36.61 15.70 24.50 87,100 76,020 861,604 461,130 266,940 3.05 3.04 3.15 1.08 29.29 33.89 24.33 33.35 87,250 78,368 803,358 436,188 249,256 2.81 2.79 3.01 1.00 26.09 40.83 29.81 30.62 88,952 10.1 % 11.6 % 9.3 % 10.9 % 11.0 % 10.8 0.79 2.41 51.5 0.14 0.10 11.8 0.92 2.49 49.1 0.09 0.17 9.5 0.76 2.45 47.7 0.32 0.18 11.3 0.88 2.60 46.5 0.21 0.21 11.9 0.89 2.60 45.7 0.20 0.19 $ 41,440,143 $ 37,323,176 $ 33,937,865 $ 31,424,235 $ 29,021,463 35,743,804 33,019,047 3,461,899 3,732,976 32,759,522 29,975,739 3,015,065 3,533,885 30,008,393 27,310,354 2,424,323 3,331,538 28,365,893 25,351,361 2,412,293 2,945,810 26,204,599 23,699,957 2,007,854 2,585,752 Assets under management and administration Assets under advisement(5) 7,825,003 1,824,961 8,687,136 2,067,069 6,577,513 1,877,000 2,461,469 2,437,239 - - Assets under administration - other 13,943,199 14,031,042 11,081,581 8,936,845 8,032,280 Capital Adequacy(6) Common equity Tier 1 ratio Tier 1 ratio Total ratio Other 8.8 % 10.6 12.1 8.8 % 10.8 12.4 8.8 % 9.1 % 9.2 % 10.9 12.6 10.7 12.8 10.3 11.9 Number of full-time equivalent staff 2,712 2,617 2,505 2,278 2,178 (1) Non-GAAP measure – refer to definitions and detail provided on page 16. (2) Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit. (3) Net of allowance for credit losses. (4) Certain comparative figures have been reclassified to conform with the current period’s presentation. (5) (6) (7) Results for periods beginning on or after November 1, 2019 have been prepared in accordance with IFRS 16 Leases. Prior year comparatives have been prepared in accordance with IAS 17 Leases and have not been restated. (8) Primarily comprised of assets under advisement related to our Indigenous Services wealth management business. Calculated using the Standardized approach in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI). Results for periods beginning on or after November 1, 2018 have been prepared in accordance with IFRS 9 Financial Instruments. Prior year comparatives have been prepared in accordance with IAS 39 Financial Instruments: Classification and Measurement and have not been restated. CWB Financial Group 2022 Annual Report | 111 

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