Canadian Western Bank : CWB reports third quarter 2021 financial and strategic performance

Third Quarter 2021 Highlights (compared to the same period in the prior year)

Diluted earnings per common share (EPS)	Total revenue	Loans(1)	Branch-raised deposits(2)	Common share d ividend declared(3)
$0.98	$263.2 million	$32.3 billion	$18.7 billion	$0.29
Up 38%	Up 16%	Up 9% in total; Up 10% in Ontario	Up 17%	Consistent with the dividend declared last year and last quarter

This news release and accompanying financial highlights are supplementary to CWB's 2021 Third Quarter Report to Shareholders and 2020 Annual Report and should be read in conjunction with those documents.

EDMONTON, AB, Aug. 27, 2021 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced financial performance for the three and nine month periods ended July 31, 2021, with third quarter net income available to common shareholders of $86 million and adjusted earnings per common share⁽²⁾ of $1.01, each up 20% from the previous quarter, and up 39% and 36%, respectively, from the same period in the prior year. Pre-tax, pre-provision income⁽²⁾ of $138 million was up 9% from the prior quarter and 15% from the same period in the prior year.

"We delivered very strong results again this quarter, and expect to drive annual growth of adjusted earnings per common share in excess of 20% for fiscal 2021. Our brand of proactive, personalized service is a differentiating factor that clearly resonates with business clients. Our teams are leveraging our strong brand and continued enhancements to our products and capabilities to win more full-service relationships in an improving economic environment," said Chris Fowler, President and CEO. "We continued to drive strong growth of lower cost branch-raised deposits and our quarterly loan growth remains at one of the strongest levels in our history. Our loan growth continues to be achieved while reflecting our targeted approach of high-quality client selection through disciplined underwriting and prudent lending structures. We delivered another quarter of strong credit performance, with low write-offs and provisions for credit losses, and a decline in impaired loans, reflective of our conservative credit risk management."

"It is an exciting time at CWB as we continue to transform our capabilities and improve our full-service client experience through a growing range of in-person and digital channels. The development of our digital client offering is advancing well, and we are on track to release our enhanced digital banking platform for personal and small business clients, including a limited initial roll-out of our Virtual COO solution, later this year."

"We continue to see the momentum of growth opportunities build in line with the economic recovery. We are making progress on our strategic priorities that are uniquely focused on business owners. Capitalizing on these opportunities will further enhance our client experience and deliver strong growth of full-service client relationships and returns for our investors."

(1)	Excludes the allowance for credit losses.
(2)	Non-GAAP measure – refer to definitions and detail provided on page 5.
(3)	Declared by our Board of Directors on August 26, 2021.

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 contributed to non-interest income growth while negatively affecting our efficiency ratio compared to periods prior to the acquisition. The wealth acquisition has contributed approximately $0.02 to adjusted earnings per common share in fiscal 2021, with higher levels of accretion anticipated starting in fiscal 2022.

Q3 2021, compared to Q3 2020(1)	Common shareholders' net income of $86 million	Up 39%
	Diluted EPS of $0.98 Adjusted EPS of $1.01	Up 38% Up 36%
	Adjusted return on common shareholders' equity (ROE) of 12.3%	Up 290 bp(2)
	Efficiency ratio of 47.7%	Worsened 70 bp

Compared to the same quarter last year, common shareholders' net income increased as 16% revenue growth and a decline in the provision for credit losses more than offset the impact of higher non-interest expenses. Accelerated growth of full-service client relationships was the primary driver of very strong branch-raised deposit growth of 17%, which included a 31% increase in lower-cost demand and notice deposits. Net interest income increased 15%, driven by 9% loan growth, including 10% growth in Ontario, and an 11 basis point increase in net interest margin⁽¹⁾. To support strong loan growth while prudently managing our regulatory capital ratios, we issued common shares for net proceeds of $30 million under our at-the-market (ATM) common equity distribution program during the quarter. Non-interest income growth of 29% was primarily related to the wealth acquisition, which we owned for only two months in the same quarter last year. Non-interest expenses were up 17%, reflective of investments in our people and technology infrastructure to support our strategic execution, costs associated with operating and enhancing our Advanced Internal Ratings Based (AIRB) tools and processes and the wealth acquisition. The provision for credit losses as a percentage of average loans⁽¹⁾ was 22 basis points lower than last year, primarily due to improved macroeconomic forecasts associated with the ongoing economic recovery, which drove a 20 basis point decrease in the performing loan provision for credit losses⁽¹⁾.

Q3 2021, compared to Q2 2021(1)	Common shareholders' net income of $86 million	Up 20%
	Diluted EPS of $0.98 Adjusted EPS of $1.01	Up 20% Up 20%
	Adjusted ROE of 12.3%	Up 150 bp
	Efficiency ratio of 47.7%	Improved 120 bp

Compared to the prior quarter, common shareholders' net income increased as 7% revenue growth and a decline in the provision for credit losses more than offset a 4% increase in non-interest expenses. Revenue increased primarily due to three additional interest earnings days and 3% sequential loan growth, partially offset by the impact of a two basis point decline in net interest margin. In the prior quarter, net interest margin included a one-time two basis point benefit associated with adjusting certain balance sheet management activities in response to a shift in our funding mix. Sequential growth in branch-raised deposits of 4% included 5% growth in lower cost demand and notice deposits. The provision for credit losses as a percentage of average loans was nine basis points lower than last quarter, primarily due to a decrease in the impaired loan provision for credit losses⁽¹⁾.

YTD 2021, compared to YTD 2020(1)	Common shareholders' net income of $237 million	Up 28%
	Diluted EPS of $2.72 Adjusted EPS of $2.78	Up 28% Up 28%
	Adjusted ROE of 11.6%	Up 200 bp
	Efficiency ratio of 47.8% (46.2% excluding the impact of the wealth acquisition)	Worsened 120 bp (Worsened 10 bp)

(1)	Adjusted EPS, adjusted ROE, efficiency ratio, branch-raised deposits, net interest margin and provisions for credit losses on performing, impaired and total loans as a percentage of average loans are non-GAAP measures. Refer to definitions and detail provided on page 5.
(2)	bp – basis point

Year-to-date, the increase in common shareholders' net income was primarily driven by 14% growth in revenue and a decline in the provision for credit losses, partially offset by an increase in non-interest expenses. Revenue growth included a 12% increase in net interest income and a 37% increase in non-interest income driven by the wealth acquisition. The increase in net interest income was attributable to 9% annual loan growth and a five basis point increase in net interest margin. Non-interest expenses were up 17%, or approximately 9% excluding the wealth acquisition and costs associated with operating and enhancing our AIRB tools and processes. A 16 basis point provision for credit losses as a percentage of average loans was 18 basis points lower than the prior year, primarily due to a 22 basis point decline in the performing loan provision for credit losses due to an improved macroeconomic outlook in fiscal 2021. Common shareholders' net income also reflected the impact of the first semi-annual Series 1 and Series 2 Non-Viability Contingent Capital (NVCC) Limited Recourse Capital Notes (LRCN) coupon payments made during fiscal 2021, which totaled $6 million, after-tax.

Strategic Performance

We continue to transform our capabilities to offer a superior full-service client experience through a complete range of in-person and digital channels. These improving capabilities, delivered by our highly engaged and client-centric teams, have accelerated growth of full-service client relationships in specifically targeted commercial segments that fit within our prudent risk appetite. Our continued strategic execution, with current period highlights noted below, will enable us to continue to deliver strong growth of full-service clients and capitalize on the growth opportunities available to us as we continue to expand our geographic footprint outside of Western Canada, including an increased presence in the Ontario market. This quarter, we:

• were recognized by Great Place to Work^® as one of the Best Workplaces^TM in Alberta as well as one of the Best Workplaces^TM for Mental Wellness in 2021, which reflects our unwavering commitment to advance a culture that puts people first.
• continued development of our Virtual COO (VCOO) solution in partnership with Temenos, a global leader in banking software. The VCOO will have an initial limited roll-out later in 2021, and will integrate data and explainable-artificial intelligence powered tools to empower our small business owner clients to make informed decisions that accelerate their business growth. We believe the VCOO will be a differentiated solution for small business owner clients that once fully deployed, will assist in driving strong client growth in this segment. Broader roll-out of the VCOO solution is scheduled to occur in early 2022.
• progressed development of our enhanced digital banking platform, which is scheduled to launch later in 2021 for personal and small business clients. The new platform will provide enhanced functionality, including integration with the VCOO solution for small business owners once fully launched, and a single point of access that allows clients to seamlessly navigate between business and personal accounts.

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. CWB's key business lines include full-service business and personal banking offered through branch locations of Canadian Western Bank, and personal banking through our digital channels, including 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) and "CWB.PR.D" (Series 9 preferred shares). Learn more at www.cwb.com.

Fiscal 2021 Third Quarter Results Conference Call

CWB's third quarter results conference call is scheduled for Friday, August 27, 2021, 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 1 [phone] (toll-free) and entering passcode: 46981552. 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 3, 2021 by dialing [phone] (Toronto) or 1 [phone] (toll-free) and entering passcode: 981552.

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 may not be achieved.

A variety of factors, many of which are beyond our control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada, including housing market conditions, the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, material changes to trade agreements, transition to the Advanced Internal Ratings Based (AIRB) approach for calculating regulatory capital, 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 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. Any forward-looking statements contained in this document represent our views as of the date hereof. Unless required by securities law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by us or on our behalf. The forward-looking statements contained in this document are presented for the purpose of assisting readers in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes. 

Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect our business are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, we consider our own forecasts, economic data and forecasts provided by the Canadian government and its agencies, as well as certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific. The full extent of the impact that the COVID-19 pandemic, including government and regulatory responses to the outbreak, will have on the Canadian economy and our business is highly uncertain and difficult to predict. Where relevant, material economic assumptions underlying forward-looking statements are disclosed within the Outlook and Allowance for Credit Losses sections of our interim and annual MD&A. 

Non-GAAP Measures

We use a number of financial measures and ratios to assess our performance against strategic initiatives and operational benchmarks. Some of these financial measures and ratios do not have standardized meanings prescribed by Generally Accepted Accounting Principles (GAAP) and may not be comparable to similar measures presented by other financial institutions. Non-GAAP financial measures and ratios provide readers with an enhanced understanding of how we view our ongoing performance. These measures and ratios may also provide the ability to analyze trends related to profitability and the effectiveness of our operations and strategies, and are disclosed in compliance with National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure.

To calculate non-GAAP financial measures, we exclude certain items from our financial results prepared in accordance with IFRS. Adjustments relate to items which we believe are not indicative of underlying operating performance. Our non-GAAP financial measures include:

• Adjusted non-interest expenses – total non-interest expenses, excluding pre-tax amortization of acquisition-related intangible assets, and acquisition and integration costs. Acquisition and integration costs include direct and incremental costs incurred as part of the execution and integration of the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates.
• Adjusted common shareholders' net income – total common shareholders' net income, excluding the amortization of acquisition-related intangible assets, and acquisition and integration costs, net of tax.
• Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses.

The following table provides a reconciliation of our non-GAAP financial measures to our reported financial results.

		For the three months ended					Change from			For the nine months ended			Change from
(unaudited) (thousands)		July 31 2021		April 30 2021		July 31 2020	July 31  2020			July 31 2021		July 31 2020	July 31  2020
Non-interest expenses	$	128,112	$	123,056	$	109,798	17	%	$	367,916	$	313,440	17	%
Adjustments (before tax):
Amortization of acquisition-related
intangible assets		(2,032)		(2,018)		(1,728)	18			(6,041)		(4,136)	46
Acquisition and integration costs		(451)		(274)		(1,535)	(71)			(868)		(1,535)	(43)
Adjusted non-interest expenses	$	125,629	$	120,764	$	106,535	18	%	$	361,007	$	307,769	17	%
Common shareholders' net income
Adjustments (after-tax):	$	86,280	$	71,956	$	62,252	39	%	$	237,473	$	185,576	28	%
Amortization of acquisition-related
intangible assets(1)		1,485		1,475		1,264	17			4,416		3,072	44
Acquisition and integration costs(2)		340		206		1,135	(70)			655		1,135	(42)
Adjusted common shareholders' net income	$	88,105	$	73,637	$	64,651	36	%	$	242,544	$	189,783	28	%
Total revenue	$	263,215	$	247,106	$	226,484	16	%	$	755,409	$	660,820	14	%
Less:
Adjusted non-interest expenses (see above)		125,629		120,764		106,535	18			361,007		307,769	17
Pre-tax, pre-provision income	$	137,586	$	126,342	$	119,949	15	%	$	394,402	$	353,051	12	%

(1)	Net of income tax of $547 for the three months ended July 31, 2021 (Q2 2021 – $543, Q3 2020 – $464) and $1,625 for the nine months ended July 31, 2021 (2020 - $1,064).
(2)	Net of income tax of $111 for the three months ended July 31, 2021 (Q2 2021 – $68, Q3 2020 – $400) and $213 for the nine months ended July 31, 2021 (2020 - $400).

Non-GAAP ratios are calculated using the non-GAAP financial measures defined above. Our non-GAAP ratios include:

• Adjusted earnings per common share – diluted earnings per common share calculated with adjusted common shareholders' net income.
• Adjusted return on common shareholders' equity – annualized adjusted common shareholders' net income divided by average common shareholders' equity, which is total shareholders' equity excluding preferred shares and limited recourse capital notes.
• Efficiency ratio – adjusted non-interest expenses divided by total revenue.
• Operating leverage – growth rate of total revenue less growth rate of adjusted non-interest expenses.

Supplementary financial measures are measures that do not have definitions prescribed by GAAP, but do not meet the definition of a non-GAAP financial measure or ratio. Our supplementary financial measures include:

• Return on assets – annualized common shareholders' net income divided by average total assets.
• Net interest margin – annualized net interest income divided by average total assets.
• Return on common shareholders' equity – annualized common shareholders' net income divided by average common shareholders' equity.
• Write-offs as a percentage of average loans – annualized write-offs divided by average total loans.
• Book value per common share – total common shareholders' equity divided by total common shares outstanding.
• Branch-raised deposits – total deposits excluding broker term and capital market deposits.
• Provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at fair value through other comprehensive income (FVOCI) and other financial assets are excluded.
• Provision for credit losses on impaired loans as a percentage of average loans – annualized provision for credit losses on impaired loans divided by average total loans.
• Provision for credit losses on performing loans as a percentage of average loans – annualized provision for credit losses on performing loans (Stage 1 and 2) divided by average total loans.
• Average balances – average daily balances.

Selected Financial Highlights

	For the three months ended									Change from July 31 2020		For the nine months ended						Change from July 31 2020
(unaudited)		July 31  2021			April 30  2021			July 31    2020					July 31 2021			July 31 2020
($ thousands, except per share amounts)
Results of Operations
Net interest income	$	230,021		$	216,964		$	200,773		15	%	$	662,438		$	592,771		12	%
Non-interest income		33,194			30,142			25,711		29			92,971			68,049		37
Total revenue		263,215			247,106			226,484		16			755,409			660,820		14
Pre-tax, pre-provision income(1)		137,586			126,342			119,949		15			394,402			353,051		12
Common shareholders' net income		86,280			71,956			62,252		39			237,473			185,576		28
Common Share Information
Earnings per common share
Basic		0.99			0.83			0.71		39			2.72			2.13		28
Diluted		0.98			0.82			0.71		38			2.72			2.13		28
Adjusted(1)		1.01			0.84			0.74		36			2.78			2.18		28
Cash dividends		0.29			0.29			0.29		-			0.87			0.86		1
Book value(1)		32.88			32.26			31.50		4			32.88			31.50		4
Closing market value		34.01			33.80			22.80		49			34.01			22.80		49
Common shares outstanding (thousands)		88,122			87,162			87,100		1			88,122			87,100		1
Performance Measures(1)
Return on common shareholders' equity		12.1	%		10.6	%		9.1	%	300	bp(7)		11.3	%		9.4	%	190	bp(7)
Adjusted return on common shareholders'
equity		12.3			10.8			9.4		290			11.6			9.6		200
Return on assets		0.94			0.84			0.75		19			0.90			0.77		13
Net interest margin		2.51			2.53			2.40		11			2.50			2.45		5
Efficiency ratio		47.7			48.9			47.0		70			47.8			46.6		120
Operating leverage(2)		(1.7)			(4.2)			(1.3)		(40)			(3.0)			(1.5)		(150)
Credit Quality(1)
Provision for credit losses on total loans as
a percentage of average loans(3)		0.11			0.20			0.33		(22)			0.16			0.34		(18)
Provision for credit losses on impaired
loans as a percentage of average loans(3)		0.20			0.27			0.22		(2)			0.24			0.20		4
Balance Sheet
Assets	$	36,649,461		$	35,917,565		$	33,222,764		10	%
Loans(4)		32,256,833			31,372,100			29,689,751		9
Deposits		29,605,018			29,067,025			26,495,412		12
Debt		2,849,182			2,587,326			2,791,088		2
Shareholders' equity		3,472,517			3,527,213			3,133,661		11
Off-Balance Sheet
Wealth Management
Assets under management		7,626,309			7,166,287			6,215,083		23
Assets under advisement and administration		2,852,186			2,479,606			2,285,878		25
Assets under administration - other(5)		13,274,099			12,525,645			10,577,914		25
Capital Adequacy(6)
Common equity Tier 1 ratio		8.8	%		8.7	%		8.8	%	-	bp(7)
Tier 1 ratio		10.8			11.2			10.2		60
Total ratio		12.4			12.9			12.0		40
Other
Number of full-time equivalent staff		2,593			2,516			2,502		4	%

(1)	Non-GAAP measure – refer to definitions and detail provided on page 5.
(2)	Excluding the impact of the wealth acquisition, our operating leverage ratio for the third quarter of fiscal 2021 would have been negative 1.6% (Q2 2021 - positive 0.2%; Q3 2020 – positive 1.7%) and negative 0.1% for the first nine months of fiscal 2021 (2020 – negative 0.5%).
(3)	Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.
(4)	Excludes the allowance for credit losses.
(5)	Comprised of trust assets under administration, third-party leases under administration and loans under service agreements.
(6)	Calculated using the Standardized approach in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI).
(7)	bp – basis point

 

SOURCE CWB Financial Group

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