Canadian Western Bank : CWB reports third quarter 2020 financial and strategic performance

Third Quarter 2020 Highlights⁽¹⁾ (compared to the same period in the prior year)

Adjusted EPS	Total revenue	Loans(2)	Branch-raised deposits	Common share dividend declared(3)
$0.74	$226.5 million	$29.7 billion	$16.0 billion	$0.29
Down 10%	Up 4%	Up 5% in total; 10% in Ontario	Up 22%	One cent increase from  last year; consistent with last quarter

(1)	Highlights include certain non-IFRS measures – refer to definitions provided on page 5 of this news release, with further detail provided on pages 5 and 6 of the 2020 Third Quarter Report to Shareholders.
(2)	Excludes the allowance for credit losses.
(3)	Declared by our Board of Directors on August 27, 2020.

 

This news release and accompanying financial highlights are supplementary to CWB's 2020 Third Quarter Report to Shareholders and 2019 Annual Report and should be read in conjunction with those documents.

EDMONTON,  AB, Aug. 28, 2020 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced financial performance for the three and nine month periods ended July 31, 2020, with third quarter net income available to common shareholders of $62 million and adjusted earnings per common share of $0.74, up 21% and 23%, respectively, from the previous quarter.

"We delivered solid results this quarter, as our teams continue to work diligently to support our clients and prudently manage through the impact of the COVID-19 pandemic on the Canadian economy and financial markets," said Chris Fowler, President and CEO. "We are encouraged by our sequential financial performance, where net earnings increased strongly, primarily due to a lower estimated performing loan provision for credit losses and higher net interest income." "We are excited to continue to expand our presence in Ontario. We closed the acquisition of T.E. Wealth and Leon Frazer & Associates, which have a significant proportion of their client base in Toronto and Montreal and will support acceleration of full-service client growth. We also achieved further geographic diversification of our loan portfolio, with 10% annual loan growth in Ontario. I am also very pleased to announce that we have opened our first full-service branch in Ontario, with the Mississauga branch opening on August 4th." "We remain focused to provide proactive service and consistently improve our client experience. We hit a key milestone on our digital roadmap with the launch of a fully digitized onboarding process for Motive Financial. We also delivered 22% annual growth in branch-raised deposits, and carefully managed deposit pricing in this low interest rate environment to stabilize net interest margin." "We continued to provide a safe and healthy environment for our clients and our people as public health measures to contain the spread of COVID-19 began to relax. Our dedicated teams remain in frequent communication with our clients to support them through the re-opening of provincial economies, and we have seen significant reductions in deferral arrangements. At present, 10% of loan balances remain under some form of payment deferral, down from our peak of over 25%, with over half of those making interest only payments." "Our disciplined and secured lending model continues to support the resilience of our business, and our provision for credit losses on total loans as a percentage of average loans reflects our current expectation for a slightly longer economic recovery compared to the previous quarter. Our capital ratios are strong and well above regulatory requirements, and we hold ample liquidity to support our clients and continue to invest in our strategic priorities." "We are excited for the quarter ahead despite the volatile operating environment, thanks to the passion and dedication of our teams to support our clients and advance our strategic initiatives. We continue to expect approval to transition to the Advanced Internal Ratings Based (AIRB) approach for regulatory capital and risk management before this fiscal year end. Leveraging the AIRB approach is expected to result in improved capital ratios that better reflect the strength of our balance sheet. Transition to AIRB will also help level the competitive playing field to position us to deliver higher growth and profitability with an enhanced view of risk. Achievement of this next step will be a foundational capability for us and will enable us to realize our full potential across Canada."

Financial Performance

On June 1, 2020, we acquired the businesses of T.E. Wealth and Leon Frazer & Associates (the wealth acquisition). The operations of the wealth acquisition, which are included in our third quarter financial results for two months, negatively affected common shareholders' net income and operating leverage and had an insignificant impact on adjusted earnings per common share and adjusted return on equity. The wealth acquisition is expected to support adjusted earnings per common share modestly at first, with further accretion beginning in fiscal 2022.

Q3 2020, compared to Q3 2019(1)	Common shareholders' net income of $62 million	Down 12%
	Adjusted EPS of $0.74	Down 10%
	Adjusted ROE of 9.4%	Down 200 bp(2)
	Operating leverage of negative 1.3% (positive 1.7% excluding the impact of the wealth acquisition)	Worsened 20 bp (Improved 280 bp)

(1)	Includes certain non-IFRS measures – refer to definitions provided on page 5 of this news release, with further detail provided on pages 5 and 6 of the 2020 Third Quarter Report to Shareholders.
(2)	bp – basis point

Compared to the prior year, common shareholders' net income declined as 4% revenue growth was more than offset by an elevated estimated performing loan provision for credit losses and increased non-interest expenses, primarily related to the wealth acquisition. In line with our strategy, we delivered robust branch-raised deposit growth of 22%, which included a 34% increase in demand and notice deposits, contributing to a 14% reduction in higher cost broker deposits. Net interest income increased 1% as the benefit of 5% loan growth, including very strong growth in commercial loans, was largely offset by a 20 basis point decline in net interest margin in the current low interest rate environment. Non-interest income growth of 37% was primarily related to the wealth acquisition. Due to the impact of the COVID-19 pandemic, a more pessimistic outlook for the Canadian economy resulted in a performing loan provision for credit losses of 11 basis points, compared to a three basis point recovery in the prior year.

Q3 2020, compared to Q2 2020(1)	Common shareholders' net income of $62 million	Up 21%
	Adjusted EPS of $0.74	Up 23%
	Adjusted ROE of 9.4%	Up 140 bp(2)
	Operating leverage of negative 1.3% (positive 1.7% excluding the impact of the wealth acquisition)	Worsened 50 bp (Improved 250 bp)

(1)	Includes certain non-IFRS measures – refer to definitions provided on page 5 of this news release, with further detail provided on pages 5 and 6 of the 2020 Third Quarter Report to Shareholders.
(2)	bp – basis point

Compared to the prior quarter, the increase in common shareholders' net income was primarily driven by 6% revenue growth combined with a reduction in the estimated performing loan provision for credit losses, partially offset by higher non-interest expenses, entirely due to the wealth acquisition. Loan growth in the third quarter remained consistent with last quarter at 2%. Branch-raised deposit growth of 5% was driven by very strong 6% growth in demand and notice deposits. Net interest income increased by 5%, driven by the positive impacts of 2% loan growth, two additional interest-earning days and a stable net interest margin. Non-interest income increased 10% as the contribution of the wealth acquisition was partially offset by lower net gains on securities. Our estimated quarterly performing loan provision for credit losses represented 11 basis points as a percentage of average loans, compared to 27 basis points last quarter, which reflected continued evolution of economic forecasts related to the impact of the COVID-19 pandemic.

YTD 2020, compared to YTD 2019(1)	Common shareholders' net income of $186 million	Down 7%
	Adjusted EPS of $2.18	Down 8%
	Adjusted ROE of 9.6%	Down 180 bp(2)
	Operating leverage of negative 1.5% (negative 0.5% excluding the impact of the wealth acquisition)	Worsened 20 bp (Improved 80 bp)

(1)	Includes certain non-IFRS measures – refer to definitions provided on page 5 of this news release, with further detail provided on pages 5 and 6 of the 2020 Third Quarter Report to Shareholders.
(2)	bp – basis point

Compared to the prior year, common shareholders' net income declined as 3% revenue growth was more than offset by an increase in the estimated performing loan provision for credit losses, discussed above, and higher non-interest expenses. Net interest income increased 1%, driven by 5% loan growth partially offset by a 16 basis point decrease in net interest margin. Non-interest income growth of 20% benefited from net gains on securities and the contribution of the wealth acquisition. Non-interest expenses increased 5% from continued investment in our teams and technology to support overall business growth and the impact of the wealth acquisition, partially offset by reduced spending on certain expenses in the current operating environment.

Strategic Performance

The continued execution of our focused business transformation and investments in digital capabilities, supported by our talented teams, will enhance our differentiated full-service client experience and position us for accelerated growth as the economy stabilizes. This quarter, we:

• continued to work through the AIRB approval process and remain on track for regulatory approval this fiscal year;
• closed the acquisition and began integration of the businesses of T.E. Wealth and Leon Frazer & Associates, leading providers of financial planning and wealth management services across Canada, with an additional focus on serving Indigenous communities;
• continued to advance our digital capabilities and remained committed to achievement of key milestones, launching digital onboarding for Motive Financial clients; and
• opened our Mississauga full-service branch on August 4^th, our first branch in Ontario.

About CWB Financial Group

CWB Financial Group (CWB) is a diversified financial services organization known for a highly proactive client experience serving businesses and individuals across Canada. Operating from headquarters in Edmonton, Alberta, CWB's key business lines include full-service business and personal banking offered through branch locations of Canadian Western Bank and Internet banking services provided by Motive Financial. Highly responsive nation-wide specialized financing is delivered under the banners of CWB Optimum Mortgage, CWB Equipment Financing, CWB National Leasing, CWB Maxium Financial and CWB Franchise Finance. Trust services are offered through CWB Trust Services. Comprehensive wealth management services are provided through CWB Wealth Management and its affiliate brands, including T.E. Wealth, Leon Frazer & Associates, CWB McLean & Partners, and Canadian Western Financial. As a public company on the Toronto Stock Exchange (TSX), CWB trades under the symbols "CWB" (common shares), "CWB.PR.B" (Series 5 preferred shares), "CWB.PR.C" (Series 7 preferred shares) and "CWB.PR.D" (Series 9 preferred shares). Learn more at www.cwb.com.

Fiscal 2020 Third Quarter Results Conference Call CWB's third quarter results conference call is scheduled for Friday, August 28, 2020, at 10:00 a.m. ET (8:00 a.m. MT). CWB's executives will comment on financial results and respond to questions from analysts. The conference call may be accessed on a listen-only basis by dialing [phone] (Toronto) or [phone] (toll free) and entering passcode: 49186089. The call will also be webcast live on CWB's website: www.cwb.com/investor-relations/quarterly-reports. A replay of the conference call will be available until September 4, 2020, by dialing [phone] (Toronto) or [phone] (toll-free) and entering passcode 186089#.

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, outbreaks of disease or illness that affect local, national or international economies, changes in accounting standards and policies, information technology and cyber risk, the accuracy and completeness of information we receive about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and our ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors.

Additional information about these factors can be found in the Risk Management section of our interim and/or annual Management's Discussion and Analysis (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. The forward-looking statements contained in this document are presented for the purpose of assisting readers in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect our businesses are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, we consider our own forecasts, economic data and forecasts provided by the Canadian government and its agencies, as well as certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific.

Where relevant, material economic assumptions underlying forward-looking statements are disclosed within the Outlook section of our annual MD&A. The emergence of COVID-19 has cast uncertainty on each of these assumptions and there can be no assurance that they continue to be valid. Given the rapid pace of change, it is premature to make further assumptions about these matters. The full extent of the impact that COVID-19, including government and/or regulatory responses to the outbreak, will have on the Canadian economy and our business is highly uncertain and difficult to predict at this time. See the Financial Results and Outlook and Risk Management sections of our interim MD&A for more information. 

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. 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 news release are calculated as follows:

• Adjusted non-interest expenses – total non-interest expenses, excluding the pre-tax amortization of acquisition-related intangible assets, and acquisition and integration costs. Acquisition and integration costs include one-time direct and incremental costs incurred as part of the execution and ongoing integration of the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates (see calculation on page 6 of the 2020 Third Quarter Report to Shareholders).
• Adjusted common shareholders' net income – total common shareholders' net income, excluding the amortization of acquisition-related intangible assets, acquisition-related fair value changes, and acquisition and integration costs, net of tax. Acquisition and integration costs include one-time direct and incremental costs incurred as part of the execution and ongoing integration of the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates (see calculation on page 6 of the 2020 Third Quarter Report to Shareholders).
• Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses (see calculation on page 6 of the 2020 Third Quarter Report to Shareholders).
• Adjusted earnings per common share – diluted earnings per common share calculated with adjusted common shareholders' net income. Prior to the third quarter of fiscal 2020, this metric was named 'Adjusted cash earnings per common share'.
• Return on common shareholders' equity – annualized common shareholders' net income divided by average common shareholders' equity.
• Adjusted return on common shareholders' equity – annualized adjusted common shareholders' net income divided by average common shareholders' equity.
• Return on assets – annualized common shareholders' net income divided by average total assets.
• Efficiency ratio – adjusted non-interest expenses divided by total revenue.
• Net interest margin – annualized net interest income divided by average total assets.
• Provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at fair value through other comprehensive income (FVOCI) and other financial assets are excluded.
• Provision for credit losses on impaired loans as a percentage of average loans – annualized provision for credit losses on impaired loans divided by average total loans.
• Provision for credit losses on performing loans as a percentage of average loans – annualized provision for credit losses on performing loans (Stage 1 and 2) divided by average total loans.
• 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 past twelve months divided by common shareholders' net income earned over the same period.
• Basel III common equity Tier 1, Tier 1, Total capital, and leverage ratios – calculated in accordance with guidelines issued by the 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.

 

	For the three months ended										Change from July 31 2019		For the nine months ended						Change from July 31 2019
(unaudited)		July 31 2020			April 30 2020			July 31 2019(2)						July 31 2020			July 31 2019(2)
(thousands, except per share amounts)
Results from Operations
Net interest income	$	200,773		$	190,988		$	199,746			1	%	$	592,771		$	584,145		1	%
Non-interest income		25,711			23,376			18,738			37			68,049			56,606		20
Total revenue		226,484			214,364			218,484			4			660,820			640,751		3
Pre-tax, pre-provision income		119,949			113,314			116,975			3			353,051			346,740		2
Common shareholders' net income		62,252			51,381			70,964			(12)			185,576			199,428		(7)
Earnings per common share
Basic		0.71			0.59			0.81			(12)			2.13			2.28		(7)
Diluted		0.71			0.59			0.81			(12)			2.13			2.27		(6)
Adjusted		0.74			0.60			0.82			(10)			2.18			2.37		(8)
Return on common shareholders' equity		9.1	%		7.9	%		11.3	%		(220)	bp(10)		9.4	%		11.0	%	(160)	bp(10)
Adjusted return on common shareholders'
equity		9.4			8.0			11.4			(200)			9.6			11.4		(180)
Return on assets		0.75			0.65			0.92			(17)			0.77			0.89		(12)
Efficiency ratio(3)		47.0			47.1			46.5			50			46.6			45.9		70
Net interest margin		2.40			2.40			2.60			(20)			2.45			2.61		(16)
Operating leverage(4)		(1.3)			(0.8)			(1.1)			(20)			(1.5)			(1.3)		(20)
Provision for credit losses on total loans as
a percentage of average loans(5)		0.33			0.49			0.19			14			0.34			0.22		12
Provision for credit losses on impaired
loans as a percentage of average loans(5)		0.22			0.22			0.22			-			0.20			0.22		(2)
Number of full-time equivalent staff(6)		2,502			2,325			2,288			9	%		2,502			2,288		9	%
Per Common Share
Cash dividends	$	0.29		$	0.29		$	0.27			7	%	$	0.86		$	0.80		7	%
Book value		31.50			31.24			28.82			9			31.50			28.82		9
Closing market value		22.80			22.03			30.83			(26)			22.80			30.83		(26)
Common shares outstanding (thousands)		87,100			87,100			87,201			-			87,100			87,201		-
Balance Sheet and Off-Balance Sheet Summary
Assets	$	33,222,764		$	32,958,184		$	30,930,991			7	%
Loans(7)		29,689,751			29,197,575			28,240,686			5
Deposits		26,495,412			26,147,086			24,822,600			7
Debt		2,791,088			2,813,882			2,398,548			16
Shareholders' equity		3,133,661			3,110,775			2,903,222			8
Assets under administration(8)		12,863,792			10,023,466			8,748,062			47
Assets under management(8)		6,215,083			1,981,062			2,084,757			198
Capital Adequacy(9)
Common equity Tier 1 ratio		8.8	%		9.1	%		9.0	%		(20)	bp(10)
Tier 1 ratio		10.2			10.5			10.6			(40)
Total ratio		12.0			11.9			12.8			(80)

(1)	Includes certain non-IFRS measures – refer to definitions provided on page 5 of this news release, with further detail provided on pages 5 and 6 of the 2020 Third Quarter Report to Shareholders.
(2)	Results for periods beginning on or after November 1, 2019 have been prepared in accordance with IFRS 16 Leases (IFRS 16) (refer to Note 2 of the interim consolidated financial statements). Prior year comparatives have been prepared in accordance with IAS 17 Leases (IAS 17) and have not been restated.
(3)	Excluding the impact of the wealth acquisition, our efficiency ratio would have been 45.7% for the third quarter of fiscal 2020.
(4)	Excluding the impact of the wealth acquisition, our operating leverage ratio would have been positive 1.7% for the third quarter of fiscal 2020.
(5)	Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.
(6)	The third quarter of fiscal 2020 includes 124 additional staff as a result of the wealth acquisition.
(7)	Excludes the allowance for credit losses.
(8)	The wealth acquisition contributed $4.0 billion to assets under management and $1.8 billion to assets under administration at the acquisition date.
(9)	Capital ratios in the third quarter of fiscal 2020 reflect an approximate 30 basis point investment in the wealth acquisition.
(10)	bp – basis point

 

SOURCE CWB Financial Group

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