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
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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