CWB Reports Solid Third Quarter Financial Results Marking 81 Consecutive Profitable Quarters
Strong loan growth of 3% in the quarter and 10% year-to-date
Record total revenues despite the significant impact of ongoing margin
compression
Quarterly dividend of $0.11 per common share declared
EDMONTON, Sept. 4 /CNW/ - Canadian Western Bank (CWB on TSX) today
announced solid third quarter results highlighted by record total revenues and
year-to-date double-digit loan growth. Quarterly net income of $26.3 million
and diluted earnings per share of $0.41 increased 10% and 11% respectively
over the same quarter last year. Results reflect continued strong loan growth
of 3% in the quarter and 15% over the past twelve months, partially offset by
a significantly lower net interest margin. Net interest margin continued to be
constrained by increased deposit costs related to ongoing market disruptions,
a lower prime lending rate and higher liquidity levels maintained in response
to events in financial markets. Year-to-date net income was up 16% over the
prior year to $77.5 million while diluted earnings per share grew 15% to
$1.20.
-------------------------------------------------------------------------
Third Quarter Highlights:
(three months ended July 31, 2008 compared with three months ended
July 31, 2007 unless otherwise noted)
-------------------------------------------------------------------------
- Net income of $26.3 million, up 10%, marking the Bank's 81st
consecutive profitable quarter.
- Diluted earnings per share of $0.41, up 11%.
- Loan growth of 3% in the quarter and 10% year-to-date continued the
trend of double-digit loan growth for nineteen consecutive fiscal
years.
- Record total revenues (teb(1)) of $76.4 million increased 8%,
despite
the significant impact of sustained pressure on net interest margin.
- Total loans surpassed $8 billion.
- Approved plans to proceed with three new full-service branches
(Surrey, Kamloops and Saskatoon) in addition to other future branch
locations previously confirmed (Leduc, Sherwood Park and Airdrie).
(1) Taxable equivalent basis. See definition following Financial
Highlights table.
-------------------------------------------------------------------------
On September 3, 2008, CWB's Board of Directors declared a cash dividend
of $0.11 per common share, payable on October 2, 2008 to shareholders of
record on September 18, 2008. This quarterly dividend is unchanged from the
previous quarter and is 22% higher than the quarterly dividend declared one
year ago.
Both operating segments performed well in the third quarter. Banking and
trust earnings of $23.8 million were up 9% over the same period last year with
continued strong loan growth and fee income more than offsetting the impact of
a significantly lower net interest margin. Third quarter net income from
insurance operations of $2.5 million represented a 13% increase compared to
one-year ago. On a year-to-date basis, banking and trust earnings of $71.3
million were up 16% over the same time last year, while net income from
insurance operations was up 20% to $6.2 million.
"Our solid third quarter and year-to-date results further confirm CWB's
strong market position and sound risk profile in what continued to be a very
challenging environment for the entire financial sector, both in Canada and
globally," said Larry Pollock, President and CEO. "While we are not immune to
ongoing turmoil in financial and credit markets, as evidenced by our
compressed net interest margin, we are still on track to post another
impressive year of high quality earnings and double-digit loan growth."
"Overall economic conditions in our markets remain good, credit quality
is strong and we are still seeing a solid pipeline of new high quality lending
opportunities. With many of our competitors' still dealing with multiple
market challenges, we are looking to capitalize on new opportunities that may
result from these events. We also remain active in evaluating potential
acquisitions and stand ready to pursue them if they meet our parameters of
being both accretive and a good fit with our overall strategic objectives,"
added Pollock.
-------------------------------------------------------------------------
Financial Highlights
-------------------------------------------------------------------------
For the three months ended Change
(unaudited) ----------------------------------------- from
($ thousands, except July 31 April 30 July 31 July 31
per share amounts) 2008 2008 2007 2007
-------------------------------------------------------------------------
Results of Operations
Net interest
income (teb
- see below) $ 57,290 $ 55,659 $ 54,888 4%
Less teb adjustment 1,442 1,352 1,423 1
-------------------------------------------------------------------------
Net interest income
per financial
statements 55,848 54,307 53,465 4
Other income 19,085 18,095 15,777 21
Total revenues (teb) 76,375 73,754 70,665 8
Total revenues 74,933 72,402 69,242 8
Net income 26,327 25,302 24,033 10
Earnings per common
share
Basic 0.42 0.40 0.39 8
Diluted 0.41 0.39 0.37 11
Return on
shareholders'
equity(1) 16.0% 16.1% 17.1% (110) bp(2)
Return on assets(3) 1.03 1.04 1.14 (11)
Efficiency ratio(4)
(teb) 45.2 45.4 43.6 160
Efficiency ratio 46.1 46.2 44.5 160
Net interest margin
(teb)(5) 2.25 2.28 2.59 (34)
Net interest margin 2.19 2.22 2.53 (34)
Provision for
credit losses as a
percentage of
average loans 0.15 0.15 0.15 -
-------------------------------------------------------------------------
Per Common Share
Cash dividends $ 0.11 $ 0.10 $ 0.09 22%
Book value 10.47 10.22 9.05 16
Closing market value 25.00 24.83 27.87 (10)
Common shares
outstanding
(thousands) 63,342 63,234 62,549 1
-------------------------------------------------------------------------
Balance Sheet and
Off-Balance Sheet
Summary
Assets $10,056,644 $10,038,214 $ 8,881,114 13%
Loans 8,168,748 7,942,636 7,090,632 15
Deposits 8,686,336 8,679,024 7,656,542 13
Subordinated
debentures 410,000 390,000 390,000 5
Shareholders'
equity 663,401 646,215 565,887 17
Assets under
administration 4,498,545 4,498,560 4,049,310 11
-------------------------------------------------------------------------
Capital Adequacy(6)
Tangible common
equity to risk-
weighted assets(7) 8.0% 7.9% 7.6% 40 bp
Tier 1 ratio 9.2 9.3 9.0 20
Total ratio 14.0 14.0 13.6 40
-------------------------------------------------------------------------
For the nine months ended Change
(unaudited) ------------------------- from
($ thousands, except July 31 July 31 July 31
per share amounts) 2008 2007 2007
------------------------------------------------------------
Results of Operations
Net interest
income (teb
- see below) $ 169,995 $ 154,664 10%
Less teb adjustment 4,131 3,914 6
------------------------------------------------------------
Net interest income
per financial
statements 165,864 150,750 10
Other income 54,803 44,457 23
Total revenues (teb) 224,798 199,121 13
Total revenues 220,667 195,207 13
Net income 77,534 66,710 16
Earnings per common
share
Basic 1.23 1.07 15
Diluted 1.20 1.04 15
Return on
shareholders'
equity(1) 16.3% 16.5% (20) bp
Return on assets(3) 1.05 1.13 (8)
Efficiency ratio(4)
(teb) 44.4 44.8 (40)
Efficiency ratio 45.2 45.7 (50)
Net interest margin
(teb)(5) 2.29 2.63 (34)
Net interest margin 2.24 2.56 (32)
Provision for
credit losses as a
percentage of
average loans 0.15 0.16 (1)
------------------------------------------------------------
Per Common Share
Cash dividends $ 0.31 $ 0.25 24%
Book value 10.47 9.05 16
Closing market value 25.00 27.87 (10)
Common shares
outstanding
(thousands) 63,342 62,549 1
------------------------------------------------------------
Balance Sheet and
Off-Balance Sheet
Summary
Assets
Loans
Deposits
Subordinated
debentures
Shareholders'
equity
Assets under
administration
------------------------------------------------------------
Capital Adequacy(6)
Tangible common
equity to risk-
weighted assets(7)
Tier 1 ratio
Total ratio
------------------------------------------------------------
(1) Return on shareholders' equity is calculated as annualized net income
divided by average shareholders' equity.
(2) bp - basis point change.
(3) Return on assets is calculated as annualized net income divided by
average total assets.
(4) Efficiency ratio is calculated as non-interest expenses divided by
total revenues.
(5) Net interest margin is calculated as annualized net interest income
divided by average total assets.
(6) Capital adequacy is calculated in accordance with guidelines issued
by the Office of the Superintendent of Financial Institutions Canada
(OSFI). As of November 1, 2007 (as described in Note 16 to the
interim consolidated financial statements), OSFI adopted a new
capital management framework called Basel II and capital is now
managed and reported in accordance with those requirements. Prior
year ratios have been calculated using the previous framework.
(7) Tangible common equity to risk-weighted assets is calculated as
shareholders' equity less subsidiary goodwill divided by
risk-weighted assets, calculated in accordance with guidelines issued
by OSFI.
Taxable Equivalent Basis (teb)
Most financial institutions analyse revenue on a taxable equivalent basis
to permit uniform measurement and comparison of net interest income. Net
interest income (as presented in the consolidated statement of income)
includes tax-exempt income on certain securities. Since this income is
not taxable, the rate of interest or dividends received is significantly
lower than would apply to a loan or security of the same amount. The
adjustment to taxable equivalent basis increases interest income and the
provision for income taxes to what they would have been had the
tax-exempt securities been taxed at the statutory rate.
Non-GAAP Measures
Taxable equivalent basis, return on shareholders' equity, return on
assets, efficiency ratio, net interest margin and tangible common equity
to risk-weighted assets do not have standardized meanings prescribed by
generally accepted accounting principles (GAAP) and therefore may not be
comparable to similar measures presented by other financial institutions.
-------------------------------------------------------------------------
Message to Shareholders
-------------------------------------------------------------------------
Canadian Western Bank (CWB or the Bank) is pleased to report another
quarter of solid financial performance in a difficult operating environment
for the financial sector as a whole. Highlights included a continued trend for
our 19th consecutive fiscal year of double-digit loan growth which pushed
total loans to more than $8 billion. Record total revenues (teb), despite a
significantly compressed net interest margin, was an additional highlight in
a period that marked the Bank's 81st consecutive profitable quarter.
Quarterly net income of $26.3 million, or $0.41 per diluted share,
increased 10% and 11% respectively over last year on 8% growth in total
revenues (teb). Compared to the previous quarter, net income and diluted
earnings per share were up 4% and 5% respectively reflecting two additional
revenue earning days in the third quarter, solid loan growth and strong fee
income, partially offset by higher non-interest expenses and continued
pressure on net interest margin. On a year-to-date basis, net income increased
16% over the same period last year to $77.5 million while diluted earnings per
share grew 15% to $1.20.
Third quarter return on equity (ROE) of 16.0% was down 110 basis points
compared to the same quarter last year, while year-to-date ROE was down 20
basis points to 16.3%. Lower profitablity ratios are primarily attributed to a
constrained net interest margin, which continued to be impacted by the fallout
in global financial makets. CWB has no direct exposure to any troubled asset
backed commercial paper, collateralized debt obligations, U.S. subprime
mortgages or monoline insurers.
Share Price Performance
CWB shares ended the third quarter at $25.00, compared to $27.87 a year
earlier. Including reinvested dividends, the total return for shareholders
over the one-year holding period ended July 31, 2008 was negative 9%. This
compares to the total return for the S&P/TSX financials index of negative 10%
over the same one-year period.
Dividends
On September 3, 2008, CWB's Board of Directors declared a cash dividend
of $0.11 per common share, payable on October 2, 2008 to shareholders of
record on September 18, 2008. This quarterly dividend is unchanged from the
previous quarter and is 22% higher than the quarterly dividend declared one
year ago.
Loan Growth
Ongoing strong loan growth of 3% in the quarter, 10% year-to-date and 15%
over the past year substantiate CWB's ongoing strategy to increase market
presence, particularly in view of moderating economic growth in key markets.
Lending activity in British Columbia continued to show the strongest
performance in both the quarter and the year. Loan growth in Alberta slowed
compared to the record levels achieved in 2007, but is expected to remain
strong in most sectors. Saskatchewan posted good quarterly results and we are
optimistic about ongoing opportunities to expand the Bank's presence in this
province. We will maintain our focus on high quality underwriting and expect
strong loan growth will continue for the remainder of the year.
Our alternative mortgage business, Optimum Mortgage (Optimum), showed
good results with total loans growing 8% in the quarter and 15% year-to-date
to reach $432 million. Optimum continues to provide excellent returns and we
remain comfortable with its overall risk profile. We recently confirmed plans
for a pilot expansion into the Ontario marketplace and we anticipate
underwriting residential mortgages in targeted regions before the end of
fiscal 2008.
Credit Quality
Overall credit quality remained strong and within expectations. Some
clients continued to be impacted by softness in certain sectors, particularly
those related to the forestry industry. The natural gas services industry has
improved compared to a year earlier, but is subject to fluctuations correlated
with resource prices and drilling activity. Moderated residential sales
activity in Western Canada has impacted the real estate lending sector to some
extent, but impaired loans in this area mainly reflect isolated circumstances
related to a few specific accounts. The quarterly provision for credit losses
of $3.0 million increased in line with the fiscal 2008 performance target of
15 basis points of average loans. Credit quality is expected to remain strong
and the Bank is well positioned to manage future credit events.
Branch Deposit Growth
Deposits raised through our branch network and Canadian Western Trust
Company increased 5% in the quarter and 16% in the past twelve months. The
demand and notice component within branch-raised deposits was down 1% in the
quarter, but up 22% over the last year. Further expansion of CWB's deposit
base remains a key strategic priority and we have made marked progress
increasing awareness of the Bank's financial products and services, partially
due to the success of our high-interest Summit Savings(R) account. In the
fourth quarter, we also plan to introduce an Internet-based bank named
Canadian Direct Financial(R). A high-interest savings account and term
deposits will be directly offered to potential customers who are not served by
our branch network, and/or those who prefer to utilize the Internet to meet
their banking needs.
Net Interest Margin
A constrained net interest margin mainly due to increased deposit costs
related to ongoing disruptions in financial markets, consecutive reductions in
the prime lending rate and higher liquidity levels continued to have a
significant impact on the Bank's total revenues and overall profitability.
Third quarter net interest margin (teb) was 2.25%, down three basis points
from the previous quarter and 34 basis points compared to one year ago. Total
deposit costs eased to some extent in the latter part of July, but overall
pressures on net interest margin are expected to continue until spreads return
to more normal levels and market pricing of loans better reflects risk
differentials. Reductions in the prime lending rate will generally have a
moderate negative influence on net interest margin because the Bank's loan
portfolio reprices more quickly than its deposit liabilities; the opposite
positive effect occurs on net interest margin when interest rates rise.
Trust Services
Trust services continued to perform well making valuable contributions to
both diversification and earnings growth. Valiant Trust Company made further
strides in the development of its recently opened share transfer services
office in Toronto and has continued to provide consistent results despite a
reduction in overall capital markets activity compared to last year. Canadian
Western Trust Company successfully completed the conversion of its improved
web services platform and many clients have provided positive feedback on its
enhanced service capabilities.
Insurance
Canadian Direct Insurance Incorporated (CDI) reported solid third quarter
performance with net income of $2.5 million. Customer utilization of CDI's
Internet-based technology platform continued to surpass expectations, as
online sales accounted for nearly half of all new auto policies sold in the
quarter. Offering electronic delivery of CDI's products and services is an
important part of our overall strategy and ongoing development of this
technological advantage will remain a key priority.
Outlook
CWB extended its history of solid financial performance amidst continued
disruptions in global financial markets that have caused challenges for the
entire financial sector. While a compressed net interest margin has
significantly affected our year-to-date results, particularly as it relates to
total revenue (teb) growth and profitability measures, solid earnings growth
was maintained across both business segments. We remained in close range of
our 2008 performance targets through July 31, 2008. However, the significant
impact on total revenue (teb) growth from sustained margin pressures, combined
with exceptional comparative results recorded in the fourth quarter of 2007
that included an income tax benefit of $2.9 million, make the achievement of
2008 total revenue (teb) and profitability growth targets doubtful.
Notwithstanding these increased challenges and moderated economic activity in
some areas, our overall outlook remains positive in respect to both credit
quality and economic fundamentals in Western Canada. We are well positioned to
increase market presence throughout all of our target markets and remain
confident that our proven strategies will continue to build sustainable value
for clients and shareholders.
We look forward to reporting our fourth quarter and fiscal 2008 results
on December 4, 2008.
Q3 Results Conference Call
CWB's third quarter results conference call is scheduled for Thursday,
September 4, 2008 at 3:30 p.m. ET (1:30 p.m. MT). The Bank's executives will
comment on third quarter results and respond to questions from analysts and
pre-qualified investors. The conference may be accessed on a listen-only
basis by dialing 416-644-3418 or toll-free 1-800-732-9307. The call will also
be webcast live on the Bank's website, www.cwbankgroup.com. The webcast will
be archived on the website for 60 days. A replay of the conference call will
be available until September 18, 2008 by dialing 416-640-1917 (Toronto) or
1-877-289-8525 (toll-free) and entering passcode 21260804, followed by the
pound sign.
About Canadian Western Bank
Canadian Western Bank offers highly personalized service through 35
branch locations and is the largest publicly traded Schedule I chartered bank
headquartered in and regionally focused on Western Canada. The Bank, with
total balance sheet assets of more than $10.0 billion and assets under
administration of $4.5 billion, specializes in mid-market commercial lending
and offers a full range of retail services. Trust services to independent
financial advisors, corporations, income trusts and individuals are provided
through the Bank's wholly owned subsidiaries, Canadian Western Trust Company
and Valiant Trust Company. Canadian Direct Insurance Incorporated is a wholly
owned subsidiary providing personal auto and home insurance to customers in BC
and Alberta. The common shares of Canadian Western Bank are listed on the
Toronto Stock Exchange under the trading symbol 'CWB'. Refer to
www.cwbankgroup.com for additional information.
-------------------------------------------------------------------------
Management's Discussion and Analysis
-------------------------------------------------------------------------
This management's discussion and analysis (MD&A) should be read in
conjunction with Canadian Western Bank's (CWB or the Bank) unaudited interim
consolidated financial statements for the period ended July 31, 2008, as well
as the audited consolidated financial statements and MD&A for the year ended
October 31, 2007, available on SEDAR at www.sedar.com and on the Bank's
website at www.cwbankgroup.com. Except as discussed below, the factors
discussed and referred to in the MD&A for fiscal 2007 remain substantially
unchanged.
Overview
CWB posted solid third quarter results on record total revenues (teb)
reflecting good performance from both business segments. Third quarter
earnings from banking and trust operations of $23.8 million increased 9% ($2.0
million) over last year driven by strong 15% loan growth and a 23% increase in
other income, partially offset by a significantly lower net interest margin.
Canadian Direct Insurance Incorporated earned $2.5 million representing 13%
growth over the same quarter last year. Consolidated third quarter net income
increased 10% to $26.3 million, representing $0.41 ($0.42 basic) per diluted
share.
Consolidated net income increased 4% ($1.0 million) compared to last
quarter reflecting two additional revenue earning days in the third quarter,
ongoing loan growth and strong other income, partially offset by higher
non-interest expenses and a slightly lower net interest margin. Quarterly
other income was up 5% ($1.0 million) over the prior period with strong growth
in core business streams more than offsetting $1.2 million lower gains on
securities sales. Year-to-date net income and diluted earnings per share
increased 16% and 15% to reach $77.5 million and $1.20 respectively.
Third quarter return on equity was 16.0%, compared to 17.1% last year.
Year-to-date return on equity was 16.3%, compared to 16.5% in 2007. Third
quarter return on assets was 1.03%, down from 1.14% a year earlier.
Year-to-date return on assets of 1.05% represented an eight basis point
decline compared to one year ago. Both profitability ratios have been
negatively impacted by constrained growth in total revenues due to a
significantly lower net interest margin, partially offset by strong growth in
both loans and other income.
Total Revenues (teb)
Total revenues (teb), comprised of net interest income and other income,
were a record $76.4 million representing an 8% ($5.7 million) increase over
the same quarter last year. Higher revenues were driven by strong loan growth
and 21% ($3.3 million) growth in other income, offset by a significantly lower
net interest margin. Total revenues (teb) increased 4% ($2.6 million) compared
to the previous quarter reflecting two additional days in the third quarter,
continued loan growth and a $1.0 million increase in other income, partially
offset by a slightly lower net interest margin. Year-to-date total revenues
increased 13% ($25.7 million) over 2007 reflecting strong loan growth and a
23% ($10.3 million) increase in other income, offset by a significantly lower
net interest margin.
Net Interest Income (teb)
Quarterly net interest income (teb) of $57.3 million increased 4% ($2.4
million) over the same period last year driven by strong loan growth, largely
offset by a 34 basis point decline in net interest margin (teb) to 2.25%. Net
interest margin was mainly affected by increased deposit costs related to
ongoing disruptions in financial markets, consecutive reductions in the prime
lending rate and the Bank's higher liquidity levels held in response to
elevated market uncertainties. Reductions in the prime interest rate
negatively impacts net interest margin because short-term deposits do not
reprice as quickly as prime-based loans.
Net interest income increased 3% ($1.6 million) compared to the previous
quarter reflecting two additional days and 3% loan growth, partially offset by
a three basis point decline in net interest margin. The reduction in net
interest margin compared to the prior quarter was mainly attributed to the
same reasons noted above, partially offset by higher loan prepayment fees and
somewhat lower liquidity levels. Year-to-date net interest income of $170.0
million increased 10% over 2007 driven by strong loan growth and one
additional day this year due to the leap year, offset by a 34 basis point
decrease in net interest margin (teb) to 2.29%.
Note 14 to the unaudited interim consolidated financial statements
provides a summary of the Bank's exposure to interest rate risk as at July 31,
2008. Interest rate risk or sensitivity is defined as the impact on net
interest income, both current and future, resulting from a change in market
interest rates. Based on the interest rate gap position at July 31, 2008, it
is estimated that a one-percentage point increase in all interest rates would
increase net interest income by approximately 0.7% over the following twelve
months. This compares to April 30, 2008, when a one-percentage point increase
in all interest rates would have increased net interest income by
approximately 2.3% over the following twelve months. The opposite effect
occurs when all interest rates decrease. The Bank's overall strategy remains
relatively neutral with respect to taking specific positions on interest rate
risk.
Other Income
Other income of $19.1 million was up 21% ($3.3 million) over the same
quarter last year reflecting solid growth across all areas, including a 25%
($1.6 million) increase in credit related fee income. Gains on securities
sales were $0.8 million, compared to nil last year, with the increase
resulting from transactions mainly related to favourable pricing observed on
certain short-term government debt investments. Third quarter net insurance
revenues increased 14% ($0.6 million) compared to a year earlier, while trust
services and retail services fee income were up 8% ($0.3 million) and 4% ($0.1
million) respectively.
Other income was up 5% ($1.0 million) compared to the previous quarter
reflecting 20% ($1.3 million) higher credit related fee income, 14% ($0.6
million) growth in net insurance revenues and a 15% ($0.4 million) increase in
trust services fee income, partially offset by $1.2 million lower gains on the
sale of securities. Year-to-date other income of $54.8 million was 23% ($10.3
million) higher than the same period last year with the increase again
reflecting improvements across all areas. Credit related fee income increased
$4.3 million (25%) while combined gains on securities sales, foreign exchange
and other were up $3.4 million in the aggregate. Year-to-date net insurance
revenues increased 16% ($1.7 million) while trust services and retail services
fee income were up $0.7 million and $0.3 million respectively.
Credit Quality
Credit quality remained strong and within expectations due to a
combination of long-established disciplined credit underwriting and overall
solid economic fundamentals in Western Canada. Measured as a percentage of
average loans, the provision for credit losses of 15 basis points remained
unchanged from both the previous quarter and one year ago. The dollar
provision in the third quarter of $3.0 million represented a modest increase
from last quarter and was up from $2.6 million a year earlier with the
increase reflecting ongoing portfolio growth. Annual provisions are expected
to remain in line with the Bank's target of 15 basis points of average loans.
Gross impaired loans at July 31, 2008 were $47.5 million, compared with
$43.0 million last quarter and $15.1 million a year earlier. As a percentage
of total loans, gross impaired loans remain low by historical measures and
mainly reflect slower economic activity in some sectors, including accounts
that continue to be impacted by softness in the forestry industry. While
impaired loans in the real estate sector partially reflect moderated
residential sales activity in Western Canada, the dollar majority represent a
few isolated accounts that are not considered to be the result of any systemic
industry issues. Gross impaired loans represented 58 basis points of total
loans at quarter end, compared to 54 basis points last quarter and 21 basis
points one year ago. At the end of fiscal 2007, the ten year average for gross
impaired loans measured against total loans was 86 basis points, with a high
of 169 basis points in 1999 and a low of 18 basis points in 2006. The average
net new specific provisions for credit losses over the same ten year period
noted above were 13 basis points of average loans (including fiscal 2006 where
recoveries exceeded losses). The dollar level of gross impaired loans is
expected to fluctuate within an acceptable range as loans become impaired and
are subsequently resolved. Overall credit quality is expected to remain
strong.
The total allowance for credit losses (general and specific) represented
147% of gross impaired loans at July 31, 2008, compared to 156% last quarter
and 402% one year ago. The general allowance as a percentage of risk-weighted
loans was 81 basis points, compared to 79 basis points in the previous quarter
and 82 basis points a year earlier.
Non-interest Expenses
Non-interest expenses of $34.5 million increased 12% ($3.7 million) over
the same quarter last year and 3% ($1.1 million) over the prior quarter.
Year-to-date non-interest expenses were also up 12% ($10.6 million). Executing
CWB's strategic focus on people, processes, infrastructure and business
enhancement has prompted increased spending, as these initiatives are
necessary to provide a stronger growth platform and significant benefit in
future periods. Higher non-interest expenses compared to last year mainly
reflect salary and benefit costs related to increased staff complement and
annual salary increments, as well as premises and other expenses to facilitate
business growth. Compared to the prior quarter, increased non-interest
expenses primarily resulted from salary costs, including higher stock-based
compensation charges, as well as employee recruitment and other expenses.
The third quarter efficiency ratio (teb), which measures non-interest
expenses as a percentage of total revenues (teb), was 45.2%, compared to 43.6%
last year and 45.4% in the previous quarter. A constrained net interest margin
combined with higher non-interest expenses were the main factors contributing
to the deterioration in this measure from the previous year. Compared to the
prior quarter, the efficiency ratio was positively impacted by continued
revenue growth, including the contribution of two additional days in the third
quarter, largely offset by higher non-interest expenses and a slightly lower
net interest margin. The year-to-date efficiency ratio (teb) of 44.4%
represented a 40 basis point improvement over the same period last year and
was 60 basis points better than the Bank's fiscal 2008 target of 45.0%.
Income Taxes
The income tax rate (teb) for the first nine months of 2008 was 33.3%,
down 150 basis points from one year ago, while the tax rate before the teb
adjustment was 30.8% or 140 basis points lower than last year. Lower tax rates
mainly reflect reductions in federal corporate income tax rates, partially
offset by $1.0 million of additional tax expense taken in the first quarter
due to the related write-down of future tax assets. Effective July 1, 2008,
the corporate provincial income tax rates in British Columbia (BC),
Saskatchewan and Manitoba each decreased 100 basis points to 11%, 12% and 13%
respectively. On April 1, 2008, CWB's capital tax rate in BC decreased to
0.67%, down from 1.0%, and will be eliminated completely by April 1, 2010. In
fiscal 2007, CWB paid capital taxes to BC totaling $1.7 million.
Comprehensive Income
Comprehensive income is composed of net income and other comprehensive
income (OCI), and totaled $22.4 million for the third quarter, compared to
$19.9 million in the same period last year. As previously noted, net income
increased 10% ($2.3 million) over one year ago. CWB's OCI includes unrealized
gains and losses on available-for-sale cash and securities and derivative
instruments designated as cash flow hedges, all net of tax. Third quarter OCI
included a loss of $3.9 million, compared to a loss of $4.1 million a year
earlier. Changes in OCI primarily reflect market value fluctuations related to
changes in interest rates and shifts in the interest rate curve, partially
offset by higher realized gains on sale of securities reclassified to other
income and higher amounts reclassified to net interest income related to
derivatives designated as cash flow hedges.
Balance Sheet
Total assets at July 31, 2008 of $10,057 million were up modestly
compared to the prior quarter, as quarterly loan growth was primarily funded
with existing liquidity initially built up in response to disruptions in
global financial markets which commenced in August 2007. Compared to one year
ago, total assets were up 13% ($1,176 million) reflecting strong loan growth.
Cash and Securities
Cash, securities and securities purchased under resale agreements totaled
$1,725 million at July 31, 2008, compared to $1,935 million last quarter and
$1,633 million one year ago. As previously noted, higher liquidity levels have
been maintained since August 2007 in response to disruptions and related
uncertainties in financial markets. Although this strategy has had a negative
impact on net interest margin, it reflects the Bank's conservative risk
tolerance. Third quarter liquidity was reduced somewhat compared to recent
prior periods, however, management will monitor this position with particular
attention until disruptions in financial markets subside.
The unrealized loss recorded on the balance sheet at July 31, 2008 was
$5.1 million, compared to an unrealized gain of $0.2 million last quarter and
an unrealized loss of $13.3 million one year ago. The cash and securities
portfolio is mainly comprised of high quality debt instruments that are not
held for trading purposes and are typically held until maturity. Fluctuations
in fair value are generally attributed to changes in interest rates and shifts
in the interest rate curve. Realized gains on sale of securities were $0.8
million, compared to $2.0 million in the previous quarter. Realized gains on
sale of securities in the third quarter 2007 were negligible. The Bank has no
direct exposure to any troubled asset backed commercial paper, collateralized
debt obligations, U.S. subprime lending or monoline insurers.
Loans
Total loans grew 3% ($226 million) in the quarter, 10% ($763 million)
year-to-date and 15% ($1,078 million) in the past twelve months to reach
$8,169 million at July 31, 2008. Very strong lending activity in BC provided
the greatest dollar and percentage growth contributions in both the quarter
and on a year-to-date basis. Overall loans sourced in Alberta have slowed
compared to the very high level of activity observed a year earlier, but the
outlook remains strong in most sectors. Overall lending activity in
Saskatchewan showed good momentum compared to the prior quarter, while growth
in Manitoba was relatively flat. Measured by lending sector, the best
quarterly performance was in real estate lending, while the general commercial
and personal lending sectors also showed strong results. Year-to-date
performance in the equipment financing sector continued to be impacted by
challenges related to softness in the forestry and natural gas industries. The
outlook for natural gas and related services has improved, but is subject to
fluctuations correlated with resource prices and drilling activity. In view of
a generally positive economic outlook for Western Canada, strong demand for
loans is expected to continue across most sectors.
The Bank's alternative mortgage business, Optimum Mortgage (Optimum),
showed good performance with total loans growing 8% in the quarter, 15%
year-to-date and 21% over the past twelve months to reach $432 million. Total
deal activity increased compared to the previous three quarters and the
overall outlook remains favourable. A pilot geographic expansion for Optimum
into the Ontario marketplace was recently confirmed and the underwriting of
residential mortgages in certain targeted regions is expected to commence
before the end of fiscal 2008. While moderated residential sales activity has
lengthened the required timeframe to resolve some delinquent loans, there are
still plenty of opportunities to produce strong returns in this business while
maintaining a solid risk profile. Optimum's loan book is entirely comprised of
conventional residential first mortgages carrying a weighted average
underwritten loan-to-value ratio at initiation of approximately 70%. The vast
majority of these mortgages carry a fixed interest rate with the principal
amortized over 25 years or less.
Deposits
Total branch deposits increased 5% in the quarter and 16% in the past
year. The demand and notice component within branch deposits was down 1%
compared to last quarter, but up 22% over the past twelve months. CWB's
high-interest Summit Savings(R) account launched in July 2007 continued to
promote increased brand awareness and was the primary source of growth in
demand and notice deposits over the past year. Reflecting the Bank's
commercial focus, a significant portion of the year-over-year growth in total
branch deposits also includes larger relationship-based commercial and
wholesale balances that can be subject to greater fluctuation. Disruptions in
financial markets and related competitive influences have led to significantly
increased costs for both branch-generated deposits and those raised through
the deposit broker network. While improved conditions in financial and credit
markets should help stabilize and/or lower deposit costs over time, it is
difficult to predict when this will occur in view of ongoing market turmoil.
Total deposits at July 31, 2008 were $8,686 million, unchanged from the
previous quarter and up 13% ($1,030 million) over the past year. Total branch
deposits measured as a percentage of total deposits were 68% at quarter end,
up from 64% in the previous quarter and 67% one year ago. Compared to prior
periods, the increase in branch-raised deposits as a percentage of total
deposits reflects strong growth in internal funding sources combined with
reduced liquidity sourced from the deposit broker network. Demand and notice
deposits measured as a percentage of total deposits was unchanged from the
previous quarter at 29%, up from 27% the same time last year.
Other Assets and Other Liabilities
Other assets at July 31, 2008 totaled $163 million, compared to $161
million last quarter and $157 million one year ago. Other liabilities at
quarter end were $297 million, compared to $323 million the previous quarter
and $269 million last year.
Off-Balance Sheet
Off-balance sheet items include trust assets under administration, which
totaled $4,499 million at July 31, 2008, unchanged from the prior quarter and
up from $4,049 million one year ago. Other off-balance sheet items are
composed of standard industry credit instruments (guarantees, standby letters
of credit and commitments to extend credit), and the non-consolidated variable
interest entity. For additional information regarding other off-balance sheet
items refer to Notes 13 and 19 to the audited consolidated financial
statements on pages 71 and 74 respectively in the Bank's 2007 Annual Report.
Capital Management
Effective November 1, 2007, the Office of the Superintendent of Financial
Institutions (OSFI) required Canadian financial institutions to manage and
report regulatory capital in accordance with a new capital management
framework, commonly called Basel II. Basel II introduced several significant
changes to the risk-weighting of assets and the calculation of regulatory
capital. The Bank has implemented the standardized approach to calculating
risk-weighted assets for both credit and operational risk. Changes for CWB
under Basel II include a reclassification into lower risk-weight categories
for residential mortgages and loans to small-to-medium sized enterprises, as
well as a new capital requirement related to operational risk.
Basel II had a modest positive impact on the overall required level of
regulatory capital for CWB. New procedures and system enhancements were
developed to conform to the new framework including the formalization of
internal capital adequacy assessment processes.
Under Basel II at July 31, 2008, CWB's total capital adequacy ratio,
which measures regulatory capital as a percentage of risk-weighted assets, was
unchanged from the previous quarter at 14.0%. The total capital adequacy ratio
at July 2007 under the previous OSFI framework was 13.6%. The Tier 1 ratio at
the end of the third quarter under Basel II was 9.2%, compared to 9.3% last
quarter. The Tier 1 ratio at the same time last year under the previous
framework was 9.0%. The lower Tier 1 ratio compared to the previous quarter
reflects robust asset growth. Compared to the same quarter last year, CWB's
regulatory capital increased with the retention of earnings, the placement of
$50 million of subordinated debentures in June 2008 and a higher general
allowance for credit losses, partially offset by the redemption of $30 million
of subordinated debentures in July 2008. The improved Tier 1 capital ratio
compared to July 31, 2007 mainly reflects a combination of increased capital
from earnings and a modest positive impact from the adoption of Basel II.
$50 million of "Series C" subordinated debentures were issued in the
third quarter under a short-form base shelf prospectus filed with the
securities commission or equivalent regulatory authority in each of the
provinces and territories of Canada. The debentures have a fixed interest rate
of 5.95% until June 27, 2013, and a rate thereafter fixed quarterly at the
90-day Bankers' Acceptance rate plus 302 basis points until maturity on June
27, 2018. On July 8, 2008, an issue of previously outstanding subordinated
debentures in the amount of $30 million was redeemed by the Bank at face
value. The placement of the Series C debentures was consistent with
management's objective to maintain a strong and efficient capital structure to
support continued high quality asset growth, while providing flexibility in
considering accretive growth opportunities and future dividend increases.
Further information relating to the Bank's capital position is provided
in Note 16 to the quarterly financial statements as well as the audited
consolidated financial statements and MD&A for the year ended October 31,
2007.
Book value per common share at July 31, 2008 was $10.47 compared to
$10.22 last quarter and $9.05 one year ago.
Common shareholders received a quarterly cash dividend of $0.11 per
common share on July 3, 2008. On September 3, 2008, the Board of Directors
declared a quarterly cash dividend of $0.11 per common share payable on
October 2, 2008 to shareholders of record on September 18, 2008. This
quarterly dividend represents a 22% increase over the quarterly dividend
declared one year ago.
Accounting Policy Changes
Significant accounting policies are detailed in the notes to the Bank's
October 31, 2007 audited consolidated financial statements. Effective November
1, 2007, the Bank adopted new accounting standards issued by the Canadian
Institute of Chartered Accountants (CICA): Financial Instruments - Disclosure
and Presentation and Capital Disclosures. As a result of adopting these
standards, new or enhanced disclosure has been provided. Refer to Note 2 to
the unaudited interim consolidated financial statements for further details.
Controls and Procedures
There were no changes in the Bank's internal controls over financial
reporting that occurred during the quarter ended July 31, 2008 that have
materially affected, or are reasonably likely to materially affect, internal
controls over financial reporting.
Prior to its release, this quarterly report to shareholders was reviewed
by the Audit Committee and, on the Audit Committee's recommendation, approved
by the Board of Directors of Canadian Western Bank, consistent with prior
quarters.
Updated Share Information
As at August 31, 2008, there were 63,418,574 common shares outstanding.
Also outstanding were employee stock options, which are or will be exercisable
for up to 5,543,972 common shares for maximum proceeds of $109.2 million.
Summary of Quarterly Financial Information
2008
-----------------------------
($ thousands) Q3 Q2 Q1
-------------------------------------------------------------------------
Total revenues (teb) $ 76,375 $ 73,754 $ 74,669
Total revenues 74,933 72,402 73,332
Net income 26,327 25,302 25,905
Earnings per common
share
Basic 0.42 0.40 0.41
Diluted 0.41 0.39 0.40
Total assets
($ millions) 10,057 10,038 9,865
-------------------------------------------------------------------------
2007 2006
--------------------------------------- ---------
($ thousands) Q4 Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Total revenues (teb) $ 74,359 $ 70,665 $ 66,804 $ 61,652 $ 59,565
Total revenues 72,863 69,242 65,477 60,488 58,371
Net income 29,572 24,033 22,219 20,458 21,209
Earnings per common
share
Basic 0.47 0.39 0.36 0.33 0.34
Diluted 0.46 0.37 0.35 0.32 0.33
Total assets
($ millions) 9,525 8,881 8,022 7,565 7,268
-------------------------------------------------------------------------
The financial results for each of the last eight quarters are summarized
above. In general, CWB's performance reflects a consistent growth trend
although the second quarter contains three fewer revenue-earning days, or two
fewer days in a leap year such as 2008.
The Bank's quarterly financial results are subject to some fluctuation
due to its exposure to property and casualty insurance. Insurance operations,
which are primarily reflected in other income (refer to Results by Business
Segment - Insurance), are subject to seasonal weather conditions, cyclical
patterns of the industry and natural catastrophes. Mandatory participation in
the Alberta auto risk sharing pools can also result in unpredictable quarterly
fluctuations.
Quarterly results can also fluctuate due to the recognition of periodic
income tax items. Net income in the first quarter of 2008 included $1.0
million ($0.01 per diluted share) of tax expense resulting from the write-down
of future tax assets to reflect lower future federal corporate income tax
rates. Net income in the fourth quarters of 2007 and 2006 included the
recognition of previously unrecorded tax benefits related to certain prior
period transactions of $2.9 million ($0.04 per diluted share) and $2.0 million
($0.03 per diluted share) respectively.
For details on variations between the prior quarters see the summary of
quarterly results section of the Bank's MD&A for the year ended October 31,
2007 and the individual quarterly reports to shareholders which are available
on SEDAR at www.sedar.com and on CWB's website at www.cwbankgroup.com. The
2007 Annual Report and audited consolidated financial statements for the year
ended October 31, 2007 are available on both SEDAR and the Bank's website.
Results by Business Segment
CWB operates in two business segments: 1) banking and trust, and 2)
insurance. Segmented information is also provided in Note 15 of the unaudited
interim consolidated financial statements.
Banking and Trust
Operations of the banking and trust segment include commercial and retail
banking services, as well as personal and corporate trust services provided
through CWB's wholly owned subsidiaries, Canadian Western Trust Company (CWT)
and Valiant Trust Company (Valiant).
Net income of $23.8 million was up 9% ($2.0 million) over the same
quarter last year benefiting from 15% loan growth and a 23% ($2.7 million)
increase in other income, significantly offset by a 35 basis point decline in
net interest margin (teb) to 2.23%. Third quarter credit related fee income
grew 25% ($1.6 million) over 2007 while gains on securities sales, foreign
exchange and other were up $0.8 million. Trust services revenues were $0.4
million higher than last year while retail services fee income was up $0.1
million. The significant reduction in net interest margin (teb) compared to a
year earlier resulted from a combination of increased deposit costs related to
financial market disruptions, decreases in the prime lending rate and higher
liquidity levels. The quarterly efficiency ratio (teb), which measures
non-interest expense as a percentage of total revenues (teb), was 45.7%,
compared to 44.0% one year ago. The deterioration in the efficiency ratio
(teb) reflects constrained growth in net interest income attributable to the
significantly lower net interest margin (teb) and a 12% increase in
non-interest expenses mainly resulting from continued business growth and
investment in future development initiatives, partially offset by continued
loan growth and very strong other income. Total branch-raised deposits grew
16% over the past year while the demand and notice component of branch-raised
deposits was up 22%. A considerable portion of growth in demand and notice
deposits over the past year was due to the ongoing success of CWB's
high-interest savings account branded Summit Savings(R).
Quarterly earnings increased 3% ($0.8 million) over the previous period
with strong fee-based income, two additional days and continued loan growth
more than offsetting the impact of $1.2 million lower gains on securities
sales, a slightly reduced net interest margin (teb) and higher non-interest
expenses. Increased non-interest expenses primarily resulted from salary
costs, including higher stock-based compensation charges, as well as employee
recruitment and other expenses.
Year-to-date net income of $71.3 million increased 16% ($9.8 million)
over the same period in 2007 reflecting strong loan growth and a 26% ($8.7
million) increase in other income, partially offset by a 35 basis point
decline in net interest margin (teb). Other income benefited from improved
performance across all areas including a 25% ($4.3 million) increase in credit
related fee income and gains on securities sales, foreign exchange and other,
which were up $3.4 million in the aggregate. On a year-to-date basis, growth
in total revenues continued to exceed higher non-interest expenses leading to
a 30 basis point improvement in the efficiency ratio (teb) to 44.5%.
For the three months ended Change
----------------------------------------- from
July 31 April 30 July 31 July 31
($ thousands) 2008 2008 2007 2007
-------------------------------------------------------------------------
Net interest income
(teb) $ 55,877 $ 54,325 $ 53,533 4%
Other income 14,415 13,948 11,685 23
-------------------------------------------------------------------------
Total revenues (teb) 70,292 68,273 65,218 8
Provision for credit
losses 3,038 2,962 2,550 19
Non-interest expenses 32,124 31,207 28,688 12
Provision for income
taxes (teb) 11,306 11,031 12,164 (7)
-------------------------------------------------------------------------
Net income $ 23,824 $ 23,073 $ 21,816 9%
-------------------------------------------------------------------------
Efficiency ratio (teb) 45.7% 45.7% 44.0% 170 bp
Efficiency ratio 46.6 46.6 44.9 170
Net interest margin
(teb) 2.23 2.26 2.58 (35)
Net interest margin 2.18 2.21 2.52 (34)
Average loans
(millions)(1) $ 7,981 $ 7,798 $ 6,774 18%
Average assets
(millions) 9,927 9,730 8,227 21
-------------------------------------------------------------------------
For the nine months ended Change
------------------------- from
July 31 July 31 July 31
($ thousands) 2008 2007 2007
------------------------------------------------------------
Net interest income
(teb) $ 165,844 $ 151,204 10%
Other income 42,758 34,054 26
------------------------------------------------------------
Total revenues (teb) 208,602 185,258 13
Provision for credit
losses 8,813 7,650 15
Non-interest expenses 92,835 82,995 12
Provision for income
taxes (teb) 35,617 33,053 8
------------------------------------------------------------
Net income $ 71,337 $ 61,560 16%
------------------------------------------------------------
Efficiency ratio (teb) 44.5% 44.8% (30) bp
Efficiency ratio 45.3 45.7 (40)
Net interest margin
(teb) 2.28 2.63 (35)
Net interest margin 2.23 2.56 (33)
Average loans
(millions)(1) $ 7,775 $ 6,361 22%
Average assets
(millions) 9,695 7,700 26
------------------------------------------------------------
bp - basis point change.
teb - taxable equivalent basis, see definition following Financial
Highlights table.
(1) Assets are disclosed on an average daily balance basis.
Insurance
The insurance segment is comprised of the operations of CWB's wholly
owned subsidiary, Canadian Direct Insurance Incorporated (Canadian Direct or
CDI), which provides auto and home insurance to individuals in BC and Alberta.
Canadian Direct's third quarter net income of $2.5 million represented a
13% ($0.3 million) increase over last year mainly resulting from improved
claims experience. Absent the impact of the Alberta auto risk sharing pools
(the Pools), third quarter net earned premiums were up 3% over the prior year.
Profitability improved in all lines of business except BC Home and policy
growth remained solid in both Alberta lines of business. The expense ratio of
29% represented a 100 basis point increase over the same quarter last year
mainly reflecting the impact of lower net earned premium growth. The Insurance
Corporation of British Columbia implemented a reduction of 3% on its optional
insurance product effective July 1, 2008. CDI responded to this challenge by
offering further discounts on its BC auto product line, particularly for
Internet purchases.
Net income was up $0.3 million compared to the previous quarter mainly
reflecting lower claims experience, evidenced by a 200 basis point improvement
in the loss ratio, partially offset by a 100 basis point increase in the
expense ratio. Year-to-date net income of $6.2 million represented a 20% ($1.0
million) increase over the same period last year due to continued business
growth, improved loss experience and higher net interest income (teb),
partially offset by a $0.6 million lower pre-tax contribution from the Pools.
On July 31, 2008, the Alberta Insurance Rate Board approved a rate
increase for basic coverage on private passenger vehicles under the Auto
Insurance Premium Regulation. The order will permit insurers to increase rates
on mandatory insurance on new and renewal business of up to 5% effective
November 1, 2008.
For the three months ended Change
----------------------------------------- from
July 31 April 30 July 31 July 31
($ thousands) 2008 2008 2007 2007
-------------------------------------------------------------------------
Net interest income
(teb) $ 1,413 $ 1,334 $ 1,355 4%
-------------------------------------------------------------------------
Other income (net)
Net earned premiums 25,030 23,737 24,988 -
Commissions and
processing fees 734 738 733 -
Net claims and
adjustment expenses (15,612) (15,135) (16,097) (3)
Policy acquisition
costs (5,466) (5,212) (5,531) (1)
-------------------------------------------------------------------------
Insurance revenue
(net) 4,686 4,128 4,093 14
Losses (gains) on sale
of securities (16) 19 (1) nm
-------------------------------------------------------------------------
Total revenues (net)
(teb) 6,083 5,481 5,447 12
Non-interest expenses 2,406 2,246 2,139 12
Provision for income
taxes (teb) 1,174 1,006 1,091 8
-------------------------------------------------------------------------
Net income $ 2,503 $ 2,229 $ 2,217 13%
-------------------------------------------------------------------------
Policies outstanding
(No.) 167,150 166,093 163,875 2
Gross written
premiums $ 30,020 $ 26,642 $ 29,992 -
Claims loss ratio(1) 62% 64% 64% (200) bp
Expense ratio(2) 29 28 28 100
Combined ratio(3) 91 92 92 (100)
Alberta auto risk
sharing pools impact
on net income before
tax $ (30) $ (3) $ (101) (70)%
Average total assets
(millions) 185 180 166 11
-------------------------------------------------------------------------
For the nine months ended Change
------------------------- from
July 31 July 31 July 31
($ thousands) 2008 2007 2007
------------------------------------------------------------
Net interest income
(teb) $ 4,151 $ 3,460 20%
------------------------------------------------------------
Other income (net)
Net earned premiums 73,066 70,742 3
Commissions and
processing fees 2,134 2,008 6
Net claims and
adjustment expenses (47,816) (47,495) 1
Policy acquisition
costs (15,361) (14,911) 3
------------------------------------------------------------
Insurance revenue
(net) 12,023 10,344 16
Losses (gains) on sale
of securities 22 59 (63)
------------------------------------------------------------
Total revenues (net)
(teb) 16,196 13,863 17
Non-interest expenses 6,972 6,177 13
Provision for income
taxes (teb) 3,027 2,536 19
------------------------------------------------------------
Net income $ 6,197 $ 5,150 20%
------------------------------------------------------------
Policies outstanding
(No.) 167,150 163,875 2
Gross written
premiums $ 78,278 $ 77,743 1
Claims loss ratio(1) 65% 67% (200) bp
Expense ratio(2) 28 27 100
Combined ratio(3) 93 94 (100)
Alberta auto risk
sharing pools impact
on net income before
tax $ 87 $ 721 (88)%
Average total assets
(millions) 181 161 12
------------------------------------------------------------
bp - basis point change.
teb - taxable equivalent basis, see definition following Financial
Highlights table.
nm - not meaningful.
(1) Net claims and adjustment expenses as a percentage of net earned
premiums.
(2) Policy acquisition costs and non-interest expenses net of commissions
and processing fees as a percentage of net earned premiums.
(3) Sum of the claims loss and expense ratios.
Fiscal 2008 Targets & Outlook
The performance targets established for the 2008 fiscal year are presented
in the table below together with CWB's actual performance.
------------------------
2008 2008 YTD
Target Performance(1)
-------------------------------------------------------------------------
Net income growth 15% 16%
-------------------------------------------------------------------------
Total revenue (teb) growth 17% 13%
-------------------------------------------------------------------------
Loan growth 15% 15%
-------------------------------------------------------------------------
Provision for credit losses as a percentage
of average loans 0.15% 0.15%
-------------------------------------------------------------------------
Efficiency ratio (teb) 45% 44.4%
-------------------------------------------------------------------------
Return on equity 17% 16.3%
-------------------------------------------------------------------------
Return on assets 1.10% 1.05%
-------------------------------------------------------------------------
(1) 2008 performance for earnings and revenue growth is the current year
results over the same period in the prior year, loan growth is the
increase over the past twelve months and performance for ratio
targets is the current year-to-date results annualized.
Management's assumptions in setting performance targets for fiscal 2008
included: economic growth in Western Canada that would outperform the rest of
the country, but moderate compared to the previous two years; relatively flat
interest rates and a stable core inflation environment; and a lower net
interest margin (associated with increased deposit costs and the Bank's higher
liquidity levels maintained in response to disruptions in financial markets),
largely offset by higher credit spreads and a corresponding increase in loan
yields once financial markets normalized. In the first quarter expectations
were updated to reflect a declining interest rate environment in Canada. Over
the course of the second and third quarters, it became clear that persistent
liquidity and pricing pressures in financial markets were having a more
significant and long-term impact on net interest margin than initially
anticipated.
CWB is within close range of most performance targets through the first
nine months of 2008. However, the significant impact on total revenue (teb)
growth from ongoing margin compression combined with an exceptionally strong
fourth quarter of 2007 that included an income tax benefit of $2.9 million,
make it likely the Bank will fall short of several 2008 targets, the most
notable being net income and total revenue (teb) growth. Although net interest
margin is expected to return to more normal historic levels as disruptions in
financial markets subside, a specific recovery timeframe cannot yet be
reasonably estimated in view of ongoing market turmoil and associated spin-off
effects.
The benefits of CWB's strategies for sustained, responsible growth
remained clearly evident this quarter. While the Bank has been dealing with
compressed net interest margins, solid third quarter and year-to-date results
substantiate CWB's strong market position and risk profile. Economic
fundamentals in Western Canada are expected to remain sound despite the marked
slowdown in the U.S and Eastern Canada. Management will monitor the potential
impacts of new economic developments closely. Notwithstanding increased
challenges in some sectors, there is still a good pipeline of new high quality
lending opportunities. CWB will maintain its focus on secured loans and will
not compromise asset quality to increase volume. Credit quality is expected to
remain strong and the Bank is well positioned to manage future credit events.
There are ample opportunities to further increase market presence and CWB
recently confirmed plans for three new full-service branches to complement
existing infrastructure initiatives. These include future additional branches
in Surrey, BC, and Saskatoon, Saskatchewan, as well a full-service branch to
replace the existing equipment lending office in Kamloops, BC. A full-service
branch in Leduc, Alberta (AB) is scheduled to open in the fourth quarter of
2008. Other future branch locations previously confirmed include Sherwood
Park, AB and Airdrie, AB. Further development of trust, insurance and other
complementary businesses also remains a key strategy and supports objectives
to increase CWB's proportion of non-interest income to total revenues over
time. If the right strategic opportunity arises, the Bank will also look to
support its diversification objectives via acquisition.
This management's discussion and analysis is dated September 4, 2008.
Taxable Equivalent Basis (teb)
Most financial institutions analyse revenue on a taxable equivalent basis
to permit uniform measurement and comparison of net interest income. Net
interest income (as presented in the consolidated statement of income)
includes tax-exempt income on certain securities. Since this income is not
taxable, the rate of interest or dividends received is significantly lower
than would apply to a loan or security of the same amount. The adjustment to
taxable equivalent basis increases interest income and the provision for
income taxes to what they would have been had the tax-exempt securities been
taxed at the statutory rate.
Non-GAAP Measures
Taxable equivalent basis, return on shareholders' equity, return on
assets, efficiency ratio, net interest margin, tangible common equity to
risk-weighted assets, Tier 1 and total capital adequacy ratios, average
balances, claims loss ratio, expense ratio and combined ratio do not have
standardized meanings prescribed by generally accepted accounting principles
(GAAP) and therefore may not be comparable to similar measures presented by
other financial institutions. The non-GAAP measures used in this MD&A are
calculated as follows:
- taxable equivalent basis - described above;
- return on shareholders' equity - net income divided by average
shareholder's equity;
- return on assets - net income divided by average total assets;
- efficiency ratio - non-interest expenses divided by total revenues
(net interest income plus other income);
- net interest margin - net interest income divided by average total
assets;
- tangible common equity to risk-weighted assets - shareholders' equity
less subsidiary goodwill divided by risk-weighted assets, calculated
in accordance with guidelines issued by the Office of the
Superintendent of Financial Institutions Canada (OSFI). As of
November 1, 2007 (as described in Note 16 to the interim consolidated
financial statements), OSFI adopted a new capital management
framework called Basel II and capital is now managed and reported in
accordance with those requirements. Prior year ratios have been
calculated using the previous framework;
- Tier 1 and total capital adequacy ratios - in accordance with
guidelines issued by OSFI. As of November 1, 2007 (as described in
Note 16 to the interim consolidated financial statements), OSFI
changed their methodology and capital is now managed and reported in
accordance with the requirements of Basel II. Prior year ratios have
not been restated.
- average balances - average daily balances;
- claims loss ratio - net insurance claims and adjustment expenses as a
percentage of net earned premiums;
- expense ratio - policy acquisition costs and non-interest expenses
net of commissions and processing fees as a percentage of net earned
premiums; and
- combined ratio - sum of the claims loss and expense ratios.
Forward-looking Statements
From time to time Canadian Western Bank (the "Bank") 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 the Bank's objectives and strategies,
targeted and expected financial results and the outlook for the Bank'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" 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. A variety of factors, many of which are beyond the Bank'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, fluctuations in interest rates and currency values, changes in
monetary policy, changes in economic and political conditions, legislative and
regulatory developments, the level of competition in the Bank's markets, the
occurrence of weather related and other natural catastrophes, the accuracy of
and completeness of information the Bank 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 the Bank's 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. The
preceding list is not exhaustive of possible factors. These and other factors
should be considered carefully and readers are cautioned not to place undue
reliance on these forward-looking statements. The Bank does not undertake,
unless required by securities law, to update any forward-looking statement,
whether written or verbal, that may be made from time to time by it or on its
behalf.
-------------------------------------------------------------------------
Consolidated Statement of Income
-------------------------------------------------------------------------
For the three months ended Change
(unaudited) ----------------------------------------- from
($ thousands, except July 31 April 30 July 31 July 31
per share amounts 2008 2008 2007 2007
-------------------------------------------------------------------------
Interest Income
Loans $ 120,455 $ 121,593 $ 113,748 6%
Securities 13,058 13,862 11,712 11
Deposits with
regulated financial
institutions 4,490 4,543 3,618 24
-------------------------------------------------------------------------
138,003 139,998 129,078 7
-------------------------------------------------------------------------
Interest Expense
Deposits 76,506 80,325 70,124 9
Subordinated
debentures 5,649 5,366 5,489 3
-------------------------------------------------------------------------
82,155 85,691 75,613 9
-------------------------------------------------------------------------
Net Interest Income 55,848 54,307 53,465 4
Provision for Credit
Losses 3,038 2,962 2,550 19
-------------------------------------------------------------------------
Net Interest Income
after Provision for
Credit Losses 52,810 51,345 50,915 4
-------------------------------------------------------------------------
Other Income
Credit related 7,876 6,587 6,277 25
Insurance, net
(Note 3) 4,686 4,128 4,093 14
Trust services 3,385 2,952 3,132 8
Retail services 1,906 1,861 1,826 4
Gains on sale of
securities 765 1,998 10 nm
Foreign exchange gains 467 435 371 26
Other - 134 68 nm
-------------------------------------------------------------------------
19,085 18,095 15,777 21
-------------------------------------------------------------------------
Net Interest and
Other Income 71,895 69,440 66,692 8
-------------------------------------------------------------------------
Non-interest Expenses
Salaries and employee
benefits 22,508 21,674 19,466 16
Premises and equipment 5,454 5,503 5,167 6
Other expenses 6,021 5,847 5,628 7
Provincial capital
taxes 547 429 566 (3)
-------------------------------------------------------------------------
34,530 33,453 30,827 12
-------------------------------------------------------------------------
Net Income Before
Provision for Income
Taxes 37,365 35,987 35,865 4
Provision for
Income Taxes 11,038 10,685 11,832 (7)
-------------------------------------------------------------------------
Net Income $ 26,327 $ 25,302 $ 24,033 10%
-------------------------------------------------------------------------
Weighted average
common shares
outstanding 63,279,303 63,183,486 62,413,781 1%
Earnings per
Common Share
Basic $ 0.42 $ 0.40 $ 0.39 8%
Diluted 0.41 0.39 0.37 11
-------------------------------------------------------------------------
For the nine months ended Change
(unaudited) ------------------------- from
($ thousands, except July 31 July 31 July 31
per share amounts 2008 2007 2007
------------------------------------------------------------
Interest Income
Loans $ 368,799 $ 315,823 17%
Securities 42,111 31,894 32
Deposits with
regulated financial
institutions 13,990 9,672 45
------------------------------------------------------------
424,900 357,389 19
------------------------------------------------------------
Interest Expense
Deposits 242,538 194,284 25
Subordinated
debentures 16,498 12,355 34
------------------------------------------------------------
259,036 206,639 25
------------------------------------------------------------
Net Interest Income 165,864 150,750 10
Provision for Credit
Losses 8,813 7,650 15
------------------------------------------------------------
Net Interest Income
after Provision for
Credit Losses 157,051 143,100 10
------------------------------------------------------------
Other Income
Credit related 21,772 17,477 25
Insurance, net
(Note 3) 12,023 10,344 16
Trust services 9,901 9,210 8
Retail services 5,726 5,453 5
Gains on sale of
securities 3,777 431 nm
Foreign exchange gains 1,286 1,334 (4)
Other 318 208 53
------------------------------------------------------------
54,803 44,457 23
------------------------------------------------------------
Net Interest and
Other Income 211,854 187,557 13
------------------------------------------------------------
Non-interest Expenses
Salaries and employee
benefits 64,799 56,511 15
Premises and equipment 16,339 14,852 10
Other expenses 17,124 16,013 7
Provincial capital
taxes 1,545 1,796 (14)
------------------------------------------------------------
99,807 89,172 12
------------------------------------------------------------
Net Income Before
Provision for Income
Taxes 112,047 98,385 14
Provision for
Income Taxes 34,513 31,675 9
------------------------------------------------------------
Net Income $ 77,534 $ 66,710 16%
------------------------------------------------------------
Weighted average
common shares
outstanding 63,145,663 62,240,603 1%
Earnings per
Common Share
Basic $ 1.23 $ 1.07 15%
Diluted 1.20 1.04 15
------------------------------------------------------------
nm - not meaningful.
The accompanying notes are an integral part of the interim consolidated
financial statements.
-------------------------------------------------------------------------
Consolidated Balance Sheet
-------------------------------------------------------------------------
Change
As at As at As at As at from
(unaudited) July 31 April 30 October 31 July 31 July 31
($ thousands) 2008 2008 2007 2007 2007
-------------------------------------------------------------------------
Assets
Cash Resources
Cash and
non-
interest
bearing
deposits
with
financial
institu-
tions $ 23,903 $ 31,039 $ 6,446 $ 10,760 122%
Interest
bearing
deposits with
regulated
financial
institutions
(Note 4) 409,882 476,585 405,122 312,513 31
Cheques and
other items
in transit 2,172 6,065 1,122 729 198
-------------------------------------------------------------------------
435,957 513,689 412,690 324,002 35
-------------------------------------------------------------------------
Securities
(Note 4)
Issued or
guaranteed
by Canada 313,986 331,272 630,396 414,433 (24)
Issued or
guaranteed
by a
province or
municipality 473,414 443,775 251,418 285,559 66
Other
securities 492,706 490,945 459,812 553,021 (11)
-------------------------------------------------------------------------
1,280,106 1,265,992 1,341,626 1,253,013 2
-------------------------------------------------------------------------
Securities
Purchased
Under Resale
Agreements 9,001 155,148 206,925 56,425 (84)
-------------------------------------------------------------------------
Loans (Notes 5
and 7)
Residential
mortgages 1,974,285 1,959,048 1,780,442 1,654,906 19
Other loans 6,264,472 6,050,679 5,688,160 5,496,505 14
-------------------------------------------------------------------------
8,238,757 8,009,727 7,468,602 7,151,411 15
Allowance
for credit
losses
(Note 6) (70,009) (67,091) (63,022) (60,779) 15
-------------------------------------------------------------------------
8,168,748 7,942,636 7,405,580 7,090,632 15
-------------------------------------------------------------------------
Other
Land,
buildings
and
equipment 26,258 25,795 25,736 24,443 7
Goodwill 6,933 6,933 6,933 6,933 -
Other
intangible
assets 2,274 2,410 2,681 2,817 (19)
Insurance
related 53,514 52,656 51,744 55,027 (3)
Derivative
related
(Note 8) 3,529 3,966 1,496 843 319
Other assets 70,324 68,989 69,629 66,979 5
-------------------------------------------------------------------------
162,832 160,749 158,219 157,042 4
-------------------------------------------------------------------------
Total
Assets $10,056,644 $10,038,214 $ 9,525,040 $ 8,881,114 13%
-------------------------------------------------------------------------
Liabilities
and
Shareholders'
Equity
Deposits
Payable on
demand $ 366,725 $ 373,692 $ 376,488 $ 398,885 (8)%
Payable
after
notice 2,096,550 2,123,327 1,843,799 1,628,043 29
Payable on
a fixed
date 6,118,061 6,077,005 5,931,631 5,524,614 11
Deposit from
Canadian
Western
Bank
Capital
Trust 105,000 105,000 105,000 105,000 -
-------------------------------------------------------------------------
8,686,336 8,679,024 8,256,918 7,656,542 13
-------------------------------------------------------------------------
Other
Cheques and
other items
in transit 27,045 34,550 22,177 33,379 (19)
Insurance
related 131,504 127,337 124,480 124,095 6
Derivative
related
(Note 8) 285 846 1,307 2,109 (86)
Securities
purchased
under
reverse
resale
agreements - 19,896 - - -
Other
liabilities 138,073 140,346 134,665 109,102 27
-------------------------------------------------------------------------
296,907 322,975 282,629 268,685 11
-------------------------------------------------------------------------
Subordinated
Debentures
Conventional
(Note 9) 410,000 390,000 390,000 390,000 5
-------------------------------------------------------------------------
Shareholders'
Equity
Retained
earnings 430,697 411,329 372,739 348,817 23
Accumulated
other
comprehensive
income (loss) (1,308) 2,597 (5,931) (9,608) (86)
Capital stock
(Note 10) 221,103 220,634 219,004 217,589 2
Contributed
surplus 12,909 11,655 9,681 9,089 42
-------------------------------------------------------------------------
663,401 646,215 595,493 565,887 17
-------------------------------------------------------------------------
Total
Liabilities
and Share-
holders'
Equity $10,056,644 $10,038,214 $ 9,525,040 $ 8,881,114 13%
-------------------------------------------------------------------------
Contingent
Liabilities
and
Commitments
(Note 11)
The accompanying notes are an integral part of the interim consolidated
financial statements.
-------------------------------------------------------------------------
Consolidated Statement of Changes in Shareholders' Equity
-------------------------------------------------------------------------
For the nine months ended
--------------------------
(unaudited) July 31 July 31
($ thousands) 2008 2007
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of period $ 372,739 $ 297,675
Net income 77,534 66,710
Dividends (19,576) (15,568)
-------------------------------------------------------------------------
Balance at end of period 430,697 348,817
-------------------------------------------------------------------------
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period (5,931) (1,494)
Other comprehensive income (loss) 4,623 (8,114)
-------------------------------------------------------------------------
Balance at end of period (1,308) (9,608)
-------------------------------------------------------------------------
Total retained earnings and accumulated other
comprehensive income (loss) 429,389 339,209
-------------------------------------------------------------------------
Capital Stock (Note 10)
Balance at beginning of period 219,004 215,349
Issued on exercise of employee stock options 1,086 1,525
Transferred from contributed surplus on
exercise or exchange of options 1,013 715
-------------------------------------------------------------------------
Balance at end of period 221,103 217,589
-------------------------------------------------------------------------
Contributed Surplus
Balance at beginning of period 9,681 6,340
Amortization of fair value of employee
stock options 4,241 3,464
Transferred to capital stock on exercise or
exchange of options (1,013) (715)
-------------------------------------------------------------------------
Balance at end of period 12,909 9,089
-------------------------------------------------------------------------
Total Shareholders' Equity $ 663,401 $ 565,887
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Comprehensive Income
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
------------------------- -------------------------
(unaudited) July 31 July 31 July 31 July 31
($ thousands) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net Income $ 26,327 $ 24,033 $ 77,534 $ 66,710
-------------------------------------------------------------------------
Other Comprehensive
Income (Loss), net
of tax
Available-for-sale
securities:
Gains (losses)
from change in
fair value(1) (2,906) (4,085) 5,523 (8,837)
Reclassification
to other income(2) (600) 7 (2,634) 290
-------------------------------------------------------------------------
(3,506) (4,078) 2,889 (8,547)
-------------------------------------------------------------------------
Derivatives
designated as cash
flow hedges:
Gains (losses) from
change in fair
value(3) 566 (423) 3,904 (809)
Reclassification
to net interest
income(4) (965) 375 (1,232) 1,242
Reclassification
to other
liabilities for
derivatives
terminated prior
to maturity(5) - - (938) -
-------------------------------------------------------------------------
(399) (48) 1,734 433
-------------------------------------------------------------------------
(3,905) (4,126) 4,623 (8,114)
-------------------------------------------------------------------------
Comprehensive Income
for the Period $ 22,422 $ 19,907 $ 82,157 $ 58,596
-------------------------------------------------------------------------
(1) Net of income tax expense of $2,394 for the nine months ended
July 31, 2008 (2007 - tax benefit of $4,313).
(2) Net of income tax benefit of $1,142 for the nine months ended
July 31, 2008 (2007 - tax expense $141).
(3) Net of income tax expense of $1,714 for the nine months ended
July 31, 2008 (2007 - tax benefit $395).
(4) Net of income tax benefit of $534 for the nine months ended July 31,
2008 (2007 - tax expense $606).
(5) Net of income tax benefit of $429 for the nine months ended July 31,
2008 (2007 - nil).
The accompanying notes are an integral part of the interim consolidated
financial statements.
-------------------------------------------------------------------------
Consolidated Statement of Cash Flow
-------------------------------------------------------------------------
For the three For the nine
months ended months ended
------------------------- -------------------------
(unaudited) July 31 July 31 July 31 July 31
($ thousands) 2008 2007 2008 2007
-------------------------------------------------------------------------
Cash Flows from
Operating Activities
Net income $ 26,327 $ 24,033 $ 77,534 $ 66,710
Adjustments to
determine net
cash flows
Provision for
credit losses 3,038 2,550 8,813 7,650
Depreciation and
amortization 1,761 1,584 5,116 4,411
Amortization of
fair value of
employee stock
options 1,537 1,178 4,241 3,464
Future income
taxes, net 372 2,376 899 2,594
Gain on sale of
securities, net (765) (10) (3,777) (431)
Accrued interest
receivable and
payable, net (3,274) (3,256) 6,326 1,604
Current income
taxes payable, net 816 396 (1,068) (287)
Other items, net 4,087 3,644 (4,963) (6,274)
-------------------------------------------------------------------------
33,899 32,495 93,121 79,441
-------------------------------------------------------------------------
Cash Flows from
Financing Activities
Deposits, net 7,312 858,059 429,418 1,365,575
Debentures issued 50,000 - 50,000 195,000
Debentures redeemed (30,000) (3,126) (30,000) (3,126)
Common shares issued 186 721 1,086 1,525
Dividends (6,959) (5,623) (19,576) (15,568)
-------------------------------------------------------------------------
20,539 850,031 430,928 1,543,406
-------------------------------------------------------------------------
Cash Flows from
Investing Activities
Interest bearing
deposits with
regulated financial
institutions, net 65,595 (78,867) (2,950) 36,455
Securities, purchased (658,402) (893,170) (2,057,270) (2,035,649)
Securities, sale
proceeds 187,183 151,868 936,939 581,935
Securities, matured 452,649 482,338 1,192,159 1,080,422
Securities matured
(purchased) under
resale agreements,
net 126,251 (76,068) 197,924 (47,425)
Loans, net (229,150) (525,584) (771,981) (1,316,445)
Land, buildings
and equipment (2,088) (1,994) (5,231) (4,249)
-------------------------------------------------------------------------
(57,962) (941,477) (510,410) (1,704,956)
-------------------------------------------------------------------------
Change in Cash and
Cash Equivalents (3,524) (58,951) 13,639 (82,109)
Cash and Cash
Equivalents at
Beginning of Period 2,554 37,061 (14,609) 60,219
-------------------------------------------------------------------------
Cash and Cash
Equivalents at End
of Period(*) $ (970) $ (21,890) $ (970) $ (21,890)
-------------------------------------------------------------------------
(*) Represented by:
Cash and
non-interest
bearing deposits
with financial
institutions $ 23,903 $ 10,760 $ 23,903 $ 10,760
Cheques and other
items in transit
(included in Cash
Resources) 2,172 729 2,172 729
Cheques and other
items in transit
(included in Other
Liabilities) (27,045) (33,379) (27,045) (33,379)
-------------------------------------------------------------------------
Cash and Cash
Equivalents at End
of Period $ (970) $ (21,890) $ (970) $ (21,890)
-------------------------------------------------------------------------
Supplemental
Disclosure of Cash
Flow Information
Amount of interest
paid in the period $ 87,589 $ 73,000 $ 254,032 $ 197,640
Amount of income
taxes paid in the
period 9,850 11,436 34,682 29,368
-------------------------------------------------------------------------
The accompanying notes are an integral part of the interim consolidated
financial statements.
-------------------------------------------------------------------------
Notes to Interim Consolidated Financial Statements
-------------------------------------------------------------------------
(unaudited)
($ thousands, except per share amounts)
1. Basis of Presentation
These unaudited interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principles (GAAP), including the accounting requirements of the
Office of the Superintendent of Financial Institutions Canada (OSFI),
using the same accounting policies as the audited consolidated
financial statements for the year ended October 31, 2007, except as
described in Note 2. Under Canadian GAAP, additional disclosures are
required in annual financial statements and accordingly, these
unaudited interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for
the year ended October 31, 2007 as set out on pages 57 to 82 of the
Bank's 2007 Annual Report.
2. Change in Accounting Policies
Effective November 1, 2007, the Bank adopted new accounting standards
issued by the Canadian Institute of Chartered Accountants (CICA):
Financial Instruments - Disclosure and Presentation and Capital
Disclosures. The new standards require additional disclosure
regarding financial instruments and capital management practices. As
a result of adopting these standards, new or enhanced disclosure is
provided in Note 4 Securities, Note 5 Loans, Note 6 Allowance for
Credit Losses, Note 7 Impaired and Past Due Loans, Note 13 Financial
Instruments, Note 14 Interest Rate Sensitivity and Note 16 Capital
Management.
3. Insurance Revenues, Net
Insurance revenues, net as reported in other income on the
consolidated statement of income is presented net of claims and
adjustment expenses and policy acquisition costs.
For the nine
For the three months ended months ended
-----------------------------------------------------
July 31 April 30 July 31 July 31 July 31
2008 2008 2007 2008 2007
---------------------------------------------------------------------
Net earned
premiums $ 25,030 $ 23,737 $ 24,988 $ 73,066 $ 70,742
Commissions
and processing
fees 734 738 733 2,134 2,008
Net claims and
adjustment
expenses (15,612) (15,135) (16,097) (47,816) (47,495)
Policy
acquisition
costs (5,466) (5,212) (5,531) (15,361) (14,911)
---------------------------------------------------------------------
Total, net $ 4,686 $ 4,128 $ 4,093 $ 12,023 $ 10,344
---------------------------------------------------------------------
4. Securities
Securities are accounted for at settlement date. Net unrealized gains
(losses) reflected on the balance sheet follow.
As at As at As at
July 31 April 30 July 31
2008 2008 2007
---------------------------------------------------------------------
Interest bearing deposits with
regulated financial institutions $ 736 $ 1,849 $ (1,633)
Securities
Issued or guaranteed by Canada 297 1,106 (1,055)
Issued or guaranteed by a
province or municipality 494 1,827 (747)
Other securities (6,675) (4,600) (9,873)
---------------------------------------------------------------------
Unrealized gains (losses), net $ (5,148) $ 182 $(13,308)
---------------------------------------------------------------------
The securities portfolio is primarily comprised of high quality debt
instruments and preferred shares that are not held for trading
purposes and are typically held until maturity. Fluctuations in value
are generally attributed to changes in interest rates and shifts in
the interest rate curve. Unrealized losses are considered to be other
than permanent in nature.
5. Loans
The composition of the Bank's loan portfolio by geographic region and
industry sector follow.
British Saskat-
($ millions) Columbia Alberta chewan Manitoba Other
---------------------------------------------------------------------
Loans to Individuals
Residential
mortgages(2) $ 968 $ 821 $ 86 $ 54 $ 42
Other loans 108 196 25 4 1
---------------------------------------------------------------------
1,076 1,017 111 58 43
---------------------------------------------------------------------
Loans to Businesses
Commercial 680 1,086 72 71 156
Construction and
real estate(3) 891 1,248 75 59 111
Equipment financing 340 825 41 13 28
Energy 19 219 - - -
---------------------------------------------------------------------
1,930 3,378 188 143 295
---------------------------------------------------------------------
Total Loans(1) $ 3,006 $ 4,395 $ 299 $ 201 $ 338
---------------------------------------------------------------------
Composition
Percentage
July 31, 2008 37% 53% 4% 2% 4%
April 30, 2008 36% 55% 4% 2% 3%
October 31, 2007 35% 55% 4% 3% 3%
---------------------------------------------------------------------
July April October
31 30 31
2008 2008 2007
Composi- Composi- Composi-
tion tion tion
Percent- Percent- Percent-
($ millions) Total age age age
-----------------------------------------------------------
Loans to Individuals
Residential
mortgages(2) $ 1,971 24% 24% 24%
Other loans 334 4 4 3
-----------------------------------------------------------
2,305 28 28 27
-----------------------------------------------------------
Loans to Businesses
Commercial 2,065 25 25 25
Construction and
real estate(3) 2,384 29 27 25
Equipment financing 1,247 15 16 18
Energy 238 3 4 5
-----------------------------------------------------------
5,934 72 72 73
-----------------------------------------------------------
Total Loans(1) $ 8,239 100% 100% 100%
-----------------------------------------------------------
Composition
Percentage
July 31, 2008 100%
April 30, 2008 100%
October 31, 2007 100%
-----------------------------------------------------------
(1) This table does not include an allocation for credit losses or
deferred revenue and premiums.
(2) Includes single- and multi-unit residential mortgages and project
(interim) mortgages on residential property.
(3) Includes commercial term mortgages and project (interim)
mortgages for non-residential property.
6. Allowance for Credit Losses
The following table shows the changes in the allowance for credit
losses.
For the three months ended
July 31, 2008
-----------------------------------
General
Allowance
Specific for Credit
Allowance Losses Total
---------------------------------------------------------------------
Balance at beginning of period $ 10,787 $ 56,304 $ 67,091
Provision for credit losses 117 2,921 3,038
Write-offs (133) - (133)
Recoveries 13 - 13
---------------------------------------------------------------------
Balance at end of period $ 10,784 $ 59,225 $ 70,009
---------------------------------------------------------------------
For the three months ended
April 30, 2008
-----------------------------------
General
Allowance
Specific for Credit
Allowance Losses Total
---------------------------------------------------------------------
Balance at beginning of period $ 9,248 $ 55,940 $ 65,188
Provision for credit losses 2,598 364 2,962
Write-offs (1,065) - (1,065)
Recoveries 6 - 6
---------------------------------------------------------------------
Balance at end of period $ 10,787 $ 56,304 $ 67,091
---------------------------------------------------------------------
For the three months ended
July 31, 2007
-----------------------------------
General
Allowance
Specific for Credit
Allowance Losses Total
---------------------------------------------------------------------
Balance at beginning of period $ 4,878 $ 53,435 $ 58,313
Provision for credit losses 903 1,647 2,550
Write-offs (98) - (98)
Recoveries 14 - 14
---------------------------------------------------------------------
Balance at end of period $ 5,697 $ 55,082 $ 60,779
---------------------------------------------------------------------
For the nine months ended
July 31, 2008
-----------------------------------
General
Allowance
Specific for Credit
Allowance Losses Total
---------------------------------------------------------------------
Balance at beginning of period $ 7,414 $ 55,608 $ 63,022
Provision for credit losses 5,196 3,617 8,813
Write-offs (1,872) - (1,872)
Recoveries 46 - 46
---------------------------------------------------------------------
Balance at end of period $ 10,784 $ 59,225 $ 70,009
---------------------------------------------------------------------
For the nine months ended
July 31, 2007
-----------------------------------
General
Allowance
Specific for Credit
Allowance Losses Total
---------------------------------------------------------------------
Balance at beginning of period $ 5,484 $ 48,037 $ 53,521
Provision for credit losses 605 7,045 7,650
Write-offs (470) - (470)
Recoveries 78 - 78
---------------------------------------------------------------------
Balance at end of period $ 5,697 $ 55,082 $ 60,779
---------------------------------------------------------------------
7. Impaired and Past Due Loans
Outstanding gross loans and impaired loans, net of allowances for
credit losses, by loan type, are as follows.
As at July 31, 2008
-----------------------------------------------
Gross Net
Gross Impaired Specific Impaired
Amount Amount Allowance Loans
---------------------------------------------------------------------
Consumer and
personal $1,236,399 $ 10,051 $ 261 $ 9,790
Real estate(1) 3,401,919 15,507 929 14,578
Industrial 1,484,165 15,304 4,355 10,949
Commercial 2,116,274 6,677 5,239 1,438
---------------------------------------------------------------------
Total $8,238,757 $ 47,539 $ 10,784 36,755
---------------------------------------------------------
General allowance(2) (59,225)
---------------------------------------------------------------------
Net impaired loans after
general allowance $ (22,470)
---------------------------------------------------------------------
As at April 30, 2008
-----------------------------------------------
Gross Net
Gross Impaired Specific Impaired
Amount Amount Allowance Loans
---------------------------------------------------------------------
Consumer and
personal $1,159,586 $ 6,417 $ 283 $ 6,134
Real estate(1) 3,232,475 11,223 920 10,303
Industrial 1,580,911 14,972 3,948 11,024
Commercial 2,036,755 10,406 5,636 4,770
---------------------------------------------------------------------
Total $8,009,727 $ 43,018 $ 10,787 32,231
---------------------------------------------------------
General allowance(2) (56,304)
---------------------------------------------------------------------
Net impaired loans after
general allowance $ (24,073)
---------------------------------------------------------------------
As at July 31, 2007
-----------------------------------------------
Gross Net
Gross Impaired Specific Impaired
Amount Amount Allowance Loans
---------------------------------------------------------------------
Consumer and
personal $1,004,010 $ 4,080 $ 320 $ 3,760
Real estate(1) 2,667,179 563 352 211
Industrial 1,608,257 6,370 1,418 4,952
Commercial 1,871,965 4,092 3,607 485
---------------------------------------------------------------------
Total $7,151,411 $ 15,105 $ 5,697 9,408
---------------------------------------------------------
General allowance(2) (55,082)
---------------------------------------------------------------------
Net impaired loans after
general allowance $ (45,674)
---------------------------------------------------------------------
(1) Multi-family residential mortgages are included in real estate
loans.
(2) The general allowance for credit risk is not allocated by loan
type.
Outstanding impaired loans, net of allowance for credit losses, by
provincial location of security, are as follows.
As at July 31, 2008
---------------------------------
Gross Net
Impaired Specific Impaired
Amount Allowance Loans
---------------------------------------------------------------------
Alberta $ 15,238 $ 7,575 $ 7,663
British Columbia 29,725 2,014 27,711
Saskatchewan 2,099 807 1,292
Manitoba 477 388 89
---------------------------------------------------------------------
Total $ 47,539 $ 10,784 36,755
-----------------------------------------------------------
General allowance(1) (59,225)
---------------------------------------------------------------------
Net impaired loans after
general allowance $(22,470)
---------------------------------------------------------------------
As at April 30, 2008
---------------------------------
Gross Net
Impaired Specific Impaired
Amount Allowance Loans
---------------------------------------------------------------------
Alberta $ 18,586 $ 8,071 $ 10,515
British Columbia 21,757 1,778 19,979
Saskatchewan 2,167 499 1,668
Manitoba 508 439 69
---------------------------------------------------------------------
Total $ 43,018 $ 10,787 32,231
-----------------------------------------------------------
General allowance(1) (56,304)
---------------------------------------------------------------------
Net impaired loans after
general allowance $(24,073)
---------------------------------------------------------------------
As at July 31, 2007
---------------------------------
Gross Net
Impaired Specific Impaired
Amount Allowance Loans
---------------------------------------------------------------------
Alberta $ 7,690 $ 3,287 $ 4,403
British Columbia 4,115 891 3,224
Saskatchewan 3,203 1,519 1,684
Manitoba 97 - 97
---------------------------------------------------------------------
Total $ 15,105 $ 5,697 9,408
-----------------------------------------------------------
General allowance(1) (55,082)
---------------------------------------------------------------------
Net impaired loans after general allowance $(45,674)
---------------------------------------------------------------------
(1) The general allowance for credit risk is not allocated by
province.
During the quarter and for the nine months ended July 31, 2008,
interest recognized as income on impaired loans totaled $126 and $304
respectively (2007 - $74 and $166).
Gross impaired loans exclude certain past due loans which are loans
where payment of interest or principal is contractually in arrears
but which are not classified as impaired. Details of such past due
loans that have not been included in the gross impaired amount are as
follows:
As at
July 31, 2008
---------------------------------------------------------------------
1 - 30 31 - 60 61 - 90
days days days
---------------------------------------------------------------------
Residential mortgages $ 6,264 $ 2,067 $ 7,977
Other loans 11,911 8,833 1,122
---------------------------------------------------------------------
$ 18,175 $ 10,900 $ 9,099
---------------------------------------------------------------------
As at
April 30, 2008
---------------------------------------------------------------------
More than
90 days Total Total
---------------------------------------------------------------------
Residential mortgages $ - $ 16,308 $ 21,990
Other loans - 21,866 17,840
---------------------------------------------------------------------
$ - $ 38,174 $ 39,830
---------------------------------------------------------------------
Certain process changes were required to compile the above
information and comparative figures prior to the second quarter are
not available.
8. Derivative Financial Instruments
For the quarter and nine months ended July 31, 2008, a net unrealized
after tax gain of $566 and $3,904 respectively (2007 - $423 and $809
after tax loss) was recorded in other comprehensive income for
changes in fair value of the effective portion of derivatives
designated as cash flow hedges, and $nil (2007 - $nil) was recorded
in other income for changes in fair value of the ineffective portion
of derivatives classified as cash flow hedges. Amounts accumulated in
other comprehensive income are reclassified to net income in the same
period that interest on certain floating rate loans (i.e. the hedged
items) affect income. For the quarter and nine months ended July 31,
2008, a net gain after tax of $965 and $1,232 respectively (2007 -
$375 and $1,242 net loss after tax) was reclassified to net income. A
net gain of $348 (2007 - $799 net loss) before tax recorded in
accumulated other comprehensive income (loss) as at July 31, 2008 is
expected to be reclassified to net income in the next 12 months and
will offset variable cash flows from floating rate loans.
The following table shows the notional value outstanding for
derivative financial instruments and the related fair value.
As at July 31, 2008
-------------------------------
Positive Negative
Notional Fair Fair
Amount Value Value
---------------------------------------------------------------------
Interest rate swaps designated as cash
flow hedges(1) $663,000 $ 2,965 $ 30
Equity contracts(2) 4,400 178 -
Foreign exchange contracts(3) 48,757 386 -
Embedded derivatives in equity-linked
deposits(2) n/a - 255
Other forecasted transactions - - -
---------------------------------------------------------------------
Derivative related amounts $ 3,529 $ 285
---------------------------------------------------------------------
As at April 30, 2008
-------------------------------
Positive Negative
Notional Fair Fair
Amount Value Value
---------------------------------------------------------------------
Interest rate swaps designated as cash
flow hedges(1) $693,000 $ 3,632 $ 74
Equity contracts(2) 4,400 320 -
Foreign exchange contracts(3) 71,299 14 456
Embedded derivatives in equity-linked
deposits(2) n/a - 316
Other forecasted transactions - - -
---------------------------------------------------------------------
Derivative related amounts $ 3,966 $ 846
---------------------------------------------------------------------
As at July 31, 2007
-------------------------------
Positive Negative
Notional Fair Fair
Amount Value Value
---------------------------------------------------------------------
Interest rate swaps designated as cash
flow hedges $663,000 $ 219 $ 1,302
Equity contracts 6,000 612 -
Foreign exchange contracts 5,344 12 65
Embedded derivatives in equity-linked
deposits n/a - 742
Other forecasted transactions - - -
---------------------------------------------------------------------
Derivative related amounts $ 843 $ 2,109
---------------------------------------------------------------------
(1) Interest rate swaps outstanding at July 31, 2008 mature between
August 2008 and January 2013.
(2) Equity contracts and equity-linked deposits outstanding at July
31, 2008 mature between February 2009 and March 2011.
(3) Foreign exchange contracts outstanding at July 31, 2008 mature
between August 2008 and October 2008.
n/a - not applicable.
There were no forecasted transactions that failed to occur during the
quarter and nine months ended July 31, 2008.
9. Subordinated Debentures
On June 27, 2008, the Bank issued $50,000 of Series C Debentures. The
Series C Debentures have a fixed interest rate of 5.95% until June
27, 2013. Thereafter, the rate will be fixed quarterly at the
Canadian dollar CDOR 90-day Bankers' Acceptance rate plus 302 basis
points until maturity on June 27, 2018. On July 8, 2008, conventional
subordinated debentures in the amount of $30,000 were redeemed by the
Bank at face value.
10. Capital Stock and Share Incentive Plan
Capital Stock For the three months ended
-------------------------------------------------
July 31, 2008 July 31, 2007
---------------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
---------------------------------------------------------------------
Common Shares
Outstanding at
beginning of
period 63,234,450 $ 220,634 62,295,058 $ 216,579
Issued on
exercise or
exchange of
options 107,499 186 253,862 721
Transferred from
contributed
surplus on
exercise or
exchange of
options - 283 - 289
---------------------------------------------------------------------
Outstanding at
end of period 63,341,949 $ 221,103 62,548,920 $ 217,589
---------------------------------------------------------------------
For the nine months ended
-------------------------------------------------
July 31, 2008 July 31, 2007
---------------------------------------------------------------------
Number of Number of
Shares Amount Shares Amount
---------------------------------------------------------------------
Common Shares
Outstanding at
beginning of
period 62,836,189 $ 219,004 61,936,260 $ 215,349
Issued on
exercise or
exchange of
options 505,760 1,086 612,660 1,525
Transferred from
contributed
surplus on
exercise or
exchange of
options - 1,013 - 715
---------------------------------------------------------------------
Outstanding at
end of period 63,341,949 $ 221,103 62,548,920 $ 217,589
---------------------------------------------------------------------
Employee Stock
Options For the three months ended
-------------------------------------------------
July 31, 2008 July 31, 2007
---------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
---------------------------------------------------------------------
Options
Balance at
beginning of
period 4,941,242 $ 19.50 5,277,000 $ 15.20
Granted 614,900 26.10 365,400 26.38
Exercised or
exchanged (156,450) 8.89 (307,250) 7.15
Forfeited (39,850) 25.08 (30,000) 20.45
---------------------------------------------------------------------
Balance at end
of period 5,359,842 $ 20.53 5,305,150 $ 16.41
---------------------------------------------------------------------
For the nine months ended
-------------------------------------------------
July 31, 2008 July 31, 2007
---------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Options Price Options Price
---------------------------------------------------------------------
Options
Balance at
beginning of
period 4,911,277 $ 16.96 5,030,040 $ 13.07
Granted 1,216,242 28.57 1,108,500 25.46
Exercised or
exchanged (685,977) 8.90 (755,390) 7.09
Forfeited (81,700) 23.73 (78,000) 20.25
---------------------------------------------------------------------
Balance at end
of period 5,359,842 $ 20.53 5,305,150 $ 16.41
---------------------------------------------------------------------
Exercisable at
end of period 1,263,100 $ 10.68 1,133,550 $ 8.49
---------------------------------------------------------------------
The terms of the share incentive plan allow the holders of vested
options a cashless settlement alternative whereby the option holder
can either (a) elect to receive shares by delivering cash to the Bank
in the amount of the option exercise price or (b) elect to receive
the number of shares equivalent to the excess of the market value of
the shares under option over the exercise price. Of the 685,977
options (2007 - 755,390) exercised or exchanged in the nine months
ended July 31, 2008, option holders exchanged the rights to 558,527
options (2007 - 532,940) and received 378,310 shares (2007 - 389,708)
in return under the cashless settlement alternative.
In the nine months ended July 31, 2008, salary expense of $4,241
(2007 - ($3,464) was recognized relating to the estimated fair value
of options granted since November 1, 2002. The fair value of options
granted was estimated using a binomial option pricing model with the
following variables and assumptions: (i) risk-free interest rate of
3.8% (2007 - 4.2%), (ii) expected option life of 4.0 years (2007 -
4.0 years), (iii) expected volatility of 23% (2007 - 19%), and (iv)
expected dividends of 1.3% (2007 - 1.3%). The weighted average fair
value of options granted was estimated at $5.88 (2007 - $4.94) per
share.
11. Contingent Liabilities and Commitments
Significant contingent liabilities and commitments, including
guarantees provided to third parties, are discussed in Note 19 of the
Bank's audited consolidated financial statements for the year ended
October 31, 2007 (see pages 74 to 75 of the 2007 Annual Report) and
include:
As at As at As at
July 31 April 30 July 31
2008 2008 2007
---------------------------------------------------------------------
Guarantees and standby
letters of credit
Balance outstanding $ 235,369 $ 231,837 $ 190,550
Business credit cards
Total approved limit 11,261 11,169 8,709
Balance outstanding 2,748 2,326 1,995
---------------------------------------------------------------------
In the ordinary course of business, the Bank and its subsidiaries are
party to legal proceedings. Based on current knowledge, management
does not expect the outcome of any of these proceedings to have a
material effect on the consolidated financial position or results of
operations.
12. Trust Assets Under Administration
Trust assets under administration represent assets held for personal
and corporate trust clients, administered by subsidiaries, and are
kept separate from the subsidiaries' own assets. Trust assets under
administration are not reflected in the consolidated balance sheet
and relate to the banking and trust segment.
As at As at As at
July 31 April 30 July 31
2008 2008 2007
---------------------------------------------------------------------
Trust assets under
administration $ 4,498,545 $ 4,498,560 $ 4,049,310
---------------------------------------------------------------------
13. Financial Instruments
As a financial institution, most of the Bank'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 instrument assets include cash resources, securities,
securities purchased under resale agreements, loans and derivative
financial instruments. Financial instrument liabilities include
deposits, securities purchased under reverse resale agreements,
derivative financial instruments and subordinated debentures.
The use of financial instruments exposes the Bank to credit,
liquidity and market risk. A discussion of how these and other risks
are managed can be found in the Risk Management section of the 2007
Annual Report beginning on page 51. The value of financial assets
recorded on the balance sheet at July 31, 2008 at fair value (cash,
securities, securities purchased under resale agreements and
derivatives) was determined using published market prices quoted in
active markets for 97% of the portfolio and estimated using a
valuation technique based on observable market data for 3% of the
portfolio. The value of liabilities recorded on the consolidated
balance sheet at fair value (derivatives) was determined for the
entire portfolio using a valuation technique based on observable
market data. 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 Critical Accounting
Estimates section of the 2007 Annual Report beginning on page 49 as
well as Note 27 of the October 31, 2007 audited financial statements
beginning on page 80 in the 2007 Annual Report.
Income and expenses are classified as to source, either securities or
loans for income, and deposits or subordinated debentures for
expense. Gains on the sale of securities, net, are shown separately
in other income.
14. Interest Rate Sensitivity
The Bank's exposure to interest rate risk as a result of a difference
or gap between the maturity or repricing behavior of interest
sensitive assets and liabilities, including derivative financial
instruments, is discussed in Note 26 of the audited consolidated
financial statements for the year ended October 31, 2007 (see page 78
of the 2007 Annual Report). The following table shows the gap
position for selected time intervals.
Asset Liability Gap Positions
Floating
Rate
and Total
Within 1 to 3 3 Months Within
($ millions) 1 Month Months to 1 Year 1 Year
---------------------------------------------------------------------
July 31, 2008
Assets
Cash resources and
securities $ 155 $ 152 $ 330 $ 637
Loans 4,540 449 747 5,736
Other assets - - - -
Derivative financial
instruments(1) 15 30 230 275
---------------------------------------------------------------------
Total 4,710 631 1,307 6,648
---------------------------------------------------------------------
Liabilities and Equity
Deposits 3,783 825 1,573 6,181
Other liabilities 3 6 25 34
Debentures - 35 - 35
Shareholders' equity - - - -
Derivative financial
instruments(1) 667 - - 667
---------------------------------------------------------------------
Total $ 4,453 $ 866 $ 1,598 $ 6,917
---------------------------------------------------------------------
Interest Rate Sensitive
Gap $ 257 $ (235) $ (291) $ (269)
---------------------------------------------------------------------
Cumulative Gap $ 257 $ 22 $ (269) $ (269)
---------------------------------------------------------------------
Cumulative Gap as a
percentage of total
assets 2.4% 0.2% (2.5)% (2.5)%
---------------------------------------------------------------------
April 30, 2008
Assets $ 4,857 $ 803 $ 1,255 $ 6,915
Liabilities and equity 4,481 745 1,590 6,816
---------------------------------------------------------------------
Interest rate sensitive
gap $ 376 $ 58 $ (335) $ 99
---------------------------------------------------------------------
Cumulative gap $ 376 $ 434 $ 99 $ 99
---------------------------------------------------------------------
Cumulative gap as a
percentage of total
assets 3.5% 4.0% 0.9% 0.9%
---------------------------------------------------------------------
July 31, 2007
Cumulative gap $ (43) $ (1) $ 133 $ 133
---------------------------------------------------------------------
Cumulative gap as a
percentage of total assets (0.0)% (0.0)% 1.4% 1.4%
---------------------------------------------------------------------
1 Year More Non-
to than interest
5 Years 5 Years Sensitive Total
---------------------------------------------------------------------
July 31, 2008
Assets
Cash resources and
securities $ 976 $ 70 $ 33 $ 1,716
Loans 2,431 79 (68) 8,178
Other assets - - 163 163
Derivative financial
instruments(1) 392 - - 667
---------------------------------------------------------------------
Total 3,799 149 128 10,724
---------------------------------------------------------------------
Liabilities and Equity
Deposits 2,411 105 (11) 8,686
Other liabilities 33 9 222 298
Debentures 300 75 - 410
Shareholders' equity - - 663 663
Derivative financial
instruments(1) - - - 667
---------------------------------------------------------------------
Total $ 2,744 $ 189 $ 874 $ 10,724
---------------------------------------------------------------------
Interest Rate Sensitive
Gap $ 1,055 $ (40) $ (746) $ -
---------------------------------------------------------------------
Cumulative Gap $ 786 $ 746 $ - $ -
---------------------------------------------------------------------
Cumulative Gap as a
percentage of total
assets 7.3% 7.0% -% -%
---------------------------------------------------------------------
April 30, 2008
Assets $ 3,586 $ 102 $ 132 $ 10,735
Liabilities and equity 2,871 189 859 10,735
---------------------------------------------------------------------
Interest rate sensitive
gap $ 715 $ (87) $ (727) $ -
---------------------------------------------------------------------
Cumulative gap $ 814 $ 727 $ - $ -
---------------------------------------------------------------------
Cumulative gap as a
percentage of total
assets 7.6% 6.8% -% -%
---------------------------------------------------------------------
July 31, 2007
Cumulative gap $ 662 $ 654 $ - $ -
---------------------------------------------------------------------
Cumulative gap as a
percentage of total assets 6.9% 6.8% -% -%
---------------------------------------------------------------------
(1) Derivative financial instruments are included in this table
at the notional amount.
(2) Accrued interest is excluded in calculating interest sensitive
assets and liabilities.
(3) 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.
The effective, weighted average interest rates for each class of
financial assets and liability are shown below:
July 31, 2008
---------------------------------------------------------------------
Floating 3
Rate and Months Total 1 Year More
Within 1 to 3 to Within to than
1 Month Months 1 Year 1 Year 5 Years 5 Years Total
---------------------------------------------------------------------
Total assets 5.4% 4.3% 5.3% 5.3% 5.4% 6.1% 5.3%
Total
liabilities 2.6 3.8 4.1 3.1 4.2 5.7 3.4
---------------------------------------------------------------------
Interest rate
sensitive gap 2.8% 0.5% 1.2% 2.2% 1.2% 0.4% 1.9%
---------------------------------------------------------------------
April 30, 2008
---------------------------------------------------------------------
Total assets 5.4% 4.6% 5.3% 5.3% 5.6% 5.3% 5.4%
Total
liabilities 2.8 3.9 4.1 3.2 4.3 5.8 3.6
---------------------------------------------------------------------
Interest rate
sensitive gap 2.6% 0.7% 1.2% 2.1% 1.3% (0.5)% 1.8%
---------------------------------------------------------------------
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 0.7% (April 30, 2008 - 2.3%)
over the following twelve months. A one-percentage point decrease in
all interest rates would decrease net interest income by a similar
amount.
15. Segmented Information
The Bank operates principally in two industry segments - banking and
trust, and insurance. These two segments differ in products and
services but are both within the same geographic region. The banking
and trust segment provides services to personal clients and small to
medium-sized commercial business clients primarily in Western Canada.
The insurance segment provides home and auto insurance to individuals
in British Columbia and Alberta.
Banking and Trust Insurance
---------------------------------------------------------
Three months ended Three months ended
---------------------------------------------------------
July 31 April 30 July 31 July 31 April 30 July 31
2008 2008 2007 2008 2008 2007
---------------------------------------------------------------------
Net interest
income
(teb)(1) $ 55,877 $ 54,325 $ 53,533 $ 1,413 $ 1,334 $ 1,355
Less teb
adjustment 1,326 1,252 1,324 116 100 99
---------------------------------------------------------------------
Net interest
income per
financial
statements 54,551 53,073 52,209 1,297 1,234 1,256
Other
income(2) 14,415 13,948 11,685 4,670 4,147 4,092
---------------------------------------------------------------------
Total
revenues 68,966 67,021 63,894 5,967 5,381 5,348
Provision
for credit
losses 3,038 2,962 2,550 - - -
Non-interest
expenses 32,124 31,207 28,688 2,406 2,246 2,139
Provision
for income
taxes 9,980 9,779 10,840 1,058 906 992
---------------------------------------------------------------------
Net income $ 23,824 $ 23,073 $ 21,816 $ 2,503 $ 2,229 $ 2,217
---------------------------------------------------------------------
Total
average
assets
($ mill-
ions)(3) $ 9,927 $ 9,730 $ 8,227 $ 185 $ 180 $ 166
---------------------------------------------------------------------
Total
----------------------------
Three months ended
----------------------------
July 31 April 30 July 31
2008 2008 2007
---------------------------------------------------------------------
Net interest income (teb)(1) $57,290 $ 55,659 $ 54,888
Less teb adjustment 1,442 1,352 1,423
---------------------------------------------------------------------
Net interest income per financial
statements 55,848 54,307 53,465
Other income 19,085 18,095 15,777
---------------------------------------------------------------------
Total revenues 74,933 72,402 69,242
Provision for credit losses 3,038 2,962 2,550
Non-interest expenses 34,530 33,453 30,827
Provision for income taxes 11,038 10,685 11,832
---------------------------------------------------------------------
Net income $26,327 $ 25,302 $ 24,033
---------------------------------------------------------------------
Total average assets ($ millions)(3) $10,112 $ 9,910 $ 8,393
---------------------------------------------------------------------
Banking and Trust Insurance Total
---------------------------------------------------------------------
Nine months ended Nine months ended Nine months ended
---------------------------------------------------------------------
July 31 July 31 July 31 July 31 July 31 July 31
2008 2007 2008 2007 2008 2007
---------------------------------------------------------------------
Net interest
income
(teb)(1) $165,844 $151,204 $ 4,151 $ 3,460 $169,995 $154,664
Less teb
adjustment 3,816 3,640 315 274 4,131 3,914
---------------------------------------------------------------------
Net interest
income per
financial
statements 162,028 147,564 3,836 3,186 165,864 150,750
Other
income(2) 42,758 34,054 12,045 10,403 54,803 44,457
---------------------------------------------------------------------
Total
revenues 204,786 181,618 15,881 13,589 220,667 195,207
Provision
for credit
losses 8,813 7,650 - - 8,813 7,650
Non-interest
expenses 92,835 82,995 6,972 6,177 99,807 89,172
Provision
for income
taxes 31,801 29,413 2,712 2,262 34,513 31,675
---------------------------------------------------------------------
Net income $ 71,337 $ 61,560 $ 6,197 $ 5,150 $ 77,534 $ 66,710
---------------------------------------------------------------------
Total
average
assets
($ mill-
ions)(3) $ 9,695 $ 7,700 $ 181 $ 161 $ 9,876 $ 7,861
---------------------------------------------------------------------
(1) Taxable Equivalent Basis (teb) - Most financial institutions
analyse revenue on a taxable equivalent basis to permit uniform
measurement and comparison of net interest income. Net interest
income (as presented in the consolidated statement of income)
includes tax-exempt income on certain securities. Since this
income is not taxable, the rate of interest or dividends received
is significantly lower than would apply to a loan or security of
the same amount. The adjustment to taxable equivalent basis
increases interest income and the provision for income taxes to
what they would have been had the tax-exempt securities been
taxed at the statutory rate. The taxable equivalent basis does
not have a standardized meaning prescribed by generally accepted
accounting principles and therefore may not be comparable to
similar measures presented by other financial institutions.
(2) Other income for the insurance segment is presented net of net
claims, adjustment expenses and policy acquisition expenses and
includes gains on sale of securities.
(3) Assets are disclosed on an average daily balance basis as this
measure is most relevant to a financial institution and is the
measure reviewed by management.
16. Capital Management
Effective November 1, 2007, OSFI adopted a new capital management
framework called Basel II for Canadian financial institutions and
capital is now managed and reported in accordance with those
requirements. Basel II introduced some significant changes to the
risk-weighting of assets and calculation of regulatory capital. The
Bank has implemented the standardized approach to calculating risk-
weighted assets for both credit and operational risk. Changes for the
Bank under Basel II include a reclassification into lower risk-weight
categories for residential mortgages and loans to small-to-medium
sized enterprises and a new capital requirement related to
operational risk.
Basel II has not had a significant impact on the Bank's overall
required level of regulatory capital as compared to OSFI's previous
methodology. New procedures and system enhancements have been
developed to conform to the new framework including the formalization
of CWB's internal capital adequacy assessment process.
Under the Basel II standardized approach to credit risk and OSFI's
previous framework, banks are required 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 weighting of
0% to 150% under Basel II (0% to 100% under the previous framework)
is assigned. 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-weight calculations are prescribed by OSFI.
As Canadian Direct Insurance Incorporated (CDI) is subject to
separate OSFI capital requirements specific to insurance companies,
the Bank's investment in CDI is deducted from capital and CDI's
assets are excluded from the calculation of risk-weighted assets.
Regulatory guidelines require banks to maintain a minimum ratio of
capital to risk-weighted assets and off-balance sheet items of 8%, of
which 4% must be core capital (Tier 1) and the remainder
supplementary capital (Tier 2). However, OSFI has established that
Canadian banks need to maintain a minimum total capital adequacy
ratio of 10% with a Tier 1 ratio of not less than 7%. CWB's Tier 1
capital is primarily comprised of common shareholders' equity and
innovative capital (to a maximum of 15% of net Tier 1 capital) while
Tier 2 capital includes subordinated debentures (to a maximum amount
of 50% of net Tier 1 capital) and the inclusion of the general
allowance for credit losses to a maximum of 125 basis points of
risk-weighted assets (87.5 basis points under the previous
framework).
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.
Additional information about the Bank's capital management practices
is provided in the 2007 Annual Report beginning on page 41.
Capital Structure and Regulatory Ratios(1)
As at As at As at
July 31 April 30 July 31
2008 2008 2007
---------------------------------------------------------------------
Capital
Tier 1 $ 760,597 $ 739,724 $ 669,961
Total 1,149,434 1,117,667 1,014,743
---------------------------------------------------------------------
Capital ratios
Tier 1 9.2% 9.3% 9.0%
Total 14.0 14.0 13.6
Assets to capital multiple 8.8x 9.1x 8.8x
---------------------------------------------------------------------
(1) Regulatory capital and capital ratios are calculated in
accordance with the requirements of OSFI. As described above, as
of November 1, 2007, OSFI changed the framework and capital is
now managed and reported in accordance with the requirements of
Basel II. Prior year figures have been calculated using the
previous framework.
During the quarter and for the nine months ended July 31, 2008, the
Bank complied with all internal and external capital requirements.
17. Comparative Figures
Certain comparative figures have been reclassified to conform to the
current period's presentation.
18. Future Accounting Changes
International Financial Reporting Standards
The CICA will transition Canadian GAAP for publicly accountable
entities to International Financial Reporting Standards (IFRS). The
Bank's consolidated financial statements will be prepared in
accordance with IFRS for the fiscal year commencing November 1, 2011.
The impact of the transition to IFRS on the Bank's consolidated
financial statements is not yet determinable.
Head Office Transfer Agent and Registrar
Canadian Western Bank & Trust Valiant Trust Company
Suite 2300, Canadian Western Suite 310, 606 - 4th Street S.W.
Bank Place Calgary, AB T2P 1T1
10303 Jasper Avenue Telephone: (403) 233-2801
Edmonton, AB T5J 3X6 Fax: (403) 233-2857
Telephone: (780) 423-8888 Website: www.valianttrust.com
Fax: (780) 423-8897 E-mail: inquiries@valianttrust.com
Website: www.cwbankgroup.com
Dividends
Subsidiary Offices
Cash dividends paid to Canadian
Canadian Western Trust Company residents are "eligible dividends"
Suite 600, 750 Cambie Street as defined in the Income Tax Act.
Vancouver, BC V6B 0A2
Toll-free: 1-800-663-1124
Fax: (604) 669-6069 Investor Relations
Website: www.cwt.ca
For further financial information
Canadian Direct Insurance contact:
Incorporated Kirby Hill, CFA
Suite 600, 750 Cambie Street Assistant Vice President, Investor and
Vancouver, BC V6B 0A2 Public Relations
Telephone: (604) 699-3678 Canadian Western Bank
Fax: (604) 699-3851 Telephone: (780) 441-3770
Website: www.canadiandirect.com Toll-free: 1-800-836-1886
Fax: (780) 423-8899
Valiant Trust Company E-mail:
Suite 310, 606 - 4th Street S.W. InvestorRelations@cwbankgroup.com
Calgary, AB T2P 1T1
Toll-free: 1-866-313-1872 Online Investor Information
Fax: (403) 233-2857
Website: www.valianttrust.com Additional investor information
including supplemental financial
Stock Exchange Listing information and a corporate
presentation is available on CWB's
The Toronto Stock Exchange website at www.cwbankgroup.com.
Share Symbol: CWB
Quarterly Conference Call and Webcast
CWB's quarterly conference call and
live audio webcast will take place on
September 4, 2008 at 3:30 p.m. ET. The
webcast will be archived on the Bank's
website at www.cwbankgroup.com for
sixty days. A replay of the conference
call will be available until September
18, 2008 by dialing (416) 640-1917 or
toll free (877) 289-8525 and entering
passcode 21260804, followed by the
pound sign.
For further information: Larry M. Pollock, President and Chief Executive
Officer, Canadian Western Bank, Phone: (780) 423-8888; Kirby Hill, CFA,
Assistant Vice President, Investor and Public Relations, Canadian Western
Bank, Phone: (780) 441-3770, E-mail: kirby.hill@cwbank.com
RSS
Partager
Version imprimable
Abonnez-vous à Sentinelle CNW
