Accounting

2019

Annual Report GRAEDON RUST, Relationship Manager, Commercial Banking, CWB SOHAIL “ZEE” ZAIDI, Owner and CEO, Remedy Café

(1) See page 20 for a discussion of non-IFRS measures. (2) Amounts for 2019 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9) (refer to Notes 1 and 2 of the annual consolidated financial statements). Prior year comparatives

have been prepared in accordance with IAS 39 Financial Instruments: Classification and Measurement (IAS 39) and have not been restated. (3) On May 1, 2015, CWB sold its property and casualty insurance subsidiary and CWB’s stock transfer business. Revenues, expenses and gains on sale associated with the businesses sold are

defined and classified on the consolidated statements of income for prior periods as “Discontinued Operations”. The remaining operations are defined as “Continuing Operations”, and the total Continuing Operations and Discontinued Operations are defined as “Combined Operations”. Total revenues from Combined Operations include $107.8 million of divestiture gains in 2015. Return on shareholders’ equity reflects equity from Combined Operations. All other measures reflect either Continuing or Combined Operations as indicated.

(4) Under IFRS 9, provisions for credit losses related primarily to loans, committed but undrawn credit exposures and letters of credit, and also apply to debt securities measured at fair value through other comprehensive income and other financial assets. Prior to the adoption of IFRS 9, provisions for credit losses only related to loans, committed but undrawn credit exposures and letters of credit.

(5) Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.

Five Year Financial Summary (1) ($ thousands, except per share amounts)

2019(2) 2018 2017 2016 2015

Results from Continuing Operations(3)

Net interest income $ 785,584 $ 724,990 $ 642,390 $ 585,224 $ 543,472

Non-interest income 76,020 78,368 84,245 72,672 67,948

Pre-tax, pre-provision income 461,130 436,188 388,729 350,603 322,479

Total revenue 861,604 803,358 726,635 657,896 611,420

Common shareholders’ net income 266,940 249,256 214,277 177,761 208,064

Earning per share

Basic 3.05 2.81 2.43 2.13 2.59

Diluted 3.04 2.79 2.42 2.13 2.59

Adjusted cash 3.15 3.01 2.63 2.26 2.63

Return on common shareholders' equity 10.9% 11.0% 10.1% 9.3% 12.4%

Adjusted return on common shareholders' equity 11.3 11.9 11.0 9.9 12.6

Return on assets 0.88 0.89 0.85 0.73 0.97

Efficiency ratio 46.5 45.7 46.5 46.7 47.3

Net interest margin 2.60 2.60 2.56 2.41 2.53

Number of full-time equivalent staff 2,278 2,178 2,058 1,966 1,928

Results from Combined Operations(3)

Common shareholders' net income $ 266,940 $ 249,256 $ 214,277 $ 177,761 $ 319,701

Earnings per share

Basic 3.05 2.81 2.43 2.13 3.97

Diluted 3.04 2.79 2.42 2.13 3.97

Adjusted cash 3.15 3.01 2.63 2.26 4.01

Return on common shareholders' equity 10.9% 11.0% 10.1% 9.3% 19.1%

Adjusted return on common shareholders' equity 11.3 11.9 11.0 9.9 19.3

Return on assets 0.88 0.89 0.85 0.73 1.48

Results from Discontinued Operations(3)

Common shareholders' net income $ - $ - $ - $ - $ 111,637

Earnings per share

Basic - - - - 1.38

Diluted - - - - 1.38

Adjusted cash - - - - 1.38

Per Common Share

Average common shares outstanding (thousands) 87,513 88,952 88,297 83,411 80,442

Cash dividends $ 1.08 $ 1.00 $ 0.93 $ 0.92 $ 0.86

Book value 29.29 26.09 24.82 23.58 22.18

Market price

High 33.89 40.83 37.36 29.30 38.16

Low 24.33 29.81 23.68 19.26 21.04

Close 33.35 30.62 36.34 25.45 25.13

Balance Sheet and Off-Balance Sheet Summary

Assets $ 31,424,235 $ 29,021,463 $ 26,447,453 $ 25,222,549 $ 22,838,527

Cash resources, securities and repurchase agreements 2,475,415 2,237,973 2,708,783 2,791,968 2,994,534

Loans 28,365,893 26,204,599 23,229,239 21,961,348 19,475,383

Deposits 25,351,361 23,699,957 21,902,982 21,194,553 19,365,407

Debt 2,412,293 2,007,854 1,476,336 1,268,198 1,187,623

Shareholders' equity 2,945,810 2,585,752 2,461,045 2,342,040 1,910,907

Assets under administration 9,298,745 8,368,716 10,408,012 10,689,398 9,293,683

Assets under management 2,099,569 2,100,802 2,114,861 1,924,181 1,882,736

Capital Adequacy

Common equity Tier 1 ratio 9.1% 9.2% 9.5% 9.2% 8.5%

Tier 1 ratio 10.7 10.3 10.8 11.0 9.7

Total ratio 12.8 11.9 12.5 13.1 12.7

Other Information

Provision for credit losses on total loans as a percentage of average loans(4) (5) 0.21% 0.20% 0.23% 0.38% 0.17%

Provision for credit losses on impaired loans as a percentage of average loans(4) (5) 0.21 0.19 0.19 0.32 0.12

Net impaired loans as a percentage of total loans 0.43 0.42 0.65 0.51 0.41

CWB Financial Group 2019 Annual Report i

2019 2009

British Columbia 33 35

Alberta 32 50

Ontario and other 27 7

Saskatchewan 5 5

Manitoba 3 3

DIVERSIFYING LOANS BY PROVINCE (%)

Growing a more balanced geographic footprint through targeted growth in Ontario

2019 2009 General commercial loans 30 27 Personal loans and mortgages 20 16 Commercial mortgages 18 23 Equipment financing and leasing 18 13 Real estate project loans 13 19 Oil and gas production loans 1 2

DIVERSIFYING LOANS BY LENDING SECTOR (%)

Growing a more balanced industry mix with reduced concentration in commercial real estate through targeted growth of full-service relationships with business owners

GROWTH AND DIVERSIFICATION OF FUNDING SOURCES - COMPOSITION OF TOTAL FUNDING (%)

Lower proportion of broker deposits, significant increases in funding from capital markets and securitization

Deep and

liquid funding

sources

CWB Financial Group (CWB) operates with a clear focus to

meet the unique financial needs of business owners. Clients

recognize CWB for our in-depth knowledge of targeted

segments within Canada’s commercial banking industry, our

uncommon brand of personal service and our full suite of

relevant financial solutions. Shareholders value CWB’s strong

track record of high-quality balance sheet and dividend

growth, conservative approach to risk management and

consistent profitability.

Performance Dashboard(1)(2)

2019 10YR CAGR

(3)

TOTAL LOANS*

$28.4B

12%

TOTAL ASSETS

$31.4B

10% ASSETS UNDER ADMINISTRATION

$9.3B

ASSETS UNDER MANAGEMENT

$2.1B * INCLUDING THE ALLOWANCE FOR CREDIT LOSSES

2019 2009

Branch demand and notice deposits 32 35

Broker term deposits 30 35

Branch term deposits 19 29

Capital markets term deposits 12 1

Securitization 7 -

CWB Financial Group 2019 Annual Reportii

TOTAL DEPOSITS

$25.4B

10%

46.5%

STRONG REGULATORY CAPITAL RATIOS BASED ON THE STANDARDIZED APPROACH CWB | CWB’S REGULATORY MINIMUM

9.1% | 7.0% COMMON EQUITY

TIER 1 CAPITAL (CET1)

10.7% | 8.5% TIER 1

CAPITAL

12.8% | 10.5% TOTAL

CAPITAL

8.3% | 3.0% BASEL III

LEVERAGE RATIO

10 11 12 13 14 15 16 17 18 19

60

20

00

40

1.5

0.5

0.0

1.0

10 11 12 13 14 15 16 17 18 19

GROSS IMPAIRED LOANS AND WRITE-OFFS AS A % OF GROSS LOANS

STRONG CREDIT QUALITY 5 YEAR AVERAGE AS A % OF GROSS LOANS

STRONG EFFICIENCY RATIO EXPENSE GROWTH DIVIDED BY REVENUE GROWTH

0.52% $ GROSS IMPAIRED LOANS

0.21% $ WRITE-OFFS

0.21%

PROVISION FOR CREDIT LOSSES AS A % OF AVERAGE LOANS 5YR AVERAGE AS A % OF AVERAGE LOANS

10 11 12 13 14 15 16 17 18 19

LOW LEVERAGE TOTAL ASSETS-TO-EQUITY

10.7% 21.0

7.0

0.0

14.0

0.4

0.5

0.2

0.0

0.3

10 11 12 13 14 15 16 17 18 19

0.1

CWB Financial Group 2019 Annual Report iii

(1) Financial results presented include certain metrics which do not have standardized meanings prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions; see page 20 for definitions and discussions of non-IFRS measures. (2) As of 2011, financial results are reported under International Financial Reporting Standards (IFRS), as opposed to Generally Accepted Accounting Principles (GAAP). CWB adopted IFRS 9 Financial Instruments in 2019 (refer to Notes 1 and 2 of the 2019 audited annual financial statements). Prior period results have not been restated and are not directly comparable. (3) CAGR - compound annual growth rate.

INVESTMENT GRADE CREDIT RATINGS (DBRS) - STABLE TREND

(CONFIRMED NOVEMBER 27, 2019)

A (low) LONG-TERM DEPOSITS /

LONG-TERM SENIOR DEBT

R-1 (low) SHORT-TERM

INSTRUMENTS

BBB (low) SUBORDINATED

DEBENTURES (NVCC)

Pfd-3 PREFERRED

SHARES

KEY METRICS MEDIUM-TERM PERFORMANCE TARGET RANGES

FISCAL 2019 PERFORMANCE

Adjusted cash earnings per

common share growth 7 - 12% Delivered 5%

Adjusted return on common

shareholders’ equity 12 - 15% Delivered 11.3%

Operating leverage Positive Delivered negative 1.8%

Common equity Tier 1 capital ratio under the

Standardized approach Strong Delivered a very strong ratio of 9.1%

Common share dividend

payout ratio ~30% Delivered 35%

2019 MEDIUM-TERM PERFORMANCE TARGET RANGES

COMMON SHAREHOLDERS’ NET INCOME ($ MILLIONS)

$267 260

130

00

195

15 16 17 18 19

65

32.00

16.00

0.00

24.00

15 16 17 18 19

CONSISTENT GROWTH OF BOOK VALUE / SHARE

$29.29 9% 10YR CAGR

8.00

1.20

0.60

0.00

0.90

15 16 17 18 19

CONSISTENT GROWTH OF DIVIDENDS PAID / COMMON SHARE

$1.08 9% 10YR CAGR

0.30

CWB Financial Group 2019 Annual Report 1

MIKE SPIESS, AVP and Manager of Commercial Relationships, CWB CAREY MOBIUS, President and CEO, Garibaldi Glass

i FIVE YEAR FINANCIAL SUMMARY

ii PERFORMANCE DASHBOARD

3 WHO WE ARE

3 WHY INVEST IN CWB?

4 A DIFFERENTIATED FULL-SERVICE CLIENT EXPERIENCE

5 GROWING CAPABILITIES TO DELIVER COAST TO COAST

7 STRATEGIC OBJECTIVES & 2019 HIGHLIGHTS

8 MESSAGE FROM THE PRESIDENT & CEO

11 OUR VALUES

11 OUR STRATEGY

11 OUR VISION

12 EXECUTIVE COMMITTEE

14 MESSAGE FROM THE CHAIR OF THE BOARD

16 BOARD OF DIRECTORS & CORPORATE GOVERNANCE

17 SOCIAL RESPONSIBILITY

18 LASTING IMPACTS IN OUR COMMUNITIES

19 MANAGEMENT’S DISCUSSION AND ANALYSIS

70 CONSOLIDATED FINANCIAL STATEMENTS

117 SHAREHOLDER INFORMATION

118 LOCATIONS

Table of Contents

CWB Financial Group 2019 Annual Report2

Who we are CWB Financial Group (TSX: CWB) is an agile, future focused,

growth-oriented, full-service financial institution serving

business owners and individuals across Canada. Our teams

deliver a uniquely proactive client experience through highly

personalized service, specialized expertise within targeted

industries, customized solutions and faster response times.

Headquartered in Edmonton, Alberta, we are the only full-

service bank with a strategic focus to meet the unique financial

needs of business owners. We provide full-service business and

personal banking, nation-wide specialized financing in targeted

industries, comprehensive wealth management offerings, and

trust services.

CWB Financial Group creates long-term value for shareholders

through strong, profitable growth of full-service client

relationships across a growing geographic footprint. We

maintain strong capital ratios, generate consistent dividend

growth, and maintain the strongest consolidated efficiency

ratio among the Canadian banks. In fiscal 2020, we expect to

successfully transition to the Advanced approach for capital

and risk management, which will position us to deliver a higher

growth, higher profitability bank with an improved view of risk.

Our highly engaged teams operate within a client-centric,

collaborative and change-ready culture, with a core focus

to achieve CWB’s long-term goal to be the best full-service

bank for business owners in Canada. We continue to invest in

capabilities to provide innovative financial solutions to business

owners, their employees and their families, through a full range

of in-person and digital channels. CWB’s differentiated market

position, performance-based culture and transformation-

focused strategy has set the stage to create a disruptive force

in Canadian financial services, and deliver breakout growth in

the years to come.

Why invest in CWB?

CWB Financial Group 2019 Annual Report 3

At CWB Financial group, our relationship-based approach is

focused to meet the unique financial needs of small and medium-

sized businesses and their owners. We set ourselves apart through

proactive client experiences: our people know our clients and their

industries, we ask the right questions, and work to find the right

financial solutions. Our core strength in full-service business and

personal banking is complemented with targeted capabilities in

highly-responsive business lines offering specialized financing,

wealth management and trust services.

CWB FULL-SERVICE BANKING

FULL-SERVICE BUSINESS BANKING AND LENDING

We take an uncommon approach to business banking. Through

our branch network we offer our full suite of financing and cash

management solutions to allow business owners to streamline

financial management so they can focus on what matters most:

growing their business. We also offer specialized financing solutions

within targeted, growth-oriented markets:

• Led through our flagship Real Estate and Specialized lending

offices in Vancouver, Surrey, Edmonton and Calgary, we deliver

local market expertise and flexible lending options to top real

estate developers and commercial property owners.

• Our equipment financing specialists provide transactions across

a broad range of industries, with comprehensive geographic

coverage. CWB National Leasing is the largest Canadian lessor

in small- and mid-size commercial equipment transactions, with

operations across Canada. CWB Equipment Finance delivers mid-

and large-size equipment transactions from British Columbia to

Ontario. Our specialized Broker Buying Centre acquires loans

and leases from the finance divisions of original equipment

manufacturers and select third-party brokers.

• CWB Maxium provides financing solutions to a growing and

diversified base of entrepreneurial business owners across

the country with a particularly strong presence in Ontario.

Our industry specializations include general corporate, health

care, program financing, real estate, golf, and transportation.

• CWB Franchise Finance is a leading provider of financing solutions

for growth-oriented hotel and hospitality franchise owners across

Canada.

• CWB Optimum Mortgage is our broker-sourced provider of “A”

and alternative mortgages. We offer personalized borrowing

solutions for clients who fall within and outside of traditional

lending guidelines, with geographic coverage across Canada

outside of Quebec.

FULL-SERVICE PERSONAL BANKING AND LENDING

We understand that a business owner’s financial life extends beyond

their business. We provide a proactive approach for business owners,

their employees and families with a full complement of personal

banking services delivered today through our branch network.

Services include chequing and savings accounts, mortgages, home

equity lines of credit, personal loans and investment products.

We also offer targeted savings solutions for individuals:

• Our branch-based teams deliver a highly personal, caring client

experience and offer attractive rates.

• Motive Financial provides internet banking services to clients

across Canada seeking enhanced flexibility for their personal

saving needs. Online account access and a dedicated customer

service team allow Motive Financial clients to manage their

savings with ease.

CWB WEALTH MANAGEMENT

We understand that a business owner’s personal wealth is often

integrated with their business, and we deliver a complete wealth

management approach to encompass both aspects. We create

thoughtful, sophisticated financial plans that complement their

investment portfolio and are woven into the fabric of our clients’

lives.

High net-worth individuals and institutions who value discretionary

wealth management choose the boutique portfolio management

companies of CWB Wealth Management, including CWB McLean

& Partners. We provide our clients with distinct and personalized

investment strategies matched to their risk appetite. Financial

planning and investment products are also offered within CWB

branches through our mutual fund dealer, Canadian Western

Financial. Investment solutions include CWB Wealth Management’s

proprietary Core and Onyx Portfolio Series mutual funds, as well as

offerings from other leading mutual fund companies.

CWB TRUST SERVICES

We offer a wide variety of comprehensive trustee and custodial

solutions for individuals and businesses through CWB Trust Services.

CWB Trust Services has a proven reputation for comprehensive

delivery of fiduciary expertise, asset safe keeping and dedicated

client service. Our philosophy is centered on providing clients a

rapid response, strong attention to detail and a flexible, solution-

oriented approach to doing business.

A Differentiated Full-Service Client Experience

CWB Financial Group 2019 Annual Report4

Growing Capabilities to Deliver Coast to Coast

REGIONAL MARKET COVERAGE

KELLY-ANNE BODVARSON, Manager of Operations,

Oakville Investments Ltd.

MENNO GIESBRECHT, President,

Oakville Investments Ltd.

BC

CWB Full-service Branches

CWB Equipment Financing

CWB Franchise Finance

CWB National Leasing

CWB Maxium

CWB Optimum Mortgage

CWB Trust Services

CWB Wealth Management

AB

CWB Full-service Branches

CWB Equipment Financing

CWB Franchise Finance

CWB National Leasing

CWB Maxium

CWB Optimum Mortgage

CWB Trust Services

CWB Wealth Management

SK and MB

CWB Full-service Branches

CWB Equipment Financing

CWB Franchise Finance

CWB National Leasing

CWB Maxium

CWB Optimum Mortgage

ON

CWB Full-service Branch (2020)

CWB Equipment Financing

CWB Franchise Finance

CWB National Leasing

CWB Maxium

CWB Optimum Mortgage

CWB Trust Services

QC CWB National Leasing

CWB Equipment Financing

NB, NS, PEI and NL

CWB National Leasing

CWB Optimum Mortgage

FIRST ONTARIO BRANCH IN MISSISAUGA WILL OPEN IN 2020.

CWB Financial Group 2019 Annual Report 5

SOFIA SAYANI, Director of Sales and Marketing, Executive Hotels & Resorts FARIDA SAYANI, Owner and Managing Director, Executive Group Development

- SOFIA SAYANI

“ CWB is very hands-on and customer service oriented. It feels similar to what we do and it just works.”

CWB Financial Group 2019 Annual Report6

BALANCED GROWTH OBJECTIVE

STRATEGIC EXECUTION DURING FISCAL 2019

Growth and diversification of funding sources

• Very strong branch-raised deposit growth of 12%, including 14%

growth in the demand and notice category, and 10% growth in

term deposits

• Growth in debt capital markets funding with three successful

senior deposit note issuances totaling $900 million

• Growth in debt related to securitization to support originations

of both equipment loans and leases, and residential mortgages

Optimized capital and risk management processes through transition to the Advanced Internal Ratings Based (AIRB) approach

• Expect to submit final application and receive regulatory approval

in fiscal 2020 for transition to the AIRB approach.

FINANCIAL HIGHLIGHTS

• Solid performance with common shareholders’ net income of $267 million, up 7%, pre-tax, pre-provision income of $461 million, up 6%, and total revenue of $862 million, up 7%.

• Diluted and adjusted cash earnings per common share of $3.04 and $3.15, up 9% and 5%. Gains on sale related to the CWT strategic transactions contributed $0.04 to adjusted cash earnings per common share in fiscal 2018 and nil in 2019.

• Full-year operating leverage of negative 1.8% as revenue growth was outpaced by growth of expenses reflecting continued investment in strategic execution.

• Solid loan growth of 8% with strong execution against our balanced growth strategic objectives for geographic and industry diversification, including very strong 15% growth in general commercial loans and 13% growth in Central and Eastern Canada.

• Very strong branch-raised deposit growth of 12%, including 14% growth of demand and notice deposits, contributing to a reduction in the outstanding balance of broker deposits.

• Continued stable credit quality with the provision for credit losses representing 21 basis points of average loans, compared to 20 basis points last year.

• Gross impaired loans represented 0.52% of gross loans, unchanged from last year.

• Delivered an 8% increase to CWB’s annual common share dividend.

• Very strong Basel III regulatory capital ratios under the Standardized approach for calculating risk-weighted assets of 9.1% common equity Tier 1 (CET1), 10.7% Tier 1 and 12.8% Total capital.

NON-FINANCIAL HIGHLIGHTS

• Recognized as a Great Place to Work CanadaTM, and one of the Best WorkplacesTM in Alberta.

• Significant progress to align our culture with our ambitious strategic agenda with the introduction of new core values.

• Unveiled an exciting new brand promise to business owners across Canada – Obsessed with your successTM.

• Expanded Environmental, Social and Governance (ESG) disclosure to reflect our ongoing commitments to environmental sustainability, inclusion and diversity in the workforce, and positive impacts in our communities.

• Completed enterprise-wide integration of the market-leading Workday human capital management system.

Strategic Objectives & 2019 Highlights

2019 PERFORMANCE HIGHLIGHTS

Full-service client growth with a focus on business owners, including further geographic and industry diversification

• Solid annual loan growth of 8%, including 13% growth in Central

and Eastern Canada, 8% growth in Alberta, and 5% growth in BC

• Increased the proportion of the loan portfolio in Central and

Eastern Canada to 27%

• Increased business diversification with very strong 15% growth in

general commercial loans and 9% growth in equipment financing

and leasing

• Recognized as a Great Place to Work Canada™, and one of the

Best Workplaces™ in Alberta

CWB Financial Group 2019 Annual Report 7

MESSAGE FROM PRESIDENT AND CEO

Chris Fowler

CWB Financial Group 2019 Annual Report8

BECOMING A DISRUPTIVE FORCE IN CANADIAN FINANCIAL SERVICES

CWB Financial Group was created 35 years ago to fill a gap in

Canadian financial services. CWB’s entrepreneurial founders

recognized that small and medium-size businesses were under-

served, overlooked, and ignored. They got “off-the-shelf” products

built for someone else, instead of solutions customized just for

them. Today, we still believe business owners are under-served by

our competitors. They deserve a better alternative than “all things

to all people.” They deserve a partner focused on their unique needs

and their success.

Those needs are diverse and complex. They evolve through the

different stages of a business owner’s journey, from start up, to

scaling, to sustained growth and business succession. No two

journeys are the same and each milestone brings new opportunities

and new challenges, both personal and professional. We are

confident that the growing community of business owners we

serve will benefit from a fully integrated, full-service approach. Our

strategy for long-term value creation is focused to solve for this

unmet need.

We will continue to empower our business banking, personal

banking, and wealth management teams to create an increasingly

integrated experience. We’ve launched a client-centric operating

model to create focus, increase collaboration across lines of business,

and enable our teams to deliver for our clients more seamlessly and

consistently. In the new model, our people have more time to focus

on the client experience, and can tap into expert internal partners for

support to meet our clients’ specialized needs.

While proactive, personal service, and specialized expertise remain

at the core of our competitive advantage, digital capabilities will

be an increasingly prominent feature of our differentiated client

experience. To accelerate this transformation, we continue to

reshape our digital infrastructure, which we have built on top of a

modern, flexible core technology platform. In 2020, a key priority

will be to add new, innovative solutions that meet the rapidly

evolving expectations of the business owners we serve. Going

forward, further progress to align increasingly frictionless processes

with increasingly powerful human and digital capabilities will

drive delivery of our proactive full-service client experience at a

significantly accelerated scale.

This year we also expect to successfully transition to the Advanced

approach for regulatory capital and risk management. This

accomplishment will represent the culmination of an enterprise-

wide transformation effort with contributions from nearly every

CWB team. It has the power to make us more competitive on loan

pricing, enhance our overall view of portfolio risk, unlock new

opportunities to deploy our capital, and ultimately, to win more

clients. The Advanced approach will be a foundational capability for

us, and will unleash our full potential to grow across Canada.

Our strategy is focused to translate these new capabilities – from

client experience to capital deployment – into strong and scalable

growth to create value for the people who choose CWB every day:

our clients, our people, and our investors. Our continued focus on

transformation will drive progress towards our near-term mission

to create a clear alternative to the big banks, and our aspiration to

become the best full-service bank for business owners in Canada.

CUTTING THROUGH THE NOISE

For 35 years, much of our growth has come from

word of mouth and the confidence and trust of our

loyal clients. It’s astonishing to think how successful

we have been with limited investment in marketing,

and exciting to imagine how much room we have

to grow with a powerful national brand driving

increased visibility and familiarity with our target

clients.

This year we unveiled an exciting new brand

promise to business owners across Canada –

Obsessed with your successTM. We sharpened

our visual identity with a more contemporary

logo and bolder treatments of our signature teal

and gold. We re-vamped our website, cwb.com,

and brought in new expertise to engage business

owners through digital and social media. Finally,

we launched a new brand campaign – we come to

you – to show business owners the lengths we’ll go (literally!) to help

them succeed. While stronger marketing will help us reach more

clients, obsessed with your successTM is much more than a clever

tagline. It’s a rallying cry for our team and a promise to business

owners: to be proactive, to never take them for granted, and to go

the extra mile. Our people live our brand promise with purpose every

day.

GROWING WITH BUSINESS OWNERS

Graedon Rust, Relationship Manager, Commercial Banking in Edmonton is one of those outstanding CWB team members. Graedon has worked with Sohail “Zee” Zaidi, Owner and CEO of Remedy Café, to support Zee’s rapid growth from a single location

Obsessed with your successTM is much more than a clever tagline. It’s a rallying cry for our team and a promise to business owners. Our people live our brand promise with purpose every day.

CWB Financial Group 2019 Annual Report 9

to 10 bustling cafés in the Edmonton area. “CWB has helped me a lot,” Zee says. “If CWB didn’t stand with me, I wouldn’t have been able to do it. They’ve put everything together for me. I think Graedon has taken this really personally.” Thanks to the proactive effort of Graedon and his team, Zee is willing to offer the highest compliment we could hope for: “I trust this bank,” he says. “It feels like a family. It’s been a really good experience with them for the last 10 years. We’ve got the best. There’s no need to ever look anywhere else.”

I’m thrilled with this story, and proud of our commitment to help our clients tackle their growth opportunities with confidence. Nearly two decades into his relationship with CWB, Frank Rizzardo, President and General Manager of Emcon Services Inc., agrees with Zee. It’s partly our willingness to step up and support big moves that sets us apart. “Getting banks to understand our business has always been a challenge from day one,” Frank says. “(But) CWB is there for us. Our ideal account manager is someone who understands our business; they know equipment, attend auctions, and understand valuations on various brands. We have found this at CWB.”

We are proud of the support we provided to the Emcon team to complete a recent acquisition which tripled the company’s size, adding 1,800 people and more than two thousand pieces of equipment. This was a bold move, realizing Emcom’s plan to become the largest road maintenance contractor in Canada. We were with them every step of the way, because that’s what it takes to deliver on our brand promise. We don’t sit back and wait for our clients to come to us. We proactively step up with valuable insight, relevant solutions, and tailored advice. We know that people like Zee and Frank never sit still, and we succeed when our effort reflects their energy.

INVESTING IN PEOPLE AND CULTURE

These stories demonstrate our commitment to reach out and listen

to our clients, and I’m extremely proud of what we hear. Business

owners see us as caring, responsive, helpful, and different from the

other banks. This feedback confirms something we’ve known from

the beginning: our people and our culture set us apart.

This year, we were recognized as a Great Place to Work Canada™, and

one of the Best Workplaces™ in Alberta. We are honoured by these

achievements, but I will be the first to admit that better is always

possible. We have a great culture to build on, and as our transformation

continues to drive significant change across CWB Financial Group,

our culture must evolve to support this ambitious agenda.

This year we made significant progress to evolve our culture with the

introduction of new core values. Like our brand promise, our values

stand for who we are and who we want to be. They ground us in

the qualities our clients and people love about CWB and encourage

us to stretch and thrive through change as we transform to meet

our exciting future. They also remind us to be inclusive of others,

and to welcome new ideas and perspectives that push us to be

better for our clients and each other. Our culture will continue to be

a competitive advantage for us and will ensure we can attract and

retain the diverse talent we need to drive our future growth.

CREATING MORE VALUE FOR INVESTORS

In fiscal 2019, we continued to execute on our strategy and deliver

against our balanced growth objectives. We generated solid loan

growth with further geographic and industry diversification, including

strong 11% growth in Ontario and very strong 15% overall growth in the

strategically targeted general commercial category. We delivered very

strong 12% growth of branch-raised deposits – including 14% growth

in the demand and notice category – as we continued to strengthen

our full-service client experience, and invest in competitive deposit-

gathering capabilities. With ongoing profitable growth and strong

capital ratios, we were also pleased to provide shareholders with an

8% increase to the common share dividend.

Strong, profitable growth against a highly competitive market

backdrop reflects the tremendous contributions of our entire team,

and I would like to close with an expression of gratitude. A sincere

thank you to our people for their passion and continued dedication

to our clients. I would also like to personally thank our clients

across Canada. We are honoured that you’ve chosen CWB, and we

are determined to enable your future success. And finally to our

shareholders, thank you for your ongoing confidence in us.

There is no doubt in my mind that our future looks more exciting than

ever before. As an increasingly disruptive force in Canadian financial

services, we are well-positioned to deliver high-quality earnings and

profitable long-term growth in the years to come.

We don’t sit back and wait for our clients to come to us. We proactively step up with valuable insight, relevant solutions, and tailored advice.

CWB Financial Group 2019 Annual Report10

Our values PEOPLE FIRST 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.

RELATIONSHIPS GET RESULTS Clients choose CWB for the best experience. We build relationships

proactively, with intention and consistency. Our results depend on it.

EMBRACE THE NEW Change is everywhere. We seek out new ideas and are committed to

continuous learning. We know that better is always possible.

THE HOW MATTERS How we do things is as important as what we do. We take ownership,

and move with urgency and efficiency. We always act with integrity,

and balance risk and reward.

INCLUSION HAS POWER Diverse teams unleash new ideas and perspectives. We are aware of

our own biases. We are proud of who we are, and we are allies for

those around us.

TRANSFORMATION PRIORITIES • Targeted digital capabilities

• Client-focused operating model

• Fast, smooth, scalable processes

• Transition to AIRB methodology for capital and risk management

BUILDING ON OUR STRENGTHS

TO CREATE UNIQUE VALUE

AND DELIVER BREAKOUT GROWTH

TRANSFORMING OUR BUSINESS

GROWTH ACCELERATORS • Brand: bolder and more

visible to cut through the noise

• Culture: proactive, client- focused, and change-ready to align with our strategy

Personalized service, specialized industry expertise, customized solutions, faster response times

A proactive client experience through in-person and digital channels

A disruptive force in Canadian financial services, and a clear full-service alternative for Canadian business owners

Our strategy CREATING VALUE FOR THE PEOPLE WHO CHOOSE CWB EVERY DAY

OUR CLIENTS, OUR PEOPLE, OUR INVESTORS

Our vision TO BE THE BEST FULL-SERVICE BANK FOR BUSINESS OWNERS IN CANADA

CWB Financial Group 2019 Annual Report 11

Executive Committee Front row (left to right)

KELLY BLACKETT, Executive Vice President, Human Resources and Corporate Communications

STEPHEN MURPHY, Executive Vice President, Banking CHRIS FOWLER, President and Chief Executive Officer DARRELL JONES, Executive Vice President and Chief Information Officer

Back row (left to right)

GLEN EASTWOOD, Executive Vice President, Business Transformation

CAROLYN GRAHAM, Executive Vice President and Chief Financial Officer BOGIE OZDEMIR, Executive Vice President and Chief Risk Officer

CWB Financial Group 2019 Annual Report12

KIRBY HILL, Vice President, Equipment Finance Group Branch Operations, CWB Equipment Finance FRANK RIZZARDO, President & General Manager, Emcon Services Inc.

- FRANK RIZZARDO

“ At CWB we’ve had good people who take the time to understand what it is we need to keep our company moving forward. They’re there as partners.”

CWB Financial Group 2019 Annual Report 13

MESSAGE FROM CHAIR OF THE BOARD

Robert Phillips

CWB Financial Group 2019 Annual Report14

Your Board of Directors oversees development and implementation of the strategic direction for CWB Financial Group

and maintains an effective governance framework. Our focus is to ensure CWB continues to deliver exceptional client

experiences, a great place to build a career for CWB’s people, and strong, profitable long-term growth for investors.

SUPPORTING LONG-TERM VALUE CREATION FOR ALL OF CWB’S STAKEHOLDERS

Fiscal 2019 was a strong year of strategic execution for CWB Financial Group and marked our 35th year in business. This milestone provides an opportunity to reflect on our growth and success, and to focus on our promising future. CWB was founded during a time of economic uncertainty in the 1980s with less than $50 million dollars in total assets. We have grown to over $30 billion in assets with strong client relationships across the country. Our success is rooted in our commitment to an exceptional client experience, a culture that attracts and retains top talent, profitable growth for our investors, and support for the communities where we operate. Keeping these commitments will generate long-term value for all of our stakeholders.

The Board oversees CWB’s strategy to set ourselves apart as a disruptive force in Canadian financial services. Our transformation plan is bold and ambitious, and as we innovate and grow, the Board will continue to ensure that a strong risk culture and sound enterprise risk management framework remain embedded in the strategic agenda. We are dedicated to strong corporate governance and continually monitor emerging trends.

One important development is the increasing attention given to ESG factors by our stakeholders. We are working to expand our disclosure in these areas so they better reflect our values and our commitments to environmental sustainability, inclusion and diversity in the workforce, positive impact in our communities, and your Board’s prudent oversight of CWB’s activities. As the landscape for ESG reporting continues to evolve, we remain committed to transparency and proactive communication with all of our stakeholders.

SUPPORTING NEW CAPABILITIES TO STRENGTHEN CWB’S UNIQUE CLIENT EXPERIENCE

This year, the Board continued to provide oversight of management’s work to develop new capabilities that strengthen our client experience. A critical part of this is the evolution of our culture to support our continued transformation. We are very pleased with our progress to build a collaborative, inclusive, and change-ready culture within CWB, rooted in new core values and brought to life by our passionate employees. The Board will continue to support a culture that embraces transformation and exceeds the expectations of our clients today and in the future.

We are also very pleased with the progress in our transition to the Advanced approach for regulatory capital and risk management. This is a foundational part of our transformation strategy. It will make us more competitive and further expand our addressable market. It has already improved our risk management capabilities, and will better equip us to allocate resources to generate the most attractive risk- adjusted returns and maximize shareholder return. It will position us to deliver higher growth and higher profitability with an enhanced view of risk.

CREATING VALUE THROUGH RENEWAL

With the exception of your President and Chief Executive Officer, the CWB Board is fully comprised of independent directors with strong and diverse backgrounds, experiences, perspectives, and skills. We are committed to ongoing renewal to ensure the Board remains effective in a rapidly changing environment. This year Ms. E. Gay Mitchell was elected as your newest director. Ms. Mitchell has a wealth of industry knowledge gained through decades of experience in financial services. With Ms. Mitchell’s election, women now comprise 33% of the Board.

WELL-POSITIONED FOR FUTURE GROWTH

We are confident that CWB’s focus to meet the financial needs of business owners represents a clear path to open-ended growth. We know that our current clients value the services we offer and their relationships with our teams. We believe more business owners deserve a clear, full-service alternative to Canada’s large banks. They deserve a proactive partner who will go to any length to help them succeed.

Over the next year, we will continue to improve our capabilities and make it easier and more valuable for business owners to deal with us. In fiscal 2020, the Board will provide oversight for CWB’s transition to the Advanced approach, further enhancements to our digital capabilities, and ongoing improvements to key business processes that will elevate our client experience. Successful execution against these priorities will position CWB to deliver a differentiated experience to more business owners across Canada through a full range of channels, and we are thrilled with our continued progress.

On behalf of the Board, I would like to thank every CWB team member for their focus and dedication to create value for all of our stakeholders. I would also like to thank my fellow directors for their ongoing commitment to CWB’s continued success. Finally, to my fellow shareholders, I thank you for your commitment and confidence in our unique vision for continued strong and profitable growth.

THANK YOU FROM CWB

Mr. Albrecht Bellstedt retired from the Board of Directors at our annual shareholders’ meeting this year. Al had served on your board since 1995, and his roots with CWB go back to the formation of our predecessor organization, the Bank of Alberta. Al was an exceptional director and significantly influenced our path to become the national, full-service financial institution we are today. Al’s contributions will be missed.

CWB Financial Group 2019 Annual Report 15

CWB Financial Group strives to earn and maintain the trust of our

stakeholders through high standards of corporate governance.

Active oversight of our leadership team and operations and a robust

governance and risk management framework are core to our business

processes and key to our success. We work continuously to enhance

our governance practices to ensure the sound functioning of CWB

Financial Group and provide value to our fellow shareholders.

Detailed information about CWB Financial Group’s corporate

governance practices are available in CWB’s Management Proxy

Circular and in the Corporate Governance section at cwb.com/ corporate-governance. Please review our circular to learn how shareholders can attend and participate in the annual shareholder

meeting on April 2, 2020 in Edmonton, Alberta.

We are committed to open communication with stakeholders –

please contact us at:

[email protected] [email protected]

Board of Directors

Corporate Governance

Front row (left to right)

IAN M. REID, Corporate Director LINDA M.O. HOHOL, Corporate Director MARGARET J. MULLIGAN, Corporate Director ROBERT L. PHILLIPS (Chair), President and CEO, R.L. Phillips Investments Inc.

SARAH A. MORGAN-SILVESTER, Corporate Director RAYMOND J. PROTTI, Corporate Director E. GAY MITCHELL, Corporate Director

Back row (left to right)

ANDREW J. BIBBY, Corporate Director H. SANFORD RILEY, President and CEO, Richardson Financial Group Limited CHRIS H. FOWLER, President and CEO, Canadian Western Bank ALAN M. ROWE, Partner, Crown Realty Partners ROBERT A. MANNING, President, Cathton Investments Ltd.

CWB Financial Group 2019 Annual Report16

COMMUNITIES

At CWB Financial Group we believe our success depends on the responsible creation of value for all of our stakeholders. We believe our future success is rooted in our complementary commitments to deliver an exceptional client experience, cultivate a culture our people want to be part of, contribute to a healthy society for future generations and deliver long term value creation. We are focused to build and maintain relationships with all of our stakeholders – our clients, employees, shareholders and community members – and continue to work diligently to create economic, social and

environmental value through our corporate social responsibility activities. We truly believe the “how” matters in the way we operate our business. We are proud of the activities we have undertaken and awards we received in 2019, and have highlighted many below.

We will continue to enhance the environmental, social and governance information available on our website and invite you to follow our progress at www.cwb.com.

Social Responsibility

CLIENTS

EMPLOYEES

ENVIRONMENT

• Focused business transformation and investment in digital capabilities continue to drive delivery of our differentiated full-service client experience through a full range of channels

• Initiatives to optimize client-facing operations within banking branches continue to build on the benefits from centralization of our credit support processes

• We have implemented a multi-year accessibility plan

• Together, we expect these initiatives to support growth in the number of clients we serve, the proportion of clients we serve on a full-service basis and our Net Promoter Score reflecting satisfaction with our offerings

• We are certified as a Great Place to Work Canada™ and one of the Best Workplaces™ in Alberta

• We invested more than 23,000 hours in employee training and development in 2019, more than 3,300 of which of was focused to address diversity, inclusion, and unconscious bias

• We are a signatory to the UN Women’s Empowerment Principles

• We support a number of Employee Represented Groups, including CWB Women and CWB Pride

• CWB National Leasing is a 2019 winner of Canada’s Top 100 Employers and Manitoba’s Top Employers

• CWB Optimum Mortgage is a 2019 winner of Mortgage Industry Employer of Choice from the Canadian Mortgage Awards

• We are a founding member of the City of Edmonton Corporate Climate Leaders Program, and have engaged with Climate Smart to measure CWB’s greenhouse gas emissions in the Alberta capital region and identify ways to reduce - We have established greenhouse gas reduction targets of 15% (over 880 TCO2e (tonnes

of carbon dioxide equivalent)) by 2025 and 25% (over 1,450 TCO2e) by 2035 - We will reduce energy utility consumption by provisioning bicycle parking, increased

telecommuting options, new LED lighting, occupancy sensors, and programmed paper reduction in print-capable devices

• We support employee participation in waste management for initiatives like Shoreline Clean-up and CWB electronics recycling days

• CWB’s Community Investment Program generated over $2 million in charitable donations in fiscal 2019, benefitting approximately 200 organizations, including: - Partnered with and donated $100,000 to the YWCA to support girl empowerment programs - Partnered with Enactus Canada to support financial literacy - Partnered with Rise to help individuals living with mental health or addiction challenges

launch or growth their business - Partnered with and sponsored “6 degrees”, to support new Canadians and foster

environments that lead to strengthened diversity and inclusion in our society • We support community involvement through our Funds for Fundraisers program, Employee

Volunteer Grant, and the United Way Workplace Campaign and CWB’s Week of Caring

• CWB donated more than $165,000 through employee matching initiatives

CWB Financial Group 2019 Annual Report 17

Lasting Impacts in Our Communities We take pride in actively participating in the growth, development and sustainability of the communities where we operate. This year we helped our charitable and not-for-profit partners through more than a thousand hours of employee volunteerism and donated more than $2 million in financial support through our community investment program. Our program is aligned with our business goals and strategies, and is focused on helping our partners in the areas of health research and promotion, community development, and education.

Over the past 12 months, we looked for opportunities to support organizations working to remove barriers for people in our communities. We’re particularly proud of our new partnership with Rise. Rise launched an Edmonton-based satellite office this year to provide one-on-one advisory services and training programs so people living with mental health challenges can start their own businesses. Rise successfully helped Rebekah Thibeault and Melissa Wylie – their first clients – launch a retail consignment and vintage store in Leduc.

- LACEY JANSEN, Program Manager, Community Engagement, CWB

DAVE REID, Business Advisor, Rise REBEKAH THIBEAULT,

Business Owner, Bee & Key

“It’s incredibly rewarding to build partnerships with community and charitable organizations that are helping to improve outcomes for people across Canada. Through support for organizations like Rise, CWB is committed to creating more opportunities to drive economic prosperity and ensure a positive future for our communities.”

CWB Financial Group 2019 Annual Report18

CWB Financial Group 2019 Annual Report 19

Management’s Discussion and Analysis (MD&A)

This Management’s Discussion and Analysis (MD&A), dated December 4,

2019, should be read in conjunction with the audited consolidated financial

statements of CWB for the year ended October 31, 2019 and the audited

consolidated financial statements and MD&A for the year ended October

31, 2018. Additional information relating to CWB, including the Annual

Information Form, is available on SEDAR at www.sedar.com and on CWB’s

website at www.cwb.com.

The consolidated financial statements have been prepared in accordance

with International Financial Reporting Standards (IFRS) and are presented

in Canadian dollars.

FORWARD-LOOKING STATEMENTS From time to time, we make written and verbal forward-looking statements.

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 press 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,

legislative and regulatory developments, legal developments, the level

of competition, the occurrence of natural catastrophes, 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. 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.

Assumptions about the performance of the Canadian economy over the

forecast horizon and how it will affect our businesses are material factors

considered when setting organizational objectives and targets.

TABLE OF CONTENTS

Forward Looking Statements 19 IFRS 9 20 Non-IFRS Measures 20 Who We Are 21 Growth Strategy and Vision 22 Fiscal 2019 Strategic Highlights 22 Fiscal 2020 Strategic Priorities 22 CWB Financial Group

Performance 23 Overview 23

Select Financial Highlights 24

Net Interest Income 28

Non-Interest Income 29

Non-Interest Expenses, Efficiency

and Operating Leverage 30

Acquisition-Related Fair Value Changes 31

Income Taxes 31

Comprehensive Income 31

Cash and Securities 32

Loans 33

Credit Quality 36

Deposits and Funding 38

Other Assets and Other Liabilities 39

Liquidity Management 39

Capital Management 42

Financial Instruments and

Other Instruments 45

Off-Balance Sheet 46

Summary of Quarterly Results and Fourth Quarter 47

Quarterly Results 47

Fourth Quarter of 2019 48

Accounting Policies and Estimates 49

Critical Accounting Estimates 49

Changes In Accounting Policies

and Financial Statement

Presentation 51

Future Changes In

Accounting Policies 51

Risk Management 52 Risk Management Overview 53

Risk Universe - Report on

Principal Risks 58

Other Risk Factors 68

Updated Share Information 69 Controls and Procedures 69

CWB Financial Group 2019 Annual Report20

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 Outlook

section of our MD&A for the year ended October 31, 2019.

IFRS 9 We adopted International Financial Reporting Standard (IFRS) 9 Financial

Instruments (IFRS 9), which replaces International Accounting Standard

(IAS) 39 Financial Instruments: Classification and Measurement (IAS 39)

beginning November 1, 2018. As permitted by IFRS 9, we have not restated

prior period comparative figures and have recognized an adjustment to

opening retained earnings and accumulated other comprehensive income

(AOCI) to reflect the application of the new requirements at the adoption

date. For further details, refer to Notes 1 and 2 of the 2019 audited annual

financial statements.

The most significant impact to CWB with the transition to IFRS 9 is the

introduction of an expected credit loss (ECL) approach for measuring

impairment that is applicable to financial assets measured at amortized

cost, debt securities measured at fair value through other comprehensive

income (FVOCI), and certain off-balance sheet loan commitments and

financial guarantee contracts. The implementation of an ECL approach

under IFRS 9, which results in allowances for credit losses being recognized

on financial assets regardless of whether there has been an actual loss

event, is a significant change from the incurred loss model under IAS 39.

Under IFRS 9, we refer to allowances and provisions for credit losses on

impaired loans (Stage 3) and performing loans (Stages 1 and 2). Our specific

allowances under IAS 39 are consistent with Stage 3 allowances for credit

losses under IFRS 9, while the collective allowance under IAS 39 is replaced

by Stage 1 and 2 allowances for credit losses under IFRS 9.

NON-IFRS MEASURES We use a number of financial measures to assess our performance against

strategic initiatives and operational benchmarks. Non-IFRS measures

provide readers with an enhanced understanding of how we view our

ongoing performance. These measures may also provide the ability to

analyze trends related to profitability and the effectiveness of our operations

and strategies, and determine compliance against regulatory standards. To

arrive at certain non-IFRS measures, we make adjustments to the results

prepared in accordance with IFRS. Adjustments relate to items which we

believe are not indicative of underlying operating performance. Adjusted

results provide the reader with a better understanding of how we view our

performance. Some of these financial measures do not have standardized

meanings prescribed by IFRS, and therefore, may not be comparable to

similar measures presented by other financial institutions. The non-IFRS

measures used in this MD&A are calculated as follows:

• Adjusted non-interest expenses – total non-interest expenses, excluding

the pre-tax amortization of acquisition-related intangible assets (see

Table 1).

• Adjusted common shareholders’ net income – total common shareholders’

net income, excluding the amortization of acquisition-related intangible

assets and contingent consideration fair value changes, net of tax (see

Table 1).

• Pre-tax, pre-provision income – total revenue less adjusted non-interest

expenses (see Table 1).

• Adjusted cash earnings per common share – diluted earnings per

common share calculated with adjusted common shareholders’ net

income (see Table 1).

• Return on common shareholders’ equity – common shareholders’ net

income divided by average common shareholders’ equity.

• Adjusted return on common shareholders’ equity – adjusted common

shareholders’ net income divided by average common shareholders’

equity.

• Return on assets – common shareholders’ net income divided by average

total assets.

• Efficiency ratio – adjusted non-interest expenses divided by total revenue.

• Net interest margin – net interest income divided by average total assets.

• Provision for credit losses on total loans as a percentage of average loans

– 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 FVOCI and other

financial assets are excluded.

• Provision for credit losses on impaired loans as a percentage of average

loans – provision for credit losses on impaired loans divided by average

total loans.

• Provision for credit losses on performing loans as a percentage of

average loans – provision for credit losses on performing loans (stage 1

and 2) divided by average total loans.

• Operating leverage – growth rate of total revenue less growth rate of

adjusted non-interest expenses.

• Common share dividend payout ratio – common share dividends

declared during the year divided by common shareholders’ net income.

• Basel III common equity Tier 1, Tier 1, Total capital, and leverage ratios

– calculated in accordance with guidelines issued by Office of the

Superintendent of Financial Institutions Canada (OSFI).

• Risk-weighted assets – on and off-balance sheet assets assigned a risk

weighting calculated in accordance with the Standardized approach

guidelines issued by OSFI.

• Average balances – average daily balances.

CWB Financial Group 2019 Annual Report 21

Table 1 - Non-IFRS Measures ($ thousands)

For the three months ended For the year ended

October 31 2019

October 31 2018

October 31 2019

October 31 2018

Non-interest expenses $ 107,667 $ 98,751 $ 405,481 $ 373,483 Adjustments (pre-tax):

Amortization of acquisition-related intangible assets (1,204) (1,367) (5,007) (6,313) Adjusted non-interest expenses $ 106,463 $ 97,384 $ 400,474 $ 367,170

Common shareholders' net income $ 67,512 $ 64,501 $ 266,940 $ 249,256 Adjustments (after-tax):

Acquisition-related fair value changes - 3,705 5,773 14,769 Amortization of acquisition-related intangible assets 904 1,005 3,397 4,695

Adjusted common shareholders' net income $ 68,416 $ 69,211 $ 276,110 $ 268,720

Total revenue $ 220,853 $ 208,566 $ 861,604 $ 803,358 Less:

Adjusted non-interest expenses 106,463 97,384 400,474 367,170 Pre-tax, pre-provision income $ 114,390 $ 111,182 $ 461,130 $ 436,188

STRATEGIC TRANSACTIONS

On January 31, 2018, we closed an asset purchase agreement to acquire, for

cash, equipment loans and leases, and general commercial lending assets

totaling approximately $850 million (referred to as the acquired “business

lending assets”). The business lending assets acquired were fully aligned

with our balanced growth strategic objectives, including goals related

to industry and geographic diversification. The portfolio was primarily

comprised of assets concentrated within the transportation, construction

and healthcare industries, with approximately three quarters of the

exposures distributed across Central and Eastern Canada.

On August 16, 2017, we announced that the division of Canadian Western

Trust (CWT) now known as CWB Trust Services will focus its activities within

business lines that are most aligned with the strategic objectives of CWB

Financial Group, and will no longer offer self-directed account services to

holders of certain securities. CWT initiated a process to appoint successor

trustees for these accounts (referred to as the “CWT strategic transactions”).

The CWT strategic transactions were completed in fiscal 2018. As a result of

this process, we realized pre-tax gains on sale of approximately $4 million

included in ‘other’ non-interest income in fiscal 2018, or $0.04 of adjusted

cash earnings per common share (fiscal 2019 – nil).

WHO WE ARE CWB Financial Group (CWB) is a growth-oriented, full-service financial

institution, and the only Schedule 1 chartered bank in Canada with a focus

to meet the unique financial needs of business owners. Operating from

corporate headquarters in Edmonton, Alberta, we continue to extend

our capabilities to deliver for clients across Canada. Our teams deliver a

differentiated, proactive client experience through highly personalized

service, specialized expertise within specific industries, customized

solutions and faster response times.

Through our branch network and dedicated wealth and trust offices,

alongside growing digital capabilities, we deliver full-service business

banking, personal banking, wealth management and trust services offerings

specifically tailored for business owners, their employees and their families.

We also provide specialized financing solutions within targeted, growth-

oriented markets, through dedicated teams of experts:

• Led by our flagship Real Estate and Specialized Lending teams in

Vancouver, Surrey, Edmonton and Calgary, we deliver local market

expertise and flexible lending options to top real estate developers and

commercial property owners.

• Our equipment financing specialists provide transactions across a broad

range of industries, with comprehensive geographic coverage. CWB

National Leasing is the largest Canadian lessor in small- and mid-size

commercial equipment transactions, with operations across Canada.

CWB Equipment Finance delivers mid- and large-size equipment

transactions from British Columbia to Ontario. Our specialized Broker

Buying Centre acquires loans and leases from the finance divisions of

original equipment manufacturers and select third-party brokers.

• CWB Maxium provides financing solutions to a growing and diversified

base of entrepreneurial business owners across the country with a

particularly strong presence in Ontario. Our industry specializations

include general corporate, health care, program financing, real estate,

golf, and transportation.

• CWB Franchise Finance is a leading provider of financing solutions for

growth-oriented hotel and hospitality franchise owners across Canada.

• CWB Optimum Mortgage (CWB Optimum) is our broker-sourced

provider of “A” and alternative mortgages, where “A” mortgages consist

of residential mortgages eligible for bulk portfolio insurance. We offer

personalized borrowing solutions for clients who fall within and outside

of traditional lending guidelines, with geographic coverage across

Canada other than Quebec.

Motive Financial is our internet bank, with offerings tailored for dedicated

savers.

CWB Financial Group 2019 Annual Report22

GROWTH STRATEGY AND VISION Our highly engaged teams operate within a client-centric, collaborative and

change-ready culture, with a core focus to achieve our vision to become

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 complete range of in-person and digital channels, and to offer

clients a clear alternative to the big banks.

We create long-term value for shareholders through strong, profitable

growth of full-service client relationships across a growing geographic

footprint. We maintain strong and conservative capital ratios, generate

consistent dividend growth, and maintain the strongest consolidated

efficiency ratio among the Canadian banks. In fiscal 2020, we expect to

successfully transition to the Advanced Internal Ratings Based (AIRB)

approach for regulatory capital and risk management, which will position

us to deliver a higher growth, higher profitability bank with an enhanced

view of risk.

Our differentiated market position and transformation-focused strategy

has set the stage for CWB to be a disruptive force in Canadian financial

services, and to deliver break-out growth in the years to come.

FISCAL 2019 STRATEGIC HIGHLIGHTS

Table 2 - Execution against CWB’s Balanced Growth Strategic Objectives

Balanced growth objective Strategic execution during fiscal 2019

Full-service client growth with a focus on business owners, including further geographic and industry diversification

• Solid annual loan growth of 8%, including 13% growth in Central and Eastern Canada, 8% growth in Alberta, and 5% growth in BC

• Increased the proportion of the loan portfolio in Central and Eastern Canada to 27%

• Increased business diversification with very strong 15% growth in general commercial loans and 9% growth in equipment financing and leasing

• Recognized as a Great Place to Work Canada™, and one of the Best Workplaces™ in Alberta

Growth and diversification of funding sources

• Very strong branch-raised deposit growth of 12%, including 14% growth in the demand and notice category, and 10% growth in term deposits

• Growth in debt capital markets funding with three successful senior deposit note issuances totaling $900 million

• Growth in debt related to securitization to support originations of both equipment loans and leases, and residential mortgages

Optimized capital and risk management processes through transition to the AIRB approach

• Expect to submit our final application and receive regulatory approval in fiscal 2020 for transition to the AIRB approach

FISCAL 2020 STRATEGIC PRIORITIES

Table 3 - Accelerated Transformation to Create Value for our Clients, our People and our Investors

To create value for the people who choose CWB

Fiscal 2020 transformation priorities

Transform our capabilities to create enhanced value for clients and strengthen client relationships

• Invest in digital capabilities to enhance our differentiated full-service client experience, including development of a digital offering for small business owners and upgraded online and mobile banking capabilities for mid-market clients

• Optimize client-facing operations within banking branches, building upon centralization of our credit support processes

• Significantly expand our presence in Central Canada with the opening of our first full-service Ontario banking location in Mississauga

Continue to evolve our culture and our employee experience to create value for our people and become a career destination for top talent

• Make continued progress toward CWB’s target culture, further leveraging and integrating our new core values across the organization

• Continue to earn recognition as an employer of choice, a Great Place to Work CanadaTM and one of the Best WorkplacesTM in Alberta

• Build momentum in change management and change readiness through ongoing training, communication and feedback tools

• Continue to make strong progress to further enhance inclusion and diversity

Transform and diversify our business to create value for investors through break-out growth and enhanced profitability

• Submit final application and receive regulatory approval for transition to the AIRB approach for capital and risk management

• Capture increased market share within targeted industries across our growing geographic footprint • Maintain double-digit percentage growth of branch-raised deposits and achieve double-digit loan growth,

where prudent

CWB Financial Group 2019 Annual Report 23

CWB FINANCIAL GROUP PERFORMANCE

OVERVIEW

Financial Highlights of 2019 (compared to 2018) • Solid performance with common shareholders’ net income of $267

million, up 7%, pre-tax, pre-provision income of $ 461 million, up 6%,

and total revenue of $862 million, up 7%.

• Diluted and adjusted cash earnings per common share of $3.04 and

$3.15, up 9% and 5%. Gains on sale related to the CWT strategic

transactions contributed $0.04 to adjusted cash earnings per

common share in fiscal 2018 and nil in 2019.

• Full-year operating leverage of negative 1.8% as revenue growth was

outpaced by growth of expenses reflecting continued investment in

strategic execution.

• Solid loan growth of 8% with strong execution against our

balanced growth strategic objectives for geographic and industry

diversification, including very strong 15% growth in general

commercial loans and 13% growth in Central and Eastern Canada.

• Very strong branch-raised deposit growth of 12%, including 14%

growth of demand and notice deposits, contributing to a reduction

in the outstanding balance of broker deposits.

• Continued stable credit quality with the provision for credit losses

representing 21 basis points of average loans, compared to 20 basis

points last year.

• Gross impaired loans represented 0.52% of gross loans unchanged

from last year.

• Delivered an 8% increase to CWB’s annual common share dividend.

• Very strong Basel III regulatory capital ratios under the Standardized

approach for calculating risk-weighted assets of 9.1% common equity

Tier 1 (CET1), 10.7% Tier 1 and 12.8% Total capital.

Non-Financial Highlights of 2019 • Recognized as a Great Place to Work Canada™, and one of the Best

Workplaces™ in Alberta

• Significant progress to align our culture with our ambitious strategic

agenda with the introduction of new core values.

• Unveiled an exciting new brand promise to business owners across

Canada – Obsessed with your success™.

• Expanded Environmental, Social and Governance (ESG) disclosure

to reflect our ongoing commitments to environmental sustainability,

inclusion and diversity in the workforce, and positive impacts in our

communities.

• Completed enterprise-wide integration of the market-leading

Workday human capital management system.

CWB Financial Group 2019 Annual Report24

SELECT FINANCIAL HIGHLIGHTS

Table 4 - Select Annual Financial Information(1)

($ thousands, except per share amounts)

Change from 2018

2019(2) 2018 2017 $ % Key Performance Indicators Total revenue $ 861,604 $ 803,358 $ 726,635 $ 58,246 7 Pre-tax, pre-provision income 461,130 436,188 388,729 24,942 6 Common shareholders' net income 266,940 249,256 214,277 17,684 7 Earnings per share

Basic 3.05 2.81 2.43 0.24 9 Diluted 3.04 2.79 2.42 0.25 9 Adjusted cash 3.15 3.01 2.63 0.14 5

Return on common shareholders' equity 10.9% 11.0% 10.1% (10) bp(6)

Adjusted return on common shareholders' equity 11.3 11.9 11.0 (60) Return on assets 0.88 0.89 0.85 (1) Net interest margin 2.60 2.60 2.56 - Efficiency ratio(3) 46.5 45.7 46.5 80 Operating leverage (1.8) 1.9 0.3 (370) Provision for credit losses on total loans as a

percentage of average loans(4)(5) 0.21 0.20 0.23 1 Provision for credit losses on impaired loans as a

percentage of average loans(4)(5) 0.21 0.19 0.19 2

Other Financial Information Total assets $ 31,424,235 $ 29,021,463 $ 26,447,453 $ 2,402,772 8% Dividends per common share 1.08 1.00 0.93 0.08 8

(1) See page 20 for a discussion of non-IFRS measures. (2) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9) (refer to Notes 1 and 2 of the 2019 audited annual financial statements). Prior year comparatives have been prepared in accordance with IAS 39 Financial Instruments: Classification and Measurement (IAS 39) and have not been restated. (3) A decrease in the ratio reflects improved efficiency, while an increase reflects deterioration. (4) Under IFRS 9, provisions for credit losses related primarily to loans, committed but undrawn credit exposures and letters of credit, and also apply to debt securities measured at FVOCI and other financial assets. Prior to the adoption of IFRS 9, provisions for credit losses only related to loans, committed but undrawn credit exposures and letters of credit. (5) Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit. (6) bp – basis points.

Summary of Operations Fiscal 2019 was a very good year for CWB, as we continued to execute on our transformational strategy and deliver against our balanced growth objectives. We generated solid loan growth with further geographic and industry diversification, including strong 13% growth in Central and Eastern Canada, and very strong 15% overall growth in the strategically targeted general commercial category.

We delivered very strong 12% growth of branch-raised deposits – including 14% growth in the demand and notice category – as we continued to strengthen our full-service client experience and invest in competitive deposit-gathering capabilities. This strong performance resulted in a reduction in our outstanding balances of broker deposits.

Net interest income was up 8% from 2018, reflecting the combined positive impacts of 8% loan growth and stable net interest margin. Expectations for further increases in net interest margin were tempered early in the year when it became apparent that an anticipated Bank of Canada rate increase would not materialize. In view of a relatively subdued macroeconomic backdrop, the possibility of a Bank of Canada rate cut persisted for most of the year.

Non-interest income was down 3% from fiscal 2018. Growth of credit related fees, positive net gains on securities compared to losses last year, and higher retail services fees were more than offset by the impact of approximately $4 million of gains realized from the CWT strategic transactions recorded within ‘other’ non-interest income in 2018, along with the impact of slightly lower wealth management fees.

Focused business transformation and investment in digital capabilities continue to enhance our differentiated full-service client experience. Initiatives to optimize client-facing operations within our banking branches continued this year, building upon centralization of our credit support processes. Together, this integrated transformation will boost our capabilities to deliver on our reputation for proactive, personalized service through both in-person and digital channels in a highly scalable manner, and contribute to maximum value creation from our upcoming transition to the AIRB approach for capital and risk management.

We re-launched the CWB Financial Group brand this year to generate greater awareness of our differentiated offering and increased visibility in targeted markets. We sharpened our visual identity with a more contemporary logo and bolder treatments of our signature teal and gold. We re-vamped and modernized our digital and online properties, including cwb.com, and we launched a new Obsessed with your success™ brand promise and We come to you marketing campaign. The campaign includes increased use of digital advertising on social media, as well as a television strategy to raise awareness of our story.

Our continued success is built on strong collaboration between engaged, well-trained and empowered teams, and we continue to invest in improved people-related infrastructure to support efficiency and drive effective collaboration. Following implementation of the market-leading Workday human capital management system for our core banking operations in 2018, we further integrated operations across the enterprise with the

CWB Financial Group 2019 Annual Report 25

implementation of Workday for CWB National Leasing, CWB Maxium and CWB McLean & Partners. Workday integration is now complete across the entire organization.

System and process transformation continues to drive change across CWB, and we have taken steps to ensure our culture evolves to support our ambitious strategic agenda. This year we made significant progress to evolve our culture with the introduction of new core values. Our values stand for who we are, and how we show up for our clients and each other. They ground us in the qualities our clients and people love about CWB, and encourage us to stretch as we transform to meet our exciting future. We are committed to create a culture that thrives through change, continues to foster deep relationships with clients, and helps us attract and retain the talent we need to drive our future growth.

Continued progress to support a rewarding experience for CWB employees is reflected in our recognition as a Great Place to Work Canada™, and one of the Best Workplaces™ in Alberta.

Our focus for 2019 was to build the culture, capabilities, technology, and brand to position CWB to deliver break-out growth and enhanced profitability as a model-enabled bank under the AIRB approach. Non- interest expenses were up 9%, reflecting investments to support continued growth and strategic execution, including increased advertising. Higher salaries and benefits comprised two-thirds of the increase and primarily reflect additional hiring. Costs related to premises, equipment and software were also higher, reflecting investment in new technology and depreciation of our previous investments.

Growth of non-interest expenses, reflecting the strategic investments

described above, outpaced total revenue growth of 7%, resulting in negative 1.8% operating leverage. Diluted earnings per common share of $3.04 and adjusted cash earnings per common share of $3.15 were up 9% and 5%, respectively. The higher growth rate of diluted earnings per common share primarily reflects decreased acquisition-related fair value changes this year.

Adjusted return on common shareholders’ equity (ROE) of 11.3% decreased 60 basis points from last year, as 3% growth of adjusted common shareholders net income was more than offset by the increase in average common shareholders’ equity driven by higher accumulated other comprehensive income and retained earnings growth, partially offset by the impact of common shares purchased for cancellation under the normal course issuer bid.

The maintenance of solid and conservative capital levels is fundamental to our objectives to effectively manage risks and support strong growth. Our Basel III CET1 capital ratio at October 31, 2019 remained very strong at 9.1%, compared to 9.2% last year. The change from last year reflects strong asset growth supported by solid growth in retained earnings and AOCI, the IFRS 9 transitional adjustment to opening retained earnings, partially offset by common share repurchases under the normal course issuer bid. Including Tier 1 and total capital ratios of 10.7%, and 12.8%, respectively, all of our capital ratios remain above both internal and regulatory minimums.

With ongoing profitable growth and very strong capital ratios, we also rewarded shareholders with an 8% increase to the common share dividend compared to 2018.

2019 Medium-term Performance Target Ranges Target ranges effective through fiscal 2019, with related fiscal 2019 performance, are presented in the following table:

Table 5 - 2019 Medium-term Performance Target Ranges

Key Metrics(1) Medium-term Performance

Target Ranges Fiscal 2019 Performance

Adjusted cash earnings per common share growth 7 - 12% Delivered 5%

Adjusted return on common shareholders’ equity 12 - 15% Delivered 11.3%

Operating leverage Positive Delivered negative 1.8%

Common equity Tier 1 capital ratio under the Standardized approach

Strong Delivered a very strong ratio of 9.1%

Common share dividend payout ratio ~30% Delivered 35%

(1) See page 20 for definitions and discussion of non-IFRS measures.

In view of our planned transition to the AIRB approach for capital and

risk management in fiscal 2020, we have discontinued our medium-term

targets. We introduced these targets in fiscal 2016, and designed them

to be effective over a three- to five-year period under the Standardized

approach for calculating risk-weighted assets. We are confident

our transition to the AIRB approach will support higher growth and

profitability from our differentiated business model over the medium-term.

However the magnitude of capital available for deployment upon transition

to the AIRB approach is uncertain at this time. We expect to establish

revised multi-year performance expectations incorporating benefits of the

AIRB transition following formal regulatory approval. Expectations related

to key performance metrics for fiscal 2020, on a standalone basis, are

summarized within the Outlook section below.

CWB Financial Group 2019 Annual Report26

We expect overall financial performance in fiscal 2020 to reflect

ongoing strong execution of our transformational strategy, including

success in key strategic initiatives to enhance our client experience,

continue to build core funding sources, and leverage investment in

digital capabilities to position CWB for break-out growth as a model-

enabled bank under AIRB.

Financial results are expected to benefit from our expanding geographic

footprint and increased business diversification; further optimization

of our funding mix; strong credit risk management; effective expense

management in consideration of revenue growth opportunities; and

prudent capital management.

In view of these expectations, considerations related to the Canadian

economy, and key performance drivers discussed below, we expect to

deliver:

• a percentage growth rate of adjusted cash earnings per common share in the mid-single digits;

• adjusted return on common shareholders’ equity at a similar level to 2019;

• moderately positive operating leverage, with some volatility between quarters reflecting the timing of execution of our strategic priorities;

• a strong CET 1 capital ratio; and,

• a growth rate of common share dividends in the high-single digits.

A relatively stable Canadian economy

The overall outlook for the Canadian economy is relatively stable. We

expect economic performance within our largest provincial markets to

vary based on factors unique to each region.

Growth in BC is expected to accelerate slightly to a level exceeding the

national average, mainly reflecting more constructive housing market

conditions and the impact of large-scale capital projects. Growth in

Alberta is also expected to improve from a level that was well below the

national average in fiscal 2019. However, reduced provincial government

expenditures could dampen the recovery. Growth in Ontario is also

expected to moderate to a level below the national average, with more

constructive housing market conditions potentially offset by the impact

of trade-related uncertainty.

Strong, profitable loan growth with continued strategic diversification

Continued strategic execution has positioned us to capture increased

market share within a larger addressable market, notwithstanding the

potential for varying degrees of volatility in the operating environment.

We will continue to support high-quality borrowers with a focus on

business owners operating within targeted industry segments across

Canada, and we remain committed to deliver double-digit annual loan

growth whenever prudent. This includes a continued focus on secured

loans that offer an appropriate return and acceptable risk profile.

We continue to target further geographic and industry diversification

through growth of client relationships in targeted industries across

our national geographic footprint. Slightly higher relative growth rates

should remain apparent in Central Canada, as compared to expectations

for continued solid growth in Western Canada. We also expect higher

relative growth in general commercial loans, and equipment financing

and leasing as compared to real estate project loans.

We expect growth in Ontario to continue to reflect ongoing

contributions from our established businesses with a national footprint,

as well as the planned opening of our first CWB branch premises in

the province this year. We expect progress toward our strategic goal

for Ontario to represent a third of the overall portfolio to moderate

somewhat compared to the significant rate of change achieved over

the past several years. This mainly reflects expectations for continued

normalization of very high growth within CWB Maxium and CWB

Franchise Finance, moderate growth from CWB National Leasing due

to the persistence of strong competition, and high-single digit growth

within CWB Optimum.

We expect residential mortgage growth to continue to include an

increased proportion of “A” mortgages, reflecting ongoing investment

in our securitization capabilities. We remain committed to the ongoing

development of CWB Optimum as it has produced solid returns while

maintaining an acceptable risk profile. With new mortgage products

launched late in fiscal 2019 that are specifically targeted to business

owners, we expect to resume growth at a rate resembling the rest of

our loan portfolio.

We continue to assess construction-related lending opportunities

within targeted markets. Our expectations for moderate growth of

real estate project loans, with the potential for further incremental

contraction, reflect the combined impact of this portfolio’s relatively

short duration and our strategic focus to grow other portfolios more

quickly. Within the parameters of our established risk appetite, we will

continue to finance well-capitalized developers on the basis of sound

loan structures and acceptable pre-sale/lease levels and have a strong

pipeline of new lending opportunities.

Commercial mortgages are often subject to a higher level of pricing

competition compared to other types of lending. However, we remain

focused to support existing client relationships and high-quality lending

opportunities offering adequate risk-adjusted returns within targeted

markets, and we expect to deliver stronger growth in this portfolio

compared to 2019.

Stable credit quality

We expect impaired loans as a percentage of total loans to remain

within our risk appetite. We expect actual loss rates and specific

allowances on current and future impaired loans to remain stable

from current levels, reflecting the combined positive impact of our

disciplined underwriting, secured lending practices, and proactive

account management. This expectation is consistent with our prior

experience, where write-offs have typically been low as a percentage

of impairments. We remain confident in the strength, diversity and

underwriting structure of the overall loan portfolio, and we continue to

closely monitor lending exposures for signs of weakness.

While IFRS 9 affects the timing of the recognition of credit losses, the

accounting standard does not affect actual credit losses realized over

the life of a particular loan, represented by write-offs net of recoveries.

Provisions for credit losses on performing loans have the potential to be

somewhat volatile in view of the forward-looking ECL approach under

IFRS 9. While levels for key economic variables incorporated in ECL

Fiscal 2020 Outlook

CWB Financial Group 2019 Annual Report 27

models such as unemployment rates, gross domestic product growth,

the Canadian dollar/U.S. dollar exchange rate, interest rates and oil

prices are expected to be relatively consistent with 2019, with the

potential for slight improvements in housing market conditions, these

variables are inherently prone to volatility on a forward-looking basis.

Potential risks that could have a material adverse impact on loan growth

and/or credit quality include a deterioration in Canadian residential

real estate prices, material changes to trade agreements, including

the imposition of tariffs, which could affect the outlook for Canadian

exports, material weakening of energy and other commodity prices

compared to recent levels, a material contraction of economic growth

in the U.S., or a significant disruption in major global economies.

Continued growth and diversification of funding

Our strategic focus to grow and diversify funding sources will continue.

This includes a continued goal to increase branch-raised deposits, with

particular emphasis on demand and notice deposits.

We expect future growth in branch-raised funding to reflect success

in acquiring more clients and developing broader, full-service client

relationships across the country. We will continue to enhance our

client experience by investing in digital capabilities, maintaining our

strategic focus on business transformation and process improvement,

and developing new and more effective products. In combination, we

expect this effort to support core deposit growth by enhancing our

capacity to deliver on our reputation for excellence in personalized

service in a highly scalable manner through a full range of channels.

Support for deposit gathering capabilities will also include targeted

strategies within Motive Financial and CWB Trust Services, as well as

continued development of the full-service branch network, including

the opening of our first full-service branch in Ontario. We also expect

continued diversification of funding sources to include growth of both

debt capital markets and securitization funding channels.

Strong revenue growth

We expect to deliver high single-digit growth of net interest income in

fiscal 2020 from the benefits of stronger loan growth, partially offset by

downward pressure on net interest margin.

Our strategic priorities to support net interest income include continued

strong core deposit growth with further enhancement of our client

experience through focused business transformation and ongoing

investment in digital capabilities. However, the potential for Bank of

Canada interest rate cuts in fiscal 2020 remains apparent, and we

expect rising funding costs in our branch-raised deposits to continue

as a result of competitive factors. We also anticipate slightly higher

average levels of liquidity based on our expected deposit maturity

profile, and the adoption of IFRS 16 Leases (IFRS 16) on November 1,

2019 will also contribute to net interest margin compression compared

to 2019. That said, our net interest margin has operated within a fairly

tight range of approximately 2.50 to 2.60% over the past several years,

and we expect to remain around the mid point of that range in fiscal

2020 on a full-year basis, with the potential for quarterly volatility.

We expect to restore positive growth of non-interest income with increases

across most categories, reflecting our strategy to extend and deepen

relationships with both new and existing clients across all business lines.

We expect credit related fees to grow approximately in proportion to

loan growth. Enhanced transactional capabilities in cash management

and other retail services, including our relationship-based, branch-

raised deposit franchise, is expected to drive increases in retail services

fees. We expect growth in revenue from CWB Wealth Management

to reflect increases in assets under management, and we continue

to consider strategically aligned wealth management acquisition

opportunities. With renewed focus on targeted business lines aligned

to our strategic direction, we expect revenue from CWB Trust Services

to benefit from growth in new and expanding trustee and custody

relationships. Based on the current composition of the debt securities

portfolio, net gains and losses are not expected to contribute materially

to non-interest income; however, the magnitude and timing of gains

and losses are dependent on market factors that are difficult to predict.

Growth in the above noted categories could be partially offset by

lower ‘other’ non-interest income. In fiscal 2019 results in this category

included gains from favourable foreign exchange activities, recoveries

on loan realization assets, and proceeds from asset sales that may not

recur at comparable levels.

Efficient operations and operating leverage

Our continued focus on business transformation and process

improvement, alongside ongoing investment in digital capabilities,

is intended to support improved efficiency and operating leverage

through increasingly scalable client acquisition and business growth

over the medium term.

Our annual efficiency ratio over the past three years has been

approximately 46%. We expect a relatively consistent outcome in

2020, with slightly positive operating leverage on a full-year basis.

This incorporates expectations for strong business growth supported

through strategic investment in people, technology and infrastructure,

along with effective control of non-interest expenses. Notwithstanding

our commitment to prudently manage expenses based on expected

revenue growth, quarterly volatility of operating leverage may occur

based on the timing of expenditures.

Prudent capital management and dividends

We expect to submit our final application and receive regulatory

approval in fiscal 2020 for transition to the AIRB approach for capital and

risk management. A reduction in risk-weighted assets measured under

the AIRB approach is expected to increase our regulatory capital ratios;

however, we do not expect any other material impacts to our financial

results in fiscal 2020. With a very strong CET1 capital ratio under the

more conservative Standardized approach for calculating risk-weighted

assets, we are well positioned to create value for shareholders through

a range of capital deployment options consistent with our balanced

growth strategic objectives while remaining conservatively capitalized.

Ongoing support and development of each of CWB’s businesses

will remain a key priority, and we will continue to evaluate potential

strategic acquisitions.

Transition to the AIRB approach will put us on more equal footing with

our competition and increase our addressable market. It will add risk

sensitivity to our framework for capital management, increase risk

quantification processes, improve risk-based pricing capabilities and

economic capital estimations, improve stress testing capabilities and

enhance our Internal Capital Adequacy Assessment Process (ICAAP).

CWB Financial Group 2019 Annual Report28

These improved risk management capabilities will better equip CWB to

allocate resources to target business segments that generate the most

attractive risk-adjusted returns.

A normal course issuer bid (NCIB) authorizing the purchase for

cancellation prior to September 30, 2020, of a maximum of 1,740,000

common shares is in place. We may choose to activate the NCIB in fiscal

2020 should appropriate circumstances become apparent. Common

share dividend increases are evaluated every quarter against capital

requirements under the Standardized approach and opportunities

to create value for shareholders through various forms of capital

deployment, including support for ongoing strong and balanced asset

growth.

We expect to deliver dividend growth in the high single digit range in

fiscal 2020.

NET INTEREST INCOME

Net interest income is the difference between interest and dividends earned on assets, and interest paid on deposits and other liabilities, including debt. Net

interest margin is net interest income as a percentage of average total assets.

Highlights of 2019 • Solid 8% growth of net interest income to a record $786 million,

reflecting 8% loan growth and stable net interest margin of 2.60%.

• Stable net interest margin reflects the positive impacts of higher

asset yields and lower average balances of cash and securities as

a percentage of total average assets, offset by higher funding costs

and changes in funding mix.

• The yield on average loans increased 25 basis points to 5.07% in

2019. This primarily reflects an increase in the average prime rate of

47 basis points following Bank of Canada rate increases in July and

October 2018, partially offset by competitive factors.

• The increase in funding costs also reflects the higher average prime rate,

along with longer fixed term deposit duration and competitive factors.

Table 6 - Net Interest Income(1)

($ thousands) 2019 2018

Average Balance Mix Interest

Interest Rate

Average Balance Mix Interest

Interest Rate

Assets Cash, securities and deposits with

regulated financial institutions $ 2,405,937 8% $ 37,470 1.56% $ 2,731,904 10% $ 39,574 1.45% Securities purchased under

resale agreements 80,956 - 1,500 1.85 13,915 - 191 1.37 Loans

Personal 5,405,011 18 215,253 3.98 4,951,222 18 190,802 3.85 Business 21,782,700 72 1,164,477 5.35 19,653,260 70 994,728 5.06

27,187,711 90 1,379,730 5.07 24,604,482 88 1,185,530 4.82 Total interest bearing assets 29,674,604 98 1,418,700 4.78 27,350,301 98 1,225,295 4.48 Other assets 556,757 2 - 0.00 550,806 2 - 0.00 Total Assets $ 30,231,361 100% $ 1,418,700 4.69% $ 27,901,107 100% $ 1,225,295 4.39%

Liabilities Deposits

Personal $ 15,347,419 51% $ 377,345 2.46% $ 13,911,075 50% $ 287,519 2.07% Business and government 9,288,447 31 195,881 2.11 8,906,830 32 164,244 1.84

24,635,866 82 573,226 2.33 22,817,905 82 451,763 1.98 Securities sold under

repurchase agreements 12,094 - 253 2.09 52,406 - 763 1.46 Other liabilities 629,682 2 - 0.00 608,108 2 - 0.00 Debt 2,139,110 7 59,637 2.77 1,894,203 7 47,779 2.52 Shareholders' equity 2,812,579 9 - 0.00 2,525,934 9 - 0.00 Non-controlling interests 2,030 - - 0.00 2,551 - - 0.00 Total Liabilities and Equity $ 30,231,361 100% $ 633,116 2.09% $ 27,901,107 100% $ 500,305 1.79% Total Assets/Net Interest Income $ 30,231,361 $ 785,584 2.60% $ 27,901,107 $ 724,990 2.60%

(1) See page 20 for a discussion of non-IFRS measures.

Net interest income increased 8% to a record $786 million. Solid growth was primarily driven by the 8% increase in average interest-earning assets and stable net interest margin of 2.60% compared to the prior year.

CWB Financial Group 2019 Annual Report 29

The yield on average loans increased 25 basis points to 5.07% in 2019. This primarily reflects an increase in the average prime rate of 47 basis points following Bank of Canada rate increases in July and October 2018, partially offset by competitive factors.

The yield on average cash, securities and deposits with regulated financial institutions was up 11 basis points from last year, primarily reflecting the higher average prime rate. Average balances of cash and securities were lower compared to the prior year, reflecting reduced liquidity requirements based on the composition of our balance sheet and contractual maturities.

Average deposit costs were up 35 basis points from last year and the overall cost of average interest bearing liabilities and equity increased 30 basis points to 2.09%. The average cost of both personal, and business and government deposits were higher due to changes in the interest rate environment, competitive factors on deposit pricing, as well as deposit mix.

Debt-related costs were 25 basis points higher, mostly reflecting the higher average prime rate, partly offset by lower fixed rates on term debt.

NON-INTEREST INCOME

Highlights of 2019 • Non-interest income of $76 million was down 3%, or $2 million, from

2018.

• Growth of credit related fees, positive net gains on securities,

compared to losses last year, and higher retail services fees were

more than offset by the impact of approximately $4 million of gains

realized from the CWT strategic transactions recorded within

‘other’ non-interest income in 2018, along with slightly lower wealth

management fees.

• Non-interest income represented 9% of total revenues, down from

10% in 2018.

Table 7 - Non-interest Income ($ thousands)

Change from 2018

2019(1) 2018 $ % Credit related $ 34,082 $ 32,165 $ 1,917 6% Wealth management services 19,640 20,371 (731) (4) Retail services 10,627 10,334 293 3 Trust services 7,651 7,784 (133) (2) Gains (losses) on securities, net 301 (217) 518 nm(3)

Other(2) 3,719 7,931 (4,212) (53) Total Non-interest Income $ 76,020 $ 78,368 $ (2,348) (3)%

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2 of the audited annual financial statements). Prior year comparatives have been prepared in accordance with IAS 39 and have not been restated. (2) Includes gains on loan portfolio sales, lease administration services, foreign exchange gains/losses, gains/losses on land, buildings and equipment disposals, and other miscellaneous non-interest revenues. Fiscal 2018 also includes the gains on CWT strategic transactions.

nm – not meaningful

Non-interest income of $78 million was down 3%, or $2 million, from 2018.

Growth of credit related fees, positive net gains on securities, compared to

losses last year, and higher retail services fees were more than offset by the

impact of approximately $4 million of gains realized from the CWT strategic

transactions recorded within ‘other’ non-interest income last year, along

with slightly lower wealth management fees. Higher credit related and retail

services fee income mainly reflects overall growth of loans and deposits.

CWB Financial Group 2019 Annual Report30

NON-INTEREST EXPENSES, EFFICIENCY AND OPERATING LEVERAGE

Highlights of 2019 • The 2019 efficiency ratio of 46.5% compares to 45.7% in 2018.

Revenue growth this year was outpaced by growth in expenses

reflecting continued investment in strategic execution.

• Full-year operating leverage of negative 1.8%, reflects the same

factors driving the change in the efficiency ratio.

Table 8 - Non-interest Expenses and Efficiency Ratio ($ thousands)

Change from 2018

2019 2018 $ % Salaries and Employee Benefits

Salaries $ 213,452 $ 198,203 $ 15,249 8% Employee benefits 44,514 39,025 5,489 14

257,966 237,228 20,738 9 Premises

Rent 22,460 20,730 1,730 8 Depreciation 5,310 5,074 236 5 Other 3,842 3,854 (12) -

31,612 29,658 1,954 7 Equipment and Software

Depreciation 22,127 18,321 3,806 21 Other 16,776 14,775 2,001 14

38,903 33,096 5,807 18 General

Professional fees and services 13,824 12,241 1,583 13 Marketing and business development 12,546 11,151 1,395 13 Regulatory costs 12,022 10,107 1,915 19 Banking charges 5,048 5,519 (471) (9) Amortization of acquisition-related intangible assets 5,007 6,313 (1,306) (21) Employee recruitment and training 4,690 4,844 (154) (3) Travel 4,028 3,805 223 6 Staff relations 2,248 2,323 (75) (3) Communications 1,995 1,795 200 11 Capital and business taxes 1,888 1,453 435 30 Other 13,704 13,950 (246) (2)

77,000 73,501 3,499 5 Total Non-interest Expenses $ 405,481 $ 373,483 $ 31,998 9%

Efficiency Ratio(1)(2) 46.5% 45.7% 80 bp(3)

Operating Leverage(1) (1.8) 1.9 (370)

(1) See page 20 for a discussion of non-IFRS measures. (2) A decrease in this ratio reflects improved efficiency, while an increase reflects deterioration. (3) bp – basis points.

Total non-interest expenses of $405 million were up 9% ($32 million).

Overall salaries and employee benefits increased 9% ($21 million), mainly

reflecting hiring activity to support overall business growth and execution

of strategic priorities, along with annual salary increments. The increase in

overall full-time equivalent employees was moderate at 5%.

Equipment and software costs were up 18% ($6 million) primarily due to

ongoing investment in technology infrastructure to position CWB for

future growth and improve our client and employee experience. Premises

expenses were up 7% ($2 million) to position us for future growth. General

non-interest expenses were up 5%, or $3 million, mainly due to increases in

regulatory costs, and expenses related to the launch of the renewed CWB

brand.

The efficiency ratio of 46.5% compares to 45.7% last year. Revenue growth in

2019 was outpaced by growth of expenses reflecting continued investment

in strategic execution.

Operating leverage, which is calculated as the growth rate of total revenue

less the growth rate of adjusted non-interest expenses, over the last 12

months was negative 1.8%, compared to positive 1.9% last year. Operating

leverage in 2019 was impacted by the same factors as our full-year efficiency

ratio. In 2018, revenue growth benefited from very strong loan growth, a

four basis point improvement in net interest margin and gains from the

CWT strategic transactions.

CWB Financial Group 2019 Annual Report 31

Figure 1 - Number of Full-time Equivalent Staff

0

500

1000

1500

2000

2500

2,278 (+5%)2,178

(+6%)2,058 (+5%)1,966

(+2%) 1,928 (+8%)

2015 2016 2017 2018 2019

ACQUISITION-RELATED FAIR VALUE CHANGES

Acquisition-related fair value changes in 2019 were $8 million, compared

to $20 million last year, reflecting completion of the earn-out period on

February 28, 2019 for the contingent consideration related to the successful

and accretive acquisition of CWB Maxium Financial. Total contingent

payments in cash and CWB common shares over the earn-out period of $70

million represented the maximum payout under the purchase agreement

and confirm the successful integration and growth of the acquired business.

CWB Maxium has delivered very strong performance since the acquisition

in 2016, with contributions to financial performance and CWB’s strategic

diversification objectives exceeding our expectations.

INCOME TAXES

Deferred tax assets and liabilities represent the cumulative amount of tax

applicable to temporary differences between the carrying amount of assets

and liabilities, and their values for tax purposes. Our deferred income tax

assets and liabilities relate primarily to the collective allowance for credit

losses and intangible assets.

Deferred tax assets and liabilities are measured using enacted or

substantively enacted tax rates anticipated to apply to taxable income in the

years in which those temporary differences are expected to be recovered or

settled. Changes in deferred income taxes related to a change in tax rates

are recognized as income in the period of the tax rate change.

The 2019 effective income tax rate was 26.3%, compared to 26.8% in

2018. On June 28, 2019, the Alberta government enacted reductions to

the provincial corporate income tax rate from 12% to 8% over four years,

beginning with a 1% decrease on July 1, 2019 with further reductions of 1%

on each of January 1, 2020, 2021 and 2022. Our 2019 effective income tax

rate benefited from the re-measurement of our deferred tax assets and

liabilities from the tax rate reductions, which resulted in a one-time deferred

tax recovery of approximately $1.5 million. Our expected income tax rate for

fiscal 2020 is approximately 26%.

COMPREHENSIVE INCOME

Comprehensive income is comprised of net income and other

comprehensive income (OCI), all net of income taxes. Our OCI includes

changes in unrealized gains and losses on debt securities measured at

FVOCI and equity securities designated at FVOCI, and fair value changes

for derivative instruments designated as cash flow hedges. The growth in

comprehensive income was primarily driven by a $98 million increase in the

change in fair value of derivatives designated as cash flow hedges and a $54

million increase in the change in fair value of debt securities measured at

FVOCI. Very strong 9% ($23 million) growth of net income also contributed

to the increase. Our debt securities portfolio, which is classified at FVOCI,

is comprised primarily of debt securities issued or guaranteed by Canada,

a province or municipality. Fluctuations in value are generally attributed to

changes in interest rates, movements in market credit spreads and shifts in

the interest rate curve.

Table 9 - Comprehensive Income ($ thousands)

2019(1) 2018 Change from

2018

Net Income $ 287,846 $ 264,647 $ 23,199 Other Comprehensive Income (Loss), net of tax Items that will be subsequently reclassified to net income

Debt securities measured at fair value through other comprehensive income (2018: Available-for-sale securities debt and equity securities)

Gains (losses) from change in fair value 34,301 (19,945) 54,246 Reclassification to net income (354) 158 (512)

33,947 (19,787) 53,734 Derivatives designated as cash flow hedges

Gains (losses) from change in fair value 71,361 (26,848) 98,209 Reclassification to net income (383) (994) 611

70,978 (27,842) 98,820 Items that will not be subsequently reclassified to net income

Losses on equity securities designated at fair value through other comprehensive income (14,175) n/a n/a 90,750 (47,629) 138,379

Comprehensive Income $ 378,596 $ 217,018 $ 161,578

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (see Notes 1 and 2 of the 2019 audited annual financial statements). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.

n/a – not applicable

CWB Financial Group 2019 Annual Report32

CASH AND SECURITIES

Cash, securities and securities purchased under resale agreements

amounted to $2.5 billion at October 31, 2019, compared to $2.2 billion last

year. The cash and securities portfolio is mainly comprised of high-quality

debt instruments along with a small portfolio of investment grade preferred

shares that are not held for trading purposes and, where applicable, are

typically held to maturity. Fluctuations in the value of securities are generally

attributed to changes in interest rates, movements in market credit spreads,

shifts in the interest rate curve, as well as volatility in equity markets. Total

net unrealized losses before tax recorded on the balance sheet at October

31, 2019 were $13 million, compared to $67 million last year. Unrealized

gains or losses are reflected in the following table.

Table 10 - Unrealized Gains (Losses) on Debt Securities and Cash Resources Measured at FVOCI and Equity ($ thousands)

IFRS 9 As at October 31, 2019

Amortized Cost

Gross Unrealized

Gains

Gross Unrealized

Losses Fair

Value

Measured at FVOCI Interest bearing deposits with regulated financial institutions $ 293,865 $ - $ 9 $ 293,856 Debt securities issued or guaranteed by

Canada 1,344,455 477 3,606 1,341,326 A province or municipality 468,989 75 393 468,671

Other debt securities 190,803 291 48 191,046 Designated at FVOCI Preferred shares 26,648 - 8,484 18,164 Total $ 2,324,760 $ 843 $ 12,540 $ 2,313,063

IAS 39 As at October 31, 2018

Amortized Cost

Gross Unrealized

Gains

Gross Unrealized

Losses Fair

Value

Available-for-sale Interest bearing deposits with regulated financial institutions $ 26,825 $ - $ - $ 26,825 Debt securities issued or guaranteed by

Canada 1,362,647 - 36,831 1,325,816 A province or municipality 531,798 - 9,973 521,825

Other debt securities 146,610 1 3,075 143,536 Preferred shares 110,696 - 17,121 93,575 Total $ 2,178,576 $ 1 $ 67,000 $ 2,111,577

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.

Net realized gains (losses) on securities recognized in income were

insignificant in 2019 and 2018. For the preferred shares that have been

designated as FVOCI, $20 million of realized losses were recognized

directly in retained earnings in accordance with IFRS 9.

See Table 28 – Valuation of Financial Instruments of this MD&A for

additional information on significant financial assets and liabilities reported

at fair value.

The balance and mix of cash and securities are managed as part of our

overall liquidity management process; additional information is included in

the Liquidity Management discussion of this MD&A.

CWB Financial Group 2019 Annual Report 33

LOANS

Highlights of 2019 • Overall loan growth was solid at 8%, with strong execution against

our balanced growth strategic objectives.

• Achieved further geographic diversification, with very strong 13%

growth in Central and Eastern Canada and expansion in every

province.

• Ontario-based loans represented 22% of total loans at year end,

compared to 21% last year, and the proportion of loans in Central

and Eastern Canada was 27%, compared to 26% in 2018.

• Growth in Ontario and Alberta was strong at 11% and 8%, respectively,

while growth in BC was 5%.

• Achieved further industry diversification, with very strong 15%

growth in general commercial loans and 9% growth in equipment

financing and leasing.

• Solid 8% growth in personal loans and mortgages mainly reflected

originations of “A” mortgages to leverage CWB’s securitization

capabilities.

Table 11 - Outstanding Loans by Portfolio ($ millions)

Change from 2018

2019 2018 $ % General commercial loans $ 8,600 $ 7,458 $ 1,142 15% Personal loans and mortgages 5,690 5,247 443 8 Equipment financing and leasing 5,192 4,779 413 9 Commercial mortgages 5,088 4,865 223 5 Real estate project loans 3,752 3,855 (103) (3) Oil and gas production loans 155 129 26 20 Total Outstanding Loans(1) $ 28,477 $ 26,333 $ 2,144 8%

(1) Total loans outstanding by lending sector exclude the allowance for credit losses.

Total loans before the allowance for credit losses increased 8% to reach

$28.5 billion at year end.

Growth by lending sector was consistent with our balanced growth

strategic objectives. In dollar terms, growth was led by the strategically

targeted general commercial category ($1.1 billion). In percentage terms,

annual growth within this category was 15% overall, including growth of

22% in Ontario, 14% in BC and 8% in Alberta. General commercial lending

reflects activity across a broad range of industries, such as manufacturing,

construction, transportation, retail trade, hospitality, healthcare,

professional services, and wholesale trade. Targeted growth and very

strong performance within this category reflects ongoing efforts to leverage

development of full-service relationships with business owners to support

our funding diversification objectives.

Personal loans and mortgages increased 8% ($443 million). Overall growth

reflects continued origination of both “A” and alternative mortgages.

Alternative mortgages originated within CWB’s broker-sourced residential

mortgage business, CWB Optimum, represent approximately 52% of CWB’s

personal loans and mortgage portfolio, or approximately 10% of CWB’s total

loans (2018 – 11%).

Total loans of $3.0 billion within CWB Optimum were relatively unchanged

from last year. New CWB Optimum originations in fiscal 2019 were

primarily driven by alternative mortgages secured via first mortgages

carrying a weighted average loan-to-value at initiation of approximately

69%, along with an increasing proportion of “A” mortgages. The average

size of CWB Optimum mortgages originated was approximately $333,000

and the average size of mortgages outstanding at October 31, 2019 was

$296,000. The renewal rate with existing CWB Optimum borrowers was

72%, compared to 77% last year. The renewal rate in 2018 was unusually

high, and reflected a temporary market adjustment in response to changes

to OSFI’s Guideline B-20, Residential Mortgage Underwriting Practices and

Procedures (B-20).

CWB Financial Group 2019 Annual Report34

Coming into 2019, we expected growth within CWB Optimum to slow

compared to prior years. This reflected the expected combined impacts

of reduced housing market activity in certain regions following changes to

B-20, our overall risk appetite for alternative mortgages as a proportion of

total loans, and ongoing refinement of our risk appetite within the alternative

mortgage market, including a preference for stronger credits. However,

it is apparent that we tightened our risk appetite more than competing

alternative mortgage originators, and growth within CWB Optimum this

year was lower than expected.

Lending activity in bank branches and our participation in the National

Housing Act Mortgage Backed Security (NHA MBS) program comprise the

remainder of CWB’s personal loans and mortgages exposure. The gross

amount of mortgages securitized under the NHA MBS program was $837

million (2018 – $609 million).

Growth of equipment financing and leasing was strong at 9% ($ 413 million)

overall, with ongoing contributions from CWB’s branch-based equipment

financing teams and CWB National Leasing.

Commercial mortgages increased 5% ($223 million), with strong 15% growth

in BC and 4% growth in Saskatchewan partially offset by contractions in

other provinces.

Real estate project loans contracted $103 million with growth in Alberta,

Ontario and Quebec more than offset by the impact of successful project

completions and payouts in BC. While the pace of new project development

in greater Vancouver has moderated, originations related to projects under

construction with high presale coverage continue and we have a strong

pipeline of new lending opportunities. Recent growth in Alberta has skewed

toward the industrial sector in the Calgary market.

We continue to lend into oil and gas production on a syndicated basis and

maintain a proactive approach to manage our small portfolio in this space.

The $26 million increase in the past year reflects participation in syndicated

lending facilities. The total balance of loans in this category comprises

approximately 1% of our total loans, with underlying commodity exposures

skewed toward oil and liquid rich natural gas.

The mix of our portfolio (see Figure 2) shifted in a manner consistent with

our balanced growth strategic objectives. Very strong growth in general

commercial loans increased the proportion of loans in this category as a

percentage of the total portfolio to 30%, compared to 28% in 2018. The

proportion of loans in equipment financing and leasing decreased to 18%

from 19% last year. Real estate project loans comprised 13% of the portfolio

at year end, compared to 15% in 2018.

The change in the mix of our portfolio based on the location of security

(see Figure 3) was also consistent with our balanced growth strategic

objectives. BC and Alberta represented 33% and 32%, respectively, of total

loans at October 31, 2019, compared to 34% and 32% in 2018, respectively.

Ontario represented 22% of total loans at the end of fiscal 2019, up from

21% last year. This result was underpinned by strong performance from our

businesses with a national footprint, particularly CWB Maxium and CWB

Franchise Finance, with continued support from CWB National Leasing and

stable balances in CWB Optimum.

Figure 2 - Outstanding Loans by Portfolio (October 31, 2018 in brackets)

Oil & Gas Production

1% (0%)

General Commercial Loans

30% (28%)

Personal Loans & Mortgages

20% (20%)

Real Estate Project Loans

13% (15%)

Commercial Mortgages

18% (18%)

Equiment Financing

18% (19%)

CWB Financial Group 2019 Annual Report 35

DIVERSIFICATION OF PORTFOLIO

Figure 3 - Geographical Distribution of Loans based on Location of Security (October 31, 2018 in brackets)

British Columbia

33% (34%)

Alberta

32% (32%)

Other

2% (2%)

Quebec

3% (3%)

Ontario

22% (21%)

Saskatchewan

5% (5%)

Manitoba

3% (3%)

Table 12 - Total Advances Based on Industry Sector(1)

(% at October 31)

2019 2018

Construction 20% 21% Consumer loans and residential mortgages 20 20 Real estate operations 18 18 Transportation and storage 8 7 Finance and insurance 7 7 Retail trade 5 5 Hotel/motel 4 4 Health and social services 3 3 Manufacturing 2 2 Agriculture 2 2 Oil and gas service 2 2 Professional, scientific and technical services 2 1 Utilities 1 1 Wholesale trade 1 1 Logging/forestry 1 1 Oil and gas production 1 1 Accommodation and food services 1 1 All other 2 3 Total 100% 100%

(1) Table is based on the North American Industry Classification System (NAICS) codes.

The loan portfolio is focused on areas of demonstrated lending expertise,

while concentrations measured by geographic area and industry sector are

managed within specified tolerance levels. The portfolio is well diversified,

including a mix of business and personal loans, with significantly increased

geographic and industry diversification delivered over the past several

years.

CWB Financial Group 2019 Annual Report36

CREDIT QUALITY

Highlights of 2019 • Stable credit quality with the provision for credit losses on impaired

loans representing 21 basis points of average loans under IFRS 9,

compared to 19 basis points last year under IAS 39.

• Gross impaired loans represented 0.52% of gross loans, unchanged

from last year.

IMPAIRED LOANS

The loan portfolio is delineated through the assignment of internal risk

ratings to each borrower. The rating is based on assessments of key

evaluation factors for the nature of the exposure applied on a consistent

basis across the portfolio. Risk ratings are updated at least annually for

all loans, with the exception of consumer loans and single-unit residential

mortgages.

As shown in Table 13, the dollar level of gross impaired loans at October

31, 2019 totaled $148 million, up from $138 million last year. This

amount represented 0.52% of total loans, unchanged from a year ago.

Gross impaired loans within Alberta of $78 million accounted for 53%

of total impairments at year end, compared to 56% last year. Gross

impairments outside of Alberta represented 0.36% of non-Alberta loans

at October 31, 2019, up from 0.34% last year. The ten largest accounts

classified as impaired, measured by dollars outstanding, represented 36%

of total gross impaired loans at year end, down from 41%. New formations

of impaired loans totaled $192 million, compared to $97 million last year.

Strong resolutions of $119 million this year, compared to $82 million last

year, reflects our ongoing commitment to proactive management of the

loan portfolio.

Table 13 - Change in Gross Impaired Loans ($ thousands)

Change from 2018

2019 2018 $ % Gross impaired loans, beginning of period $ 137,872 $ 168,261 $ (30,389) (18)%

New formations 191,662 96,729 94,933 98 Reductions, impaired accounts paid down

or returned to performing status (119,018) (81,759) (37,259) 46 Write-offs (62,266) (45,359) (16,907) 37

Total, end of period(1) $ 148,250 $ 137,872 $ 10,378 8%

Balance of the ten largest impaired accounts $ 52,795 $ 56,748 $ (3,953) (7)% Total number of accounts classified as impaired(2) 330 214 116 54 Total number of accounts classified as impaired under $1 million(2) 308 195 113 58 Gross impaired loans as a percentage of gross loans(3) 0.52% 0.52% - bp(4)

(1) Gross impaired loans includes foreclosed assets held for sale with a carrying value of $4,217 (2018 – $6,628). CWB pursues timely realization on foreclosed assets and does not use the assets for its own operations. (2) Total number of accounts excludes CWB National Leasing. (3) Total loans do not include an allocation for credit losses or deferred revenue and premiums. (4) bp – basis point change.

We regularly review the overall loan portfolio and undertake credit decisions

on a case-by-case basis to provide early identification of possible adverse

trends. 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. A specialized team closely monitors loans that have become

impaired, with regular reviews of each loan and its realization plan. Please

see the Risk Management section of this MD&A for further information.

CWB Financial Group 2019 Annual Report 37

ALLOWANCE FOR CREDIT LOSSES

Allowances for credit losses are maintained to absorb both identified and

unidentified losses in the loan portfolio. At October 31, 2019, under IFRS

9, the total allowance for credit losses consisted of $26 million of impaired

(Stage 3) allowances and $89 million of performing (Stage 1 and 2) allowance

for credit losses. One year ago, under IAS 39, the total allowance for credit

losses consisted of $27 million of specific allowances and $120 million in the

collective allowance for credit losses.

The Stage 3 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. The Stage 1 and 2 allowance for performing

loans consists of expected credit losses for losses in the portfolio that are

not presently identifiable on an account-by-account basis.

The year-over-year change in the allowance for credit losses split between

the Stage 3 allowance by category of impaired loans and the Stage 1 and 2

allowance for credit risk is provided in the following table.

Upon adoption of the new impairment requirements of IFRS 9 on November

1, 2018, CWB’s allowances for credit losses on performing loans (Stages 1 and

2) totaled $89 million, a decrease of $31 million from the IAS 39 collective

allowance as at October 31, 2018. Further details related to the transition

to IFRS 9 are included in Notes 1 and 2 of the audited annual consolidated

financial statements.

Table 14 - Allowance for Credit Losses ($ thousands)

IAS 39 2018 Ending

Balance

IFRS 9 Remeasure-

ment(1)

IFRS 9 2019 Opening

Balance

Provision for Credit

Losses

Write-Offs, net of

Recoveries(2)

2019 Ending

Balance

Impaired (Stage 3) Allowance

Equipment financing and leasing $ 15,606 $ - $ 15,606 $ 24,833 $ (25,305) $ 15,134 General commercial loans 5,484 - 5,484 30,508 (28,962) 7,030 Commercial mortgages 3,290 - 3,290 417 (943) 2,764 Personal loans and mortgages 647 - 647 1,773 (1,384) 1,036 Real estate project loans 2,000 - 2,000 (191) (1,809) - Oil and gas production loans - - - (3) 3 -

27,027 - 27,027 57,337 (58,400) 25,964 Performing (Stage 1 and 2) Allowance 119,766 (31,229) 88,537 524 - 89,061 Total $ 146,793 $ (31,229) $ 115,564 $ 57,861 $ (58,400) $ 115,025

Represented by:

Loans $ 110,834 Committed but undrawn credit exposures and letters of credit(3) 4,191

Total $ 115,025

(1) Represents the transition impact of adopting IFRS 9 on November 1, 2019. For further information see Notes 1 and 2 of the 2019 audited annual financial statements. (2) Recoveries in 2019 totaled $3,866. (3) The performing allowance for credit losses related to committed but undrawn credit exposures and letters of credit is included in Other Liabilities on the consolidated balance sheets.

PROVISION FOR CREDIT LOSSES

The provision for credit losses was estimated under IFRS 9 beginning in

fiscal 2019, with the provision in fiscal 2018 estimated under IAS 39. Under

IFRS 9, the provision for credit losses as a percentage of average loans

of 21 basis points related entirely to impaired loans. This compares to 20

basis points last year under IAS 39, consisting of 19 basis points related to

impaired loans and one basis point related to performing loans. In dollar

terms, the 2019 provision for credit losses of $58 million compares to $48

million last year.

CWB has a long history of strong credit quality and low loan losses, both

of which compare very favourably to the Canadian banking industry. We

continually analyze macroeconomic and other external factors that may

impact core geographic regions and/or industries in which our clients

operate.

CWB Financial Group 2019 Annual Report38

Table 15 - Provision for Credit Losses ($ thousands)

IFRS 9 IAS 39 2019 2018 2017 2016(3) 2015

Provision for credit losses on total loans(1) 0.21% 0.20% 0.23% 0.38% 0.17% Provision for credit losses on impaired loans(1)(2) 0.21 0.19 0.19 0.32 0.12 Write-offs(1) 0.23 0.18 0.21 0.34 0.06

(1) As a percentage of average loans. (2) Portion of the year’s provision for credit losses allocated to impaired loan provisions as a percentage of average loans. (3) Provision for credit losses, net new specific provisions and write-offs in 2016 reflected the credit performance of oil and gas production loans, including the impact of regulatory factors on the liquidity of assets securing those loans.

DEPOSITS AND FUNDING

Highlights of 2019 • Strong execution against our balanced growth strategic objectives

for growth and diversification of funding.

• Very strong branch-raised deposit growth of 12% from last year,

including 14% growth of demand and notice deposits.

• Branch-raised deposits comprised 55% of total deposits at year end,

compared to 52% in 2018.

• Reduced broker deposits by $153 million and decreased their

proportion as a percentage of total funding to 32% of total deposits

at year end, down from 35% in 2018.

• Growth of debt capital markets with three successful senior deposit

note issuances totaling $900 million.

• Growth of debt related to securitization to support originations of

both equipment loans and leases, and residential mortgages.

Table 16 - Deposits ($ thousands)

Demand Notice Term 2019 Total

% of Total

Personal $ 34,296 $ 4,452,592 $ 10,813,617 $ 15,300,505 60% Business and government 715,875 3,420,754 2,595,531 6,732,160 27 Capital markets - - 3,318,696 3,318,696 13 Total Deposits $ 750,171 $ 7,873,346 $ 16,727,844 $ 25,351,361 100% % of Total 3% 31% 66% 100%

Demand Notice Term 2018 Total

% of Total

Personal $ 35,889 $ 3,684,259 $ 10,763,538 $ 14,483,686 61%

Business and government 716,156 3,157,875 2,335,785 6,209,816 26

Capital markets - - 3,006,455 3,006,455 13

Total Deposits $ 752,045 $ 6,842,134 $ 16,105,778 $ 23,699,957 100%

% of Total 3% 29% 68% 100%

We delivered strong execution against our funding diversification strategy

in 2019. Total deposits of $25.4 billion were up 7% ($1.7 billion).

Relationship-based, branch-raised funding increased 12% ($1.5 billion) from

last year, with very strong 14% growth of demand and notice deposits.

Branch-raised deposits represented 55% of total deposits at October 31,

2019, compared to 52% last year. Demand and notice deposits comprised

34% of total deposits, compared to 32% in 2018.

Personal deposits increased 6% ($817 million), including deposits issued

through the deposit broker network, and business and government deposits

increased 8% ($522 million). The proportion of deposits raised through the

capital markets was stable at 13% of total deposits, with three successful

senior deposit note issuances totaling $900 million. We also increased debt

related to securitization to support originations of equipment leases and

residential mortgages.

CWB Financial Group 2019 Annual Report 39

Table 17 - Deposits by Source (as a percentage of total deposits at October 31)

2019 2018

Branches 55% 52% Deposit brokers 32 35 Capital markets 13 13 Total 100% 100%

References to branch-raised deposits within this MD&A include all deposits

generated through CWB’s full-service banking branches, including insured

deposits raised through Valiant Trust’s deposit-taking franchise, as well as

deposits raised via CWB Trust Services and Motive Financial. Increasing

the level of branch-raised business and personal deposits is an ongoing

strategic focus for us as success in this area provides the most reliable

and stable sources of funding. CWB’s banking branches contributed

approximately half of the increase in branch-raised deposits from last year,

with Motive Financial contributing approximately one third of the increase

and the remainder from CWB Trust Services.

CWB Trust Services raises deposits through notice accounts, including cash

balances held in self-directed registered accounts as well as corporate trust

deposits, and fixed term deposits through our CWB branch network. Motive

Financial offers various deposit products to customers in all provinces and

territories except Quebec. Deposits in Motive Financial at October 31, 2019

totaled $797 million, up from $305 million last year, mainly from strong

growth in the Motive Savvy Savings account.

Consistent with our commercial focus, we generate a considerable portion

of our branch-raised deposits from business clients that tend to hold larger

balances compared to personal clients, which can increase the volatility of

demand and notice deposits (see the Liquidity Management section of this

MD&A).

Other types of deposits are primarily sourced through a deposit broker

network, through the deposit-taking franchises of both Canadian Western

Bank and Canadian Western Trust, as well as debt capital markets. Deposits

raised through deposit brokers are primarily insured, and 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.

Of note, we actively raise only 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. Strong core deposit

growth this year resulted in lower outstanding balances of broker-sourced

deposits compared to last year. Broker deposits comprised 32% of total

deposits at year end, down from 35% in 2018.

We continue to invest in our securitization capabilities and utilize

securitization funding through participation in lease securitization vehicles,

the NHA MBS program and the Canada Mortgage Bond (CMB) program.

Fiscal 2019 funding from the securitization of leases, loans and mortgages

was $907 million (2018 – $1.2 billion), including $704 million (2018 – $1.1

billion) of equipment leases and loans, and $203 million (2018 – $182 million)

from participation in the CMB program.

OTHER ASSETS AND OTHER LIABILITIES

Other assets at October 31, 2019 totaled $583 million (2018 – $ 579 million).

Goodwill and intangible assets recorded on the balance sheet at October

31, 2019 were $85 million (2018 – $85 million) and $174 million (2018 – $161

million), respectively.

Other liabilities totaled $713 million at October 31, 2019 (2018 – $725 million).

LIQUIDITY MANAGEMENT

Highlights of 2019 • Maintained a prudent liquidity position and conservative investment

profile.

• Continued to enhance reporting, forecasting and control activities

for both liquidity and asset/liability management through further

execution of our Treasury Infrastructure Program, which will support

the implementation of a more robust Funds Transfer Pricing (FTP)

framework.

• Higher balances of cash and securities at year end partly reflect

liquidity requirements related to the subordinated debenture

redemption that occured early in fiscal 2020.

A schedule outlining the consolidated securities portfolio at October 31,

2019 is provided in Note 6 to the consolidated financial statements. A

conservative liquid asset profile is maintained by ensuring:

• all investments are high quality and include government debt securities

(both Canadian and United States government debt securities), short-

term money market instruments, and other marketable securities;

• specific investment criteria and procedures are in place; and,

• the Board Risk Committee, annually reviews and approves the structural

interest rate, and liquidity and funding risk policies and risk appetite

statements.

CWB Financial Group 2019 Annual Report40

Our comprehensive liquidity management process includes, but is not

limited to, the following priorities:

• maintain a pool of high-quality liquid assets;

• complete comprehensive liquidity scenario stress testing;

• monitor the quality of the cash and securities portfolio;

• monitor liability diversification and maturity profile;

• monitor deposit behaviour;

• maintain access to deposit and capital market funding sources; and,

• monitor microeconomic and macroeconomic factors and early warning

indicators.

Table 18 - Liquid Assets ($ thousands)

Change from 20182019 2018

Cash and non-interest bearing deposits with financial institutions $ 116,963 $ 73,822 $ 43,141 Deposits with regulated financial institutions 293,856 26,825 267,031 Cheques and other items in transit 5,023 52,574 (47,551) Total Cash Resources 415,842 153,221 262,621

Government of Canada, provincial and municipal debt, term to maturity 1 year or less 1,071,125 377,657 693,468 Government of Canada, provincial and municipal debt, term to maturity more than 1 year 738,872 1,469,984 (731,112) NHA mortgage-backed securities(1) 394,342 330,599 63,743 Other debt securities 191,046 143,536 47,510 Securities purchased (sold) under resale agreements 10,401 (95,126) 105,527 Total Securities Sold Under Repurchase Agreements and Marketable Securities 2,405,786 2,226,650 179,136 Total Liquid Assets $ 2,821,628 $ 2,379,871 $ 441,757

Total Assets $ 31,424,235 $ 29,021,463 $ 2,402,772 Liquid Assets as a Percentage of Total Assets 9% 8% 100 bp(2)

Total Cash and Securities $ 2,475,415 $ 2,237,973 $ 237,442 Cash and Securities as a Percentage of Total Assets 8% 8% - bp(2)

Total Deposit Liabilities $ 25,351,361 $ 23,699,957 $ 1,651,404 Liquid Assets as a Percentage of Total Deposit Liabilities 11% 10% 100 bp

(1) Includes securitized mortgages that were not transferred to third parties. These are reported in loans at amortized cost on the consolidated balance sheets. (2) bp – basis points.

Liquid assets, as defined by OSFI, comprised of cash, deposits, securities

sold under repurchase agreements and marketable debt securities

totaled $2.8 billion at October 31, 2019 (2018 – $2.4 billion). Liquid assets

represented 9% (2018 – 8%) of total assets and 11% (2018 – 10%) of total

deposit liabilities at year end.

Our liquidity management is based on an internal stressed cash flow model,

with the level of cash and securities driven primarily by the term structure

of both assets and liabilities, and the liquidity structure of liabilities. The

composition of total liquid assets supports ongoing compliance with the

OSFI Liquidity Adequacy Requirements guideline. Higher balances of cash

and securities at year end partly reflect liquidity requirements related to

the planned subordinated debenture redemption that occured in early fiscal

2020. Other key changes in the composition of liquid assets at October 31,

2019 compared to the prior year include:

• maturities within one year comprise 59% (2018 – 39%);

• Government of Canada, provincial and municipal debt securities and

unencumbered NHA MBS comprise 78% (2018 – 92%);

• deposits with regulated financial institutions comprise 15% (2018 – 6%);

and,

• other marketable securities and securities sold under repurchase

agreements comprise 7% (2018 – 2%).

Additional sources of liquidity and funding in 2019 included $907 million

(2018 – $1.2 billion) from the securitization of leases and mortgages,

including $837 million (2018 – $608 million) of residential mortgages

which represent utilization of our NHA MBS allocation and $203 million

(2018 – $182 million) from participation in the CMB program. Sources of

incremental new funding included branch-raised deposits, issuances of

senior deposit notes, subordinated debentures and preferred shares, as

well as securitization activity. A summary of all outstanding deposits by

contractual maturity date is presented in the two following tables.

CWB Financial Group 2019 Annual Report 41

Table 19 - Deposit Maturities Within One Year ($ millions)

Within 1 to 3 3 Months Cumulative October 31, 2019 1 Month Months to 1 Year Within 1 Year

Demand deposits $ 750 $ - $ - $ 750 Notice deposits 6,963 193 717 7,873 Deposits payable on a fixed date 685 1,261 4,748 6,694 Total $ 8,398 $ 1,454 $ 5,465 $ 15,317

October 31, 2018 Total $ 8,201 $ 1,216 $ 4,285 $ 13,702

Table 20 - Total Deposit Maturities ($ millions)

Within 1 Year

1 to 2 Years

2 to 3 Years

3 to 4 Years

4 to 5 Years

More than 5 Years TotalOctober 31, 2019

Demand deposits $ 750 $ - $ - $ - $ - $ - $ 750 Notice deposits 7,873 - - - - - 7,873 Deposits payable on a fixed date 6,694 5,013 2,242 1,793 986 - 16,728 Total $ 15,317 $ 5,013 $ 2,242 $ 1,793 $ 986 $ - $ 25,351

October 31, 2018 Total $ 13,702 $ 3,831 $ 3,345 $ 1,321 $ 1,501 $ - $ 23,700

A breakdown of deposits by source is provided in Table 17. Target limits by source have been established as part of the overall liquidity policy and are monitored regularly to ensure an acceptable level of funding diversification is maintained. We continue to develop and implement strategies to compete for branch-raised deposits, and to strengthen this channel as the core source of funding.

Deposits raised through deposit brokers remain an effective incremental funding source. Senior and bearer deposit notes raised in the capital markets provide a further source of funding and liquidity.

A summary of the subordinated debentures outstanding is presented in the following table:

Table 21 - Subordinated Debentures Outstanding ($ thousands)

Interest Rate

Maturity Date

Earliest Date Redeemable

by CWB at Par Par Value

Non-NVCC subordinated debentures 3.463%(1) December 17, 2024 December 17, 2019 $ 250,000 NVCC subordinated debentures 3.668%(2) June 11, 2029 June 11, 2024 250,000

(1) These conventional debentures had a 12-year term with a fixed interest rate for the first seven years. Thereafter, if not redeemed the interest rate would have reset quarterly at the 3-month Canadian Dollar Offered Rate (CDOR) plus 160 basis points. All of the outstanding 3.463% non-NVCC subordinated debentures were redeemed on November 18, 2019 at an aggregate amount of $253,900, representative of the early redemption value plus accrued interest. (2) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the 3-month CDOR plus 199 basis points.

In addition to deposit liabilities and subordinated debentures, we have

notional debt securities related to the securitization of loans, leases and

mortgages to third parties (refer to Note 9 and 16 of the consolidated

financial statements for additional information).

CWB Financial Group 2019 Annual Report42

CAPITAL MANAGEMENT

Highlights of 2019 • We expect to submit final application and receive regulatory

approval in fiscal 2020 for transition to the AIRB approach for capital

and risk management.

• Very strong Basel III CET1 regulatory capital ratio of 9.1% under the

Standardized approach for calculating risk-weighted assets.

• Cash dividends of $1.08 per share paid to common shareholders, up 8%

• Very conservative Basel III leverage ratio of 8.3%, compared to the

regulatory minimum of 3.0%, where a higher ratio indicates lower

leverage.

• Repurchased 1.8 million common shares on the open market at a

weighted average price of $27.08 per share under the normal course

issuer bid (NCIB) which terminated on September 30, 2019.

• Launched a new NCIB authorizing the purchase for cancellation up

to 1.7 million common shares, terminating on September 30, 2020.

• Reset the fixed rate non-cumulative cash dividend for Series 5

preferred shares to 4.301% per annum.

• Issued $125 million five-year rate reset non-viability contingent

capital (NVCC) First Preferred Shares Series 9.

• Issued $250 million of NVCC subordinated debentures due June 11,

2029.

Subsequent Highlights • On December 4, 2019, the Board of Directors declared a cash

dividend of $0.28 per common share, unchanged from the prior

quarter and up 8% from the dividend declared in the same period

last year. The Board also declared preferred share cash dividends

of $0.2688125 per Series 5, $0.390625 per Series 7, and $0.375 per

Series 9.

• Redeemed all $250 million of outstanding non-NVCC subordinated

debentures on November 18, 2019.

This year we repositioned CWB’s capital structure to both optimize our cost of capital and support ongoing profitable growth and strategic execution. We issued $125 million of new Series 9 preferred shares and reset the rate on outstanding Series 5 preferred shares to lower the cost. We issued $250 million of NVCC subordinated debentures, and subsequent to year end, redeemed all $250 million of non-NVCC subordinated debentures. We also repurchased 1,829,944 common shares on the open market at a weighted average price of $27.08 per common share under the NCIB which terminated on September 30, 2019. We launched a new NCIB authorizing the purchase for cancellation up to 1,740,000 common shares, representing approximately 2% of the issued and outstanding common shares, terminating on September 30, 2020.

We manage capital in accordance with policies and plans that are regularly reviewed and approved by the Board Risk Committee. Capital management takes into account forecasted capital needs with consideration of anticipated profitability, asset growth, market and economic conditions, regulatory changes, and common and preferred share dividends. The overriding goal is to remain well-capitalized in order to protect depositors, and provide capacity for internally generated growth and strategic opportunities that do not otherwise require accessing the capital markets, all while providing a satisfactory return for common shareholders. We have implemented an ICAAP to establish target capital levels deemed prudent to effectively manage risks, including potential capital shocks from unexpected macroeconomic and/or CWB-specific events.

We provide a share incentive plan to officers and employees who are in a position to materially impact the longer term financial success of the organization, as measured by overall profitability, earnings growth, share price appreciation and dividends. Note 18 to the 2019 annual consolidated financial statements details the number of options outstanding, the weighted average exercise price and the amounts exercisable at year end.

Holders of CWB common shares and all series of preferred shares are deemed eligible by the Board and offered the choice to direct cash

dividends paid toward the purchase of common shares through a dividend reinvestment plan (DRIP). Further details regarding CWB’s DRIP are available at https://www.cwb.com/investor-relations.

We complied with all internal and external capital requirements in 2019.

AIRB TRANSITION PLAN

Our project continues in support of an application to OSFI for transition to the AIRB methodology for capital and risk management. In the second quarter of 2019, we revised our expected date to submit our final application from 2019 to 2020. This change reflected the iterative and conservative approach we have undertaken to achieve this transformational milestone, which we expect to create meaningful and lasting value for shareholders. We continue to expect to receive regulatory approval to transition in 2020.

Transition to the AIRB approach will put us on more equal footing with our competition and increase our addressable market. It will add risk sensitivity to our framework for capital management, increase risk quantification processes, improve risk-based pricing capabilities and economic capital estimations, improve stress testing capabilities and enhance our ICAAP. These improved risk management capabilities will better equip CWB to allocate resources to target business segments that generate the most attractive risk-adjusted returns.

Our AIRB transition project is comprised of several discrete phases, including: establishment of formalized project governance; creation of models including data collection, development and testing, deployment, operationalization and use test; model validation; and, submission of the final application to OSFI. All material AIRB models and related scorecards have been deployed into the business, with ongoing enhancement of existing models underway.

Further development of ERM function is also ongoing, including: three lines of defence enhancement, stress testing capabilities, and economic capital estimation. Implementation of CWB’s AIRB risk-weighted asset calculation and capital reporting tools continues.

CWB Financial Group 2019 Annual Report 43

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

CWB 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. CWB’s required minimum

regulatory capital ratios, including a 250 basis point capital conservation

buffer, are 7.0% common equity Tier 1 (CET1), 8.5% Tier 1 and 10.5% Total

capital.

With very strong capital ratios of 9.1% CET1, 10.7% Tier 1 and 12.8% Total

capital at October 31, 2019, CWB is well positioned to create value for

shareholders through a range of capital deployment options consistent

with our balanced growth strategic objectives. Ongoing support and

development of each of CWB’s core businesses will remain a key priority,

and we will continue to evaluate potential strategic acquisitions. CWB’s

Basel III leverage ratio of 8.3% at year end remains very strong.

The Basel Committee on Banking Supervision (BCBS) finalized Basel III

reforms in fiscal 2017, with an effective date of January 2022. The final Basel

III reforms included adjustments to the calculation of risk-weighted assets

(RWAs), which more specifically included changes to both the standardized

approach (SA) and internal ratings based (IRB) approach to credit risk,

operational risk, and credit valuation adjustments as well as to the AIRB

capital floors. The reforms are mainly intended to reduce the variability

in capital levels and to address a number of weaknesses in the existing

capital framework. OSFI is currently engaged in a consultation process with

interested stakeholders on its proposed policy direction and its timelines for

implementation of the final Basel III reforms in Canada.

On October 30, 2018, OSFI revised its securitization framework to reflect

the adoption of the BCBS’ Revisions to the Securitisation Framework and

Capital Treatment for Short-term “Simple, Transparent and Comparable”

Securitisations. The new requirements were effective November 1,

2018, however OSFI provided transitional arrangements for transactions

undertaken before January 1, 2019. In addition, OSFI allowed a one-year

grandfathering of the securitization framework for all exposures held at

October 31, 2018. Upon adoption of the revised guidelines, there was no

material impact to CWB’s capital ratios.

On October 30, 2018, OSFI also revised its guidelines to incorporate the new

BCBS Standardized approach methodologies for measuring counterparty

credit risk and capital requirements for exposures to central counterparties.

The adoption required over-the-counter derivative exposures to be reflected

under the new Standardized Approach for Measuring Counterparty Credit

Risk (SA-CCR), instead of the previous methodology based on the current

exposure method. The adoption of these guidelines had no material impact

to CWB’s capital ratios.

On October 30, 2018, OSFI published its updated Leverage Requirements

Guideline, effective for November 1, 2018. The revisions align the leverage

guideline with OSFI’s 2019 adoption of the BCBS standard on SA-CCR and

the revisions to the securitization framework discussed above.

On November 20, 2018, OSFI also finalized the Leverage Ratio Disclosure

Requirements guideline, effective for November 1, 2018. The adoption of

these guidelines had no material impact to CWB’s leverage ratio.

On July 11, 2019, OSFI released a discussion paper titled Advancing

Proportionality: Tailoring Capital and Liquidity Requirements for Small

and Medium-Sized Deposit Taking Institutions. OSFI launched a public

consultation process on the discussion paper and is now considering the

submissions.

Table 22 - Capital Structure and Regulatory Ratios at Year End ($ thousands)

Change from 20182019 2018

Regulatory Capital, Net of Deductions Common equity Tier 1 $ 2,302,551 $ 2,153,019 $ 149,532 Tier 1 2,692,714 2,418,231 274,483 Total 3,232,807 2,788,048 444,759

Capital Ratios Common equity Tier 1 9.1% 9.2% (10) bp Tier 1 10.7 10.3 40 Total 12.8 11.9 90

Leverage Ratio 8.3 8.0 30

(1) bp – basis points.

Our very strong CET1 capital ratio of 9.1% compares to 9.2% last year. The

impacts of earnings net of dividends, the IFRS 9 transitional adjustment

to opening retained earnings and positive other comprehensive income

were more than offset by the combined impact of strong risk-weighted

asset growth, and common shares repurchased under the NCIB. The Tier

1 and Total capital ratios increased 40 basis points and 90 basis points,

respectively, primarily reflecting the issuance of $125 million NVCC Series 9

Preferred Shares and $250 million of NVCC subordinated debentures,

partially offset by the items noted above, as well as the fact that a portion

of the $250 million of non-NVCC subordinated debentures outstanding

during the year was not included in Total capital in 2019. At 8.3% (8.0% as

at October 31, 2018), the Basel III leverage ratio remains very conservative.

CWB Financial Group 2019 Annual Report44

Table 23 - Regulatory Capital ($ thousands)

As at October 31

2019

As at October 31

2018

Common Equity Tier 1 Capital Instruments and Reserves Directly issued qualifying common share capital plus related share-based payment reserve $ 756,279 $ 768,638 Retained earnings 1,785,273 1,649,196 Accumulated other comprehensive income and other reserves (8,600) (48,962)

Common equity Tier 1 capital before regulatory adjustments 2,532,952 2,368,872 Regulatory adjustments to Common equity Tier 1(1) (230,401) (215,853) Common equity Tier 1 capital 2,302,551 2,153,019

Additional Tier 1 Capital Instruments Directly issued capital instruments qualifying as Additional Tier 1 instruments 390,000 265,000 Additional Tier 1 instruments issued by subsidiaries and held by third parties 163 212 Additional Tier 1 capital 390,163 265,212 Tier 1 capital 2,692,714 2,418,231

Tier 2 Capital Instruments and Allowances Directly issued capital instruments 248,494 - Directly issued capital instruments subject to phase out from Tier 2(2) 202,500 250,000 General allowance for credit losses 89,061 119,766 Tier 2 instruments issued by subsidiaries and held by third parties 38 51 Tier 2 capital before regulatory adjustments 540,093 369,817 Total capital $ 3,232,807 $ 2,788,048

(1) CET1 deductions include goodwill and intangible assets, net of related tax. (2) The 2019 inclusion of non-qualifying capital instruments in regulatory capital under Basel III is capped at 30% (2018 – 40%) of the balance of non-common equity instruments outstanding at January 1, 2013. At October 31, 2019, $47,500 (2018 – nil) was excluded from Total regulatory capital related to outstanding non-NVCC subordinated debentures.

Table 24 - Risk-Weighted Assets ($ thousands)

Cash, Securities

and Resale Agreements Loans

Other Items

As at October 31, 2019

Total

Risk- Weighted

Assets

Corporate $ 94,491 $ 17,689,942 $ - $ 17,784,433 $ 17,708,342 Sovereign 1,852,338 9,297 - 1,861,635 1,859 Bank 426,966 51 - 427,017 77,370 Retail residential mortgages 65,086 5,690,445 - 5,755,531 1,667,224 Other retail

Excluding small business entities - 184,947 - 184,947 125,144 Small business entities - 3,331,350 - 3,331,350 2,538,663

Equity 18,292 - - 18,292 18,292 Undrawn commitments - 339,641 - 339,641 335,935 Operational risk - - 114,690 114,690 1,433,625 Securitization risk - 162,182 - 162,182 800,856 Derivative exposures - - 47,690 47,690 17,989 Other - 242,186 511,431 753,617 476,994 As at October 31, 2019 $ 2,457,173 $ 27,650,041 $ 673,811 $ 30,781,025 $ 25,202,293 As at October 31, 2018 $ 2,174,038 $ 25,443,612 $ 689,488 $ 28,307,138 $ 23,486,242

CWB Financial Group 2019 Annual Report 45

Table 25 - Risk-Weighting Category ($ thousands)

As at October 31, 2019

0% 20% 35% 50% 75% 100% 150% and

greater Balance Weighted

Corporate $ 30,938 $ 89,078 $ - $ 10,065 $ - $ 17,592,067 $ 62,285 $ 17,784,433 $ 17,708,342 Sovereign 1,852,338 9,297 - - - - - 1,861,635 1,859 Bank 40,376 386,589 - - - 52 - 427,017 77,370 Retail residential mortgages 1,067,378 - 4,641,167 - 19,937 25,422 1,627 5,755,531 1,667,224 Other retail

Excluding small

business entities 17,972 172 - - 166,793 1 9 184,947 125,144 Small business entities 9,287 1,155 - - 3,188,703 102,804 29,401 3,331,350 2,538,663

Equity - - - - - 18,292 - 18,292 18,292 Undrawn commitments - - - - 15,000 324,553 88 339,641 335,935 Operational risk - - - - - - 114,690 114,690 1,433,625 Securitization risk - - - - - - 162,182 162,182 800,856 Derivative exposures - 47,003 - - - - 687 47,690 17,989 Other 318,092 5,164 - - 48,520 344,175 37,666 753,617 476,994 As at October 31, 2019 $ 3,336,381 $ 538,458 $ 4,641,167 $ 10,065 $ 3,438,953 $ 18,407,366 $ 408,635 $ 30,781,025 $ 25,202,293 As at October 31, 2018 $ 3,052,548 $ 188,388 $ 4,412,605 $ 5,023 $ 3,133,833 $ 17,159,188 $ 355,553 $ 28,307,138 $ 23,486,242

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

As a financial institution, most of CWB’s balance sheet is comprised of

financial instruments and the majority of net income results from gains,

losses, income and expenses related to the same.

Financial assets include cash resources, securities, securities purchased

under resale agreements, loans, derivative financial instruments and certain

other assets. Financial liabilities include deposits, securities sold under

repurchase agreements, derivative financial instruments, 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 this 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 this 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, net and fair value changes in certain derivatives are classified

to non-interest income. Contingent consideration fair value changes are

classified as acquisition-related fair value changes in the consolidated

statements of income.

DERIVATIVE FINANCIAL INSTRUMENTS

More detailed information on the nature of derivative financial instruments

is shown in Note 12 to the consolidated financial statements. The notional

amounts of derivative financial instruments are not reflected on the

consolidated balance sheets.

CWB Financial Group 2019 Annual Report46

Table 26 - Derivative Financial Instruments ($ thousands)

2019 2018

Notional Amounts Interest rate swaps designated as cash flow hedges(1) $ 6,828,000 $ 4,908,000 Foreign exchange contracts not designated as accounting hedges(2) 270,913 189,128 Interest rate swaps designated as fair value hedges(3) 39,746 - Bond forwards designated as cash flow hedges(4) 20,000 15,000 Equity swaps designated as cash flow hedges(5) 19,268 18,285 Equity swaps not designated as accounting hedges(6) 5,319 5,842

Total $ 7,183,246 $ 5,136,255

(1) CWB receives interest at a fixed contractual rate and pays interest on the one-month (30-day) Canadian Bankers’ Acceptance rate. Interest rate swaps designated as accounting cash flow hedges outstanding at October 31, 2019 mature between November 2019 and September 2024. (2) Foreign exchange contracts outstanding at October 31, 2019 mature between November 2019 and April 2020. (3) Interest rate swaps designated as accounting fair value hedges outstanding at October 31, 2019 mature in August and December 2022. (4) Bond forward contracts outstanding at October 31, 2019 mature in December 2019. (5) Equity swaps designated as accounting hedges outstanding at October 31, 2019 mature between June 2020 and June 2022. (6) Equity swaps not designated as accounting hedges outstanding at October 31, 2019 mature in June 2020.

The active use of interest rate contracts remains an integral component to

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 Policy the use of

derivative financial instruments are approved, reviewed and monitored on

a regular basis by 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 administration and assets

under management. Total assets under administration, which are comprised

of trust assets under administration, third-party leases under administration,

and mortgages under service agreements, totaled $9.3 billion at October

31, 2019 (2018 – $8.4 billion).

Assets under management held within CWB Wealth Management, including

CWB McLean & Partners Wealth Management, were $2.1 billion at year end

(2018 – $2.1 billion).

Other off-balance sheet items are comprised of standard industry credit

instruments (guarantees, standby letters of credit and commitments to

extend credit). 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 20 of the consolidated

financial statements.

CWB Financial Group 2019 Annual Report 47

SUMMARY OF QUARTERLY RESULTS AND FOURTH QUARTER

QUARTERLY RESULTS

The financial results for each of the last eight quarters are summarized in

Table 27. In general, our performance reflects a consistent growth trend,

although the second quarter contains three fewer revenue-earning days,

and two fewer days during leap years. Non-interest income includes gains

on sale related to the CWT strategic transactions of $0.6 million, $0.4

million and $3.0 million in the fourth, third and first quarters of fiscal 2018,

respectively.

Among other things, quarterly results can also fluctuate from the recognition

of periodic income tax items.

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 [email protected].

Table 27 - Quarterly Financial Highlights(1)

($ thousands, except per share amounts)

2019(2) 2018 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Results from Operations Net interest income $ 201,439 $ 199,746 $ 191,057 $ 193,342 $ 189,093 $ 186,644 $ 177,986 $ 171,267 Non-interest income 19,414 18,738 18,711 19,097 19,473 18,345 18,600 21,950 Total revenue 220,853 218,484 209,828 212,439 208,566 204,989 196,586 193,217 Pre-tax, pre-provision income 114,390 116,975 111,692 118,073 111,182 110,695 107,247 107,064 Common shareholders' net income 67,512 70,964 61,965 66,499 64,501 62,362 60,464 61,929 Earnings per common share

Basic 0.77 0.81 0.71 0.75 0.73 0.70 0.68 0.70 Diluted 0.77 0.81 0.71 0.75 0.72 0.70 0.68 0.69 Adjusted cash 0.78 0.82 0.74 0.80 0.78 0.75 0.73 0.75

Return on common

shareholders’ equity 10.6% 11.3% 10.5% 11.1% 11.1% 10.8% 11.1% 11.1% Adjusted return on common

shareholders’ equity 10.7 11.4 11.0 11.9 11.9 11.7 12.0 12.0 Return on assets 0.86 0.92 0.85 0.90 0.89 0.88 0.89 0.91 Efficiency ratio 48.2 46.5 46.8 44.4 46.7 46.0 45.4 44.6 Net interest margin 2.55 2.60 2.63 2.61 2.61 2.64 2.61 2.52 Operating leverage (3.4) (1.1) (3.1) 0.4 0.1 (1.4) 5.4 3.9 Provision for credit losses on total loans

as a percentage of average loans 0.19 0.19 0.23 0.24 0.19 0.21 0.20 0.18 Provision for credit losses on impaired

loans as a percentage of average loans 0.18 0.22 0.22 0.22 0.19 0.22 0.20 0.16

(1) See page 20 for a discussion of non-IFRS measures. (2) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2 of the 2019 audited annual financial statements). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.

CWB Financial Group 2019 Annual Report48

FOURTH QUARTER OF 2019

Overview of Operations

Q4 2019 VS. Q4 2018

Common shareholders’ net income of $68 million and pre-tax, pre-provision

income of $114 million were up 5% and 3%, respectively. Total revenue of

$221 million was up 6% from last year, including a 7% increase in net interest

income. Higher net interest income reflects solid 8% loan growth, partially

offset by a six basis point decrease in net interest margin to 2.55%. Net

interest margin declined as higher asset yields and favourable changes in

funding mix were more than offset by increased funding costs and changes

in asset mix. Non-interest income of $19 million was consistent with last

year, with fourth quarter results in fiscal 2018 including $0.6 million of gains

on sale related to the CWT strategic transactions. The IFRS 9 provision for

credit losses on total loans as a percentage of average loans was 19 basis

points. Under IAS 39, provisions for credit losses represented 19 basis

points in the fourth quarter of last year. Non-interest expenses were up 9%,

reflecting investments to support continued growth and strategic execution,

including increased advertising. Higher salaries and benefits comprised two

thirds of the increase and primarily reflect additional hiring. Three quarters

of the increase in premises and equipment costs related to technology

investment. Acquisition-related fair value changes were $5 million lower,

reflecting completion of the earn-out period on February 28, 2019 for the

contingent consideration related to the successful and accretive acquisition

of CWB Maxium Financial. Preferred share dividends were $2 million higher.

Diluted and adjusted cash earnings per common share of $0.77 and $0.78

were up 7% and nil, respectively. The higher growth rate of diluted earnings

per common share primarily reflects no acquisition-related fair value

changes this quarter.

Q4 2019 VS. Q3 2019

Common shareholders’ net income and pre-tax, pre-provision income

were down 5% and 2%, respectively. Total revenue was up 1%. Growth

in net interest income of 1% reflected 1% loan growth, partially offset by

a five basis point decrease in net interest margin. Moderate loan growth

partly reflected payouts from successful project completions in our real

estate portfolio. Within net interest margin, positive changes in funding

mix from higher growth in demand and notice deposits was more than

offset by changes in asset mix, lower asset yields and increased funding

costs. Non-interest income was up 4% and the provision for credit losses

as a percentage of average loans was unchanged. Non-interest expenses

were 5% higher, reflecting the factors noted above. The fourth quarter

also included higher consulting fees and customary seasonal increases in

employee training and community investment. Diluted and adjusted cash

earnings per common share were both down 5%.

ADJUSTED ROE AND ROA

The fourth quarter adjusted ROE of 10.7% was 120 basis points lower

compared to the same period last year. The change mainly reflects 10%

growth of average common shareholders’ equity from the fourth quarter

last year, with an increase in accumulated other comprehensive income and

retained earnings growth, partially offset by the impact of common shares

purchased for cancellation, compared to a 1% reduction in fourth quarter

adjusted common shareholders net income.

Adjusted ROE was 70 basis points lower on a sequential basis, mainly

reflecting 4% lower adjusted net income this quarter and 2% growth in

average common shareholders’ equity.

The fourth quarter return on assets (ROA) of 0.86% was three basis points

lower than the prior year as growth of net income was outpaced by growth

of average assets. ROA was down six basis points from the prior quarter,

reflecting the same factors.

EFFICIENCY RATIO

The fourth quarter efficiency ratio of 48.2%, which measures adjusted non-

interest expenses divided by total revenue, compares to 46.7% in the same

period last year and 46.5% in the previous quarter. Compared to last year

and last quarter, revenue growth was outpaced by growth of non-interest

expenses, mainly reflecting continued investment in strategic execution.

CWB Financial Group 2019 Annual Report 49

ACCOUNTING POLICIES AND ESTIMATES

CRITICAL ACCOUNTING ESTIMATES

CWB’s significant accounting policies are outlined in Note 1 to the audited

consolidated financial statements with related financial note disclosures

by major caption. The policies discussed below are considered particularly

important, as they require management to make significant estimates

or judgments, some of which may relate to matters that are inherently

uncertain.

ALLOWANCE FOR CREDIT LOSSES

An allowance for credit losses is maintained to absorb expected credit losses

for both performing assets and impaired assets based on management’s

estimate at the balance sheet date and forward-looking information. Under

IFRS 9 effective November 1, 2018, 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:

• changes in internal risk ratings attributable to a borrower or instrument

reflecting changes in credit quality;

• thresholds used to determine when a borrower has experienced a

significant increase in credit risk; and,

• changes in forward-looking information, specifically related to variables

to which the ECL models are calibrated.

The inputs and models used for estimating ECL may not always capture all

emerging market conditions and as such, qualitative adjustments based on

expert judgment that consider reasonable and supportable information may

be incorporated. Changes in circumstances may cause future assessments

of credit risk to be significantly different than current assessments and

may require an increase or decrease in the allowance for credit losses.

Establishing a range for the allowance for credit losses is difficult due to the

number of uncertainties involved. At October 31, 2019, our total allowance

for credit losses was $115 million which includes an allowances for credit

losses related to impaired assets of $ 26 million and an allowances for credit

losses related to performing assets of $89 million. Additional information

on the process and methodology for determining the allowance for credit

losses under IFRS 9 and IAS 39 during fiscal 2019 and 2018, respectively, and

the transition between the standards on November 1, 2018 can be found in

the discussions of Credit Quality and Changes in Accounting Policies and

Financial Statement Presentation, respectively, in this MD&A and in Note 1,

2 and 8 to the consolidated financial statements.

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

Cash resources, securities, acquisition contingent consideration and

derivative financial instruments are reported on the consolidated balance

sheets at fair value.

CWB categorizes its fair value measurements of financial instruments

according to a three-level hierarchy. Level 1 fair value measurements

reflect unadjusted quoted prices in active markets for identical assets and

liabilities that CWB can access at the measurement date. Level 2 fair value

measurements were 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 were 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.

CWB Financial Group 2019 Annual Report50

The following table summarizes the significant financial assets and liabilities recorded on the consolidated balance sheets at fair value.

Table 28 - Valuation of Financial Instruments ($ thousands)

Valuation Technique

As at October 31, 2019 Fair Value Level 1 Level 2 Level 3 Financial Assets

Cash resources $ 415,842 $ 139,876 $ 275,966 $ - Securities 2,019,207 141,070 1,878,137 - Securities purchased under resale agreements 40,366 - 40,366 - Loans 28,478,436 - - 28,478,436 Derivatives 47,815 - 47,815 -

Total Financial Assets $ 31,001,666 $ 280,946 $ 2,242,284 $ 28,478,436

Financial Liabilities

Deposits $ 25,544,270 $ - $ 25,544,270 $ - Securities sold under resale agreements 29,965 - 29,965 - Debt 2,444,034 - 2,444,034 - Derivatives 14,016 - 14,016 -

Total Financial Liabilities $ 28,032,285 $ - $ 28,032,285 $ -

Valuation Technique

As at October 31, 2018 Fair Value Level 1 Level 2 Level 3 Financial Assets

Cash resources $ 153,221 $ 144,019 $ 9,202 $ -

Securities 2,084,752 219,570 1,865,182 -

Loans 26,551,146 - - 26,551,146

Derivatives 2,496 - 2,496 -

Total Financial Assets $ 28,791,615 $ 363,589 $ 1,876,880 $ 26,551,146

Financial Liabilities

Deposits $ 23,502,200 $ - $ 23,502,200 $ -

Securities sold under repurchase agreements 95,126 - 95,126 -

Debt 1,942,472 - 1,942,472 -

Contingent consideration(1) 29,814 - - 29,814

Derivative related 69,581 - 69,581 -

Total Financial Liabilities $ 25,639,193 $ - $ 25,609,379 $ 29,814

(1) The Level 3 financial liability at October 31, 2018 is related to the acquisition of CWB Maxium and the CWT strategic transactions.

Notes 3, 5, 6, 7, 8, 12, 14, 16, 25 and 27 to the consolidated financial statements provide additional information regarding these financial instruments.

CWB Financial Group 2019 Annual Report 51

CHANGES IN ACCOUNTING POLICIES AND FINANCIAL STATEMENT PRESENTATION

IFRS 9 FINANCIAL INSTRUMENTS

CWB adopted IFRS 9, which replaces IAS 39 for the fiscal year beginning November 1, 2018. As permitted by IFRS 9, we have not restated prior period comparative figures and have recognized an adjustment to opening retained earnings and accumulated other comprehensive income (AOCI) to reflect the application of the new requirements at the adoption date. For further details, refer to Notes 1 and 2 of the consolidated financial statements.

The most significant impact to CWB with the transition to IFRS 9 is the introduction of an ECL approach for measuring impairment that is applicable to financial assets measured at amortized cost, debt securities measured at FVOCI, and certain off-balance sheet loan commitments and financial guarantee contracts. The implementation of an ECL approach under IFRS 9, which results in allowances for credit losses being recognized on financial assets regardless of whether there has been an actual loss event, is a significant change from the incurred loss model under IAS 39.

Under IFRS 9, we refer to allowances and provisions for credit losses on impaired loans (Stage 3) and performing loans (Stages 1 and 2). Our specific allowances under IAS 39 are consistent with Stage 3 allowances for credit losses under IFRS 9, while the collective allowance under IAS 39 is replaced

by Stage 1 and 2 allowances for credit losses under IFRS 9.

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

IFRS 15 Revenue from Contracts with Customers (IFRS 15) was issued in

May 2014, and replaces IAS 18 Revenue, IAS 11 Construction Contracts and

related Interpretations. IFRS 15 provides a single, principles-based five-step

model that applies to all contracts with customers. The standard excludes

from its scope revenue arising from items such as financial instruments

and leases as these fall within the scope of other IFRSs. We performed a

detailed analysis on each revenue stream that is within the scope of the new

standard. We adopted IFRS 15 using the modified retrospective approach

and have concluded that there is no significant impact in relation to the

adoption of IFRS 15.

FUTURE CHANGES IN ACCOUNTING POLICIES

A number of standards and amendments have been issued by the

International Accounting Standards Board (IASB), and the following

changes may have an impact on our future financial statements.

IFRS 16 LEASES

In January 2016, the IASB issued IFRS 16, which supersedes IAS 17 Leases

(IAS 17). This standard provides principles for the recognition, measurement,

presentation and disclosure of leases. The standard sets out a single lessee

accounting model for all leases by eliminating the distinction between

operating and financing leases. IFRS 16 requires lessees to recognize a

right-of use asset and lease liability on the consolidated balance sheets for

most leases. Lessees will also recognize depreciation expense on the right-

of-use asset and interest expense on the lease liability in the consolidated

statements of income. Lessor accounting remains substantially unchanged

other than additional disclosure requirements. IFRS 16 is effective for our

fiscal year beginning November 1, 2019.

There are two methods by which the new standard may be adopted: (1) a full

retrospective approach with a restatement of all prior periods presented, or

(2) a modified retrospective approach with a cumulative-effect adjustment

recognized in opening retained earnings as of the date of adoption.

At initial application, we will elect the modified retrospective option

permitted by IFRS 16, in which the lessee recognizes the cumulative effect,

if any, on initial application in retained earnings as of November 1, 2019,

subject to allowable and elected practical expedients. On initial adoption,

we intend to use the following recognition exemptions and practical

expedients, where applicable:

• not apply the requirements of IFRS 16 to short-term and low value leases;

• apply a single discount rate to a portfolio of leases with reasonably

similar characteristics;

• exclude initial direct costs relating to existing leases from the

measurement of the right-of-use assets;

• rely on previous assessment of whether leases are onerous in accordance

with IAS 37 Provisions, Contingent Liabilities and Contingent Assets,

immediately before the date of initial application as an alternative to

performing an impairment review;

• use hindsight to determine the lease term where the lease contracts

contain options to extend or terminate the lease; and,

• treat existing operating leases with a remaining term of less than 12

months at November 1, 2019 as short-term leases.

We have completed the process of assessing existing contractual

relationships to identify leases that will be recorded on the consolidated

balance sheets upon the adoption of IFRS 16. The main impact for CWB

will be recognizing right-of-use assets and lease liabilities for premises

leases. Currently, premises leases are classified as operating leases,

with lease expense recorded over the term of the lease with no asset or

liability recorded on the consolidated balance sheets. Based on preliminary

assessments, we expect to recognize right-of-use assets of approximately

$75 million to $85 million, lease liabilities of $90 million to $100 million and

a decrease in the common equity Tier 1 capital ratio of approximately 10

basis points upon transition to IFRS 16. The adoption of IFRS 16 is expected

to have a nominal impact to ongoing profitability, as amortization of

right-of-use assets and interest expense on lease liabilities will be mostly

offset by a reduction in lease expense previously recognized in premises

and equipment expense. The recognition of interest expense on premises

leases will marginally contribute to net interest margin compression. The

actual impact of adopting IFRS 16 on November 1, 2019, may differ from

these estimates as we continue to review our calculations and refine certain

inputs.

HEDGE ACCOUNTING

In September 2019, the IASB issued amendments to hedge accounting

requirements in IFRS 9, IAS 39 and IFRS 7 Financial Instruments: Disclosures

which address the possible effects of uncertainties created by Inter-bank

Offered Rate (IBOR) reform. The amendments are effective for CWB’s fiscal

year beginning November 1, 2020 with early adoption permitted. CWB is in

the process of assessing the impact of these amendments.

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

In March 2018, the IASB issued a revised version of the Conceptual

Framework for Financial Reporting which assists the IASB in developing IFRS

standards and serves as an accounting policy guide when no IFRS standard

applies. The amendments provide revised definitions and recognition

criteria for assets and liabilities, and guidance on different measurement

bases. The IASB also issued amendments to IFRS standards to refer to

the revised framework. The revisions are effective for CWB’s fiscal year

beginning November 1, 2020 with early adoption permitted. CWB is in the

process of assessing the impact of the revised framework.

CWB Financial Group 2019 Annual Report52

RISK MANAGEMENT

The shaded areas of this MD&A represent a discussion of risk management policies and procedures relating to credit, market and liquidity risks as

required under IFRS, which permits these specific disclosures to be included in the MD&A. Therefore, the shaded areas presented on pages 52 to 68

of this MD&A form an integral part of the audited consolidated financial statements for the year ended October 31, 2019.

CWB’S APPROACH TO RISK MANAGEMENT

We maintain an integrated and disciplined approach to risk

management. Effective risk management supports the creation of long-

term shareholder value by providing a framework to optimize capital

management and risk-adjusted capital returns. Our risk management

framework guides us in prudent, balanced and measured risk-taking

aligned with our balanced growth strategic objectives.

The ERM group develops and maintains our risk management

framework. This framework encompasses risk culture, risk governance,

risk appetite, risk policies, and risk management processes. The

framework also provides independent review and oversight across

the enterprise on risk-related issues. To achieve our balanced growth

strategic objectives and our long-term goal to be the best full-service

bank for business owners in Canada requires continuous consideration,

understanding and responsible management of all key risks at both

the strategic and operational levels. CWB’s core strategic objectives

include an effective balance of risk and reward. This requires that each

team member make common-sense business decisions by assessing

risk and reward trade-offs considering our strategic objectives and risk

appetite, along with regulatory and legal requirements. We consciously

accept risks to create long-term value for stakeholders and support the

responsible and efficient delivery of products and services to valued

clients, provided those risks:

• Are aligned with CWB’s strategic objectives;

• Are thoroughly understood, measured and managed within the

confines of well-communicated risk tolerances, including the highest

ethical standards; and,

• Serve the interests of stakeholders, including clients, shareholders,

creditors, employees, regulators and communities.

Highlights of 2019 We undertook further enhancements to CWB’s Risk Management

Framework in 2019 as part of the ongoing development and

implementation of our risk management processes. Key initiatives

included:

• Significant progress of CWB’s multi-year project in support of an

application for transition to the AIRB approach for capital and risk

management:

- We plan to submit our final application and expect to receive

regulatory approval for transition in 2020

- We developed, operationalized, and enhanced AIRB models and

AIRB-based stress testing capabilities

- The transition will enhance CWB’s competitive position and

facilitate risk-based pricing, enable further optimization of capital

allocation, facilitate business mix optimization, and enhance CWB’s

risk quantification, stress testing, and overall ERM capabilities

• Continued to enhance risk analytics, economic forecasting, and

portfolio and systematic risk management capabilities;

• Further developed and matured CWB’s ERM function and the three

lines of defence framework to provide consistent, transparent and

clearly documented allocation of accountabilities and segregation

of functional responsibilities;

• Developed an overall legal, regulatory compliance and reputation

risk management policy and continued to develop and enhance

underlying supporting frameworks, including regulatory compliance

risk management capabilities;

• Further developed and matured data governance frameworks;

• Continued to mature a second line of defence for risk-based pricing

to support profitable growth; and,

• Continued to implement an advanced operational risk management

framework.

Outlook for Risk Management We will continue to support enhanced risk management capabilities

through further development of ERM and risk appetite frameworks, and

related risk policies. Key risk management priorities for 2020 include:

• Submission of CWB’s final application and expected regulatory

approval to transition to the AIRB approach for capital and risk

management;

• Further development of second line frameworks for liquidity and

technology risk;

• Utilization of CWB’s economic capital framework;

• Continuous utilization of CWB’s newly developed systematic risk

management capabilities, including stress testing applications; and,

• Production of an AIRB model-enabled ICAAP.

CWB Financial Group 2019 Annual Report 53

RISK MANAGEMENT OVERVIEW

We design risk management processes to complement CWB’s overall size,

level of complexity, risk profile and philosophy regarding risk. Our risk

management philosophy emphasizes risk measurement, sound controls,

effective governance, transparency and accountability. Selective choice

and management of acceptable risks has been integral to our ability to grow

profitably in both favourable and adverse market conditions. A strong risk

culture continues to be a cornerstone of our approach to risk management.

As with all financial institutions, we are in the business of managing risk

and are therefore exposed to various risk factors that could adversely affect

our operating environment, financial condition and financial performance.

Exposure to risk may also influence a client’s decision to take loans and/or

make deposits, and an investor’s decision to buy, sell or hold CWB shares

or other securities. Each of our businesses is subject to certain risks that

require unique mitigation strategies.

We have demonstrated our ability to effectively manage risks through

conservative management practices based on a strong risk culture and a

disciplined risk management approach; however, not all risks are within our

direct control.

A description of key internal and external risk factors we consider is included

in this risk management discussion. We actively evaluate existing and

potential risks to develop, implement and continually enhance appropriate

risk mitigation strategies.

RISK MANAGEMENT STRENGTHS

• Secured lending business model;

• Disciplined underwriting with demonstrated strength through multiple

credit cycles;

• Strong risk culture with a robust risk management framework which

addresses risks throughout CWB;

• Relatively low operational risk profile;

• No trading book;

• In-depth knowledge of CWB’s clients;

• Increasing geographic diversification;

• Low balance sheet leverage;

• Low average duration of lending portfolios; and,

• Relatively low exposure to economically sensitive, unsecured retail

lending portfolios.

RISK MANAGEMENT CHALLENGES

• Capital requirements under the Standardized approach, which are

insensitive to the underlying economic risk, and do not adequately reflect

CWB’s demonstrated risk management strengths through multiple credit

cycles;

• The potential impact of low interest rates on net interest income;

• Market volatility related to factors outside of CWB’s control which affect

investors’ decisions to buy, sell or hold CWB shares or other securities;

• Macroeconomic volatility, including the impacts of constrained energy

transportation infrastructure in Western Canada;

• Uncertainty related to trade agreements which could affect the outlook

for Canadian exports and future economic growth;

• Increasing volume and complexity of regulatory requirements and

expectations; and,

• Cyber security and other technology related risk.

RISK MANAGEMENT PRINCIPLES

CWB’s risk management principles are based on the premise that we are

in the business of accepting risks for appropriate return. We do not seek to

eliminate financial risk, but seek to manage risk appropriately and optimize

risk-adjusted returns on capital.

In conducting our business activities, we will take financial risks that

are aligned with our balanced growth strategic objectives in a manner

expected to create sustainable, long-term value for shareholders and

other stakeholders. Our risk management principles are therefore aligned

with CWB’s strategic objectives, and embedded within our management

practices.

The following principles guide the management of risks across all of our

operations:

• Ongoing commitment to a three lines of defence risk governance

framework with independent oversight and effective challenge from the

second line, and an independent and effective Internal Audit function

comprising the third line;

• A commitment to utilize AIRB capabilities for management of systematic

risk, capital and risk return optimization, stress testing and balance sheet

optimization;

• An effective balance of risk and reward through alignment of business

strategy with risk appetite, diversifying risk, pricing appropriately for risk,

and mitigating risk through sound preventative and detection controls;

• An enterprise-wide view of risk and the acceptance of risks required to

build the business with continuous consideration for how those risks may

affect CWB’s reputation;

• The belief that every employee is accountable to understand and manage

the risks inherent in their day-to-day activities, including identification

of risk exposures, with communication and escalation of risk-based

concerns;

• Use of common sense, sound judgment and fulsome risk-based

discussions; and,

• Recognition that “knowing your client” reduces risks by ensuring the

services provided are suitable for, and understood by, the client.

The mandate of our ERM function is to provide independent oversight of risk-

taking decisions, independent assessment of risk and effective challenge

to the business. ERM establishes the enterprise-wide risk management

framework to identify, measure, aggregate and report all material risks

managed by the first line within CWB’s 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 all risk management processes and practices. Independent of the

business, ERM measures and reports risk exposures against risk appetite

limits for all risk types.

CWB Financial Group 2019 Annual Report54

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 balanced growth

strategic objectives, and related business activities. The ERM framework

provides the foundation for achieving this goal. We utilize the ISO 31000

Standard for Risk Management as a comprehensive framework to help

ensure risk is managed effectively and efficiently.

Figure 4 - CWB’s Risk Management Framework

CWB’s Risk

Culture

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Independent assurance of risk

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CWB’s balanced growth

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Ri

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CWB’s risk culture is the core of the ERM framework, including risk

management principles, values and accountabilities as defined within a

three lines of defence framework. Key elements of our risk management

framework include Risk Governance, the Risk Universe, Risk Management

Policies, and Risk Appetite Framework.

Principal risks within our Risk Universe include:

• Credit risk; • Capital risk; • Market risk, including interest rate risk; • Foreign exchange risk; • Liquidity and funding risk; and, • Operational risk.

Reputational risk arises as a consequence of not managing other risks

effectively.

RISK CULTURE

A strong risk culture emphasizes transparency and accountability.

Organizations with a strong risk culture have a consistent and repeatable

approach to risk management when making key business decisions,

including regular discussions of risk and reviews of risk scenarios that can

help management and the Board understand the interrelationships and

potential impacts of risks.

Our strong risk culture starts with an appropriate “tone at the top” that

demonstrates and sends consistent and clear messages throughout the

organization. Our risk culture is demonstrated throughout CWB and is

emphasized by the actions of senior management and the Board.

CWB’s risk culture includes:

• “Tone at the top” as established through the CWB Code of Conduct and governance processes;

• CWB’s core values: people first, relationships get results, embrace the new, the how matters, inclusion has power;

• Effective integration of our compensation strategy with desired risk behaviours;

• Risk management principles, policies and processes, including implementation of a three lines of defence framework;

• An environment where the first, second and third line can freely raise and escalate risk issues and concerns, issues are discussed diligently, and acted upon appropriately; and,

• Zero tolerance for inappropriate risk taking in violation of core values, risk appetite and reputational risk management principles.

Our three lines of defence framework provides a consistent, transparent,

and clearly documented allocation of accountability and segregation of

functional responsibilities. This segregation of responsibilities helps to

establish a robust control framework that demonstrates CWB’s risk culture,

contributes to effective risk management and encourages continuous

improvement of risk management practices. Our three lines of defence

framework is described in Table 29.

CWB Financial Group 2019 Annual Report 55

Table 29 - Three Lines of Defence Framework

First Line Second Line Third Line

Business and Support Areas ERM and Support Functions Internal Audit

• Own and manage all risks within their lines of

business

• Pursue suitable business opportunities within

their established risk appetite and limits

• Act within their delegated risk-taking

authority as set out in established policies

• Establish appropriate operating guidelines

and internal control structures in accordance

with the risk policies

• Establish an ERM framework to provide

a consistent and integrated view of risk

exposures across CWB

• Set key risk metrics on which risk appetite

and limits are based

• Establish policies, standards, processes and

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

• Provide independent assurance to the Audit

Committee as to the effectiveness and

appropriateness of (and adherence to) the

risk framework

• Independently audit first and second lines

and report on their effectiveness in regard to

respective functional responsibilities

• Independently review adherence to

controls, policies, standards, guidelines and

regulations

• Identify operational weaknesses; recommend

and track remediation actions

RISK APPETITE FRAMEWORK

Our risk appetite framework includes policies and processes to establish

and monitor adherence to CWB’s risk appetite, and outlines accountabilities

for those overseeing its implementation. The purpose of the risk appetite

framework is to define the type and amount of risk we are willing to assume

through our business activities, while considering the priorities of all

stakeholders. The risk appetite framework is forward-looking and integrates

with CWB’s balanced growth strategic objectives, including consideration

for our capital plan and budget processes.

Key components of CWB’s risk appetite framework include:

• Risk Capacity – the maximum level of risk CWB can assume before breaching regulatory or other stakeholders constraints;

• Risk Appetite – the aggregate level and type of risk CWB is willing to assume; and,

• Risk Limits – the allocation of risk to specific risk categories, to business units, and/or to lines of business at the portfolio or product level. ERM measures, monitors, and manages CWB’s risk profile to ensure the overall level of risk remains within specified risk limits. Early warning indicators are reported to the Executive Risk Committee and the Board Risk Committee, along with proposed actions to reduce the level of risk to within the approved risk appetite.

Key attributes of our overall risk appetite include the following:

• An appropriately conservative risk culture that is prevalent throughout CWB, from the Board to senior management to front-line employees;

• A philosophy to only take risks that are aligned with our balanced growth strategic objectives and are expected to create sustainable, long-term value for stakeholders;

• A philosophy to only take risks that are transparent and understood, and that can be measured, monitored and managed;

• Careful and diligent management of risks at all levels led by a knowledgeable and experienced leadership team committed to sound management practices and the promotion of a highly ethical culture;

• Targeted financial performance which supports maintenance of investment grade credit ratings to allow for competitive access to funding;

• Maintenance of effective policies, standards, guidelines and controls, with training and oversight to guide the business practices and risk- taking activities of all employees in support of CWB’s reputation and adherence to all legal and regulatory obligations; and,

• Risk Appetites for key risk types are established based on both quantitative and qualitative risk types by ERM and other corporate functions, as the second line, endorsed by senior management, and ultimately approved

by the Board Risk Committee.

We conduct stress testing of relevant metrics on a regular basis to enable

the identification and monitoring of potential vulnerabilities. The results

from stress testing also help inform the Risk Appetite, and periodic

sensitivity testing of earnings and capital ratios ensures that CWB operates

within Risk Limits.

CWB Financial Group 2019 Annual Report56

Risk Management Governance Structure

The foundation of CWB’s ERM 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 limits approved by the Board of Directors, as

well as supporting corporate standards and operating guidelines.

The Risk Management Framework is governed through a hierarchy of

committees and individual responsibilities as outlined in Figure 5:

Figure 5 - CWB’s Enterprise-Wide Risk Management Framework

Group Disclosure Committee

Model Risk and

Deployment Committees

Group Forecasting Committee

Group Operational

Risk Committee

Group Capital Risk Committee

Group ALCO

Group Credit Risk Committee

Board Audit CommitteeBoard Risk Committee

Chief Risk O�cer

Executive Risk Committee

Regulatory and

Reputation Risk

Board Governance and Conduct Review Committee

Board of Directors

Chief Executive O�cer

Business and Support

First Line of Defence

ERM Other Corporate Teams Internal Audit

Third Line of Defence

Credit Market

Liquidity Funding

Capital ICAAP Stress

Testing

Operational • Regulatory • Technology • People

Economic Forecasting

Model Risk

Second Line of Defence

Chief Internal Auditor

Board of Directors – responsible for setting the strategies of CWB 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 and corporate governance.

Board Risk Committee – assists the Board in fulfilling its oversight responsibilities in relation to CWB’s identification and management of

risk, adherence to corporate risk management policies and procedures,

and compliance with risk-related regulatory requirements. The Board

Risk Committee also includes a Loan Adjudication Panel.

Board Governance and Conduct Review Committee – assists the Board in fulfilling its oversight responsibilities with respect to developing

CWB’s corporate governance policies and practices, including oversight

of legal, regulatory compliance and reputation risk.

Board Audit Committee – assists the Board in fulfilling its oversight responsibilities for the integrity of CWB’s financial reporting,

effectiveness of CWB’s internal controls, and the performance of its

internal and external audit functions.

Board Human Resources Committee – provides oversight of people related risks, including employment practices and workplace health

and safety, and ensures compensation programs appropriately align to,

and support, CWB’s risk appetite framework.

Chief Executive Officer (CEO) – directly accountable to the Board for all of CWB’s risk-taking activities. The CEO is supported by the

Executive Risk Committee and its sub-committees, as well as the ERM

function and other corporate functions.

Chief Risk Officer (CRO) – as head of ERM, responsible to provide independent review and oversight of enterprise-wide risks and

leadership on risk issues, developing and maintaining a Risk

Management Framework which includes key risk metrics and risk

policies, and fostering a strong risk culture across the enterprise. The

CRO reports functionally to the Board Risk Committee.

Executive Risk Committee – provides risk oversight and governance at the highest levels of management. The Executive Risk Committee

reviews and discusses significant risk issues and action plans that arise

in executing the enterprise-wide strategy. The Committee is chaired by

the CRO and membership includes the full Executive Committee.

CWB Financial Group 2019 Annual Report 57

Subcommittees of the Executive Risk Committee – the various sub- committees provide oversight of the processes whereby the risks

assumed across the enterprise 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 policies

are in place. An escalation sub-committee of the Group Credit Risk

Committee considers credit related pricing 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

and control, funding sources, investments, foreign exchange risk,

structural interest rate risk and derivatives risk;

Group Capital Risk Committee – responsible for the oversight of

capital adequacy, CWB’s regulatory capital plan, ICAAP and stress

testing;

Group Operational Risk Committee – reviews the operational risk

management framework, operational loss reporting and business

continuity plans. Reviews action plans for mitigating and improving

the management of operational risk;

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;

Group Forecasting Committee – develops an enterprise-wide view

of the economic outlook;

Group Model Risk and Model Deployment Committees – develop

and oversee CWB’s model risk management framework and

enterprise-wide model deployment.

The following CWB oversight functions provide key support within the

enterprise-wide risk management framework.

Oversight teams include:

• Credit Risk Management – responsible to assess, recommend, process

and adjudicate credit applications and credit reviews within delegated

loan approval authorities, and to provide second line oversight of credit

risk;

• Integrated Risk Management – responsible for our interest rate and

liquidity risk management framework, and to provide second line

oversight for interest rate and liquidity risk management; implements

the operational risk management framework; operationalizes second

line oversight of risk-based pricing, with responsibility for profitability

reporting and analysis; provides economic forecasting and develops

stress-testing models;

• Risk Technology and Model Deployment – responsible to deploy AIRB

and other risk models within CWB’s risk technology infrastructure and

produce AIRB risk ratings for Basel Capital Adequacy Requirements,

Economic Capital and ICAAP purposes;

• Risk Data Aggregation, Analytics, and Reporting (RDAAR) – responsible

to develop, implement, and monitor risk measurement processes and

validation methodologies to provide a comprehensive view of overall

credit risk exposures. Ensures that credit risk exposures are measurable,

and that adequate reporting is produced to facilitate the management of

the portfolio within established limits, appetite and standards; and that

regulatory requirements are satisfied;

• Model Vetting – responsible for development and maintenance of an

enterprise-wide model risk management framework, and to monitor,

effectively challenge and report on model risk in accordance with related

policy and guidelines;

• Risk Capital and IFRS 9 – produces risk-based expected credit losses

(ECL) under IFRS 9, Economic Capital and oversees all periodic risk

production, as well as CWB’s ICAAP;

• Finance – provides independent oversight of processes to manage

financial reporting, external credit ratings, certain regulatory reporting,

tax, and capital risk, including capital adequacy and capital management.

This activity is overseen by CWB’s CFO, who reports functionally to the

Audit Committee;

• Legal, Regulatory Compliance and Investigations – provides second

line oversight of legal, regulatory compliance, financial crime (including

fraud, corruption and bribery, and anti-money laundering risks) and

reputation risks with established and maintained relevant policies,

frameworks and standards used by the first and second lines to identify,

measure, mitigate and report on significant legal, regulatory compliance

and reputation risks; and,

• 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 MANAGEMENT POLICIES

To support effective communication, implementation, and governance of

our risk management framework, ERM and other corporate functions codify

processes and operational requirements in comprehensive management

policies, frameworks, and standards. The first line in turn implements

these second line protocols in guidelines and procedures. Such first and

second line governance documentation promotes the application of a

consistent approach to manage risk exposures across the enterprise. All risk

policies are developed by the second line and approved by the Board Risk

Committee, Governance and Conduct Review Committee, or the full Board

of Directors, on an annual basis.

CWB Financial Group 2019 Annual Report58

RISK UNIVERSE – REPORT ON PRINCIPAL RISKS

We pursue opportunities and the associated risks that are aligned with

CWB’s balanced growth strategic objectives and are expected to create

sustainable long-term value for shareholders and other stakeholders. While

CWB’s operations are exposed to numerous types of risk, certain risks,

identified as principal risks, have the greatest potential to materially impact

operations and financial performance. These risks materially comprise

CWB’s risk universe as defined as part of our ERM framework.

CREDIT RISK

Credit risk is the risk that a financial loss will be incurred due to the failure of a counterparty to fulfil its contractual commitment or obligation to

CWB. Credit risk is comprised of default risk and credit migration, or downgrade risk. Credit default risk is defined as the potential that a bank

borrower or counterparty will fail to meet its obligations in accordance with the agreed terms. Credit migration or downgrade risk refers to the risk

of deterioration of credit quality of a borrower or counterparty.

Risk Overview

CWB’s credit risk results from granting loans and leases to businesses

and individuals. Our credit risk management culture reflects the unique

combination of policies, standard practices, experience and management

attitudes that support 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. Concentration is

measured against specified tolerance levels by geographic region, industry

sector and product type. In order to minimize potential loss, most of our

loans are secured by tangible collateral. CWB’s approach to managing

credit risk has proven to be very effective, as demonstrated by our relatively

stable long-term average annual provision for credit losses and customarily

low write-offs measured as a percentage of total loans.

Refer to the Loans and Credit Quality sections of this MD&A for additional

information.

Risk Governance

The credit approval process is centrally controlled, with all significant

credit requests submitted to Credit Risk Management for adjudication.

Credit Risk Management is independent of the originating business.

Requests for credit approval beyond the lending limit of the CEO

are referred to the Group Credit Risk Committee or the Board Risk

Committee’s Loan Adjudication Panel.

Risk Management

We are committed to a number of important principles to manage

credit exposures, which include:

• Oversight provided by the Board Risk Committee;

• Delegated lending authorities that are clearly communicated to

lenders and other personnel engaged in the credit granting process;

• Credit policies, standards, guidelines and directives which are

communicated within all branches, business lines and to officers

whose activities and responsibilities include credit granting and risk

assessment;

• Appointment of personnel engaged in credit granting who are both

qualified and experienced;

• A standard credit risk-rating classification established for all credits;

• A review at least annually of credit risk-rating classifications and

individual credit facilities (except consumer loans and single-unit

residential mortgages);

• Quarterly review of risk diversification by geographic area, industry

sector and product measured against assigned portfolio limits;

• Ongoing development of RDAAR reporting to assess portfolio risks

at a granular level;

• Pricing of credits commensurate with risk to ensure an appropriate

financial return;

• Management of growth while maintaining the quality of loans;

• Early recognition of problem accounts and immediate action to

protect the safety of CWB’s capital;

• Delegation of loans deemed to carry higher risks to a specialized

loan workout group that performs an appropriate level of regular

monitoring and close management;

• Independent review by Internal Audit of the adequacy and

effectiveness of governance, risk management and control over

credit risk across CWB Financial Group, which includes direct

reporting of results to senior management, the CEO and the Audit

Committee of the Board; and,

• Detailed quarterly reviews of accounts rated less than satisfactory.

Reviews include a recap of action plans for each less than satisfactory

account, the completion of a watch list report recording accounts

with evidence of weakness and an impaired report covering loans

that show impairment to the point where a loss is possible. Subject

to independent oversight, effective challenge and independent

assessment by the second line. A summary report of less than

satisfactory accounts is reviewed on a quarterly basis by the Board

Risk Committee.

CWB Financial Group 2019 Annual Report 59

Credit Risk Concentration

Risk diversification is addressed by establishing portfolio limits by

geographic area, industry sector and product. The policy is to limit

loans to connected corporate borrowers to not more than 10% of

shareholders’ equity. Under the Credit Risk Concentration Policy,

the single risk exposure lending limit is $75 million. Our Credit Risk

Concentration policy 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, will increase to $200

million commencing in fiscal 2020, up from $150 million. The connection

limit remains $150 million for borrowers with credit ratings of BBB+.

CWB clients with larger borrowing requirements can be accommodated

through loan syndications with other financial institutions.

Environmental Risk

While the day-to-day operations of CWB do not have a material impact on

the environment, environmental risks include the risk of loss if a borrower

is unable to repay loans due to environmental cleanup costs, and the risk of

damage to CWB’s reputation resulting from the same. In order to manage

these risks, and to help mitigate CWB’s overall impact on the environment,

CWB evaluates potential environmental risks as part of its credit granting

process. If potential environmental risks are identified that cannot be

resolved to CWB’s satisfaction, the application will be denied.

Reports on environmental inspections and findings are provided quarterly

to the Board Risk Committee. Where financing is provided, Internal Audit

will sample test loan files to ensure environmental studies required as a

condition of financing are in place, including review for a transmittal letter

from the author of the environmental study indicating that it may be relied

upon for financing purposes.

Portfolio Quality

Our strategy is to maintain a quality, secured and diversified loan portfolio

by engaging experienced personnel who provide a hands-on approach in

credit granting, account management and timely action when problems

develop. We target lending to small- and medium-sized businesses, and to

individuals. Relationship banking and “knowing your client” are important

tenets of effective account management. Earning an appropriate financial

return for the level of risk is also fundamental.

Geographic diversification of the loan portfolio outside of Western Canada

is achieved through ongoing strong growth within CWB’s established

businesses with a national footprint, including CWB Optimum, CWB

National Leasing, CWB Maxium, and CWB Franchise Finance, as well as

participation in syndicated lending facilities primarily led by other Canadian

banks, and periodically through acquisition. We will also open our first full-

service branch location in Ontario in fiscal 2020.

For additional information, see the Loans and Credit Quality sections of this

MD&A.

MARKET RISK

Market risk is the impact on earnings and on economic value of equity resulting from changes in financial market variables such as interest rates and

foreign exchange rates. Our market risk is primarily comprised of structural interest rate risk on the balance sheet, liquidity and funding risk, and

foreign exchange risk.

Risk Overview

The most material market risks for CWB are those related to changes in

interest rates. We do not have a trading book; we 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 diversified cash and securities portfolio that is primarily

comprised of high-quality debt instruments. These instruments are subject

to price fluctuations based on movements in interest rates and volatility

in financial markets. We have limited direct exposure to foreign exchange

risk. We maintain some investment risk from exposure to our discretionary

investment portfolio comprised of preferred shares issued by public

Canadian companies across a variety of industries.

Risk Governance

Market risk is managed in accordance with the approved structural

interest rate risk, and liquidity and funding risk policies, the second line

standard and the accompanying first line guideline. As the first line of

defence, Treasury owns and manages CWB’s market risk on a daily basis.

ALCo provides tactical and strategic direction and is responsible for

ongoing oversight, review and endorsement of operational guidelines.

Integrated Risk Management provides independent second line

monitoring and reporting of market risk exposure against risk appetite

to ALCo, the Executive Risk Committee and Board Risk Committee.

CWB Financial Group 2019 Annual Report60

Subcategories of Market Risk

INTEREST RATE RISK

Interest rate risk is the impact on earnings and economic value of equity resulting from changes in interest rates.

Structural interest rate risk arises when changes in interest rates affect

the cash flows, earnings and values of assets and liabilities. The objective

of structural interest rate risk management is to maintain an appropriate

balance between earnings volatility and economic value volatility while

keeping both within their respective risk appetite limits.

Structural interest rate risk 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. Structural interest rate risk

is primarily comprised of duration mismatch risk and option risk embedded

within the structure of products. Duration mismatch risk arises when there

are differences in the scheduled maturity, repricing dates or reference rates

of assets, liabilities and derivatives. The net duration mismatch is managed

to a target profile through interest rate swaps and our cash and securities

portfolio. Product-embedded option risk arises when product features allow

customers to alter scheduled maturity or repricing dates. Such features

include loan prepayment, deposit redemption privileges and interest rate

commitments on un-advanced mortgages.

Variation in market interest rates can affect net interest income by altering

cash flows and spreads. Variation in market interest rates can also affect

the economic value of our assets, liabilities and off-balance sheet (OBS)

positions. Thus, the sensitivity of CWB’s economic value to fluctuations in

interest rates is an important consideration for management, regulators

and shareholders. The economic value of an instrument represents an

assessment of the present value of the expected net cash flows, discounted

to reflect market rates. By extension, the economic value of our equity can

be viewed as the present value of our expected net cash flows, defined as

the expected cash flows on interest-sensitive assets minus the expected

cash flows on interest-sensitive liabilities plus the expected net cash flows

on OBS positions. In this sense, the economic value perspective reflects one

view of the sensitivity of net worth to fluctuations in interest rates.

Management of structural interest rate risk balances short-term income

volatility against volatility in the long-term value of CWB’s equity. Treasury

manages the economic value of the balance sheet within a range around a

target duration. Duration limits are approved by ALCo. The duration limits

consider an appropriate trade-off between:

• Earnings volatility and volatility in the value of CWB’s equity;

• Risk and return (e.g. increasing duration increases the exposure to rising

interest rates, but also benefits net interest income when there is a

positively sloping yield curve); and,

• Expected interest rate movements.

While management of the benchmark duration is the responsibility of the

first line of defence (recommended by Treasury and approved by ALCo), the

resulting risk exposure is maintained within CWB’s risk appetite.

Risk Metrics Structural interest rate risk is measured using historical simulations to

evaluate earnings sensitivity and economic value sensitivity analysis, stress

testing and gap analysis, in addition to other traditional risk metrics.

• Earnings at Risk – Earnings at risk (EaR) is defined as the potential

reduction in net interest income due to adverse interest rate movements

over a one-year horizon.

• Economic Value of Equity at Risk – Economic Value of Equity at Risk

(EVaR) is defined as the potential reduction in economic value of CWB’s

equity due to adverse interest rate movements. This is not an earnings

measure, but rather a value measure.

Both EaR and EVaR are measured against stress scenarios historically

observed (historical simulation or historical Value at Risk (VaR)) and standard

parallel interest shocks (interest rate sensitivity).

CWB’s Interest Rate Risk Exposures Exposure to interest rate risk is controlled by managing the size of the

static gap positions between interest sensitive assets and interest sensitive

liabilities for future periods. This is supplemented by historical VaR for

economic value of CWB’s equity, estimated by applying historical interest

rate scenarios to interest sensitive assets and interest sensitive liabilities.

These analyses are supplemented by stress testing of the asset liability

portfolio structure, duration analysis and dollar estimates of net interest

income sensitivity after Treasury hedging activity for periods of up to one

year. The interest rate gap is measured at least monthly. Note 25 to the

consolidated financial statements shows the gap position at October 31,

2019 for select time intervals.

The analysis in Note 25 is a static measurement of interest rate sensitivity

gaps at a specific point in time, and there is potential for these gaps to

change significantly over a short period. The impact on earnings from

changes in market interest rates will depend on both the magnitude of and

speed with which interest rates change, as well as the size and maturity

structure of the cumulative interest rate gap position and the management

of those positions over time.

The one-year and under cumulative gap represented 1.4% of total assets at

October 31, 2019, compared to 0.8% one year ago, while the one-month and

under gap was negative 3.1% compared to negative 1.8% one year earlier.

CWB Financial Group 2019 Annual Report 61

Interest rate risk is managed to ensure sustainable earnings over time, balancing the impact on current year earnings against changes in economic

value at risk over the life of the asset and liability portfolios.

The estimated sensitivity of net interest income to a change in interest rates

is presented in Table 30. The amounts represent the estimated change in net

interest income over one year resulting from a one percentage point change

in interest rates. The estimates are based on a number of assumptions and

factors, which include:

• A constant structure in the interest sensitive asset liability portfolio;

• Floor levels for various deposit liabilities;

• Interest rate changes affecting interest sensitive assets and liabilities by

proportionally the same amount and applied at the appropriate repricing

dates; and,

• No early redemptions.

Table 30 - Estimated Sensitivity of Net Interest Income as a Result of One Percentage Point Change in Interest Rates ($ thousands)

Impact of 1% increase in interest rates

Period 2019 2018

1 year $ 4,556 $ 6,234 1 year percentage change 0.58% 0.86%

Impact of 1% decrease in interest rates

Period 2019 2018

1 year $ (7,463) $ (7,467) 1 year percentage change (0.95)% (1.03)%

We estimate that a one-percentage point increase in all interest rates

at October 31, 2019 would decrease unrealized gains related to FVOCI

securities and the fair value of interest rate swaps designated as cash

flow hedges, and result in a reduction in other comprehensive income of

approximately $108 million, net of tax (October 31, 2018 – $105 million).

We estimate that a one-percentage point decrease in all interest rates at

October 31, 2019 would result in an increase of unrealized gains related to

FVOCI securities and the fair value of interest rate swaps designated as

cash flow hedges, which would increase other comprehensive income by

approximately $112 million, net of tax (October 31, 2018 – $107 million).

We maintain the asset liability structure and interest rate sensitivity within

CWB’s established policies through pricing and product initiatives, as well as

the use of interest rate swaps and other appropriate strategies. Differences

in the respective sensitivity of net interest income and other comprehensive

income to changes in interest rates compared to last year primarily reflects

the current interest rate environment and balance sheet composition.

FOREIGN EXCHANGE RISK

Foreign exchange risk is the risk to changes in earnings or economic value arising from changes in foreign exchange rates. This risk arises when

various assets and liabilities are denominated in different currencies.

In providing financial services to our customers, we have assets and

liabilities denominated in U.S. dollars. At October 31, 2019, assets

denominated in U.S. dollars were 1.3% (2018 – 1.4%) of total assets and

U.S. dollar liabilities were 1.4% (2018 – 1.6%) 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.

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. The Board Risk Committee reviews

and approves policy respecting foreign exchange exposure at least

annually. Any deviations from compliance with policy are reported

monthly to ALCo and quarterly to the Board Risk Committee.

LIQUIDITY AND FUNDING RISK

Liquidity risk is the risk that CWB cannot meet a demand for cash or fund its financial obligations in a cost efficient or timely manner as they become

due. These financial obligations can arise from withdrawals of deposits, debt or deposit maturities or commitments to provide credit.

CWB Financial Group 2019 Annual Report62

Risk Overview

We maintain a sound, prudent and conservative approach to managing

exposure to liquidity 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 liquidity risk management

program designed to ensure that CWB manages liquidity risk within an

appropriate threshold.

Our key risk mitigation strategies include:

• An appropriate balance between the level of risk we undertake and the

corresponding cost of risk mitigation that considers the potential impact

of extreme but plausible events;

• Broad funding access, including preserving and growing a reliable base

of core deposits and continual access to diversified sources of funding;

• A comprehensive group-wide liquidity contingency plan supported

by a pool of unencumbered high-quality liquid assets and marketable

securities that would provide assured access to liquidity in a crisis; and,

• Maintenance of a liquidity position to manage current and future

liquidity requirements while also contributing to the flexibility, safety and

soundness of CWB under times of stress.

Refer to the Liquidity Management sections of this MD&A for additional

information.

RISK GOVERNANCE

Liquidity management is centralized to better facilitate the effective

management of liquidity risk. The Board Risk Committee approves

market risk management policies and delegates liquidity risk

authorities to senior management. As the first line of defence, Treasury

is responsible for managing liquidity and funding risk. ALCo oversees

the treasury function and provides tactical and strategic direction.

Integrated Risk Management, as the second line, is responsible for

independent oversight.

RISK MANAGEMENT

We have a comprehensive liquidity risk management policies. The key

elements of managing liquidity risk for CWB include the following:

• Policy – Liquidity risk management policies establish a target for

minimum liquidity, set the monitoring regime, and define authority

levels and responsibilities. Policies are reviewed at a minimum

annually by ALCo, Executive Risk Committee and the Board Risk

Committee. Limit setting establishes acceptable thresholds for

liquidity risk;

• Monitoring – Trends and behaviours regarding how clients manage

their deposits and loans are monitored to determine appropriate

liquidity levels. Active monitoring of the external environment is

performed using a wide-range of sources and economic barometers;

• Measurement and modeling – CWB’s liquidity model measures and

forecasts cash inflows and outflows, including any cash flows related

to applicable off-balance sheet activities over various risk scenarios;

• Reporting – Treasury oversight of all significant liquidity risks that

supports analysis, risk measurement, stress testing, monitoring and

reporting to both ALCo and the Board Risk Committee;

• Stress testing – CWB performs liquidity stress testing on a regular

basis to evaluate the potential effect of both systemic and CWB

specific (idiosyncratic) disruptions to our liquidity position. Liquidity

stress tests consider the effect of changes in funding assumptions,

depositor behaviour and the market behaviour of liquid assets.

We stress test liquidity as per the OSFI Liquidity Adequacy

Requirement guideline. Stress test results are reviewed by ALCo

and considered in making liquidity management decisions. Liquidity

stress testing has many purposes, including, but not limited to:

- Helping the Board Risk Committee and senior management

understand the potential behaviour of various positions on CWB’s

balance sheet in circumstances of stress; and,

- Facilitating the development of effective funding, risk mitigation

and contingency plans.

• Contingency planning – A liquidity contingency plan is maintained

that defines a liquidity event and specifies the desired approaches

for analyzing and responding to actual and potential liquidity

events. The plan outlines an appropriate governance structure

for the management and monitoring of liquidity events, processes

for effective internal and external communication, and identifies

potential countermeasures to be considered at various stages of an

event;

• Funding diversification – We actively pursue diversification of our

deposit liabilities by source, type of depositor, instrument and term.

Supplementary funding sources currently include securitization,

capital market issuance and whole loan sales; and,

• Core liquidity – We maintain a pool of highly liquid, unencumbered

assets that can be readily sold, or pledged to secure borrowings,

under stressed market conditions or due to CWB-specific events.

We remain in compliance with OSFI’s Liquidity Adequacy Requirements guideline.

Contractual Obligations We enter into contracts in the normal course of business that give rise to

commitments of future minimum payments that may affect the liquidity

position. In addition to the obligations related to deposits and subordinated

debentures discussed in the Deposits and Liquidity Management sections

of this MD&A, as well as Notes 14, 16, 20 and 24 to the consolidated

financial statements, the following contractual obligations are outstanding

at October 31, 2019:

CWB Financial Group 2019 Annual Report 63

Table 31 - Contractual Obligations ($ thousands)

Within 1 1 to 3 4 to 5 More than Year Years Years 5 Years Total

Lease commitments $ 14,946 $ 27,192 $ 22,503 $ 27,943 $ 92,584 Purchase obligations for operating and capital expenditures 1,659 1,393 - - 3,052 October 31, 2019 $ 16,605 $ 28,585 $ 22,503 $ 27,943 $ 95,636 October 31, 2018 $ 15,768 $ 37,713 $ 8,971 $ 24,338 $ 86,790

Credit Ratings

CWB’s 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, accompanied with a stable or positive

outlook, increase the breadth of clients and investors able to participate

in various deposit and debt offerings, while also lowering our overall cost

of capital.

Credit ratings 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 CWB’s 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 the credit ratings issued by DRBS

Morningstar for CWB, as well as the corresponding rating agency outlook,

last confirmed on November 27, 2019. DBRS Morningstar has discontinued

CWB’s legacy, non-NVCC subordinated debt rating as all outstanding non-

NVCC debt was repaid on November 18, 2019.

Table 32 - DBRS Morningstar Credit Ratings

Long-term senior debt and long-term deposits

Short-term instruments

Subordinated debentures (NVCC)

Preferred shares Outlook

A (low) R1 (low) BBB (low) Pfd-3 Stable

CAPITAL RISK

Capital risk is the risk that we have insufficient capital resources, in either quantity or quality, to support economic risk taken, regulatory requirements,

strategic initiatives and current or planned operations.

Risk Overview

We follow three main principles to facilitate the effective management of

capital risk:

• Capital management involves a dynamic and ongoing process to

determine, allocate and maintain appropriate amounts of capital;

• The optimal amount and composition of capital must consider regulatory

requirements, as well as the expectations of our shareholders and other

stakeholders; and,

• 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.

CWB Financial Group 2019 Annual Report64

Risk Governance

The Board approves the annual regulatory capital plan, and the Board

Risk Committee approves the periodic ICAAP and capital management

policies. The Group Capital Risk Committee is responsible for capital risk

management. ERM oversees the demand side of capital management,

including risk capital and economic capital. Separate from ERM, CWB’s

Finance team provides independent oversight of processes to manage

capital risk. In effect, the CFO is responsible for the supply side of

capital adequacy, and the CRO is responsible for the demand side of

risk capital and capital risk management.

In addition, Integrated Risk Management, Risk Capital and IFRS 9,

and Finance comprise the ICAAP core team and are closely involved

in capital management. The core team is closely supported by other

key departments, including Treasury, Credit Risk Management, and

Strategy.

Risk Management

The following are key elements of capital risk management:

• The annual regulatory capital plan, inclusive of the capital

management policy and three-year capital projections;

• A quarterly regulatory capital risk update provided to the Board Risk

Committee;

• Forecast models used 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; and,

• Regulatory capital ratios reported to senior management and the

Board on a monthly basis.

For additional information, please refer to the Capital Management section of this MD&A.

OPERATIONAL RISK

Operational risk is defined as the risk of loss due to unanticipated outcomes that result from inadequate or failed systems, processes, or human

errors, as well as from external events. Exposure to operational risks arises from the people, processes, and systems that are established to serve

CWB’s clients and maintain the required functions of the enterprise.

Risk Overview

Operational risk is inherent in all of CWB’s business activities, including

banking, trust, and wealth management. We are exposed to operational

risk from internal business activities, external threats and outsourced

business activities. Its impact can be financial loss, loss of reputation, loss

of competitive position, regulatory penalties, 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.

The regulatory framework requires certain amounts of capital to be allocated

to support operational risk. We use the Standardized approach to measure

operational risk. We have a group-wide Operational Risk Management

Policy 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.

Risk Governance

Business and support areas are the first line of defence, and are fully

accountable to manage and mitigate the operational risks associated

with their activities. The Operational Risk Committee oversees the

implementation and adoption of the Operational Risk Management

Policy across the enterprise and facilitates the involvement of

relevant stakeholders in the first and second line of defence across

the enterprise. Integrated Risk Management, as the second line, is

responsible for the continual enhancement of the Operational Risk

Management Framework and supporting policies. The Board Risk

Committee has ultimate oversight and approves the Operational Risk

Management Policy.

CWB Financial Group 2019 Annual Report 65

Risk Management

Following is a summary of strategies and factors that assist with the

effective management of operational risk:

• Management remains close to operations, which helps to facilitate

effective internal communication and operational control;

• Communication of, and training related to, the importance of

effective operational risk management to all levels;

• Management is very engaged with promoting CWB’s operational risk

tolerance and appetite; and,

• Ongoing enhancement of enterprise-wide operational risk

management processes.

Key elements of the Operational Risk Management Framework include:

• Common definitions of operational risk – We incorporate standard

risk terms and certain key operational risk definitions as part of our

operational risk management framework and supporting policies;

• Risk Control Assessments (RCA) – Utilized 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 the enterprise to evaluate the key sources of operational risks and

compare relative exposures from different business activities;

• Operational risk reporting – Loss data monitoring is important to maintain

awareness of identified operational risks and to assist management in

taking constructive action to reduce exposure to future losses;

• Root cause analysis – For significant operational risk events we employ

a standardized methodology to identify the underlying cause of the

operational risk event and document the corrective actions taken to

avoid similar events in the future; and,

• New initiative risk assessments – Integrated with our change

management process, requires project owners to proactively identify

all relevant stakeholders across significant functional areas and conduct

detailed RCAs for new initiatives.

In addition to the second line Operational Risk Management Framework,

additional key components include:

• Implementation of policies and procedural controls appropriate to

address identified risks (including segregation of duties and other

fundamental checks and balances);

• Continual enhancements to fraud prevention processes, policies and

communication;

• Established “whistleblower” processes, a robust employee code of

conduct and ethical concerns hotline;

• Maintenance of an outsourcing management program;

• At least annual assessment and benchmarking of business insurance;

• Human resource guidelines and processes to ensure staff are adequately

trained for the tasks for which they are responsible and to enable

retention and recruitment;

• A Regulatory Compliance team focused on key regulatory compliance

areas such as privacy, anti-money laundering, anti-terrorist financing and

consumer protection regulations;

• Use of technology that incorporates automated systems with built-

in controls and active management of configuration and change

management along with information security management programs;

• Enhanced focus on data quality as an important and strategic asset;

• Effective project management processes supported by a designated

committee comprised of representatives of senior management; and,

• Continual updating and testing of procedures and contingency plans for

disaster recovery and business continuity (including pandemic planning).

We have adopted an Operational Risk Taxonomy as part of our Operational

Risk Management Framework. This taxonomy forms the basis for all

operational risk management reporting, with loss events and identified risks

categorized consistently.

The taxonomy is based on 15 distinct risk types that are aligned within the

seven Basel Operational Risk categories.

CWB Financial Group 2019 Annual Report66

Table 33 - Operational Risk Taxonomy

Operational Risk Level Description Category

Financial crime risk The risk of loss or harm arising from crimes committed against CWB, our clients, or by our employees or third parties. Loss in this context refers to economic loss including time, recovery costs, and overhead.

External Fraud and Internal Fraud

Regulatory compliance risk The risk of loss or harm created by failing to comply with or satisfy the laws, regulatory requirements or prescribed practices that apply to CWB. It does not include risk arising from non-conformance with ethical standards.

Clients, Products, and Business Practices

Legal risk 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

Reputation risk The risk of loss or harm to the CWB brand or reputation. It may arise even if other operational risks are effectively managed, and includes the risk arising from non- conformance with ethical standards.

Reputation Risk

Damage to physical assets (excludes investment assets)

The risk of loss or harm to physical assets caused by natural disaster, mechanical failures, or intentional or unintentional human actions.

Damage to Physical Assets

People risk The risk that we cannot attract and retain sufficient qualified resources to implement our strategies and/or achieve our objectives.

Employment Practices and Workplace Safety

Business disruption risk The risk of loss or harm due to the failure to ensure the ongoing continuation of critical business operations caused by disruptions impacting the availability of staff, systems, and/or premises.

Business Disruption and System Failure

Technology risk

The risk of loss or harm related to the operational performance, confidentiality, integrity and availability of our information, systems and infrastructure. The risk of loss due to information systems and services (including application systems and supporting technology infrastructure) failing to satisfy business requirements, caused by inadequately designed, maintained, and/or supported systems, applications and technology.

Business Disruption and System Failure

Information security risk

The risk of loss or harm due to the compromising of our information assets (i.e., the unauthorized use, loss, damage, disclosure, or modification of company information and information systems) caused by a failure to protect our information assets (including cyber risk).

External Fraud and Client, Products, and Business Practices

Accounting risk (excludes model errors related to financial statements)

The risk of loss or harm due to misstatements of assets, liabilities and/or income, caused by internal financial control failures or deficiencies.

Execution, Delivery, and Process Management

Model risk The risk of loss or harm due to inaccurate model outputs or incorrect interpretations of model outputs, caused by inadequate model design, use and/or assumptions.

Execution, Delivery, and Process Management

Reporting risk

The risk of loss or harm due to inadequate risk-related information being provided to senior management, the Board, and/or regulatory bodies, caused by incomplete, inaccurate or untimely risk reporting processes, systems and/or un-actioned risk reporting.

Execution, Delivery, and Process Management

Outsourcing and third-party supplier risk

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.

Execution, Delivery, and Process Management

Change management risk (excludes technology change)

The risk of loss or harm due to a failure to effectively manage change to achieve the desired business requirements and objectives, caused by inadequate management (i.e., planning, execution, monitoring, oversight, and reporting) of significant business change.

Execution, Delivery, and Process Management

Process and execution risk The risk of loss or harm due to a failure to achieve the desired outcome caused by inadequately designed or executed processes.

Execution, Delivery, and Process Management

Product and customer/client selection risk (includes design, development, distribution, and sales)

The risk of loss or harm due to the inability to effectively design, develop, distribute, and sell products and services, or attract profitable clients caused by a breakdown of the product development and sales distribution process, or the failure to properly vet clients.

Clients, Products, and Business Practices

Fiduciary risk Risk of loss or harm due to CWB failing to meet professional obligations to our clients, caused by an inadequate understanding and/or execution of the obligation/ suitability requirements.

Clients, Products, and Business Practices

CWB Financial Group 2019 Annual Report 67

A discussion of several of CWB’s key operational risks follows:

People Risk

Competition for qualified employees in our key markets has remained

consistent and reflects the generally stable level of economic activity and

evolving needs of other financial services participants within and outside

CWB’s geographic footprint.

We intend to continually attract and retain qualified employees to

successfully execute against our vision to become the best full-service bank

for business owners in Canada. We do this by proactively investing in our

practices and programs to build a positive, rewarding and collaborative

work environment, where teams are empowered to deliver exceptional

client experiences. Our refreshed brand and values include a people first

approach to planning and execution, a focus to drive inclusion and diversity

as key business advantages, and specific strategies to increase CWB’s

brand awareness in the markets where we operate. We complement this

with a specialized and knowledgeable approach to talent acquisition, a

competitive total rewards offering with differentiated benefits, flexible work

arrangements, comprehensive learning and development opportunities and

a proactive focus on succession planning.

An inability to attract and retain an appropriate staff complement would

adversely affect our ability to achieve CWB’s strategic objectives.

Technology Risk

We are highly dependent upon information technology and supporting

infrastructure, such as voice, data and network access. In addition to

internal resources, various third-parties provide key components of the

infrastructure and applications. Disruptions in information technology

and infrastructure, whether attributed to internal or external factors, and

including potential disruptions in the services provided by various third

parties, could adversely affect our ability to conduct regular business and/

or deliver products and services to clients. Ongoing diligence is required

to ensure systems are secure from threats. CWB currently has a number

of projects underway focused to increase our digital capabilities which

increase risk exposure related to information systems and technology. We

continuously identify and assess key services to ensure potential failure

points are highlighted and related risk is mitigated the best possible way (i.e.

upgrades, enhancements, new products). In the last year, our Information

Services team has worked closely with ERM to apply further rigour to, and

enhanced governance around, identification and evaluation of potential

risks in the technology environment.

Information and Cyber Security Risk

We manage information security risk by ensuring appropriate technologies,

processes and practices are effectively designed and implemented to help

prevent, detect and respond to threats as they emerge and evolve. We rely

upon a complete suite of advanced controls to protect CWB’s operations

and our customers from attack and have partnered with leading third-party

service providers to provide counsel and support should the need arise. We

regularly test the completeness and effectiveness of our information and

cyber security program.

Legal, Regulatory Compliance and Reputation Risk

Legal and regulatory compliance risk is the potential for loss or harm

created by legal, regulatory compliance, financial crimes and reputation

risks. Failing to manage these risks may result in civil or criminal litigation,

administrative penalties, supervisory findings, enforcement actions,

financial loss, reputation damage, 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.

Legal Risk Legal risk is the potential for loss or harm resulting from a failure to comply

with laws or satisfy contractual obligations. We are subject to litigation

arising in the ordinary course of business, and the unfavourable resolution

of any such litigation could have a material adverse effect on our financial

results and damage our reputation. We are required to disclose material

litigation to which we are party. In assessing the materiality of litigation,

factors considered include a case-by-case assessment of specific facts and

circumstances, our past experience and the opinions of legal experts.

Regulatory Compliance Risk Our businesses are highly regulated through the laws, regulatory

requirements and prescribed practices applicable to CWB that have

been put in place by various authorities, including federal and provincial

governments and regulators. Changes to these applicable requirements,

including changes in their interpretation or implementation, could

adversely affect us, and we anticipate ongoing scrutiny from our regulatory

authorities and strict enforcement of such requirements as reforms continue

at the federal and provincial levels to strengthen the stability of the financial

system and protect stakeholders. Over the past several years, the intensity

of supervisory oversight of all federally regulated Canadian financial

institutions has increased significantly in terms of both regulation and new

standards. This includes amplified supervisory activities, an increase in the

volume of regulation, more frequent data and information requests from

regulators, and shorter implementation timeframes for new requirements.

Certain requirements may also impact our ability to compete against

both federally regulated and non-federally regulated entities. We actively

monitor these developments and implement required changes to systems

and processes. We have implemented a robust regulatory compliance risk

management framework and developed supporting protocols to manage

regulatory compliance risk across the enterprise.

Financial Crime Risk Safeguarding our customers, employees, information and assets from

exposure to criminal risk is an important priority for us. Criminal 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.

We govern, oversee and assess principles and procedures designed to help

ensure compliance with legal and regulatory requirements and internal risk

parameters related to anti-money laundering, anti-terrorist financing and

sanctions measures, and our compliance with anti-corruption and anti-

bribery laws and regulations.

Reputation Risk Damage to our reputation and negative public perception could be an

outcome of operational risk events that result from breakdowns in internal

processes, deficient systems, actual or alleged misconduct of employees

or external partners representing non-conformance with our ethical

standards, or external events. Significant reputation risk events typically

lead to questions about business ethics and integrity, competence,

corporate governance practices, quality and accuracy of financial reporting

disclosures, or quality of products and service.

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. Responsibility for managing the impact of operational

CWB Financial Group 2019 Annual Report68

(and other) risks on our reputation falls to all of our teams, including senior

management and the Board. All directors, officers and employees have a

responsibility to conduct their activities in accordance with our personal

conduct policies, in a manner that minimizes operational risks and aligns to

our three lines of defence framework.

OTHER RISK FACTORS

In addition to the risks described above, other risk factors, including those below and those identified in the forward-looking statements section, may adversely affect CWB’s businesses and financial results.

GENERAL BUSINESS AND ECONOMIC CONDITIONS

CWB’s overall financial performance is impacted by general business and economic conditions across the country. Several factors that could impact general business and economic conditions in our markets include, but are not limited to, changes in: short-term and long-term interest rates; energy and other commodity prices, including the impact of constrained energy transportation infrastructure; real estate prices; adverse global economic events and/or elevated economic uncertainties; inflation; exchange rates; levels of consumer, business and government spending; levels of consumer, business and government debt; and consumer confidence.

LEVEL OF COMPETITION

Our performance is impacted by competition in the markets in which we operate. Client retention may be influenced by many factors, including relative client experience, the relative price and attributes of products and services, changes in products and services, and actions taken by competitors.

While transition from the Standardized to the AIRB approach for risk and capital management will not affect the attributes or behaviour of our competitors, we expect this transition to enhance our competitiveness by enabling CWB to price more effectively for risk.

ACCURACY AND COMPLETENESS OF INFORMATION ON CLIENTS AND COUNTERPARTIES

We depend on the accuracy and completeness of information about clients and counterparties. In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by them, including financial statements, appraisals, external credit ratings and other financial information.

We may also rely on the representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on the reports of auditors. Our financial condition and earnings could be negatively impacted to the extent it relies on financial statements that do not comply with standard accounting practices, that are materially misleading, or that do not fairly present, in all material respects, the financial condition and results of operations of the customer or counterparties.

ABILITY TO EXECUTE GROWTH INITIATIVES AND STRATEGIC INFRASTRUCTURE PROJECTS

As part of our transformational strategy, we intend to continue growing our business through a combination of organic growth and strategic acquisitions. The ability to successfully grow organically will depend on successful execution of key business transformation efforts and infrastructure projects. The ability to successfully grow through acquisition will be dependent on a number of factors, including identification of accretive new business or acquisition opportunities, negotiation of purchase agreements on satisfactory terms and prices, approval of acquisitions by regulatory authorities, securing satisfactory regulatory capital and financing arrangements, and effective integration of newly acquired operations into the existing business. All of these activities may be more difficult to implement or may take longer to execute than we anticipate.

Further, the initiation of any new growth initiatives or infrastructure projects, and any significant expansion of the business may increase the operating complexity and divert management’s attention away from established or ongoing business activities. Any failure to successfully manage strategic execution or acquisition strategies could have a material adverse impact on our business, financial condition and results of operations.

ADEQUACY OF CWB’S RISK MANAGEMENT FRAMEWORK

The Risk Management Framework is comprised of various processes and strategies for managing risk exposure. Given the structure and scope of our operations, CWB is primarily subject to credit, market (mainly interest rate), liquidity, operational, reputation, regulatory, environmental, and other risks. There can be no assurance that the framework to manage risks, including the framework’s underlying assumptions and models, will be effective under all conditions and circumstances. If the risk management framework proves ineffective, CWB could be materially affected by unexpected financial losses and/or other harm.

CHANGES IN ACCOUNTING STANDARDS AND ACCOUNTING POLICIES AND ESTIMATES

The IASB continues to change the financial accounting and reporting standards that govern the preparation of our financial statements. These types of changes can be significant and may materially impact how we record and report our financial condition and results of operations. Where we are required to retroactively apply a new or revised standard, we may be

required to restate prior period financial statements

OTHER FACTORS

We caution that the above discussion of risk factors is not exhaustive. Other factors beyond our control that may affect future results include changes in tax laws, technological changes, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and the anticipation of and success in managing the associated

risks.

CWB Financial Group 2019 Annual Report 69

UPDATED SHARE INFORMATION As at November 30, 2019, there were 87,264,636 common shares and

1,615,178 stock options outstanding. On December 4, 2019, CWB’s Board of

Directors declared a cash dividend of $0.28 per common share, payable

on January 7, 2020 to shareholders of record on December 17, 2019. This

quarterly dividend is consistent with the prior quarter and 8% higher than

the dividend declared one year ago. The Board of Directors also declared

preferred share cash dividends of $0.2688125 per Series 5, $0.390625

per Series 7, and $0.375 per Series 9, all payable on January 31, 2020 to

shareholders of record on January 24, 2020.

CONTROLS AND PROCEDURES As of October 31, 2019, 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, 2019, 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.

On November 1, 2018, CWB adopted IFRS 9 and updated or modified

certain internal controls over financial reporting as a result of the new

accounting standard. There were no other significant changes in CWB’s

ongoing internal controls over financial reporting that occurred during the

year ended October 31, 2019 that have materially affected, or are reasonably

likely to materially affect, CWB’s internal controls over financial reporting.

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.

CWB Financial Group 2019 Annual Report70

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.

Chris H. Fowler President and Chief Executive Officer

December 4, 2019

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 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.

Carolyn J. Graham, FCPA, FCA Executive Vice President and Chief Financial Officer

Consolidated Financial Statements

CWB Financial Group 2019 Annual Report 71

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, 2019 and October 31,

2018

• the consolidated statements of income and 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, 2019 and October 31, 2018, and its consolidated financial

performance, and its consolidated cash flows for the years then ended in

accordance with International Financial Reporting Standards (IFRS).

BASIS FOR OPINION

We conducted our audit in accordance with Canadian generally accepted

auditing standards. Our responsibilities under those standards are further

described in the “Auditors’ Responsibilities for the Audit of the Financial

Statements” section of our auditors’ report.

We are independent of the Entity in accordance with the ethical

requirements that are relevant to our audit of the financial statements in

Canada and we have fulfilled our other responsibilities in accordance with

these requirements.

We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

EMPHASIS OF MATTER – CHANGE IN ACCOUNTING POLICY

Without qualifying our opinion on the consolidated financial statements, we

draw attention to Note 1(J) to the consolidated financial statements, which

indicates that the Bank has changed its method of accounting for financial

instruments in 2019 due to the adoption of IFRS 9 Financial Instruments. Our

opinion is not modified in respect of this matter.

OTHER INFORMATION

Management is responsible for the other information. Other information

comprises:

• the information, other than the financial statements and the auditors’

report thereon, 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 “2019 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, other than the financial statements and the

auditors’ report thereon, included in Management’s Discussion and Analysis

filed with the relevant Canadian Securities Commissions.

If, based on the work we have performed on this other information, we

conclude that there is a material misstatement of this other information, we

are required to report that fact in the auditors’ report.

We have nothing to report in this regard.

The information, other than the financial statements and the auditors’

report thereon, included in a document likely to be entitled “2019 Annual

Report” is expected to be made available to us after the date of this auditors’

report. If, based on the work we will perform on this other information, we

conclude that there is a material misstatement of this other information, we

are required to report that fact to those charged with governance.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of

the financial statements in accordance with IFRS, and for such internal

control as management determines is necessary to enable the preparation

of financial statements that are free from material misstatement, whether

due to fraud or error.

In preparing the financial statements, management is responsible for

assessing the Entity’s ability to continue as a going concern, disclosing as

applicable, matters related to going concern and using the going concern

basis of accounting unless management either intends to liquidate the

Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity‘s

financial reporting process.

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.

CWB Financial Group 2019 Annual Report72

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.

The engagement partner on the audit resulting in this auditors’ report is

Carlo De Mello.

KPMG LLP Chartered Professional Accountants

Edmonton, Canada

December 4, 2019

CWB Financial Group 2019 Annual Report 73

CONSOLIDATED BALANCE SHEETS ($ thousands)

As at October 31

2019(1)

As at October 31

2018

Assets Cash Resources (Note 5)

Cash and non-interest bearing deposits with financial institutions $ 116,963 $ 73,822 Interest bearing deposits with regulated financial institutions 293,856 26,825 Cheques and other items in transit 5,023 52,574

415,842 153,221 Securities (Note 6)

Issued or guaranteed by Canada 1,341,326 1,325,816 Issued or guaranteed by a province or municipality 468,671 521,825 Other debt securities 191,046 143,536 Preferred shares 18,164 93,575

2,019,207 2,084,752 Securities Purchased Under Resale Agreements (Note 7) 40,366 - Loans (Note 8)

Personal 5,689,833 5,247,160 Business 22,786,894 21,085,968

28,476,727 26,333,128 Allowance for credit losses (110,834) (128,529)

28,365,893 26,204,599 Other

Property and equipment (Note 10) 63,166 59,098 Goodwill (Note 11) 85,392 85,168 Intangible assets (Note 11) 173,748 160,790 Derivatives (Notes 12 and 28) 47,815 2,496 Other assets (Note 13) 212,806 271,339

582,927 578,891 Total Assets $ 31,424,235 $ 29,021,463

Liabilities and Equity Deposits (Note 14)

Personal $ 15,300,505 $ 14,483,686 Business and government 10,050,856 9,216,271

25,351,361 23,699,957 Other

Cheques and other items in transit 22,532 28,489 Securities sold under repurchase agreements (Notes 7 and 9) 29,965 95,126 Derivatives (Notes 12 and 28) 14,016 69,581 Other liabilities (Note 15) 646,386 531,953

712,899 725,149 Debt

Debt related to securitization activities (Notes 9 and 16) 1,913,799 1,757,854 Subordinated debentures (Note 16) 498,494 250,000

2,412,293 2,007,854 Equity

Preferred shares (Note 17) 390,000 265,000 Common shares (Note 17) 731,970 744,701 Retained earnings 1,785,273 1,649,196 Share-based payment reserve (Note 18) 24,309 23,937 Accumulated other comprehensive income 14,258 (97,082)

Total Shareholders' Equity 2,945,810 2,585,752 Non-controlling interests (Note 19) 1,872 2,751

Total Equity 2,947,682 2,588,503 Total Liabilities and Equity $ 31,424,235 $ 29,021,463

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 Financial Instruments (IFRS 9) (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 Financial Instruments: Classification and Measurement (IAS 39) and have not been restated.

The accompanying notes are an integral part of the consolidated financial statements.

Robert L. Phillips Chris H. Fowler Chair of the Board President and Chief Executive Officer

CWB Financial Group 2019 Annual Report74

CONSOLIDATED STATEMENTS OF INCOME For the Years Ended October 31 ($ thousands, except per share amounts)

2019(1) 2018

Interest Income (Note 26)

Loans $ 1,379,730 $ 1,185,530 Securities 30,696 35,529 Deposits with regulated financial institutions 8,274 4,236

1,418,700 1,225,295 Interest Expense

Deposits 573,479 452,526 Debt 59,637 47,779

633,116 500,305 Net Interest Income 785,584 724,990 Non-interest Income

Credit related 34,082 32,165 Wealth management services 19,640 20,371 Retail services 10,627 10,334 Trust services 7,651 7,784 Gains (losses) on securities, net 301 (217) Other 3,719 7,931

76,020 78,368 Total Revenue 861,604 803,358 Provision for Credit Losses (Notes 6 and 8) 57,758 48,257 Acquisition-related Fair Value Changes (Note 27) 7,854 20,094 Non-interest Expenses

Salaries and employee benefits 257,966 237,228 Premises and equipment 70,515 62,754 Other expenses 77,000 73,501

405,481 373,483 Net Income before Income Taxes 390,511 361,524 Income Taxes (Note 22) 102,665 96,877

Net Income 287,846 264,647 Net income attributable to non-controlling interests 1,052 1,141

Shareholders' Net Income 286,794 263,506 Preferred share dividends (Note 17) 19,854 14,250 Common Shareholders' Net Income $ 266,940 $ 249,256

Average number of common shares (in thousands) 87,513 88,806 Average number of diluted common shares (in thousands) 87,739 89,285

Earnings Per Common Share (Note 23)

Basic $ 3.05 $ 2.81 Diluted 3.04 2.79

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.

The accompanying notes are an integral part of the consolidated financial statements.

CWB Financial Group 2019 Annual Report 75

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended October 31 ($ thousands)

2019(1) 2018 Net Income $ 287,846 $ 264,647 Other Comprehensive Income (Loss), net of tax Items that will be subsequently reclassified to net income

Debt securities measured at fair value through other comprehensive income

(2018: Available-for-sale debt and equity securities)

Gains (losses) from change in fair value(2) 34,301 (19,945) Reclassification to net income(3) (354) 158

33,947 (19,787) Derivatives designated as cash flow hedges

Gains (losses) from change in fair value(4) 71,361 (26,848) Reclassification to net income(5) (383) (994)

70,978 (27,842) Items that will not be subsequently reclassified to net income

Losses on equity securities designated at fair value through other comprehensive income(6) (14,175) n/a 90,750 (47,629)

Comprehensive Income $ 378,596 $ 217,018

Comprehensive income for the year attributable to:

Shareholders $ 377,544 $ 215,877 Non-controlling interests 1,052 1,141

Comprehensive Income $ 378,596 $ 217,018

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated. (2) Net of income tax of $12,132 (2018 – $7,351). (3) Net of income tax of $116 (2018 – $59). (4) Net of income tax of $26,007 (2018 – $9,930). (5) Net of income tax of $140 (2018 – $367). (6) Net of income tax of $4,982 (2018 – n/a).

n/a – not applicable

The accompanying notes are an integral part of the consolidated financial statements.

CWB Financial Group 2019 Annual Report76

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the Years Ended October 31 ($ thousands)

2019(1) 2018 Preferred Shares (Note 17) Balance at beginning of year $ 265,000 $ 265,000

Issued 125,000 - Balance at end of year 390,000 265,000 Common Shares (Note 17) Balance at beginning of year 744,701 731,885

Purchased for cancellation (15,326) - Issued under dividend reinvestment plan 1,350 4,248 Transferred from share-based payment reserve on the exercise or exchange of options 1,245 2,818 Issued on acquisition-related contingent consideration instalment payment (Note 27) - 5,750

Balance at end of year 731,970 744,701 Retained Earnings Balance at beginning of year under IAS 39 1,649,196 1,488,634 Impact of adopting IFRS 9 on November 1, 2018 (Note 2) 22,514 n/a Balance at beginning of year under IFRS 9 1,671,710 n/a

Shareholders' net income 286,794 263,506 Dividends - Preferred shares (Note 17) (19,854) (14,250) - Common shares (Note 17) (94,573) (88,819) Net premium on common shares purchased for cancellation (Note 17) (34,266) - Realized losses reclassified from accumulated other comprehensive income (Note 6) (20,370) n/a Issuance costs on preferred shares (3,007) - Increase (decrease) in equity attributable to non-controlling interests ownership change (1,161) 125

Balance at end of year 1,785,273 1,649,196 Share-based Payment Reserve (Note 18) Balance at beginning of year 23,937 24,979

Amortization of fair value of options 1,617 1,776 Transferred to common shares on the exercise or exchange of options (1,245) (2,818)

Balance at end of year 24,309 23,937 Accumulated Other Comprehensive Income (Loss) Debt securities measured at fair value through other comprehensive income

(2018: Available-for-sale debt and equity securities) Balance at beginning of year under IAS 39 (48,962) (29,175) Impact of adopting IFRS 9 on November 1, 2018 (Note 2) 12,994 n/a Balance at beginning of year under IFRS 9 (35,968) n/a

Other comprehensive income (loss) 33,947 (19,787) Balance at end of year (2,021) (48,962) Derivatives designated as cash flow hedges Balance at beginning of year (48,120) (20,278)

Other comprehensive income (loss) 70,978 (27,842) Balance at end of year 22,858 (48,120) Equity securities designated at fair value through other comprehensive income Impact of adopting IFRS 9 on November 1, 2018 (Note 2) (12,774) n/a Balance at beginning of year under IFRS 9 (12,774) n/a

Other comprehensive loss (14,175) n/a Realized losses reclassified to retained earnings (Note 6) 20,370 n/a

Balance at end of year (6,579) n/a Total accumulated other comprehensive income (loss) 14,258 (97,082) Total Shareholders' Equity 2,945,810 2,585,752 Non-controlling Interests (Note 19) Balance at beginning of year 2,751 2,797

Net income attributable to non-controlling interests 1,052 1,141 Dividends to non-controlling interests (1,071) (1,431) Partial ownership increase (decrease) (860) 244

Balance at end of year 1,872 2,751 Total Equity $ 2,947,682 $ 2,588,503

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.

n/a – not applicable

The accompanying notes are an integral part of the consolidated financial statements.

CWB Financial Group 2019 Annual Report 77

CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended October 31 ($ thousands)

2019(1) 2018(2)

Cash Flows from Operating Activities Net income $ 287,846 $ 264,647 Adjustments to determine net cash flows:

Provision for credit losses (Note 8) 57,758 48,257 Current income taxes receivable and payable, net 56,162 (3,456) Accrued interest receivable and payable, net 41,672 28,415 Depreciation and amortization 32,444 29,708 Fair value change in contingent consideration (Note 27) 7,854 20,094 Amortization of fair value of employee stock options (Note 18) 1,617 1,776 Deferred income taxes, net (1,433) (7,677) (Gains) losses on securities, net (301) 217 Net gains on CWT strategic transactions (Note 4) - (4,030)

Change in operating assets and liabilities

Deposits, net 1,651,404 1,796,975 Loans, net (2,202,000) (3,024,939) Securities sold under repurchase agreements, net (65,161) 36,768 Securities purchased under resale agreements, net (40,366) - Debt related to securitization activities, net 155,945 531,518 Other items, net 36,547 17,436

19,988 (264,291) Cash Flows from Financing Activities

Debentures issued, net of issuance costs (Note 16) 248,447 - Preferred shares issued, net of issuance costs (Note 17) 121,993 - Dividends (113,077) (98,821) Common shares purchased for cancellation (Note 17) (49,592) - Purchases from non-controlling interests (2,708) - Dividends to non-controlling interests (1,071) (1,431) Contributions by non-controlling interests 459 1,316

204,451 (98,936) Cash Flows from Investing Activities

Interest bearing deposits with regulated financial institutions, net (267,031) 477,070 Securities, purchased (5,543,483) (2,892,129) Securities, sales proceeds 2,454,694 1,266,827 Securities, matured 3,219,365 1,704,328 Property, equipment and intangible assets (49,069) (44,203) Acquisition-related contingent consideration instalment payments (Note 27) (37,368) (17,250) Proceeds from CWT strategic transactions (Note 4) - 4,135

(222,892) 498,778 Change in Cash and Cash Equivalents 1,547 135,551 Cash and Cash Equivalents at Beginning of Year 97,907 (37,644) Cash and Cash Equivalents at End of Year * $ 99,454 $ 97,907

* Represented by: Cash and non-interest bearing deposits with financial institutions $ 116,963 $ 73,822 Cheques and other items in transit (included in Cash Resources) 5,023 52,574 Cheques and other items in transit (included in Other Liabilities) (22,532) (28,489)

Cash and Cash Equivalents at End of Year $ 99,454 $ 97,907

Supplemental Disclosure of Cash Flow Information

Interest and dividends received $ 1,428,117 $ 1,237,809 Interest paid 588,740 462,691 Income taxes paid 80,566 88,116

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated. (2) During fiscal 2019, cash flows from debt related to securitization activities, net was reclassified from Financing Activities to Operating Activities. Comparative figures have been reclassified to conform to the current period presentation.

The accompanying notes are an integral part of the consolidated financial statements.

CWB Financial Group 2019 Annual Report78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended October 31, 2019 and 2018 ($ thousands, except per share amounts)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

A) REPORTING ENTITY

Canadian Western Bank (CWB) is a publicly traded, federally regulated

Canadian bank headquartered in Edmonton, Alberta. CWB is a diversified

financial services organization serving businesses and individuals across

Canada.

The consolidated financial statements were authorized for issue by the

Board of Directors on December 4, 2019.

B) BASIS OF CONSOLIDATION

The consolidated financial statements include the assets, liabilities and

results of operations of CWB and all of its subsidiaries, after the elimination

of intercompany transactions and balances. Subsidiaries are defined as

entities whose operations are controlled by CWB and are corporations in

which CWB is the beneficial owner. Non-controlling interest in subsidiaries

is presented on the consolidated balance sheets as a separate component of

equity that is distinct from shareholders’ equity. The net income attributable

to non-controlling interest in subsidiaries is presented separately in

the consolidated income statements. See Note 31 for details of CWB’s

subsidiaries.

The consolidated financial statements have been prepared on a historic cost

basis, except the revaluation of the following items: financial instruments

classified as fair value through profit or loss, or as fair value through other

comprehensive income and contingent consideration.

C) STATEMENT OF COMPLIANCE

These consolidated financial statements of CWB have been prepared

in accordance with International Financial Reporting Standards (IFRS)

as issued by the International Accounting Standards Board (IASB) and in

accordance with subsection 308 (4) of the Bank Act and the accounting

requirements of the Office of the Superintendent of Financial Institutions

Canada (OSFI).

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

CWB 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 CWB has made subjective judgments, often as a result of matters

that are inherently uncertain, include those relating to the allowance for

credit losses, fair value of financial instruments, impairment of goodwill and

intangible assets, valuation of deferred tax assets and liabilities, impairment

of financial instruments classified as fair value through profit or loss, or

as fair value through other comprehensive income and fair value of stock

options. Therefore, actual results could differ from these estimates.

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 is described in Note 8 Loans, Impaired Loans and

Allowance for Credit Losses.

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.

CWB elects on a transaction-by-transaction basis whether to measure a

non-controlling interest at its fair value or at its proportionate share of the

recognized amount of the identifiable net assets, at the acquisition date.

G) FUNCTIONAL AND FOREIGN CURRENCIES

The consolidated financial statements are presented in Canadian dollars,

which is CWB’s functional currency. Assets and liabilities denominated in

foreign currencies are translated into Canadian dollars at rates prevailing

at the balance sheet date. Revenue and expenses in foreign currencies

are translated at the average exchange rates prevailing during the period.

Realized and unrealized gains and losses on foreign currency positions are

included in non-interest income.

H) PROVISIONS AND CONTINGENT LIABILITIES

Management exercises judgment in determining whether a past event or

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 are

involved in estimating any amounts required. The actual costs of resolving

these obligations may be significantly higher or lower than the recognized

provision.

CWB Financial Group 2019 Annual Report 79

I) SPECIFIC ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except as noted. To facilitate a better understanding of CWB’s consolidated financial statements, the significant accounting policies are disclosed in the notes, where applicable, with related financial disclosures by major caption:

Note Topic

2 Transition to IFRS 9

3 Financial instruments

4 Strategic transactions

5 Cash resources

6 Securities

7 Securities sold under repurchase agreements and purchased under resale agreements

8 Loans, impaired loans and allowance for credit losses

9 Financial assets transferred but not derecognized

10 Property and equipment

11 Goodwill and intangible assets

12 Derivative financial instruments and hedging activities

13 Other assets

14 Deposits

15 Other liabilities

Note Topic

16 Debt

17 Capital stock

18 Share-based payments

19 Non-controlling interests

20 Contingent liabilities and commitments

21 Employee future benefits

22 Income taxes

23 Earnings per common share

24 Related party transactions

25 Interest rate sensitivity

26 Interest income

27 Fair value of financial instruments

28 Financial instruments - offsetting

29 Risk management

30 Capital management

31 Subsidiaries

J) CHANGES IN ACCOUNTING POLICIES

IFRS 9 Financial Instruments

CWB adopted IFRS 9 Financial Instruments (IFRS 9) effective November 1, 2018, which replaces IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). The adoption of IFRS 9 resulted in changes in accounting policies primarily related to the classification, measurement and impairment of financial assets. Classification of CWB’s financial liabilities is unchanged. Additional information on significant accounting policy changes related to the transition to IFRS 9 are described in Notes 2, 6 and 8.

IFRS 9 was applied on a retrospective basis and as permitted, prior period comparatives were not restated. Upon transition, an adjustment to opening retained earnings and accumulated other comprehensive income (AOCI) was recorded to reflect the application of the new requirements at the adoption date. Refer to Note 2 for further details on the impact of the transition to the opening balance sheet on November 1, 2018.

CWB has elected to continue to apply the hedge accounting requirements of IAS 39. CWB’s policy for hedge accounting is described in Note 12.

i. Classification and Measurement of Financial Assets

Initial Recognition and Measurement

Financial assets consist of both debt and equity instruments. Under

IFRS 9, financial assets are initially recognized at fair value and

subsequently measured at fair value through profit or loss (FVTPL),

fair value through other comprehensive income (FVOCI) or amortized

cost.

Derivatives continue to be measured at FVTPL under IFRS 9, except to

the extent that they are designated in a hedging relationship, in which

case the IAS 39 hedge accounting requirements continue to apply as

described in Note 12.

Debt Instruments

Debt instruments, including loans and debt securities, are initially

measured at fair value and are subsequently classified and measured

at FVTPL, FVOCI or amortized cost based on the contractual cash flow

characteristics of the instrument and the business model under which

the asset is held.

The intent of the assessment of the contractual cash flow characteristics

of an instrument is to determine if contractual payments to be received

represent solely principal and interest (SPPI), consistent with a basic

lending arrangement. Principal, for the purposes of the test, is defined

as the fair value of the instrument at initial recognition and is subject

to change over its life due to transactions such as repayments and

amortization of related premiums or discounts. Interest represents

consideration for the time value of money, credit risk, other basic

lending risks and costs, such as liquidity risk and administrative costs,

as well as a profit margin. Contractual terms that introduce risks or

volatility that are unrelated to a basic lending arrangement do not

represent cash flows that are SPPI and as a result, the related financial

asset is classified and measured at FVTPL.

For debt instruments that meet the requirements of the SPPI test,

classification at initial recognition is determined based on the business

model under which the assets are managed. Considerations include

how performance of the debt instruments is evaluated, the risks that

affect the performance of the business model, and how those risks

are managed, and the manner in which management is compensated.

Potential business models are as follows:

• Held to collect: Objective is to collect contractual cash flows.

• Held to collect and sell: Objective is to both collect contractual

cash flows and sell the financial assets.

• Held for sale or other business models: Encompasses all other

business models. CWB does not currently hold assets within this

category.

The use of judgment is required in assessing both the contractual cash

flow characteristics and the business model of debt instruments.

Measured at Amortized Cost

Debt instruments measured at amortized cost are managed under

a ‘held to collect’ business model and have contractual cash flows

that satisfy the requirements of the SPPI test. These financial assets

are initially measured at fair value, net of transaction costs, and are

subsequently measured at amortized cost using the effective interest

rate method, net of allowance for credit losses estimated based on the

expected credit loss (ECL) approach.

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

CWB Financial Group 2019 Annual Report80

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 AOCI to retained earnings. Equity securities are not

subject to an impairment assessment under IFRS 9.

ii. Impairment

Expected Credit Loss Approach

IFRS 9 introduces an ECL approach to estimate the allowance for credit

losses that is applicable for financial assets measured at amortized

cost, debt securities measured at FVOCI, and certain off-balance

sheet loan commitments and financial guarantee contracts which

were previously provided for under IAS 37 Provisions, Contingent

Liabilities and Contingent Assets (IAS 37). The implementation of an

ECL approach under IFRS 9, which results in the recognition of an

allowance for credit losses on financial assets regardless of whether

an actual loss event has occurred, is a significant change from the

incurred loss model under IAS 39 as described in Note 2.

The ECL approach categorizes financial assets into three stages based

on changes in credit risk since inception. A financial asset can move

between stages depending on improvement or deterioration of credit

risk.

Performing Assets

• Stage 1: From initial recognition until the date on which the

financial asset experiences a significant increase in credit risk

(SICR), the allowance for credit losses is measured based on

ECL from defaults occurring in the 12 months following the

reporting date.

• Stage 2: A financial asset migrates to Stage 2 when it

experiences a SICR since initial recognition and the allowance

for credit losses is measured based on ECL from defaults

occurring over the remaining life of the asset.

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.

As part of the transition to IFRS 9, CWB updated governance

frameworks impacted by the transition to IFRS 9 and implemented new

controls related to key processes and significant areas of judgment. An

Expected Credit Loss Committee, which includes senior management

representation from Risk, Finance and the business was established

to provide oversight to the IFRS 9 impairment process. The Expected

Credit Loss Committee is responsible to review key inputs and

assumptions used in ECL estimates and assess the appropriateness of

the performing loan allowance for credit losses.

Forward-looking Information

The estimation of ECL and the assessment of SICR consider information

about past events and current conditions as well as reasonable and

supportable projections of future events and economic conditions.

The estimation and application of forward-looking information

requires significant judgment.

With consideration of several external sources of information, CWB

formulates a base case view of the future direction of relevant

macroeconomic variables, which is updated quarterly. A representative

range of other possible forecast scenarios is developed to incorporate

multiple probability-weighted outcomes. The base case scenario

represents the best estimate of forecast macroeconomic variables

while other scenarios represent more optimistic or pessimistic

outcomes.

Additional information regarding the incorporation of forward-looking

information and the related judgment and estimation involved in the

process is described in Note 8.

Assessment of Significant Increases in Credit Risk

At each reporting date, CWB assesses 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 8 for additional information regarding the assessment

of SICR.

Expected Life

When measuring ECL, CWB considers the maximum contractual

period over which an exposure to credit risk exists. For most

instruments, the expected life is limited to the remaining contractual

CWB Financial Group 2019 Annual Report 81

life, including prepayment and extension options. For certain revolving

credit facilities, the expected life is estimated based on the period

over which CWB is exposed to credit risk and how credit losses are

mitigated by management actions.

Modified Financial Assets

The original terms of a financial asset may be renegotiated or otherwise modified, resulting in an impact to contractual cash flows. In particular, in an effort to minimize CWB’s realized losses, modifications may be granted in situations where a borrower experiences financial difficulty. Modifications may include payment deferrals, extension of amortization periods, interest rate reductions, principal forgiveness, debt consolidation or forbearance. If it is determined that the modification results in expiry of cash flows, the original asset is derecognized and a new asset is recognized based on the new contractual terms.

Where a modification does not result in derecognition, the gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows, discounted at the original effective interest rate, and a gain or loss is recognized immediately in the consolidated statements of income. The financial asset continues to be subject to the same assessment for SICR relative to initial recognition. Expected cash flows arising from the modified contractual terms are considered when estimating ECL for the modified asset. Financial assets that are modified while having an allowance for credit losses equal to lifetime ECL may revert to having to an allowance for credit losses equal to 12-month ECL after a period of performance and improvement in the borrower’s financial

condition.

Definition of Default

The definition of default used in the estimation of ECL is consistent with the definition of default used for internal credit risk management purposes. Loans are determined to be in default and classified as impaired when payments are contractually past due 90 days or more, where CWB has commenced realization proceedings, or where CWB is of the opinion that the loan should be regarded as impaired based on objective evidence. Objective evidence that a loan is impaired may include significant financial difficulty of a borrower, default or delinquency of a borrower, breach of loan covenants or conditions, or indications that a borrower will enter bankruptcy.

Financial assets are reviewed on an ongoing basis to assess whether any should be classified as impaired. Loans that have become impaired are monitored closely by a specialized team with regular reviews of each loan and its realization plan. Impaired loans are returned to performing status when the timely collection of both principal and interest is reasonably assured and all delinquent principal and interest

payments are brought current.

Write-offs

Financial assets are written off, either partially or in full, against the related allowance for credit losses when CWB concludes that there is no realistic prospect of future recovery in respect of those amounts. When financial instruments are secured, this is generally after all collateral has been realized or transferred to CWB, or in certain circumstances, when the net realizable value of any collateral and other available information suggests that there is no reasonable expectation of further recovery. In subsequent periods, any recoveries of amounts previously written off are recorded as a reduction to the provision for credit losses in the consolidated statements of income.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers (IFRS 15) was issued in

May 2014, and replaces IAS 18 Revenue, IAS 11 Construction Contracts and

related Interpretations. IFRS 15 provides a single, principles-based five-step

model that applies to all contracts with customers. The standard excludes

from its scope revenue arising from items such as financial instruments

and leases as these fall within the scope of other IFRSs. CWB performed a

detailed analysis on each revenue stream that is within the scope of the new

standard. CWB adopted IFRS 15 using the modified retrospective approach

and has concluded that there is no significant impact in relation to the

adoption of IFRS 15.

K) FUTURE ACCOUNTING CHANGES

A number of standards and amendments have been issued by the IASB, and the following changes may have an impact on CWB’s future financial statements.

IFRS 16 Leases

In January 2016, the IASB issued IFRS 16 Leases (IFRS 16), which supersedes IAS 17 Leases (IAS 17). This standard provides principles for the recognition, measurement, presentation and disclosure of leases. The standard sets out a single lessee accounting model for all leases by eliminating the distinction between operating and financing leases. IFRS 16 requires lessees to recognize a right-of-use asset and lease liability on the consolidated balance sheets for most leases. Lessees will also recognize depreciation expense on the right-of-use asset and interest expense on the lease liability in the consolidated statements of income. Lessor accounting remains substantially unchanged other than additional disclosure requirements. IFRS 16 is effective for CWB’s fiscal year beginning November 1, 2019.

There are two methods by which the new standard may be adopted: (1) a full retrospective approach with a restatement of all prior periods presented, or (2) a modified retrospective approach with a cumulative-effect adjustment recognized in opening retained earnings as of the date of adoption. At initial application, CWB will elect to adopt the modified retrospective option permitted by IFRS 16, in which the lessee recognizes the cumulative effect, if any, on initial application in retained earnings as of November 1, 2019, subject to allowable and elected practical expedients. On initial adoption CWB intends to use the following recognition exemptions and practical expedients:

• not apply the requirements of IFRS 16 to short-term and low value leases;

• apply a single discount rate to a portfolio of leases with reasonably

similar characteristics;

• exclude initial direct costs relating to existing leases from the

measurement of the right-of-use assets;

• rely on previous assessment of whether leases are onerous in accordance

with IAS 37 immediately before the date of initial application as an

alternative to performing an impairment review;

• use hindsight to determine the lease term where the lease contracts

contain options to extend or terminate the lease; and

• treat existing operating leases with a remaining term of less than 12

months at November 1, 2019 as short-term leases.

CWB has completed the process of assessing existing contractual relationships to identify leases that will be recorded on the consolidated balance sheets upon the adoption of IFRS 16. The main impact for CWB will be recognizing right-of-use assets and lease liabilities for premises leases. Currently, premises leases are classified as operating leases, with lease expense recorded over the term of the lease with no asset or liability recorded on the consolidated balance sheets. Based on preliminary assessments, CWB expects to recognize right-of-use assets of approximately $75 million to $85 million, lease liabilities of $90 million to $100 million and a decrease in the common equity Tier 1 capital ratio of

CWB Financial Group 2019 Annual Report82

approximately 10 basis points upon transition to IFRS 16. The adoption of IFRS 16 is expected to have a nominal impact to ongoing profitability, as amortization of right-of-use assets and interest expense on lease liabilities will be mostly offset by a reduction in lease expense previously recognized in premises and equipment expense. The actual impact of adopting IFRS 16 on November 1, 2019, may differ from these estimates as CWB continues to review its calculations and refine certain inputs.

Hedge Accounting

In September 2019, the IASB issued amendments to hedge accounting requirements in IFRS 9, IAS 39 and IFRS 7 Financial Instruments: Disclosures which address the possible effects of uncertainties created by Inter-bank Offered Rate (IBOR) reform. The amendments are effective for CWB’s fiscal year beginning November 1, 2020 with early adoption permitted. CWB is in the process of assessing the impact of these amendments.

Conceptual Framework for Financial Reporting

In March 2018, the IASB issued a revised version of the Conceptual Framework for Financial Reporting which assists the IASB in developing IFRS standards and serves as an accounting policy guide when no IFRS standard applies. The amendments provide revised definitions and recognition criteria for assets and liabilities, and guidance on different measurement bases. The IASB also issued amendments to IFRS standards to refer to the revised framework. The revisions are effective for CWB’s fiscal year beginning November 1, 2020 with early adoption permitted. CWB is in the process of assessing the impact of the revised framework.

2. TRANSITION TO IFRS 9

Reconciliation of IAS 39 to IFRS 9

The following table details the impact of the transition to IFRS 9 on the consolidated balance sheets as at November 1, 2018. Reclassification adjustments reflect the movement of assets between measurement categories with no impact to shareholders’ equity or change to the assets’ carrying value. Remeasurement adjustments, which include changes to

the allowance for credit losses related to the adoption of the impairment requirements of IFRS 9, result in a change to the carrying value of the assets and an impact to shareholders’ equity, net of tax. Refer to Note 1 for additional information regarding accounting policy changes related to the transition to IFRS 9.

IAS 39 Measurement Category

IFRS 9 Measurement Category

IAS 39 Carrying Value

as at October 31, 2018

Re- classification

Re- measurement

IFRS 9 Carrying Value

as at November 1,

2018

Assets Cash resources Amortized cost Amortized cost $ 126,396 $ - $ (35)(1) $ 126,361

Available-for-sale n/a 26,825 (26,825)(2) - - n/a FVOCI - 26,825 (2) - 26,825

153,221 - (35) 153,186

Securities Available-for-sale n/a 2,084,752 (2,084,752)(3) - - n/a FVOCI - 2,084,752 (3) - 2,084,752

2,084,752 - - 2,084,752

Loans, net of allowance for credit losses Amortized cost Amortized cost 26,204,599 - 19,810 (4) 26,224,409

Other 578,891 - (7,633)(5) 571,258 Total Assets $ 29,021,463 $ - $ 12,142 $ 29,033,605

Liabilities and Equity Deposits Amortized cost Amortized cost $ 23,699,957 $ - $ - $ 23,699,957 Other 725,149 - (10,592)(6) 714,557 Debt Amortized cost Amortized cost 2,007,854 - - 2,007,854 Total Liabilities 26,432,960 - (10,592) 26,422,368 Equity Preferred shares 265,000 - - 265,000 Common shares 744,701 - - 744,701 Retained earnings 1,649,196 - 22,514 (7) 1,671,710 Share-based payment reserve 23,937 - - 23,937 Accumulated other comprehensive income (97,082) - 220 (8) (96,862) Total Shareholders' Equity 2,585,752 - 22,734 2,608,486 Non-controlling interests 2,751 - - 2,751 Total Equity 2,588,503 - 22,734 2,611,237 Total Liabilities and Equity $ 29,021,463 $ - $ 12,142 $ 29,033,605

(1) Recognition of an allowance for credit losses related to cash resources measured at amortized cost. (2) Available-for-sale interest bearing deposits with regulated financial institutions have been reclassified to FVOCI as the securities met the SPPI criteria and are managed in a ‘hold to collect and sell’ business model. Cash and non-interest bearing deposits with regulated financial institutions as well as cheques and other items in transit continue to be measured at amortized cost. (3) Available-for-sale debt securities totaling $1,991,177 have been reclassified to FVOCI as the securities met the SPPI criteria and are managed in a ‘hold to collect and sell’ business model. Available-for-sale equity securities of $93,575 have been designated at FVOCI. (4) Decrease in the allowance for credit losses related to loans (see the ‘Reconciliation of Allowance for Credit Losses’ below). (5) Decrease in deferred tax assets of $7,563 combined with the recognition of an allowance for credit losses of $70 related to other financial assets. (6) Decrease in the allowance for credit losses related to committed but undrawn credit exposures and letters of credit of $11,419 (see the ‘Reconciliation of Allowance for Credit Losses’ below) partially offset by an increase in deferred tax liabilities of $827. (7) Cumulative after-tax impact of the adoption of IFRS 9. (8) After-tax impact of the recognition of an allowance for credit losses related to debt securities measured at FVOCI.

n/a – not applicable.

CWB Financial Group 2019 Annual Report 83

Reconciliation of Allowance for Credit Losses

The reconciliation of CWB’s allowance for credit losses in accordance with IAS 39 and provisions for committed but undrawn credit exposures and letters of

credit in accordance with IAS 37 to the corresponding amount determined under IFRS 9 as at November 1, 2018 follows:

IAS 39 / IAS 37 as at October 31, 2018 IFRS 9 as at November 1, 2018

Specific Allowance

Collective Allowance Total

Re- measurement Stage 1 Stage 2 Stage 3 Total

Debt securities at FVOCI(1)(2) $ - $ - $ - $ 301 $ 301 $ - $ - $ 301 Loans 27,027 101,502 128,529 (19,810) 57,999 23,693 27,027 108,719 Committed but undrawn credit

exposures and letters of credit(3) - 18,264 18,264 (11,419) 2,787 4,058 - 6,845 Total(4) $ 27,027 $ 119,766 $ 146,793 $ (30,928) $ 61,087 $ 27,751 $ 27,027 $ 115,865

(1) The allowance for credit losses on debt securities measured at FVOCI is recorded in AOCI in the consolidated balance sheets. (2) Previously available-for-sale debt securities under IAS 39. (3) Included in other liabilities in the consolidated balance sheets. (4) Excludes an insignificant allowance for credit losses related to cash resources and other financial assets of $105.

Accounting Policies for Financial Instruments Under IAS 39

The following accounting policies were applied to comparative information

for CWB’s 2018 fiscal year end as prior periods were not restated upon

adoption of IFRS 9.

Cash Resources

Interest bearing deposits with regulated financial institutions included in

cash resources were designated as available-for-sale and reported on the

consolidated balance sheets at fair value with changes in fair value reported

in other comprehensive income, net of income taxes.

Securities

Available-for-sale securities were accounted for at settlement date and

recorded on the consolidated balance sheets at fair value with changes

in fair value recorded in other comprehensive income, net of income

taxes, until the security was sold or became impaired. Interest income

from securities, which included amortization of premiums and discounts,

was recognized using the effective interest method in the consolidated

statements of income. Dividend income was recognized when the right to

receive payment was established, which was typically on the ex-dividend

date.

Securities are purchased with the original intention to hold the instrument

to maturity or until market conditions render alternative investments

more attractive. Gains and losses realized on disposal of securities and

adjustments to record any impairment in value were included in non-

interest income.

At each reporting date, CWB assessed whether there was objective evidence

that available-for-sale securities were impaired. Objective evidence that a

security was impaired included significant financial difficulty of the issuer,

indications that an issuer would enter bankruptcy or the lack of an active

market for a security.

Impairment losses on available-for-sale securities were recognized by

reclassifying the cumulative loss recognized in other comprehensive income

to the income statement as gains (losses) on securities, net. The reclassified

amount was the difference between the cost, net of any principal repayment

and amortization, and the fair value, less any impairment previously

recognized in net income.

If, in a subsequent period, the fair value of an impaired available-for-sale

debt security increased and the increase could be objectively related to an

event occurring after the impairment loss was recognized in net income, the

impairment loss was reversed, with the reversal recognized in net income.

Securities Sold Under Repurchase Agreements and Purchased Under Resale Agreements

Securities purchased under resale agreements were designated as

available-for-sale and reported on the consolidated balance sheets at fair

value with changes in fair value reported in other comprehensive income,

net of income taxes.

Embedded Derivatives

Certain derivatives embedded in other financial instruments were treated as

separate derivatives when their economic characteristics and risk were not

closely related to those of the host contract and the combined contract was

not carried at fair value. Identified embedded derivatives were separated

from the host contract and were recorded at fair value.

Loans

Loans, including leases, were recorded at amortized cost and stated net of

unearned income, unamortized premiums and allowance for credit losses

(see Note 8). Interest income was recorded using the effective interest

method.

Loans were determined to be impaired when payments were contractually

past due 90 days, where CWB had commenced realization proceedings,

or where CWB was of the opinion that the loan should be regarded as

impaired based on objective evidence. Objective evidence that a loan was

impaired included significant financial difficulty of the borrower, default

or delinquency of a borrower, breach of loan covenants or conditions, or

indications that a borrower would enter bankruptcy. An exception could be

made where CWB determined that the loan was well secured and in the

process of collection, and the collection efforts were reasonably expected

to result in either repayment of the loan or restoring it to current status

within 180 days from the date the payment went in arrears. All loans were

classified as impaired when a payment was 180 days in arrears other than

loans guaranteed or insured for both principal and interest by the Canadian

government, a province or a Canadian government agency. These loans

were classified as impaired when payment was 365 days in arrears.

Impairment was measured as the difference between the carrying value of

the loan at the time it was classified as impaired and the present value of

the expected cash flows (estimated realizable amount), using the original

effective interest rate of the loan. When the amounts and timing of future

cash flows could not be reliably estimated, either the fair value of the

CWB Financial Group 2019 Annual Report84

security underlying the loan, net of any expected realization costs, or

the current market price for the loan was used to measure the estimated

realizable amount. Impaired loans were returned to performing status when

the timely collection of both principal and interest were reasonably assured,

all delinquent principal and interest payments were brought current, and all

charges for loan impairment had been reversed.

Loan fees integral to the yield on the loan, net of directly related costs, were

amortized to interest income using the effective interest method. Premiums

paid on the acquisition of loan portfolios were amortized to interest income

using the effective interest method.

Loans were considered past due when a customer had not made a payment

by the contractual due date. These loans were not classified as impaired as

they were either less than 90 days past due or well secured and collection

efforts were reasonably expected to result in repayment or restoring it to

current status in accordance with CWB’s policy.

Allowance for Credit Losses

The allowance for credit losses was calculated on individual loans (specific

allowance) and on groups of loans, committed but undrawn credit

exposures and letters of credit assessed collectively (collective allowance).

The adequacy of the allowance for credit losses was reviewed at least

quarterly. The allowance for credit losses related to drawn exposures was

deducted from the outstanding loan balance. The allowance for credit

losses related to committed but undrawn credit exposures and letters of

credit was included with other liabilities. Losses expected from future

events were not recognized.

Specific Allowance

The specific allowance included all the accumulated provisions for losses

on identified impaired loans required to reduce the carrying value of those

loans to their estimated realizable amount. See Note 8 for the identification

process of impaired loans.

If the amount of an impairment loss decreased in a subsequent period, and

the decrease could be objectively related to an event occurring after the

impairment was recognized, the specific loan impairment allowance was

reduced accordingly. The reversal of impairment was recognized in the

consolidated statements of income in provision for credit losses.

Collective Allowance

The collective allowance for credit risk included provisions for losses that

had been incurred but had not yet been identified on an individual loan or

account basis by CWB. As soon as information became available which

identified losses on individual loans within the collective group, those

loans were removed from the group and assessed on an individual basis for

impairment.

The collective allowance for credit risk was established by taking into

consideration:

• historical trends in the loss experience during economic cycles;

• the current portfolio profile;

• historical loss experience in portfolios of similar credit risk characteristics;

• the estimated period between impairment occurring and the loss being

identified; and

• CWB’s management judgment as to whether current economic and

credit conditions were such that the actual level of inherent losses at the

balance sheet date was likely to be greater or less than that suggested by

historical experience.

3. FINANCIAL INSTRUMENTS

As a financial institution, most of CWB’s balance sheet is comprised of

financial instruments and the majority of net income results from gains,

losses, income and expenses related to the same.

Financial assets include cash resources, securities, securities purchased

under resale agreements, loans, derivative financial instruments and certain

other assets. Financial liabilities include deposits, cheques and other items

in transit, securities sold under repurchase agreements, derivative financial

instruments, 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.

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, net and fair value changes in certain derivatives are classified

to non-interest income. Contingent consideration fair value changes are

classified as acquisition-related fair value changes in the consolidated

statements of income.

4. STRATEGIC TRANSACTIONS Equipment Loans and Leases and General Commercial Lending Assets

On January 31, 2018, CWB acquired a portfolio of equipment loans and leases and general commercial lending assets, which added $845,990 to performing loans at fair value. No goodwill or intangible assets were included in the purchase. No allowance for credit losses was recorded on the acquisition date and loans are evaluated for impairment at each balance sheet date using the same methodology as CWB loans.

Canadian Western Trust (CWT)

On August 16, 2017, CWB announced that CWT, a wholly-owned subsidiary

of CWB, will no longer offer self-directed account services to clients holding

certain securities, and CWT initiated a process to appoint successor trustees

for these accounts. Pre-tax gains of $4,030 related to these transactions are

recorded in other non-interest income on the consolidated statements of

income for the year ended October 31, 2018, reflecting sales proceeds less

the carrying value of assets sold and related transaction costs. The carrying

value of deposits transferred in fiscal 2018 totaled $30,409. The transactions

were completed in fiscal 2018 with no further transfers conducted in fiscal

2019.

CWB Financial Group 2019 Annual Report 85

5. 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 and represent the net position of uncleared cheques and

other items in transit.

Interest bearing deposits with regulated 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 income taxes.

At October 31, 2019, the fair value of deposits with regulated financial

institutions was $293,856 (October 31, 2018 – $26,825) with $20,355

(October 31, 2018 – $20,310) restricted from use in relation to the

securitization of equipment financing leases and loans.

6. SECURITIES

Classification and Measurement

The securities portfolio consists of both debt securities and preferred shares. The applicable measurement categories are as follows:

Debt Securities

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.

Preferred Shares

CWB has made the irrevocable election to measure preferred shares,

which are equity instruments held for long-term investment purposes, at

FVOCI. Dividends from preferred shares are recognized in interest income

in the consolidated statements of income. Unrealized gains and losses are

recorded in OCI, net of tax, and are subsequently transferred directly to

retained earnings if the instrument is sold.

The analysis of securities at carrying value, by type and maturity or reprice date, follows:

IFRS 9

Maturity/Reprice As at October 31

2019 Within 1 Year

1 to 3 Years

3 to 5 Years

Measured at FVOCI Interest bearing deposits with regulated financial institutions(1) $ 293,856 $ - $ - $ 293,856 Debt securities issued or guaranteed by

Canada 705,704 608,274 27,348 1,341,326 A province or municipality 365,421 93,244 10,006 468,671

Other debt securities(2) 150,653 19,803 20,590 191,046

Designated at FVOCI Preferred shares 3,670 5,672 8,822 18,164 Total $ 1,519,304 $ 726,993 $ 66,766 $ 2,313,063

IAS 39

Maturity/Reprice As at October 31

2018 Within 1 Year

1 to 3 Years

3 to 5 Years

Available-for-sale Interest bearing deposits with regulated financial institutions(1) $ 26,825 $ - $ - $ 26,825

Debt securities issued or guaranteed by

Canada 322,435 599,537 403,844 1,325,816

A province or municipality 55,222 257,475 209,128 521,825

Other debt securities(2) 61,205 54,951 27,380 143,536

Preferred shares 14,022 57,654 21,899 93,575

Total $ 479,709 $ 969,617 $ 662,251 $ 2,111,577

(1) Included in cash resources on the consolidated balance sheets. (2) Includes securities issued or guaranteed by the United States of $76,033 (October 31, 2018 – $125,995).

CWB Financial Group 2019 Annual Report86

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:

IFRS 9 As at October 31, 2019

Amortized Cost(1)

Unrealized Gains

Unrealized Losses

Fair Value

Measured at FVOCI Interest bearing deposits with regulated financial institutions $ 293,865 $ - $ 9 293,856 Debt securities issued or guaranteed by

Canada 1,344,455 477 3,606 1,341,326 A province or municipality 468,989 75 393 468,671

Other debt securities 190,803 291 48 191,046

Designated at FVOCI Preferred shares 26,648 - 8,484 18,164 Total $ 2,324,760 $ 843 $ 12,540 $ 2,313,063

IAS 39

As at October 31, 2018

Amortized Cost(1)

Unrealized Gains

Unrealized Losses

Fair Value

Available-for-sale Interest bearing deposits with regulated financial institutions $ 26,825 $ - $ - $ 26,825

Debt securities issued or guaranteed by

Canada 1,362,647 - 36,831 1,325,816

A province or municipality 531,798 - 9,973 521,825

Other debt securities 146,610 1 3,075 143,536

Preferred shares 110,696 - 17,121 93,575

Total $ 2,178,576 $ 1 $ 67,000 $ 2,111,577

(1) The amortized cost of debt securities and cash resources measured at FVOCI is net of an allowance for credit losses of $196 (October 31, 2018 – n/a).

During the year ended October 31, 2019, CWB disposed of preferred shares

with a fair value of $56,279. Related to the dispositions, CWB reclassified

cumulative after-tax realized losses of $20,370 from AOCI to retained

earnings. Dividend income recognized in the consolidated statements of

income on preferred shares that were held at October 31, 2019 totaled $999.

Dividend income recognized in the consolidated statements of income

related to preferred shares disposed during the year totaled $1,355.

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, 2019, reversals for credit losses of

$103 were recorded in the consolidated statements of income related to a

reduction 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, 2019.

CWB Financial Group 2019 Annual Report 87

7. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND PURCHASED UNDER RESALE AGREEMENTS

Securities sold under repurchase agreements represent the sale of

Government of Canada 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 on the

consolidated balance sheets.

8. 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 generate 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 CWB’s loan portfolio by geographic region and industry sector follows:

Composition Percentage

($ millions) BC AB ON SK MB QC Other Total Oct. 31

2019 Oct. 31

2018

Personal(1) $ 1,509 $ 1,558 $ 2,122 $ 261 $ 126 $ - $ 114 $ 5,690 20 % 20 %

Business General commercial loans 2,497 2,766 2,339 298 266 269 165 8,600 30 28 Equipment financing and leasing(2) 772 1,398 1,385 463 248 586 340 5,192 18 18 Commercial mortgages 2,343 2,160 144 289 137 15 - 5,088 18 19 Real estate project loans 2,227 1,052 275 132 47 17 2 3,752 13 15 Oil and gas production loans - 139 - 16 - - - 155 1 -

7,839 7,515 4,143 1,198 698 887 507 22,787 80 80 Total(3) $ 9,348 $ 9,073 $ 6,265 $ 1,459 $ 824 $ 887 $ 621 $ 28,477 100 % 100 %

Composition Percentage October 31, 2019 33% 32 % 22 % 5 % 3 % 3 % 2 % 100 % October 31, 2018 34% 32 % 21 % 5 % 3 % 3 % 2 % 100 %

(1) Includes mortgages securitized through the National Housing Act Mortgage Backed Securities program reported on-balance sheet of $837 (October 31, 2018 – $609) (see Note 9). (2) Includes securitized leases and loans reported on-balance sheet of $1,613 (October 31, 2018 – $1,622) (see Note 9). (3) This table does not include an allocation of the allowance for credit losses.

Credit Quality

Internal Risk Ratings

Within CWB’s loan portfolios, borrowers are assigned a borrower risk

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 CWB’s historical loss experience for each risk segment or risk

rating level, adjusted for forward-looking information. CWB’s BRR scale

broadly aligns to external ratings as follows:

Description CWB Rating Category Standard & Poor’s Moody’s Investor Services

Investment grade or low risk 1 to 6M AAA to BBB- Aaa to Baa3

Non-investment grade or medium risk 6L to 8L BB+ to CCC+ Ba1 to Caa1

Watchlist or high risk 9H to 10L CCC and below Caa2 and below

Impaired 11 to 12 Default Default

CWB Financial Group 2019 Annual Report88

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:

As at October 31, 2019 Performing Impaired

Stage 1 Stage 2 Stage 3 Total

Loans – Personal Low risk $ 2,955,248 $ 48,534 $ - $ 3,003,782 Medium risk 2,034,651 507,047 - 2,541,698 Watchlist or high risk - 114,085 - 114,085 Impaired - - 30,268 30,268

Total 4,989,899 669,666 30,268 5,689,833 Allowance for credit losses (1,614) (1,469) (1,036) (4,119) Total, net of allowance for credit losses 4,988,285 668,197 29,233 5,685,714

Loans – Business Investment grade or low risk 1,667,859 32,794 - 1,700,653 Non-investment grade or medium risk 20,059,887 617,162 - 20,677,049 Watchlist or high risk - 291,210 - 291,210 Impaired - - 117,982 117,982

Total 21,727,746 941,166 117,982 22,786,894 Allowance for credit losses (59,957) (21,830) (24,928) (106,715) Total, net of allowance for credit losses 21,667,789 919,336 93,054 22,680,179

Total loans 26,717,645 1,610,832 148,250 28,476,727 Allowance for credit losses (61,571) (23,299) (25,964) (110,834) Total Loans, Net of Allowance for Credit Losses $26,656,074 $ 1,587,533 $ 122,286 $28,365,893

Committed but Undrawn Credit Exposures and Letters of Credit Investment grade or low risk $ 1,029,967 $ 2,655 $ - $ 1,032,622 Non-investment grade or medium risk 4,518,220 108,812 - 4,627,032 Watchlist or high risk - 19,484 - 19,484 Impaired - - - -

Total 5,548,187 130,951 - 5,679,138 Allowance for credit losses (2,601) (1,590) - (4,191) Total, Net of Allowance for Credit Losses $ 5,545,586 $ 129,361 $ - $ 5,674,947

Impaired and Past Due Loans

Outstanding gross loans and impaired loans, net of allowance for credit losses, by loan type, are as follows:

IFRS 9 IAS 39 As at October 31, 2019 As at October 31, 2018

Gross Amount

Gross Impaired Amount(1)(2)

Stage 3 Allowance

Net Impaired

Loans Gross

Amount

Gross Impaired Amount(1)(2)

Specific Allowance

Net Impaired

Loans

Personal $ 5,689,833 $ 30,268 $ 1,036 $ 29,232 $ 5,247,160 $ 28,961 $ 647 $ 28,314 Business

General commercial loans 8,599,527 26,030 7,030 19,000 7,458,010 21,815 5,484 16,331 Equipment financing and leasing 5,191,901 43,767 15,134 28,633 4,779,005 47,800 15,606 32,194 Commercial mortgages(3) 5,088,193 22,950 2,764 20,186 4,865,183 29,376 3,290 26,086 Real estate project loans 3,752,480 5,446 - 5,446 3,854,681 9,920 2,000 7,920 Oil and gas production loans 154,793 19,789 - 19,789 129,089 - - -

Total $ 28,476,727 $ 148,250 $ 25,964 $ 122,286 $26,333,128 $ 137,872 $ 27,027 $ 110,845

(1) Under IFRS 9, all loans that are over 90 days past due are considered impaired. Under IAS 39, residential mortgages guaranteed or insured for both principal and interest by the Canadian government, a province, or a Canadian government agency and loans that were fully secured and in the process of collection were not classified as impaired until payments were 365 or 180 days in arrears, respectively. (2) Gross impaired loans include foreclosed assets with a carrying value of $4,217 (October 31, 2018 – $6,628). CWB pursues timely realization on foreclosed assets and does not use the assets for its own operations. (3) Multi-family residential mortgages are included in commercial mortgages.

During the year, interest recognized as income on impaired loans totaled $3,328 (2018 – $5,743).

CWB Financial Group 2019 Annual Report 89

Outstanding impaired loans, net of allowance for credit losses, by provincial location of security are as follows:

IFRS 9 IAS 39 As at October 31, 2019 As at October 31, 2018

Gross Impaired Amount

Stage 3 Allowance

Net Impaired

Loans

Gross Impaired Amount

Specific Allowance

Net Impaired

Loans

Alberta $ 77,891 $ 10,692 $ 67,199 $ 77,018 $ 12,627 $ 64,391 British Columbia 17,488 1,349 16,139 13,699 2,069 11,630 Ontario 20,126 4,157 15,969 16,829 3,016 13,813 Saskatchewan 10,529 2,181 8,348 8,957 1,330 7,627 Manitoba 11,831 4,795 7,036 9,873 4,006 5,867 Quebec 6,622 1,886 4,736 4,826 2,345 2,481 Other 3,763 904 2,859 6,670 1,634 5,036 Total $ 148,250 $ 25,964 $ 122,286 $ 137,872 $ 27,027 $ 110,845

Loans are considered past due when a customer has not made a payment by the contractual due date. The following table presents the carrying value of loans

that are contractually past due but not classified as impaired:

As at October 31, 2019 1 - 30 days 31 - 60 days 61 - 90 days More than

90 days(1) Total

Personal $ 40,138 $ 18,902 $ 591 $ - $ 59,631 Business 143,206 62,468 10,764 - 216,438 Total $ 183,344 $ 81,370 $ 11,355 $ - $ 276,069

As at October 31, 2018 $ 169,739 $ 49,387 $ 9,779 $ 1,970 $ 230,875

(1) Under IFRS 9, all loans that are over 90 days past due are considered impaired. Under IAS 39, residential mortgages guaranteed or insured for both principal and interest by the Canadian government, a province, or a Canadian government agency and loans that were fully secured and in the process of collection were not classified as impaired until payments were 365 or 180 days in arrears, respectively.

Allowance for Credit Losses

Allowance for credit losses related to performing loans is estimated using an

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 CWB’s most

significant accounting estimate.

Significant key drivers impacting the estimation of ECL, which are

interrelated, include:

• changes in internal risk ratings attributable to a borrower or instrument

reflecting changes in credit quality;

• thresholds used to determine when a borrower has experienced a SICR;

and

• changes in forward-looking information, specifically related to variables

to which the ECL models are calibrated.

The inputs and models used for estimating ECL may not always capture all

emerging market conditions at the reporting date and as such, qualitative

adjustments based on expert judgment that consider reasonable and

supportable information may be incorporated.

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 are recorded for loans that

have migrated to Stage 2. Movement between Stages 1 and 2 is impacted

by changes in borrower-specific risk characteristics as well as changes

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 for Multiple Scenarios

Forward-looking information is incorporated into both the assessment

of whether a loan has experienced a SICR since its initial recognition

and the estimation of ECL. The models used to estimate ECL consider

macroeconomic factors that are most closely correlated with credit risk

in the relevant portfolios and are calibrated to consider CWB’s geographic

diversification.

To account for the non-linear nature of projected losses, CWB incorporates

multiple probability-weighted macroeconomic scenarios into the estimation

of ECL. Each scenario includes a projection of all relevant macroeconomic

variables for a five year period. While the base case scenario represents the

best estimate of projected macroeconomic variables, additional scenarios

represent more optimistic or pessimistic outcomes. To capture a wide range

of possible outcomes, CWB simulates multiple macroeconomic scenarios

that are above or below the base case based on historical and current

trends and with consideration for the degree of uncertainty surrounding

macroeconomic outlooks.

ECL is sensitive to changes in both the base case scenario as well as the

incorporation of multiple probability-weighted macroeconomic scenarios.

Incorporating multiple probability-weighted macroeconomic scenarios into

ECL estimates resulted in an increase of approximately 9% to the performing

loan allowance for credit losses, relative to the base case scenario, as at

October 31, 2019.

CWB Financial Group 2019 Annual Report90

The primary macroeconomic variables, over the next 12 months and the remaining forecast period, incorporated into the estimation of ECL are as follows:

Base Scenario Optimistic(1) Pessimistic(2)

Macroeconomic Variable Next 12 Months

Remaining Forecast

Period Next 12 Months

Remaining Forecast

Period Next 12 Months

Remaining Forecast

Period

Annual GDP growth 1.5% 1.7% 2.1% 3.1% 1.0% 0.4%

Unemployment rate 6.0% 6.3% 5.8% 5.7% 6.3% 7.0%

MLS housing resale price growth (decline) 3.0% 1.9% 6.0% 10.9% 0.1% (7.2)%

Three month treasury bill rate 1.6% 1.8% 2.2% 2.7% 1.1% 0.9%

U.S. dollar/Canadian dollar exchange rate $ 1.32 $ 1.33 $ 1.36 $ 1.44 $ 1.28 $ 1.21

Oil price (U.S. dollar per barrel) $ 62 $ 61 $ 73 $ 81 $ 52 $ 40

(1) Represents one standard deviation above the base case scenario. (2) Represents one standard deviation below the base case scenario.

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 expected credit

losses while increases in oil price, annual gross domestic product (GDP)

growth, and MLS housing resale price growth, and the U.S. dollar/Canadian

dollar exchange rate will generally result in lower ECL.

Stage 3 Allowance for Credit Losses

For impaired loans in Stage 3, the allowance for credit losses is measured

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 CWB expects

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.

CWB Financial Group 2019 Annual Report 91

Reconciliation

A reconciliation of changes in the allowance for credit losses related to loans, committed but undrawn credit exposures and letters of credit under IFRS 9

follows:

IFRS 9 2019

Performing Impaired Stage 1 Stage 2 Stage 3 Total

Personal Balance at beginning of year $ 1,461 $ 1,181 $ 647 $ 3,289 Transfers to (from)

Stage 1(1) 211 (211) - - Stage 2(1) (369) 389 (20) - Stage 3(1) (10) (96) 106 -

Net remeasurement(2) (1,236) 594 1,860 1,218 New originations 1,870 - - 1,870 Derecognitions and maturities (307) (377) (172) (856)

Provision for (reversal of) credit losses(3) 159 299 1,774 2,232 Write-offs - - (1,422) (1,422) Recoveries - - 37 37 Balance at end of year 1,620 1,480 1,036 4,136 Business Balance at beginning of year $ 59,325 $ 26,570 $ 26,380 $ 112,275 Transfers to (from)

Stage 1(1) 13,802 (13,802) - - Stage 2(1) (5,780) 6,788 (1,008) - Stage 3(1) (158) (3,231) 3,389 -

Net remeasurement(2) (34,446) 14,896 53,477 33,927 New originations 46,846 - - 46,846 Derecognitions and maturities (17,037) (7,812) (295) (25,144)

Provision for (reversal of) credit losses(3) 3,227 (3,161) 55,563 55,629 Write-offs - - (60,844) (60,844) Recoveries - - 3,829 3,829 Balance at end of year 62,552 23,409 24,928 110,889 Total Allowance for Credit Losses(4) $ 64,172 $ 24,889 $ 25,964 $ 115,025

Represented by:

Loans $ 61,571 $ 23,299 $ 25,964 $ 110,834 Committed but undrawn credit exposures and letters of credit(4) 2,601 1,590 - 4,191

Total Allowance for Credit Losses(5) $ 64,172 $ 24,889 $ 25,964 $ 115,025

(1) Represents stage movements prior to remeasurement of the allowance for credit losses. (2) Represents credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions, including changes in forward-looking macroeconomic forecasts and qualitative adjustments, and changes due to partial repayment. (3) Included in the provision for credit losses in the consolidated statements of income. (4) Included in other liabilities in the consolidated balance sheets. (5) Allowance for credit losses related to debt securities measured at FVOCI, cash resources and other financial assets classified at amortized cost were excluded from the table above. See Note 6 for details related to the allowance for credit losses on debt securities measured at FVOCI. Cash resources and other financial assets classified at amortized cost are presented in the consolidated balance sheets, net of allowance for credit losses.

The following table shows the changes in the allowance for credit losses under IAS 39:

IAS 39 2018

Specific Allowance

Collective Allowance

Total

Balance at beginning of year $ 16,617 $ 119,298 $ 135,915 Provision for credit losses 47,789 468 48,257 Write-offs (45,359) - (45,359) Recoveries 7,980 - 7,980 Balance at End of Year $ 27,027 $ 119,766 $ 146,793

Represented by: Loans $ 27,027 $ 101,502 $ 128,529 Committed but undrawn credit exposures and letters of credit - 18,264 18,264

Total Allowance $ 27,027 $ 119,766 $ 146,793

CWB Financial Group 2019 Annual Report92

9. FINANCIAL ASSETS TRANSFERRED BUT NOT DERECOGNIZED

Securitization of equipment financing leases and loans

CWB securitizes equipment financing leases and loans to third parties.

These securitizations do not qualify for derecognition as CWB continues

to be exposed to certain risks associated with the leases and loans,

therefore CWB has not transferred substantially all of the risk and rewards

of ownership. As the leases and loans do not qualify for derecognition,

the assets are not removed from the consolidated balance sheets and a

securitization liability is recognized within debt related to securitization

activities for the cash proceeds received (see Note 16).

During 2019, CWB securitized equipment financing leases and loans of

$784,125 (2018 – $1,178,726) which were sold to thrid parties for cash

proceeds of $704,392 (2018 – $1,063,792).

Securitization of residential mortgages

CWB securitizes fully insured residential mortgage loans through the

creation of mortgage-backed securities under the National Housing Act

Mortgage Backed Securities (NHA MBS) program sponsored by the

Canada Mortgage and Housing Corporation (CMHC). The mortgage-

backed securities are sold directly to third party investors, sold to the

Canada Housing Trust (CHT) as part of the Canada Mortgage Bond (CMB)

program or are held by CWB. The CHT issues CMBs, which are government

guaranteed, to third party investors and uses resulting proceeds to purchase

NHA MBS from CWB and other mortgage issuers in the Canadian market.

The third party sale of the mortgage pools that comprise the NHA MBS

does not qualify for derecognition as CWB retains the credit and interest

rate risks associated with the mortgages, which represent substantially all

of the risks and rewards associated with the transferred assets. As a result,

the mortgages remain on the consolidated balance sheets as personal loans

and are carried at amortized cost. Cash proceeds from the third party sale

of the mortgage pools, including those sold as part of the CMB program,

are recognized within debt related to securitization activities (see Note 16).

During 2019, CWB securitized residential mortgages of $203,455 which

were sold to the CHT for cash proceeds of $202,871 (2018 – $184,213 sold

for cash proceeds of $181,635) and did not sell any securitized residential

mortgages directly to third party investors (2018 – nil).

Securities sold under repurchase agreements

CWB enters into repurchase agreements under which it sells previously

recognized securities, with a simultaneous agreement to purchase them

back at a specific price on a future date, but retains substantially all of the

credit, price, interest rate, and foreign exchange risks and rewards associated

with the assets (see Note 7). These securities are not derecognized and the

cash proceeds from the sale are recognized within other liabilities on the

consolidated balance sheets.

Details about the nature of transferred financial assets that do not qualify for derecognition and the associated liabilities are as follows:

As at October 31, 2019 As at October 31, 2018

Carrying Value

Fair Value

Carrying Value

Fair Value

Transferred Assets that do not Qualify for Derecognition Securitized leases and loans $ 1,613,426 $ 1,616,653 $ 1,621,943 $ 1,690,933 Securitized residential mortgages 442,310 440,983 277,942 271,492 Securities sold under repurchase agreements 29,965 29,965 95,126 95,126

2,085,701 2,087,601 1,995,011 2,057,551

Associated Liabilities(1) 1,943,764 1,965,313 1,852,980 1,786,645 Net Position $ 141,937 $ 122,288 $ 142,031 $ 270,906

(1) Associated liabilities consist of $1,469,509 related to securitized leases and loans (October 31, 2018 – $1,479,133), $444,290 related to residential mortgages securitized through the NHA MBS program (October 31, 2018 – $278,721) and $29,965 related to securities sold under repurchase agreements (October 31, 2018 – $95,126).

Additionally, CWB has securitized residential mortgages through the

NHA MBS program totaling $394,342 with a fair value of $393,159 (2018

– $330,599 with a fair value of $322,926) that were not transferred to third

parties.

CWB Financial Group 2019 Annual Report 93

10. PROPERTY AND EQUIPMENT

Land is carried at cost. Buildings, equipment and furniture, and leasehold

improvements are carried at cost less accumulated depreciation and

impairment.

Depreciation is calculated primarily using the straight-line method over the

estimated useful life of the asset, as follows:

• Buildings: 20 years

• Equipment and furniture: 3 to 10 years

• Leasehold improvements: over the shorter of the term of the lease

and the remaining useful life

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.

Leasehold Improvements

Land and Buildings

Computer Equipment

Office Equipment Total

Cost Balance at November 1, 2018 $ 76,505 $ 18,905 $ 36,701 $ 44,321 $ 176,432 Additions 4,277 165 5,713 5,326 15,481 Disposals - (417) (217) (495) (1,129) Balance at October 31, 2019 80,782 18,653 42,197 49,152 190,784

Accumulated Depreciation and Impairment Balance at November 1, 2018 51,324 6,129 26,140 33,741 117,334 Depreciation for the year 4,389 564 3,539 2,810 11,302 Disposals - (307) (217) (494) (1,018) Balance at October 31, 2019 55,713 6,386 29,462 36,057 127,618

Net Carrying Amount at October 31, 2019 $ 25,069 $ 12,267 $ 12,735 $ 13,095 $ 63,166

Cost Balance at November 1, 2017 $ 72,398 $ 18,754 $ 31,444 $ 40,842 $ 163,438

Additions 4,179 151 5,262 3,573 13,165

Disposals (72) - (5) (94) (171)

Balance at October 31, 2018 76,505 18,905 36,701 44,321 176,432

Accumulated Depreciation and Impairment Balance at November 1, 2017 47,263 5,580 23,461 31,019 107,323

Depreciation for the year 4,133 549 2,684 2,816 10,182

Disposals (72) - (5) (94) (171)

Balance at October 31, 2018 51,324 6,129 26,140 33,741 117,334

Net Carrying Amount at October 31, 2018 $ 25,181 $ 12,776 $ 10,561 $ 10,580 $ 59,098

CWB Financial Group 2019 Annual Report94

11. 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 reviewed

for impairment annually or more frequently if there are indications that

impairment may have occurred. Goodwill is allocated to cash-generating

units for the purpose of impairment testing considering the business level

at which goodwill is monitored for internal management purposes. On this

basis, CWB’s cash-generating units with goodwill allocated are:

• CWB Maxium Financial Inc. (MX);

• CWB National Leasing Inc. (NL);

• CWB McLean & Partners Wealth Management Ltd. (M&P); and

• CWB Wealth Management Ltd. (WM).

MX NL M&P WM Total

Balance at November 1, 2018 $ 38,869 $ 35,776 $ 6,575 $ 3,948 $ 85,168 Partial ownership change - - 13 211 224 Balance at October 31, 2019 $ 38,869 $ 35,776 $ 6,588 $ 4,159 $ 85,392

Balance at November 1, 2017 $ 38,869 $ 35,776 $ 7,099 $ 3,925 $ 85,669 Partial ownership change - - (524) 23 (501)

Balance at October 31, 2018 $ 38,869 $ 35,776 $ 6,575 $ 3,948 $ 85,168

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 or more frequently if events

or changes in circumstances indicate that impairment may have occurred.

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 provided 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

CWB Financial Group 2019 Annual Report 95

Software and Related

Assets

Customer Relation-

ships

Trademarks and

Tradenames

Non- competition Agreements Other Total

Cost Balance at November 1, 2018 $ 184,271 $ 59,211 $ 6,564 $ 11,084 $ 5,150 $ 266,280 Additions 34,073 - - - - 34,073 Partial ownership change - 4 23 - - 27 Disposals (749) - - - - (749) Balance at October 31, 2019 217,595 59,215 6,587 11,084 5,150 299,631

Accumulated Amortization Balance at November 1, 2018 60,066 29,745 - 11,039 4,640 105,490 Amortization 16,135 4,657 - 20 330 21,142 Disposals (749) - - - - (749) Balance at October 31, 2019 75,452 34,402 - 11,059 4,970 125,883

Net Carrying Amount at October 31, 2019 $ 142,143 $ 24,813 $ 6,587 $ 25 $ 180 $ 173,748

Cost Balance at November 1, 2017 $ 154,761 $ 59,606 $ 6,632 $ 11,153 $ 5,150 $ 237,302

Additions 31,118 - - - - 31,118

Partial ownership change - (395) (68) (69) - (532)

Disposals (1,608) - - - - (1,608)

Balance at October 31, 2018 184,271 59,211 6,564 11,084 5,150 266,280

Accumulated Amortization Balance at November 1, 2017 48,462 24,709 - 10,288 4,113 87,572

Amortization 13,212 5,036 - 751 527 19,526

Disposals (1,608) - - - - (1,608)

Balance at October 31, 2018 60,066 29,745 - 11,039 4,640 105,490

Net Carrying Amount at October 31, 2018 $ 124,205 $ 29,466 $ 6,564 $ 45 $ 510 $ 160,790

Impairment

The carrying amounts of CWB’s intangible assets with finite useful lives are

reviewed at each reporting date to determine whether there is any indication

of impairment. If an indication exists, CWB tests for impairment. For

goodwill and intangible assets with indefinite useful lives, the impairment

tests are performed each year.

Impairment testing is performed by comparing the estimated recoverable

amount from a cash-generating unit with the carrying amount of its net

assets, including attributable goodwill. The recoverable amount of an asset

is the higher of its fair value less costs of disposal, and its value in use. If the

recoverable amount is less than the carrying value, an impairment loss is

charged to the consolidated statements of income.

The recoverable amounts for CWB’s cash-generating units are calculated

based on the higher of their value in use and fair value less costs of disposal.

Fair value less costs of disposal is determined by using a market-based

approach of the associated cash-generating unit, whereby the fair value is

determined using comparable market transactions for similar businesses.

Value in use is determined by discounting the future cash flows expected

to be generated from the continuing use of the cash-generating unit.

Unless indicated otherwise, value in use is determined similarly as in

the comparative year. The calculation of the value in use is based on the

following key assumptions:

• Cash flows are projected based on past experience, actual operating

results and the five-year future business plan. Cash flows for a further 15-

year period are extrapolated using a constant growth rate of 1.7% (2018

– 2.0%), which is based on the long-term forecast Canadian GDP growth

rates. The forecast period is based on CWB’s long-term perspective with

respect to the operation of these cash-generating units.

• A pre-tax discount rate of 9.3% (2018 – 10.1%) is applied in determining

the recoverable amounts, which is comprised of a risk-free interest rate

and a market risk premium.

The key assumptions described above may change as economic and market

conditions change. CWB estimates 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 2019 or 2018.

CWB Financial Group 2019 Annual Report96

12. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate, foreign exchange, bond forward and equity swaps/contracts

such as futures, options, swaps, floors and rate locks are entered into

for risk management purposes in accordance with CWB’s asset liability

management policies. It is CWB’s 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 CWB’s common share price.

Bond forward contracts are used to manage interest rate risk related to

CWB’s participation in the NHA MBS program. Foreign exchange contracts

are used for the purposes of meeting the needs of clients, day-to-day

business and liquidity management.

Use of Derivatives

CWB enters 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 CWB include:

• interest rate swaps, which are agreements where two counterparties

exchange a series of payments based on different interest rates applied

to a notional amount;

• bond forward contracts, which are a contractual obligation to purchase

or sell a bond at a predetermined future date;

• foreign exchange forwards and futures, which are contractual obligations

to exchange one currency for another at a specified price for settlement

at a predetermined future date; and

• equity swaps, which are agreements where CWB makes periodic interest

payments to a counterparty and receives the capital gain or loss plus

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 with changes in fair value related to the effective portion of cash

flow interest rate hedges recorded in other comprehensive income, net of

income taxes. Changes in fair value related to the ineffective portion of a

designated accounting hedge, a derivative not designated as an accounting

hedge and all other derivative financial instruments are reported in non-

interest income on the consolidated statements of income.

Designated Accounting Hedges

When designated as accounting hedges by CWB, certain derivative financial

instruments are designated as either a hedge of the fair value of recognized

assets, liabilities or firm commitments (fair value hedges), or a hedge of

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.

Potential sources of ineffectiveness can be attributed to the differences

between hedging instruments and the hedged items:

• Mismatches in terms of hedged item and hedging instrument, such as the

repricing dates and frequency of payments.

• The effect of the counterparty and CWB’s own credit risk.

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. CWB has a policy of interest rate risk management to maintain an appropriate balance between earnings volatility and economic value volatility while keeping both within their respective risk appetite limits. Exposure to interest rate risk is controlled by managing the size of the static gap positions between interest sensitive assets and interest sensitive liabilities for future periods. This is achieved partly by using interest rate swaps and bond forward contracts as a hedge to interest rate changes.

Only the changes in fair value and cash flows related to changes in benchmark interest rates are designated as hedges for accounting purposes. Other risk elements present in these relationships, such as credit risk, have a less significant impact on changes in fair value and cash flows, and are not designated as accounting hedges.

The hedging ratio is established by matching the notional amount of the hedging instrument with the notional amount of the hedged item. The existence of an economic relationship between the hedging instrument and hedged item is based on the reference interest rates, tenors, repricing dates

and maturities, and the notional or par amounts.

Equity Risk

Equity risk arises when changes in CWB common share price affects the payout of share-based payment plans (see Note 18) that have not yet vested. CWB has a policy to hedge a portion of the earnings volatility related to restricted share unit (RSU) and deferred share unit (DSU) grants by using equity swaps, where CWB makes periodic interest payments to a counterparty and receives the capital gain or loss plus dividends of a CWB common share.

CWB Financial Group 2019 Annual Report 97

The following table shows the derivative financial instruments split between those contracts that have a positive fair value (favourable contracts) and those

that have a negative fair value (unfavourable contracts):

As at October 31, 2019 As at October 31, 2018 Favourable Contracts Unfavourable Contracts Favourable Contracts Unfavourable Contracts

Notional Amount

Fair Value

Notional Amount

Fair Value

Notional Amount

Fair Value

Notional Amount

Fair Value

Cash Flow Hedges Interest rate risk

Interest rate swaps $ 4,952,000 $ 42,855 $ 1,876,000 $ (13,104) $ - $ - $ 4,908,000 $ (65,130) Bond forward contracts - - 20,000 (91) 15,000 55 - -

Equity risk

Equity swaps 13,084 3,049 6,184 (159) 9,008 2,203 9,277 (1,339) Fair Value Hedges Interest rate risk

Interest rate swaps 19,746 20 20,000 (58) - - - - Not Designated as Accounting Hedges

Foreign exchange contracts 106,575 1,005 164,338 (604) 27,195 238 161,933 (2,307) Equity swaps 5,319 886 - - - - 5,842 (805)

Total $ 5,096,724 $ 47,815 $ 2,086,522 $ (14,016) $ 51,203 $ 2,496 $ 5,085,052 $ (69,581)

The aggregate contractual or notional amount of the derivative financial

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:

2019 2018 Favourable derivative financial instruments (assets) $ 40,853 $ 9,248 Unfavourable derivative financial instruments (liabilities) $ 22,174 $ 49,001

The following table summarizes the maturities of derivative financial instruments and the weighted average interest rates paid and received on contracts:

As at October 31, 2019 As at October 31, 2018 Maturity Maturity

1 Year or Less More than 1 Year 1 Year or Less More than 1 Year

Notional Amount

Contractual Interest

Rate Notional Amount

Contractual Interest

Rate Notional Amount

Contractual Interest

Rate Notional Amount

Contractual Interest

Rate

Cash Flow Hedges Interest rate risk

Interest rate swaps(1) $2,100,000 1.92% $4,728,000 2.01% $1,070,000 1.72% $3,838,000 1.98% Bond forward contracts(2) 20,000 - - - 15,000 - - -

Equity risk

Equity swaps(3) 9,365 2.58% 9,903 2.62% 9,233 2.85% 9,052 2.86% Fair Value Hedges Interest rate risk

Interest rate swaps(4) - - 39,746 1.72% - - - - Not Designated as Accounting

Hedges Foreign exchange contracts(5) 270,913 - - - 189,128 - - - Equity swaps(6) 5,319 2.47% - - 5,842 2.65% - -

Total $2,405,597 $4,777,649 $1,289,203 $3,847,052

(1) CWB receives interest at a fixed contractual rate and pays interest on the one-month (30-day) Canadian Bankers’ Acceptance rate. Interest rate swaps designated as accounting cash flow hedges outstanding at October 31, 2019 mature between November 2019 and September 2024. (2) Bond forward contracts outstanding at October 31, 2019 mature in December 2019. (3) Equity swaps designated as accounting hedges outstanding at October 31, 2019 mature between June 2020 and June 2022. (4) Interest rate swaps designated as accounting fair value hedges outstanding at October 31, 2019 mature in August and December 2022. (5) Foreign exchange contracts outstanding at October 31, 2019 mature between November 2019 and April 2020. The contractual interest rate is not meaningful for foreign exchange contracts. (6) Equity swaps not designated as accounting hedges outstanding at October 31, 2019 mature in June 2020.

CWB Financial Group 2019 Annual Report98

The following tables present the details of the hedged items categorized by their hedging relationships:

As at October 31, 2019

Statement of Consolidated Balance Sheets Line Item

Changes in Fair Value Used for Calculating

Hedge Ineffectiveness AOCI -

Cash Flow Hedges

Cash Flow Hedges Interest rate risk

Variable rate liabilities Deposits - Personal, Deposits - Business and government

$ 94,881 $ 21,991

Forecasted NHA MBS issuances n/a (146) (224) Equity risk

Restricted share units Other - Other liabilities 2,024 1,091

n/a - not applicable

As at October 31, 2019

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 IneffectivenessAssets Liabilities Assets Liabilities Fair Value Hedges Interest rate risk

Fixed rate assets $ 40,393 $ - $ (13) $ - Securities - Issued or guaranted by a province

or municipality, Other debt securities

$ (38)

The following table contains information regarding the effectiveness of the hedging relationships, as well as the impacts on the consolidated statements of

income and consolidated statements of comprehensive income:

2019

Change in Fair Value of Hedging

Instrument

Hedge Ineffectiveness

Recognized in Income

Change in the Fair Value of the

Hedging Instrument Recognized in OCI

Amount Reclassified from AOCI - Cash

Flow Hedges to Income

Cash Flow Hedges Interest rate risk

Interest rate swaps(1) $ 94,881 $ - $ 69,538 $ (3) Bond forward contracts(1) (146) - (99) 147

Equity risk Equity swaps(2) 2,024 - 1,922 (527)

Fair Value Hedges Interest rate risk

Interest rate swaps (38) - - -

(1) Amounts reclassified from OCI into Interest Expense – Deposits (2) Amounts reclassified from OCI into Non-interest expenses – Salaries and employee benefits

The following table shows a reconciliation of the accumulated other comprehensive income from derivatives designated as cash flow hedges and an analysis

of other comprehensive income relating to hedge accounting:

Accumulated Other Comprehensive Income - Cash Flow Hedges 2019 Balance at beginning of year $ (48,120) Amounts recognized in other comprehensive income:

Interest rate risk - Interest rate swaps and bond forward contracts Effective portion of changes in fair value 69,439 Amounts reclassified to net income 144

Equity risk - Equity swaps Effective portion of changes in fair value 1,922 Amounts reclassified to net income (527)

Balance at End of Year $ 22,858

At October 31, 2019, hedged cash flows are expected to occur and affect profit or loss within the next five years.

CWB Financial Group 2019 Annual Report 99

13. OTHER ASSETS

As at October 31

2019

As at October 31

2018

Accrued interest receivable $ 79,709 $ 77,004 Accounts receivable 63,150 60,533 Deferred tax asset (Note 22) 37,868 45,877 Prepaid expenses 10,396 9,181 Financing costs(1) 6,986 6,480 Derivative collateral receivable (Note 28) 4,070 55,550 Income tax receivable 2,092 7,547 Other 8,535 9,167 Total $ 212,806 $ 271,339

(1) Amortization for the year amounted to $3,016 (2018 – $2,502).

14. DEPOSITS

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.

As at October 31, 2019

Individuals Business and Government Total

Payable on demand $ 34,296 $ 715,875 $ 750,171 Payable after notice 4,452,592 3,420,754 7,873,346 Payable on a fixed date 10,813,617 5,914,227 16,727,844 Total $ 15,300,505 $ 10,050,856 $ 25,351,361

As at October 31, 2018

Individuals Business and Government Total

Payable on demand $ 35,889 $ 716,156 $ 752,045

Payable after notice 3,684,259 3,157,875 6,842,134

Payable on a fixed date 10,763,538 5,342,240 16,105,778

Total $ 14,483,686 $ 9,216,271 $ 23,699,957

A summary of all outstanding deposits payable on a fixed date, by contractual maturity date, follows:

As at October 31

2019

As at October 31

2018

Within 1 year $ 6,694,117 $ 6,108,436 1 to 2 years 5,013,286 3,830,943 2 to 3 years 2,242,094 3,344,859 3 to 4 years 1,793,324 1,320,789 4 to 5 years 985,023 1,500,751 Total $ 16,727,844 $ 16,105,778

CWB Financial Group 2019 Annual Report100

15. OTHER LIABILITIES

As at October 31

2019

As at October 31

2018

Accounts payable and accrued liabilities $ 333,123 $ 290,560 Accrued interest payable 208,548 164,171 Income taxes payable 60,501 9,794 Derivative collateral payable (Note 28) 19,370 - Deferred tax liability (Note 22) 4,716 5,745 Deferred revenue 4,357 5,534 Allowance for committed but undrawn credit exposures and letters of credit(1) (Note 8) 4,191 18,264 Leasehold inducements 2,694 3,170 Contingent consideration (Note 27) - 29,814 Other 8,886 4,901 Total $ 646,386 $ 531,953

(1) Amounts for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 1 and 2). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated.

16. DEBT

A) DEBT SECURITIES

A summary of outstanding debt related to the securitization of equipment financing leases and loans and residential mortgages by contractual maturity date

follows:

Within 1 Year

1 to 3 Years

3 to 5 Years

As at October 31

2019

As at October 31

2018

Securitized leases and loans $ 576,621 $ 756,426 $ 136,462 $ 1,469,509 $ 1,479,133 Securitized residential mortgages 88,404 133,051 222,835 444,290 278,721 Total $ 665,025 $ 889,477 $ 359,297 $ 1,913,799 $ 1,757,854

B) 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.

Interest Rate

Maturity Date

Earliest Date Redeemable

by CWB at Par Par Value

Non-NVCC subordinated debentures 3.463%(1) December 17, 2024 December 17, 2019 $ 250,000 NVCC subordinated debentures(2) 3.668% June 11, 2029 June 11, 2024 250,000

(1) These conventional debentures have a 12-year term with a fixed interest rate for the first seven years. Thereafter, if not redeemed, the interest rate would have been reset quarterly at the three month Canadian Dollar Offered Rate (CDOR) plus 160 basis points. (2) The balance reported on the consolidated balance sheets as at October 31, 2019 includes unamortized financing costs relating to the issuance of subordinated debentures of $1,506.

On June 11, 2019, CWB issued $250,000 Non-Viability Contingent Capital

(NVCC) subordinated debentures with a fixed annual interest rate of

3.668% until June 11, 2024. Thereafter, the rate will be set quarterly at the

three-month CDOR plus 199 basis points until maturity on June 11, 2029.

The debentures are redeemable by CWB on or after June 11, 2024, subject

to the prior written consent of OSFI.

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).

On October 18, 2019, CWB announced the redemption of all $250,000 of

outstanding 3.463% non-NVCC subordinated debentures. The debentures

were redeemed on November 18, 2019 at an aggregate amount of $253,900,

representative of the early redemption value plus accrued interest.

CWB Financial Group 2019 Annual Report 101

17. 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:

2019 2018

Number of Shares Amount

Number of Shares Amount

Preferred Shares - Series 5 Outstanding at beginning and end of year 5,000,000 $ 125,000 5,000,000 $ 125,000 Preferred Shares - Series 7 Outstanding at beginning and end of year 5,600,000 140,000 5,600,000 140,000 Preferred Shares - Series 9 Outstanding at beginning of year - - - -

Issued 5,000,000 125,000 - - Outstanding at end of year 5,000,000 125,000 - -

15,600,000 390,000 10,600,000 265,000 Common Shares Outstanding at beginning of year 88,952,099 744,701 88,494,353 731,885

Purchased for cancellation (1,829,944) (15,326) - - Issued on exercise or exchange of options(1) 77,667 1,245 178,279 2,818 Issued under dividend reinvestment plan 49,889 1,350 119,174 4,248 Issued on acquisition-related contingent consideration instalment payment (Note 27) - - 160,293 5,750

Outstanding at end of year 87,249,711 731,970 88,952,099 744,701 Share Capital $ 1,121,970 $ 1,009,701

(1) Represents shares issued and amounts transferred from the share-based payment reserve to share capital upon cashless settlement of option exercises.

CWB is prohibited by the Bank Act from declaring any dividends on common

shares when CWB is 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) COMMON SHARES

The normal course issuer bid (NCIB) announced on September 27, 2018,

originally for the purchase of up to 1,767,000 common shares and amended

on April 10, 2019 to 3,534,000 common shares, was for the 12-month period

that expired on September 30, 2019. CWB repurchased 1,829,944 common

shares at an average price of $27.08 under this NCIB, all in fiscal 2019.

The total cost of these purchases, including related transaction costs was

$49,592.

On September 26, 2019, CWB announced the approval of OFSI and

the Toronto Stock Exchange (TSX) to repurchase for cancellation up to

1,740,000 common shares, representing approximately 2% of the issued

and outstanding common shares, under a NCIB during the 12-month period

expiring September 30, 2020. No common shares have been repurchased

under this NCIB.

B) PREFERRED SHARES

PREFERRED SHARES – SERIES 5

On April 30, 2019, CWB elected to reset the NVCC First Preferred Shares

Series 5 (Series 5 Preferred Shares) annual dividend rate from 4.40% to

4.30%, representing the five year Government of Canada Bond Yield as at

April 1, 2019 plus 276 basis points. Beginning May 1, 2019, holders of Series 5

Preferred Shares are entitled to receive quarterly fixed rate non-cumulative

preferential cash dividends in the amount of $0.2688125 per share, when

declared by the Board of Directors of CWB. CWB may redeem the Series 5

Preferred Shares, in whole or in part, on April 30, 2024 and on April 30 every

five years thereafter. All other terms remain unchanged.

PREFERRED SHARES – SERIES 9

On January 29, 2019, CWB issued 5,000,000 non-cumulative, five year

rate reset NVCC First Preferred Shares Series 9 (Series 9 Preferred Shares)

at $25.00 per share, for gross proceeds of $125,000. Holders of Series 9

Preferred Shares are entitled to receive a non-cumulative fixed dividend in

the amount of $0.3832 per share on April 30, 2019 and thereafter, dividends

will be at a quarterly rate of $0.375 per share, when declared by the Board of

Directors of CWB, for the initial period ending April 30, 2024. The quarterly

dividend represents an annual yield of 6.00% based on the stated issue

price per share. Thereafter, the dividend rate will reset every five years at

404 basis points over the then five year Government of Canada Bond Yield.

CWB Financial Group 2019 Annual Report102

NON-VIABILITY CONTINGENT CAPITAL PREFERRED SHARE RIGHTS AND PRIVILEGES

Redemption Amount

Quarterly Non-cumulative

Dividend(1) Annual

Yield(5)

Date Redeemable/

Convertible(6)(7) Convertible to(8)

Preferred Shares - Series 5 $ 25.00 $ 0.2688125(2) 4.30% April 30, 2024 Preferred Shares - Series 6

Preferred Shares - Series 7 $ 25.00 $ 0.390625(3) 6.25% July 31, 2021 Preferred Shares - Series 8 Preferred Shares - Series 9 $ 25.00 $ 0.375(4) 6.00% 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 reset on April 30, 2019 and will reset on the date redeemable and every five years thereafter at a level of 276 basis points over the then five year Government of Canada Bond Yield. Prior to the April 30, 2019, the annual yield was 4.40% representing a quarterly non-cumulative dividend of $0.275 per share. (3) The dividend rate will reset on the date redeemable and every five years thereafter at a level of 547 basis points over the then five year Government of Canada Bond Yield. (4) The dividend rate will reset on the date redeemable and every five years thereafter at a level of 404 basis points over the then five year Government of Canada Bond Yield. (5) Based on the stated issue price per share of $25.00. (6) Redeemable by CWB, subject to the approval of OSFI, on the date noted and every five years thereafter. (7) Convertible by the shareholders, subject to certain conditions, on the date noted and every five years thereafter if not redeemed by CWB to an equal number of First Preferred Shares Series 6, Series 8, and Series 10 which are non- cumulative, floating rate preferred shares. (8) If converted, holders of the First Preferred Shares Series 6, Series 8, and Series 10 will be entitled to receive quarterly floating rate dividends as and when declared by the Board of Directors of CWB, which reset quarterly at a rate equal to the 90-day Government of Canada Treasury Bill rate plus 276, 547, and 404 basis points, respectively.

Upon the occurrence of a non-viability trigger event (as defined by OSFI),

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).

C) DIVIDENDS

The following dividends were declared by CWB’s Board of Directors and paid by CWB during the year:

2019 2018

$1.08 per common share (2018 – $1.00) $ 94,573 $ 88,819 $1.09 per preferred share - Series 5 (2018 – $1.10) 5,438 5,500 $1.56 per preferred share - Series 7 (2018 – $1.56) 8,750 8,750 $1.13 per preferred share - Series 9 (2018 – nil) 5,666 - Total $ 114,427 $ 103,069

Subsequent to October 31, 2019, the Board of Directors of CWB declared

a dividend of $0.28 per common share payable on January 7, 2020 to

shareholders of record on December 17, 2019, and cash dividends for

preferred shares of $0.2688125 per Series 5, $0.390625 per Series 7,

and $0.375 per Series 9 preferred share payable on January 31, 2020 to

shareholders of record on January 24, 2020. With respect to these dividend

declarations, no liability was recorded on the consolidated balance sheets

at October 31, 2019.

D) DIVIDEND REINVESTMENT PLAN

Under the dividend reinvestment plan (plan), CWB provides holders of

CWB’s common shares and holders of any other class of shares deemed

eligible by CWB’s 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 CWB’s Series 5, Series 7, and Series 9 Preferred Shares

are also eligible to participate in the plan. The plan is open to shareholders

residing in Canada.

At the option of CWB, the common shares may be issued from CWB’s

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 between 0% to 5%

or through the open market at market prices. During the year, 49,889 (2018

– 119,174) common shares were issued under the plan from CWB’s treasury

with no discount (2018 – no discount). Beginning in the third quarter of 2019,

CWB satisfied the requirements of the plan through purchases of common

shares in the open market.

CWB Financial Group 2019 Annual Report 103

18. SHARE-BASED PAYMENTS

A) STOCK OPTIONS

Stock options are accounted for using the fair value method. The estimated

value 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.

CWB has authorized 6,321,061 common shares (2018 – 6,398,728) for

issuance under the share incentive plan. Of the amount authorized,

options exercisable into 1,676,604 shares (2018 – 2,833,461) 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. Options granted after

2015 expire within seven years of the grant date. Previously granted options

expire within five years of the grant date. Outstanding options expire from

March 2020 to March 2026.

The details of, and changes in, the issued and outstanding options are as follows:

2019 2018

Options Number

of Options

Weighted Average

Exercise Price Number

of Options

Weighted Average

Exercise Price

Balance at beginning of year 2,833,461 $ 31.90 3,390,759 $ 31.02 Granted 380,728 29.43 262,563 35.15 Exercised or exchanged (407,134) 25.66 (782,769) 28.95 Expired (1,105,653) 38.58 (37,092) 36.94 Forfeited (24,798) 31.50 - -

Balance at End of Year 1,676,604 $ 28.41 2,833,461 $ 31.90 Exercisable at End of Year 718,481 $ 24.36 1,628,324 $ 34.64

Further details relating to stock options outstanding and exercisable are as follows:

Options Outstanding Options Exercisable

Range of Exercise Prices Number of

Options

Weighted Average

Remaining Contractual Life (years)

Weighted Average Exercise

Price Number of

Options

Weighted Average Exercise

Price

$23.70 to $26.13 718,481 2.6 $ 24.36 718,481 $ 24.36

$29.43 to $29.99 376,409 6.3 29.44 - -

$30.85 to $35.15 581,714 4.8 32.74 - -

Total 1,676,604 4.2 $ 28.41 718,481 $ 24.36

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 2019, option holders exchanged the rights to

407,134 (2018 – 782,769) options and received 77,667 (2018 – 178,279) shares

in return by way of cashless settlement.

Salary expense of $1,617 (2018 – $1,776) 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 1.6%

(2018 – 2.0%), (ii) expected option life of 5.0 (2018 – 5.0) years, (iii) expected

annual volatility of 29% (2018 – 28%), and (iv) expected annual dividends of

3.7% (2018 – 2.9%). 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 $4.93 (2018 – $6.48) per

share.

During the year, $1,245 (2018 – $2,818) was transferred from the share-based

payment reserve to share capital, representing the estimated fair value

recognized for 407,134 (2018 – 782,769) options exercised during the year.

CWB Financial Group 2019 Annual Report104

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 CWB’s common shares at the vesting

date. Throughout the vesting period, common share dividend equivalents

accrue to the employee in the form of additional units. RSUs vest on each

anniversary of the grant in equal one-third instalments over a period of three

years. Salary expense is recognized over the vesting period except where

the employee is eligible to retire prior to the vesting date, in which case the

expense is recognized between the grant date and the date the employee

is eligible to retire.

During the year, salary expense of $9,683 (2018 – $9,160) was recognized

related to RSUs. As at October 31, 2019, the liability for the RSUs held under

this plan was $10,966 (October 31, 2018 – $10,821). At the end of each period,

the liability is adjusted to reflect changes in the fair value of the RSUs.

Number of RSUs 2019 2018

Balance at beginning of year 626,814 731,930 Granted 410,225 283,083 Vested and paid out (337,425) (367,752) Forfeited (24,418) (20,447)

Balance at End of Year 675,196 626,814

C) PERFORMANCE SHARE UNITS

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 CWB common share. Throughout the vesting period, common

share dividend equivalents accrue to the employee in the form of additional

units. Under the PSU plan, each PSU vests at the end of a three year period

and is settled in cash.

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 CWB common shares.

During the year, salary expense of $1,643 (2018 – $2,951) was recognized

related to PSUs. As at October 31, 2019, the liability for the PSUs held under

this plan was $4,416 (October 31, 2018 – $5,225). At the end of each period,

the liability and salary expense are adjusted to reflect changes in the fair

value of the PSUs.

Number of PSUs 2019 2018

Balance at beginning of year 194,233 209,263 Granted 78,789 54,929 Vested and paid out (87,652) (69,959)

Balance at End of Year 185,370 194,233

D) DEFERRED SHARE UNITS

Under the DSU plan, non-employee directors receive a portion of their

retainer in DSUs. 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 $1,180 (2018 – $858)

related to the DSUs. As at October 31, 2019, the liability for DSUs held under

this plan was $6,575 (October 31, 2018 – $5,238). 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 2019 2018

Balance at beginning of year 171,069 172,833 Granted 41,002 28,888 Paid out (14,860) (30,652)

Balance at End of Year 197,211 171,069

CWB Financial Group 2019 Annual Report 105

19. NON-CONTROLLING INTERESTS

Non-controlling interests relate to the following:

As at October 31

2019

As at October 31

2018

CWB Wealth Management Ltd. $ 1,091 $ 2,056 CWB McLean & Partners Wealth Management Ltd. 781 695 Total $ 1,872 $ 2,751

20. CONTINGENT LIABILITIES AND COMMITMENTS

A) CREDIT INSTRUMENTS

In the normal course of business, CWB enters into various commitments and has contingent liabilities, which are not reflected in the consolidated balance

sheets. These items are reported below and are expressed in terms of the contractual amount of the related commitment.

As at October 31

2019

As at October 31

2018

Credit Instruments Commitments to extend credit $ 5,173,866 $ 4,748,747 Guarantees and standby letters of credit 505,272 480,341

Total $ 5,679,138 $ 5,229,088

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 $2,568,449 (October 31, 2018 – $2,374,512) and

authorized but unfunded loan commitments of $2,605,417 (October 31, 2018

– $2,374,235). In the majority of instances, availability of undrawn business

commitments is subject to the borrower meeting specified financial tests or

other covenants regarding completion or satisfaction of certain conditions

precedent. It is also usual practice to include the right to review and withhold

funding in the event of a material adverse change in the financial condition

of the borrower. The allowance for credit losses related to committed but

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 CWB’s obligation to

make payments to third parties when a customer is unable to make required

payments or meet other contractual obligations. These instruments carry

the same credit risk, recourse and collateral security requirements as loans

extended to customers and generally have a term that does not exceed one

year.

B) LEASE COMMITMENTS

CWB has obligations under long-term, non-cancellable operating leases for

the rental of premises and automated teller machines. The leases typically

run 5 to 15 years, with an option to renew the lease for an additional five

years. Total costs, including free rent periods and step-rent increases, are

expensed on a straight-line basis over the lease term.

Minimum future lease commitments for each of the five succeeding years and thereafter are as follows:

2020 $ 14,946 2021 14,795 2022 12,397 2023 11,995 2024 10,508 2025 and thereafter 27,943 Total $ 92,584

CWB Financial Group 2019 Annual Report106

C) PURCHASE OBLIGATIONS

CWB has contractual obligations related to operating and capital expenditures which typically run one to five years.

Purchase obligations for each of the succeeding years are as follows:

2020 $ 1,659 2021 1,393 Total $ 3,052

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, CWB enters into contractual

arrangements under which CWB may agree to indemnify the other

party. Under these agreements, CWB 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 its subsidiaries are party to

legal and regulatory proceedings. Based on current knowledge, CWB does

not expect the outcome of any of these proceedings to have a material

effect on the consolidated financial position or results of operations.

21. EMPLOYEE FUTURE BENEFITS

All employee future benefits related to CWB’s group retirement savings and

employee share purchase plans are recognized in the periods during which

services are rendered by employees. CWB’s contributions to the group

retirement savings plan and employee share purchase plan totaled $ 16,654

(2018 – $15,038).

CWB Financial Group 2019 Annual Report 107

22. INCOME TAXES

CWB follows 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:

2019 2018

Consolidated statements of income

Current $ 105,140 $ 105,381 Deferred (2,475) (8,504)

102,665 96,877

Other comprehensive income

Tax expense (recovery) related to:

Items that will be subsequently reclassified to net income 12,016 (7,410) Items that will not be subsequently reclassified to net income(1) (4,982) n/a Derivatives designated as cash flow hedges 25,867 (10,297)

32,901 (17,707) Total $ 135,566 $ 79,170

(1) Amounts for fiscal 2019 have been prepaid in accordance with IFRS 9 (refer to note 1 and 2). Fiscal 2018 comparatives have been prepaid in accordance with IAS 38 and have not been restated.

n/a – not applicable

The combined statutory tax rate changed in 2019 as a result of a decrease in the Alberta provincial tax rate from 12% to 8% over four years, beginning with a

1% decrease on July 1, 2019 with further reductions of 1% on each of January 1, 2020, 2021 and 2022.

A reconciliation of the statutory tax rates and income tax that would be payable at these rates to the effective income tax rates and provision for income taxes

reported in the consolidated statements of income follows:

2019 2018

Combined Canadian federal and provincial income taxes and

statutory tax rate $ 104,433 26.7% $ 97,324 26.9% Increase (decrease) arising from:

Deferred tax related to provincial tax rate increase (1,530) (0.4) - - Tax-exempt income (634) (0.1) (1,708) (0.4) Stock-based compensation 428 0.1 479 0.1 Other (32) - 782 0.2

Provision for Income Taxes and Effective Tax Rate $ 102,665 26.3% $ 96,877 26.8%

Deferred tax balances are comprised of the following:

2019 2018

Deferred Tax Assets Allowance for credit losses $ 13,527 $ 25,847 Leasing income 21,869 18,608 Deferred loan fees 10,573 12,068 Deferred deposit broker commission (6,367) (8,219) Other temporary differences (1,734) (2,427)

$ 37,868 $ 45,877

Deferred Tax Liabilities Intangible assets $ 3,324 $ 4,373 Other temporary differences 1,392 1,372

$ 4,716 $ 5,745

CWB Financial Group 2019 Annual Report108

23. EARNINGS PER COMMON SHARE

Basic earnings per common share is calculated based on the weighted average number of common shares outstanding during the period. Diluted earnings

per share is calculated based on the treasury stock method, which assumes that any proceeds from in-the-money stock options are used to purchase CWB’s

common shares at the average market price during the period.

The calculation of earnings per common share follows:

2019 2018

Numerator Common shareholders’ net income $ 266,940 $ 249,256

Denominator Weighted average number of common shares outstanding - basic 87,512,616 88,806,458 Dilutive instruments:

Stock options(1) 225,988 478,441 Weighted Average Number of Common Shares Outstanding - Diluted 87,738,604 89,284,899

Earnings Per Common Share Basic $ 3.05 $ 2.81 Diluted 3.04 2.79

(1) At October 31, 2019, the denominator excludes 958,123 (2018 – 1,368,216) employee stock options with an average exercise price of $33.22 (2018 – $38.76), adjusted for unrecognized stock-based compensation, that is greater than the average market price.

24. RELATED PARTY TRANSACTIONS

Transactions with and between subsidiary entities are made at normal

market prices and eliminated on consolidation.

Preferred Rates and Terms

CWB makes loans, primarily residential mortgages, to its officers and

employees at various preferred rates and terms. The total amount

outstanding for these types of loans is $184,130 (October 31, 2018 –

$147,886). CWB offers deposits, primarily fixed term deposits, to its officers

and employees and their immediate family at preferred rates. The total

amount outstanding for these deposits is $323,308 (October 31, 2018 –

$313,004).

Key Management Personnel

Key management personnel of CWB are those that have authority and

responsibility for planning, directing and controlling the activities of CWB

and include independent directors of CWB.

Compensation of key management personnel follows:

2019 2018

Salaries, benefits and directors' compensation $ 5,168 $ 5,326 Share-based payments (stock options, RSUs, PSUs and DSUs)(1) 3,449 3,132 Total $ 8,617 $ 8,458

(1) Share-based payments are based on the estimated fair value on grant date.

Loans outstanding with key management personnel totaled $259 as at October 31, 2019 (October 31, 2018 – $190). No loans were outstanding with CWB’s

independent directors as at October 31, 2019 and 2018, reflecting CWB’s policies that preclude lending to those directors.

CWB Financial Group 2019 Annual Report 109

25. INTEREST RATE SENSITIVITY

CWB is 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 the risk appetite of CWB. The repricing profile of these assets and

liabilities has been incorporated in the table following, 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, 2019

Floating Rate

and Within 1 Month

1 to 3 Months

3 Months to 1 Year

Total Within 1 Year

1 Year to 5 Years

More than 5 Years

Non- interest

Sensitive Total

Assets Cash resources and securities $ 752 $ 318 $ 654 $ 1,724 $ 744 $ - $ 7 $ 2,475 Loans(1) 13,195 1,298 4,484 18,977 9,184 294 (89) 28,366 Other assets(2) - - - - - - 583 583 Derivatives(3) 190 510 1,475 2,175 4,738 - 270 7,183 Total 14,137 2,126 6,613 22,876 14,666 294 771 38,607 Liabilities and Equity Deposits(1) 8,151 1,536 4,823 14,510 10,869 - (27) 25,352 Securities sold under

repurchase agreements 30 - - 30 - - - 30 Other liabilities(2) - - - - - - 683 683 Debt 311 118 483 912 1,499 - - 2,411 Equity - - - - 390 - 2,558 2,948 Derivatives(3) 6,828 45 - 6,873 40 - 270 7,183 Total 15,320 1,699 5,306 22,325 12,798 - 3,484 38,607 Interest Rate Sensitive Gap $ (1,183) $ 427 $ 1,307 $ 551 $ 1,868 $ 294 $ (2,713) $ - Cumulative Gap $ (1,183) $ (756) $ 551 $ 551 $ 2,419 $ 2,713 $ - $ - Cumulative Gap as a

Percentage of Total Assets (3.1)% (2.0)% 1.4% 1.4% 6.3% 7.0% - -

October 31, 2018 Cumulative Gap $ (619) $ (318) $ 287 $ 287 $ 2,326 $ 2,526 $ - $ -

Cumulative Gap as a Percentage of Total Assets (1.8)% (0.9)% 0.8% 0.8% 6.8% 7.4% - -

(1) Potential prepayments of fixed rate loans and early redemption of redeemable fixed term deposits have not been estimated. Redemptions of fixed term deposits where depositors have this option are not expected to be material. The majority of fixed rate loans, mortgages and leases are either closed or carry prepayment penalties. (2) Accrued interest is excluded in calculating interest sensitive assets and liabilities. (3) Derivative financial instruments are included in this table at the notional amount.

The effective, weighted average interest rates for each class of financial asset and liability are shown below:

Weighted Average Effective Interest Rates (%)

October 31, 2019

Floating Rate and Within

1 Month 1 to 3

Months 3 Months to 1 Year

Total Within 1 Year

1 Year to 5 Years

More than 5 Years Total

Total assets 4.4% 3.5% 3.8% 4.1% 3.7% 5.3% 3.9% Total liabilities 1.9 2.3 2.4 2.1 2.7 - 2.1 Interest Rate Sensitive Gap 2.5% 1.2% 1.4% 2.0% 1.0% 5.3% 1.8%

October 31, 2018

Total assets 4.4% 3.5% 4.1% 4.3% 3.6% 6.0% 4.0% Total liabilities 1.7 2.3 2.2 1.9 2.5 - 2.1

Interest Rate Sensitive Gap 2.7% 1.2% 1.9% 2.4% 1.1% 6.0% 1.9%

Based on the current interest rate gap position, it is estimated that a one

percentage point increase in all interest rates would increase net interest

income by approximately $4,556 (October 31, 2018 – $6,234) and decrease

other comprehensive income $107,812 (October 31, 2018 – $104,554) net

of tax, respectively, over the following twelve months. A one percentage

point decrease in all interest rates would decrease net interest income

by approximately $7,463 (October 31, 2018 – $7,467) and increase other

comprehensive income $111,563 (October 31, 2018 – $107,162), net of tax.

CWB Financial Group 2019 Annual Report110

26. INTEREST INCOME

The composition of CWB’s interest income follows:

2019

Loans measured at amortized cost(1) $ 1,379,730 Securities

Debt securities measured at FVOCI(1) 26,841 Equity securities designated at FVOCI 2,354 Securities purchased under resale agreements measured at amortized cost(1) 1,501

Deposits with regulated financial institutions measured at FVOCI(1) 8,274 Total $ 1,418,700

(1) Interest income is calculated using the effective interest method.

CWB Financial Group 2019 Annual Report 111

27. FAIR VALUE OF FINANCIAL INSTRUMENTS

A) FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT BASIS

The fair value of a financial instrument on initial recognition is normally

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 CWB’s 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 CWB’s 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 CWB’s intention is to realize their value over time by holding

them to maturity.

The table below provides the carrying amount of financial instruments

by category as defined in IFRS 9 and by balance sheet heading. The table

sets out the fair values of financial instruments (including derivatives)

using the valuation methods and assumptions referred to below the table.

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.

IFRS 9

October 31, 2019(1) Derivatives Amortized

Cost FVOCI

Total Carrying Amount Fair Value

Fair Value Over (Under)

Carrying Amount

Financial Assets Cash resources (Note 5) $ - $ 121,986 $ 293,856 $ 415,842 $ 415,842 $ - Securities(2) (Note 6) - - 2,019,207 2,019,207 2,019,207 - Securities purchased

under resale agreements - 40,366 - 40,366 40,366 - Loans(3) - 28,450,811 - 28,450,811 28,478,436 27,625 Derivatives 47,815 - - 47,815 47,815 -

Total Financial Assets $ 47,815 $ 28,613,163 $ 2,313,063 $ 30,974,041 $ 31,001,666 $ 27,625 Financial Liabilities

Deposits(3) $ - $ 25,380,204 $ - $ 25,380,204 $ 25,544,270 $ 164,066 Securities sold under

repurchase agreements - 29,965 - 29,965 29,965 - Debt - 2,412,293 - 2,412,293 2,444,034 31,741 Derivatives 14,016 - - 14,016 14,016 -

Total Financial Liabilities $ 14,016 $ 27,822,462 $ - $ 27,836,478 $ 28,032,285 $ 195,807

IAS 39

October 31, 2018 Derivatives

Loans and Receivables,

and Non-trading

Liabilities Available-

for-sale

Total Carrying Amount Fair Value

Fair Value Over (Under)

Carrying Amount

Financial Assets Cash resources (Note 5) $ - $ - $ 153,221 $ 153,221 $ 153,221 $ - Securities (Note 6) - - 2,084,752 2,084,752 2,084,752 - Loans(3) - 26,390,375 - 26,390,375 26,551,146 160,771 Derivatives 2,496 - - 2,496 2,496 -

Total Financial Assets $ 2,496 $ 26,390,375 $ 2,237,973 $ 28,630,844 $ 28,791,615 $ 160,771 Financial Liabilities

Deposits(3) $ - $ 23,743,618 $ - $ 23,743,618 $ 23,502,200 $ (241,418) Securities sold under repurchase agreements - - 95,126 95,126 95,126 - Debt - 2,007,854 - 2,007,854 1,942,472 (65,382) Contingent consideration - 29,814 - 29,814 29,814 - Derivatives 69,581 - - 69,581 69,581 -

Total Financial Liabilities $ 69,581 $ 25,781,286 $ 95,126 $ 25,945,993 $ 25,639,193 $ (306,800)

(1) For further information on interest rates associated with financial assets and liabilities, including derivative instruments, refer to Note 25. (2) Under IFRS 9, securities are comprised of $2,001,043 measured at FVOCI and $18,164 designated at FVOCI. (3) Loans and deposits exclude deferred premiums, deferred revenue and allowance for credit losses, which are not financial instruments.

CWB Financial Group 2019 Annual Report112

The methods and assumptions used to estimate the fair values of financial

instruments are as follows:

• Interest bearing deposits with regulated financial institutions and

securities are reported on the consolidated balance sheets at the

fair value disclosed in Notes 5 and 6. Remaining cash resources and

securities purchased under resale agreements are reported at amortized

cost, which is equal to fair value, on the consolidated balance sheets.

These values are based on quoted market prices, if available. Where a

quoted market price is not readily available, other valuation techniques

are based on observable market rates used to estimate fair value.

• Fair value of loans reflect changes in the general level of interest rates

that have occurred since the loans were originated and exclude the

allowance for credit losses. Fair value is estimated by discounting the

expected future cash flows of these loans at current market rates for

loans with similar terms and risks, with the exception of floating rate

loans at October 31, 2018 where, due to a differing estimation method at

that time, the fair value was assumed to be equal to book value.

• With the exception of derivative financial instruments and contingent

consideration, other assets and other liabilities reported on the

consolidated balance sheets are either not considered financial

instruments, or are assumed to approximate their carrying value due

to their short-term nature. Other assets and other liabilities which are

not considered financial instruments include property and equipment,

goodwill and other intangible assets, deferred tax asset, prepaid and

deferred expenses, financing costs, deferred tax liability, deferred

revenue and leasehold inducements.

• For derivative financial instruments where an active market does not

exist, fair values are determined using valuation techniques that refer

to observable market data, including discounted cash flow analysis,

option pricing models and other valuation techniques commonly used

by market participants.

• For contingent consideration, included in other liabilities, where an

active market does not exist, fair value was determined by estimating the

expected value of the contingent consideration, taking into consideration

the potential financial outcomes and their associated probabilities.

• The estimated fair values of deposits are determined by discounting the

contractual cash flows at current market rates for deposits of similar

terms, with the exception of deposits with no stated maturity at October

31, 2018 where, due to a differing estimation method at that time, the fair

values were assumed to be equal to their carrying values.

• The fair values of debt are determined by reference to current market

prices for debt with similar terms and risks.

Fair values are based on management’s 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 2019 Annual Report 113

Fair Value Hierarchy

CWB categorizes its fair value measurements of financial instruments

according to a three-level hierarchy. Level 1 fair value measurements

reflect unadjusted quoted prices in active markets for identical assets and

liabilities that CWB 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 As at October 31, 2019 Fair Value Level 1 Level 2 Level 3 Financial Assets

Cash resources $ 415,842 $ 139,876 $ 275,966 $ - Securities 2,019,207 141,070 1,878,137 - Securities purchased under resale agreements 40,366 - 40,366 - Loans 28,478,436 - - 28,478,436 Derivatives 47,815 - 47,815 -

Total Financial Assets $ 31,001,666 $ 280,946 $ 2,242,284 $ 28,478,436

Financial Liabilities Deposits $ 25,544,270 $ - $ 25,544,270 $ - Securities sold under repurchase agreements 29,965 - 29,965 - Debt 2,444,034 - 2,444,034 - Derivatives 14,016 - 14,016 -

Total Financial Liabilities $ 28,032,285 $ - $ 28,032,285 $ -

Valuation Technique As at October 31, 2018 Fair Value Level 1 Level 2 Level 3 Financial Assets

Cash resources $ 153,221 $ 144,019 $ 9,202 $ - Securities 2,084,752 219,570 1,865,182 - Loans 26,551,146 - - 26,551,146 Derivatives 2,496 - 2,496 -

Total Financial Assets $ 28,791,615 $ 363,589 $ 1,876,880 $ 26,551,146

Financial Liabilities Deposits $ 23,502,200 $ - $ 23,502,200 $ - Securities sold under repurchase agreements 95,126 - 95,126 - Debt 1,942,472 - 1,942,472 - Contingent consideration 29,814 - - 29,814 Derivatives 69,581 - 69,581 -

Total Financial Liabilities $ 25,639,193 $ - $ 25,609,379 $ 29,814

B) LEVEL 3 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

The Level 3 financial liabilities measured at fair value on the consolidated

balance sheets as at October 31, 2019 are related to the acquisition of CWB

Maxium Financial Inc. and the divestiture related to the CWT strategic

transactions (see Note 4). Fair value was determined by estimating the

expected value of the contingent consideration, taking into consideration

the potential financial outcomes and their associated probabilities. The

following table shows a reconciliation of the fair value measurements

related to the Level 3 financial instruments:

2019 2018 Acquisitions

Balance at beginning of year $ 29,514 $ 32,420 Acquisition-related fair value changes 7,854 20,094 Contingent consideration instalment payments(1) (37,368) (23,000)

- 29,514 Divestitures

Balance at beginning of year 300 500 Divestiture-related fair value changes (300) (200)

- 300 Balance at End of Year $ - $ 29,814

(1) Under the terms of the March 2016 purchase agreement relating to the acquisition of CWB Maxium Financial Inc., contingent consideration payment instalments were made annually with determination of the total amount payable based on CWB Maxium Financial Inc.’s cumulative business performance over a 36-month period ended February 28, 2019. Up to 50% of each contingent consideration payment could have been settled with CWB common shares at the vendor’s option, provided the average share price over the preceding 20 days exceeded $30.00, with the remainder paid in cash. CWB completed the third instalment and final settlement contingent payments in cash in fiscal 2019. The 2018 instalment was paid with cash totaling $17,250 and the issuance of 160,293 CWB common shares with a fair value of $5,750.

CWB Financial Group 2019 Annual Report114

28. 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 set-off is only enforceable in the

event of default or occurrence of other predetermined events.

Amounts not Offset on the Consolidated Balance Sheet

As at October 31, 2019

Gross Amounts Reported on the

Consolidated Balance Sheet

Impact of Master Netting

Agreements Cash

Collateral(1)

Securities Received as

Collateral(1)(2) Net Amount

Financial Assets Derivatives $ 47,815 $ 13,788 $ 19,370 $ 5,939 $ 8,718

Financial Liabilities Derivatives $ 14,016 $ 13,788 $ 228 $ - $ -

Amounts not Offset on the Consolidated Balance Sheet

As at October 31, 2018

Gross Amounts Reported on the

Consolidated Balance Sheet

Impact of Master Netting

Agreements Cash

Collateral(1)

Securities Received as

Collateral(1)(2) Net Amount

Financial Assets Derivatives $ 2,496 $ 2,496 $ - $ - $ -

Financial Liabilities

Derivatives $ 69,581 $ 2,496 $ 55,550 $ - $ 11,535

(1) Financial collateral is reflected at fair value. The amount of financial instruments and cash collateral disclosed is limited to the net balance sheet exposure, and any over-collateralization is excluded from the table. (2) Collateral received in the form of securities is not recognized on the consolidated balance sheets.

29. RISK MANAGEMENT

As part of CWB’s risk management practices, the risks that are significant to

the business are identified, monitored and controlled. The most significant

risks include credit risk, market risk, capital risk and operational risk. 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.

30. 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 forecasted capital needs and markets. The goal is to maintain

adequate regulatory capital to be considered well-capitalized, protect

customer deposits and provide capacity for internally generated growth and

strategic opportunities that do not otherwise require accessing the public

capital markets, all while providing a satisfactory return for shareholders.

CWB has a share incentive plan that is provided to officers and employees

who are in a position to impact the longer term financial success of CWB

as measured by share price appreciation and dividend yield. Note 18 to

the consolidated financial statements details the number of shares under

options outstanding, the weighted average exercise price and the amounts

exercisable at year end.

Regulatory capital and capital ratios are calculated in accordance with the

requirements of OSFI. Capital is managed and reported in accordance with

the requirements of the Basel III Capital Adequacy Accord (Basel III) using the

Standardized approach. OSFI requires banks to measure capital adequacy

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 CWB’s 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.

CWB’s required minimum regulatory capital ratios, including a 250 basis

point capital conservation buffer, are 7.0% common equity Tier 1 (CET1),

8.5% Tier 1 and 10.5% Total capital. In addition, OSFI requires banks to

maintain a minimum leverage ratio of 3%. The leverage ratio provides the

ratio of Tier 1 capital to on-balance sheet and off-balance sheet exposures.

CWB Financial Group 2019 Annual Report 115

Significant Changes

Basel III rules, effective January 1, 2013, provide for transitional adjustments

with certain aspects of the new rules phased in between 2013 and 2019.

The only available transition allowance in the Basel III capital standards

permitted by OSFI for Canadian banks relates to the multi-year phase

out of non-qualifying capital instruments. The 2019 inclusion of non-

qualifying capital instruments in regulatory capital under Basel III is capped

at 30% (2018 – 40%) of the balance of non-common equity instruments

outstanding at January 1, 2013. At October 31, 2019, $47,500 (2018 – nil) was

excluded from Total regulatory capital related to outstanding non-NVCC

subordinated debentures. This resulted in a decrease to the Total capital

ratio of approximately 20 basis points.

CWB adopted IFRS 9 on November 1, 2018 and recorded an increase to

shareholders’ equity of $22,734 upon transition, primarily related to the

implementation of the new impairment guidelines. This resulted in an

increase to the CET1 and Tier 1 capital ratios of approximately 10 basis

points and a nominal impact to the Total ratio. For further details, refer to

Notes 1 and 2.

During the year, CWB purchased for cancellation 1,829,944 common shares

at an average price of $27.08 per share for a total cost of $49,592. This

resulted in a decrease to the capital ratios of approximately 20 basis points.

For further details, refer to Note 17.

On January 29, 2019, CWB issued First Preferred Shares Series 9 for gross

proceeds of $125,000. This issuance resulted in an increase to the Tier 1

and Total capital ratios of approximately 50 basis points. For further details,

refer to Note 17.

On June 11, 2019, CWB issued $250,000 NVCC subordinated debentures.

This issuance resulted in an increase in the Total capital ratio of approximately

100 basis points. For further details, refer to Note 16.

During the year, CWB complied with all internal and external capital

requirements.

Capital Structure and Regulatory Ratios 2019 2018

Regulatory Capital, Net of Deductions Common equity Tier 1 $ 2,302,551 $ 2,153,019 Tier 1 2,692,714 2,418,231 Total 3,232,807 2,788,048

Capital Ratios Common equity Tier 1 9.1% 9.2% Tier 1 10.7 10.3 Total 12.8 11.9

Leverage Ratio 8.3 8.0

Subsequent Event

On November 18, 2019, CWB redeemed all $250,000 non-NVCC

subordinated debentures. The redemption will result in a decrease in the

Total capital ratio of approximately 80 basis points. For further details, refer

to Note 16. With the redemption of the non-NVCC subordinated debentures,

the Basel III transitional adjustments will no longer be applicable to CWB

as all remaining issued and outstanding capital instruments are considered

qualifying capital instruments.

CWB Financial Group 2019 Annual Report116

31. SUBSIDIARIES

As at October 31, 2019, CWB, either directly or indirectly through its subsidiaries, controls the following significant subsidiaries.

Canadian Western Bank Subsidiaries(1)

(annexed in accordance with subsection 308 (3) of the Bank Act)

Address of Head Office

Carrying Value of Voting Shares Owned

by the Bank(4)

CWB National Leasing Inc. 1525 Buffalo Place $ 134,458

Winnipeg, Manitoba

CWB Maxium Financial Inc. 30 Vogell Road, Suite 1 30,812

Richmond Hill, Ontario

CWB Wealth Management Ltd.(2) Suite 3000, 10303 Jasper Avenue 30,454

Edmonton, Alberta

CWB McLean & Partners Wealth Management Ltd.(3) 801 10th Ave SW

Calgary, Alberta

Canadian Western Financial Ltd. Suite 3000, 10303 Jasper Avenue

Edmonton, Alberta

Canadian Western Trust Company Suite 3000, 10303 Jasper Avenue 19,136

Edmonton, Alberta

Valiant Trust Company Suite 3000, 10303 Jasper Avenue 8,080

Edmonton, Alberta

(1) Unless otherwise noted, CWB, either directly or through its subsidiaries, owns 100% of the voting shares of each entity. (2) CWB owns 93.91% of the voting shares of CWB Wealth Management Ltd. (October 31, 2018 – 89.14%). (3) CWB Wealth Management Ltd. owns 73.70% of CWB Mclean & Partners Wealth Management Ltd. (October 31, 2018 – 73.55%). (4) The carrying value of voting shares is stated at the cost of CWB’s equity in the subsidiaries in thousands of dollars.

CWB Financial Group 2019 Annual Report 117

CWB Financial Group Corporate Headquarters Suite 3000, 10303 Jasper Avenue NW CWB Place Edmonton, AB T5J 3X6 Telephone: (780) 423-8888 Fax: (780) 423-8897 cwb.com

Transfer Agent and Registrar Computershare 100 University Avenue, 8th Floor Toronto, ON M5J 2Y1 Telephone: (416) 263-9200 Toll-free: 1-800-564-6253 Fax: (888) 453-0330 computershare.com

Stock Exchange Listings The Toronto Stock Exchange (TSX) Common Shares: CWB Series 5 Preferred Shares: CWB.PR.B Series 7 Preferred Shares: CWB.PR.C Series 9 Preferred Shares: CWB.PR.D

Shareholder Administration Computershare serves as Transfer Agent and Registrar for the common shares and preferred shares of CWB.

For dividend information, change in share registration or address,. lost share certificates, tax forms or estate transfers, please write or call the Transfer Agent and Registrar, or inquire online at computershare. com.

Duplicated Communications If you receive, but do not require, more than one mailing for the same ownership, please contact the Transfer Agent and Registrar to combine the accounts.

Direct Deposit Services Shareholders may choose to have cash dividends paid on CWB common and preferred shares deposited directly into accounts held at their financial institution. To arrange direct deposit service, please contact the Transfer Agent and Registrar.

Eligible Dividend Designation CWB designates all common and preferred share dividends paid to Canadian residents as “eligible dividends”, as defined in the Income Tax Act (Canada), unless otherwise noted.

Shareholder Information Dividend Reinvestment Plan CWB’s dividend reinvestment plan allows common and preferred shareholders to purchase additional common shares by reinvesting their cash dividend without incurring brokerage and commission fees. For information about participation in the plan, please contact the Transfer Agent and Registrar.

Investor Relations Shareholders, institutional investors or research analysts who would like additional financial information are asked to contact:

Investor Relations Department CWB Financial Group Suite 3000, 10303 Jasper Avenue NW CWB Place Edmonton, AB T5J 3X6 Telephone: (800) 836-1886 [email protected]

More comprehensive investor information - including supplemental financial reports, quarterly financial releases, corporate presentations, corporate fact sheets and frequently asked questions - is available in the Investor Relations section at cwb.com.

This 2019 Annual Report, along with our Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular, is available on our website, or will be available in due course. For additional printed copies of these reports, please contact the Investor Relations Department.

Filings are available on the Canadian Securities Administrators' website at sedar.com.

2020 Annual Meeting The annual meeting of the common shareholders of Canadian Western Bank will be held in Edmonton, AB, on April 2, 2020 at The Fairmont Hotel Macdonald (Empire Ballroom) at 1:00 p.m. MT (3:00 p.m. ET).

Corporate Secretary

Bindu Cudjoe Senior Vice President, General Counsel and Corporate Secretary CWB Financial Group [email protected]

Complaints or Concerns regarding Accounting, Internal Accounting Controls or Auditing Matters Please contact either:

Carolyn J. Graham Executive Vice President and Chief Financial Officer CWB Financial Group Telephone: (780) 423-8854 Fax: (780) 969-8326 [email protected]

or

Robert A. Manning Chairman of the Audit Committee c/o 210 – 5324 Calgary Trail Edmonton, AB T6H 4J8 Telephone: (780) 438-2626 Fax: (780) 438-2632 [email protected]

SENIOR OFFICERS

Executive Officers

Chris H. Fowler President and Chief Executive Officer

Carolyn J. Graham, FCPA, FCA Executive Vice President and Chief Financial Officer

Kelly S. Blackett Executive Vice President, Human Resources and Corporate Communications

Glen Eastwood Executive Vice President, Business Transformation

Darrell Jones Executive Vice President, and Chief Information Officer

Stephen Murphy Executive Vice President, Banking

H. Bogac (Bogie) Ozdemir Executive Vice President and Chief Risk Officer

Senior Corporate Officers

Kelly Martin Senior Vice President and Chief Internal Auditor

Niall Boles Senior Vice President and Treasurer

David L. Thompson Senior Vice President, Credit Risk Management

Bindu Cudjoe Senior Vice President, General Counsel and Corporate Secretary

Vlad Ahmad Senior Vice President, Operations and Transformation

Matt Rudd, CPA, CA Senior Vice President, Finance

Allen D. Stephen, CPA, CA

Vice President and Chief Accountant

Commercial and Retail Banking

Jeff Bowling Senior Vice President and Regional General Manager, Prairies

Blaine Forer Senior Vice President and Regional General Manager, British Columbia

John Steeves Senior Vice President and Regional General Manager, Northern Alberta

Mario Furlan Senior Vice President, Real Estate and Specialized Lending

Jeff Wright Senior Vice President, Client Solutions

CWB National Leasing

Michael Dubowec President and Chief Executive Officer

CWB Optimum Mortgage

Rejean Roberge Vice President

Canadian Western Trust

Scott Scobie Vice President and General Manager

CWB Wealth Management

David Schaffner President and Chief Executive Officer

McLean & Partners Wealth Management

Kevin Dehod President and Chief Executive Officer

CWB Maxium Financial

Daryl MacLellan President and Chief Executive Officer

Ombudsman

Michael Novak

CWB Financial Group 2019 Annual Report118

Locations Canadian Western Bank Regional Offices

British Columbia 2200, 666 Burrard Street Vancouver (604) 669-0081 Blaine Forer

Northern Alberta 201, 12230 JasperAvenue NW Edmonton (780) 424-4846 John Steeves

Prairies 606 - 4 Street SW Calgary (403) 861-9087 Jeff Bowling

Toronto 1701, 150 King Street P.O. Box 32 (647) 598-0788

Equipment Financing 3000, 10303 Jasper Avenue NW Edmonton (780) 918-9084 Kirby Hill

Real Estate 220, 666 Burrard Street Vancouver (604) 669-0081 Mario Furlan

BRANCHES Alberta

Edmonton Downtown:

Edmonton Main 100, 12230 Jasper Avenue NW (780) 424-4846 Andy McPherson

103 Street 10303 Jasper Avenue NW (780) 423-8801 Andy McPherson

Edmonton:

Old Strathcona 7933 - 104 Street NW (780) 433-4286 Donna Austin

West Point 17603 - 100 Avenue NW (780) 484-7407 David Hardy

Edmonton South:

South Edmonton Common 2142 - 99 Street NW (780) 988-8607 Surinder Gakhal

Leduc 5407 Discovery Way (780) 986-9858 Surinder Gakhal

Calgary Main: 606 - 4 Street SW (403) 262-8700 Dean Proctor

Calgary South:

Calgary Chinook 6606 Macleod Trail SW (403) 252-2299 Rick Vandergraaf

Calgary Foothills 6127 Barlow Trail SE (403) 269-9882 Rick Vandergraaf

Calgary South Trail Crossing 300, 5222 - 130 Avenue SE (403) 257-8235 Rick Vandergraaf

Calgary:

Calgary Northeast 2810 - 32 Avenue NE (403) 250-8838 Terri Lawrence

Broker Buying Centre 285, 4000 Glenmore Court SE (403) 720-8960 David Miller

Grande Prairie 11226 - 100 Avenue (780) 831-1888 Kyle Small

Lethbridge 744 - 4 Avenue S (403) 328-9199 Daryn Wenaas

Medicine Hat 101, 2810 - 13 Avenue SE (403) 527-7321 Daniel Kitching

Red Deer 4822 - 51 Avenue (403) 341-4000 Rama Alluri

Sherwood Park 251 Palisades Way (780) 449-6699 Victoria Girardo

St. Albert 300 - 700 St. Albert Trail (780) 458-4001 Blair Zahara

British Columbia

Vancouver Downtown:

Kitsilano 3190 West Broadway (604) 732-4262 Brian Korpan

Park Place 100, 666 Burrard Street (604) 688-8711 Brian Korpan

West Broadway 110, 1333 West Broadway (604) 730-8818 Brian Korpan

Surrey:

Panorama Ridge 103, 15230 Highway 10 (604) 575-3783 Dylan Watson

Strawberry Hill 1, 7548 - 120 Street (604) 591-1898 Dylan Watson

Vancouver Island:

Courtenay 200, 470 Puntledge Road (250) 334-8888 Kevin Wilson

Victoria 1201 Douglas Street (250) 383-1206 Kevin Wilson

Nanaimo 101, 6475 Metral Drive (250) 390-0088 Kevin Wilson

Abbotsford 100, 2548 Clearbrook Road (604) 855-4941 Hugh Ellis

Coquitlam 310, 101 Schoolhouse Street (604) 540-8829 Dave McGregor

Langley 100, 19915 - 64 Avenue (604) 539-5088 Craig Martin

Richmond 4991 No. 3 Road (604) 238-2800 Daniel Preto

Kamloops 101, 1211 Summit Drive (250) 828-1070 Romi Arora

Kelowna 1674 Bertram Street (250) 862-8008 Bob Brown

Prince George 300 Victoria Street (250) 612-0123 Tony Stancati

Saskatchewan Lloydminster 2909 - 50 Avenue (306) 825-8410 Alan Wells

Regina 1866 Hamilton Street Hill Tower III (306) 757-8888 Kelly Dennis

Saskatoon:

Saskatoon City Centre 244 - 2 Avenue South (306) 477-8888 Kelly Walker

Saskatoon North Landing 101, 2803 Faithfull Avenue (306) 244-8008 Kelly Walker

Yorkton 5, 259 Hamilton Road (306) 782-1002 Kelly Denis

Manitoba

Winnipeg:

Winnipeg Downtown 230 Portage Avenue (204) 956-4669 Mike McAulay

Winnipeg Kenaston 125 Nature Park Way (204) 452-0939 Chris Voogt

Real Estate:

Vancouver Real Estate 2200, 666 Burrard Street Vancouver (604) 669-0081 Jenny Siman

Greater Vancouver Real Estate Group 100, 5455-152 Street Surrey (604) 576-4600 Puneet Agrawal

Edmonton Real Estate 100, 12230 Jasper Avenue NW Edmonton (780) 429-6863 George Bawden

Calgary Real Estate 606 - 4 Street SW Calgary (403) 750-3591 Ryan Bradley

Corporate Lending: 100, 12230 Jasper Avenue NW Edmonton (780) 429-6863 George Bawden

CWB National Leasing Group

Winnipeg 1525 Buffalo Place (204) 954-9000 Toll-free: 1-800-665-1326 cwbnationalleasing.com (Representation across all provinces and territories in Canada)

Motive Financial

Edmonton 3000, 10303 Jasper Avenue NW (780) 441-2249 Toll-free: 1-877-441-2249 motivefinancial.com

CWB Trust Services Toll-free: 1-800-663-1124 cwt.ca

Vancouver 300, 750 Cambie Street (604) 685-2081

CWB Optimum Mortgage

Edmonton #1010, 10303 Jasper Avenue NW (780) 423-9748 Toll-free: 1-866-441-3775 optimummortgage.ca (Representation across Western Canada, Ontario, and Atlantic Canada)

CWB Maxium Financial

Richmond Hill 30 Vogell Road #1 (905) 780-6150 cwbmaxium.com

CWB Franchise Finance

Mississauga 2000 Argentia Road Plaza 1, Suite 300 (289) 998-0284 cwbfranchise.com

CWB Wealth Management

Edmonton 3000, 10303 Jasper Avenue NW (855) 292-9655 cwbwealth.com

CWB McLean & Partners Wealth Management

Calgary 801 - 10 Avenue SW (403) 234-0005 Toll-free: 1-888-665-0005 mcleanpartners.com

CWB Trust Services Edmonton 1250, 10303 Jasper Avenue NW (780) 423-8888 canadianwesternfinancial.com

Financial Group

CWB.COM

Great Place To Work®

Certified OCT 2019- OCT 2020

CANADA

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