Diluted and adjusted cash earnings per common share up 16% and 9%, respectively
Very strong 13% annual branch-raised deposit growth
Strong 10% annual loan growth, with increased geographic and industry diversification

Third Quarter 2019 Highlights⁽¹⁾⁽²⁾ (compared to the same period in the prior year)

• Common shareholders' net income of $71 million, up 14%, pre-tax, pre-provision income of $117 million, up 6%, and total revenue of $218 million, up 7%.
• Diluted and adjusted cash earnings per common share of $0.81 and $0.82, up 16% and 9%, respectively.
• With record originations this quarter, loan growth was 10% compared to the third quarter last year, including very strong 15% growth in Central and Eastern Canada and 20% growth in general commercial loans.
• Very strong branch-raised deposit growth of 13%, including 13% growth of demand and notice deposits.
• Net interest margin of 2.60%, down four basis points from last year and three basis points from last quarter.
• Strong credit quality with the provision for credit losses representing 19 basis points of average loans, compared to 21 basis points last year and 23 basis points last quarter.
• Gross impaired loans represented 0.51% of gross loans at quarter-end, compared to 0.53% last year and 0.62% in the previous quarter.
• Operating leverage of negative 1.1%, reflecting continued investment to advance our strategic direction.
• Very strong Basel III regulatory capital ratios under the Standardized approach for calculating risk-weighted assets of 9.0% common equity Tier 1 (CET1), 10.6% Tier 1 and 12.8% Total capital.

EDMONTON, Aug. 29, 2019 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced strong third quarter financial performance with common shareholders' net income of $71 million and pre-tax, pre-provision income of $117 million, up 14% and 6%, respectively, from the third quarter last year. Total revenue of $218 million was up 7%, including a 7% increase in net interest income and 2% higher non-interest income. The increase in net interest income reflects strong 10% loan growth, partially offset by a four basis point decrease in net interest margin to 2.60%. Under IFRS 9, the provision for credit losses improved to 19 basis points of average loans, compared to 21 basis points under IAS 39 in the same quarter last year. Non-interest expenses were 7% higher and reflect continued investment to advance our strategic direction. 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, and preferred share dividends were $2 million higher. The higher growth rate of common shareholders' net income compared to pre-tax, pre-provision income primarily reflects decreased acquisition-related fair value changes, the lower provision for credit losses and a reduced effective tax rate with a cut in Alberta corporate income tax rates. Diluted and adjusted cash earnings per common share of $0.81 and $0.82 were up 16% and 9%, respectively, with less than $0.02 of earnings per common share related to the change in Alberta corporate income tax rates.

Compared to the prior quarter, common shareholders' net income and pre-tax, pre-provision income were up 15% and 5%, respectively. Total revenue was up 4%. Growth in net interest income of 5% reflected the combined benefit of three additional interest-earning days this quarter and 3% loan growth, partially offset by a three basis point decrease in net interest margin. Non-interest income was unchanged, while the provision for credit losses as a percentage of average loans improved four basis points. Non-interest expenses were 3% higher. Acquisition-related fair value changes decreased $3 million reflecting the factor noted above. The higher growth rate of common shareholders' net income compared to pre-tax, pre-provision income reflects the same factors noted above. Diluted and adjusted cash earnings per common share were up 14% and 11%, respectively.

Year-to-date common shareholders' net income of $199 million and pre-tax, pre-provision income of $347 million were up 8% and 7%, respectively. Earnings growth reflects an 8% increase in total revenue, including 9% growth of net interest income, partially offset by a 4% decrease in non-interest income. Higher net interest income reflects the combined benefits of 10% loan growth and a two basis point improvement in net interest margin. Non-interest income was down 4%, primarily due to the impact of approximately $3 million of gains realized from the CWT strategic transactions within 'other' non-interest income in the first quarter last year. Under IFRS 9 the provision for credit losses as a percentage of average loans of 22 basis points, compares to 20 basis points last year under IAS 39. Non-interest expenses were 8% higher. Acquisition-related fair value changes were $7 million lower, due to the factor noted above, and preferred share dividends were $4 million higher. Diluted and adjusted cash earnings per common share of $2.27 and $2.37 were up 10% and 6%, respectively.

Balanced growth of assets and funding sources

Total assets of $30.9 billion were up 10% from last year and 3% from last quarter. Total loans, excluding the allowance for credit losses, of $28.2 billion increased 10% from last year, 3% from the prior quarter and 7% from October 31, 2018. Year-over-year loan growth was consistent with our Balanced Growth strategy, including very strong growth of 15% in Central and Eastern Canada, as well as 20% growth in general commercial loans across CWB's targeted markets. Central and Eastern Canada accounted for 38% of CWB's annual lending growth and now comprise 27% of CWB's total loan portfolio, up from 26% last year.

Growth in Alberta and British Columbia was strong at 10% and 8%, respectively. British Columbia now comprises 33% and Alberta represents 32% of the total portfolio. 

We continue to execute on key strategic objectives to grow and diversify core funding sources. Total deposits increased 9% from last year. Branch-raised deposit growth was very strong at 13% on an annual basis, supported by 13% growth of both demand and notice, and term deposits. Funding from capital markets was 2% lower than the same quarter last year and prior quarter, and the proportion of our deposits raised through the broker market was 35%, down from 36% last year and the prior quarter.

Ongoing business transformation initiatives to enhance CWB's client experience and support development of full-service client relationships

Focused business transformation and investment in digital capabilities continue to drive delivery of our differentiated full-service client experience. Initiatives to optimize client-facing operations within banking branches continue, building upon centralization of our credit support processes. Together this integrated transformation will boost our teams' capabilities to deliver on CWB's reputation for proactive, personalized service through both human and digital channels in a highly scalable manner, and contribute to maximum value creation from our upcoming transition to the Advanced approach for capital and risk management. We also launched a new Obsessed with your success^TM brand promise, and "We come to you" marketing campaign in June. The campaign includes increased use of digital advertising on social media, as well a television strategy to raise awareness of our story. This represents a key step forward as we differentiate CWB as a disruptive force in Canadian banking, and a clear alternative to meet the financial needs of successful business owners across the country.

Credit quality

Strong overall credit quality continues to reflect our secured lending business model, disciplined underwriting practices and proactive loan management. The dollar level of gross impaired loans at the end of the third quarter totaled $143 million, compared to $135 million last year and $168 million in the prior quarter. This level of gross impaired loans represented 0.51% of gross loans at quarter-end, compared to 0.53% last year and 0.62% in the previous quarter. The decline in impaired loans was driven by higher resolutions relative to new formations this quarter, as we continue to demonstrate expertise in the proactive management of our loan portfolio. Although fluctuations in the balance of impaired loans may occur, we expect loss rates on current and future impaired loans to be consistent with CWB's experience, where write-offs have been low as a percentage of impaired loans.

The provision for credit losses was estimated under IFRS 9 beginning in fiscal 2019, with the fiscal 2018 provision estimated under IAS 39. The third quarter provision for credit losses as a percentage of average loans was 19 basis points, down from 23 basis points in the second quarter. Under IAS 39, provisions for credit losses represented 21 basis points in the third quarter of last year. On a year-to-date basis, under IFRS 9 the provision for credit losses as a percentage of average loans represented 22 basis points. This compares to 20 basis points last year under IAS 39.

Efficient operations and operating leverage

The third quarter efficiency ratio of 46.5%, which measures adjusted non-interest expenses divided by total revenue, compares to 46.0% in the same period last year and 46.8% in the previous quarter. The year-to-date efficiency ratio of 45.9% was up 50 basis points from a year ago.

Operating leverage, which is calculated as the growth rate of total revenue less the growth rate of adjusted non-interest expenses, was negative 1.1% compared to negative 1.4% last year and negative 3.1% last quarter. On a year-to-date basis, operating leverage of negative 1.3% compares to positive 2.5% last year. In 2018, operating leverage benefited from the cumulative effects of successive Bank of Canada interest rate increases, as well as the benefits of higher acquisition-related revenue growth from the business lending assets acquired on January 31, 2018. Operating leverage this quarter reflects targeted investment to advance our strategic execution, with prudent management of expenses delivering more favourable operating leverage than the prior quarter and the same quarter in the prior year.

Prudent capital management and dividends

At July 31, 2019, CWB's capital ratios were 9.0% CET1, 10.6% Tier 1 and 12.8% Total capital. With a very strong capital position under the more conservative Standardized approach for calculating risk-weighted assets, CWB is well positioned to create value for shareholders through a range of capital deployment options consistent with our Balanced Growth strategy. Ongoing support and development of each of CWB's businesses will remain a key priority, and management will continue to evaluate potential strategic acquisitions.

The common share dividend declared yesterday of $0.28 per share is up two cents, or 8%, from the dividend declared one year ago and one cent, or 4%, from the prior quarter.

Medium-term Performance Target Ranges

Medium-term target ranges are based on expectations for performance under the more conservative Standardized approach for risk and capital management, moderate economic growth and a relatively stable net interest margin environment in Canada over the three- to five-year forecast horizon. Our target ranges are presented in the following table:

About CWB Financial Group

CWB Financial Group (CWB) is a diversified financial services organization 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, including CWB Virtual Branch, 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 offerings are provided through CWB Wealth Management, which includes the businesses of CWB McLean & Partners Wealth Management 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.

Forward-looking Statements

From time to time, CWB makes written and verbal forward-looking statements. Statements of this type are included in the 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 CWB's 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 management's predictions, forecasts, projections, expectations and conclusions will not prove to be accurate, that its assumptions may not be correct and that its strategic goals will not be achieved.

A variety of factors, many of which are beyond CWB's 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 standing free 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 CWB receives 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 management's 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 CWB's 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 CWB's actual results to differ materially from the expectations expressed in such forward-looking statements. Unless required by securities law, CWB does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by it or on its behalf.

Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect CWB's businesses are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, CWB considers its 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 sections of this MD&A, and/or Outlook sections of CWB's MD&A for the year ended October 31, 2018. 

Non-IFRS Measures

Non-IFRS measures provide readers with an enhanced understanding of how management views CWB's ongoing operating performance. 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 calculation on page 22 of the 2019 Third Quarter Report to Shareholders);
• 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 calculation on page 22 of the 2019 Third Quarter Report to Shareholders);
• pre-tax, pre-provision income – total revenue less adjusted non-interest expenses (see calculation on page 22 of the 2019 Third Quarter Report to Shareholders);
• adjusted cash earnings per common share – diluted earnings per common share calculated with adjusted common shareholders' net income;
• 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 FVOCI and other financial assets are excluded;
• provision for credit losses on impaired loans as a percentage of total loans – annualized provision for credit losses on impaired loans 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 and Total capital ratios – in accordance with guidelines issued by 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; and
• average balances – average daily balances.

Selected Financial Highlights⁽¹⁾

SOURCE Canadian Western Bank

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