CWB reports first quarter 2020 financial and strategic performance

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

Adjusted cash EPS	Total revenue	Loans	Branch-raised deposits	Common share dividend declared^(2)
$0.83 Up 4%	$220 million Up 4%	$28.7 billion Up 7% in total; 11% in general commercial; 8% in Ontario	$14.6 billion Up 18%	$0.29 Two cent increase from last year; one cent increase from last quarter

^(1)	Includes certain non-IFRS measures – refer to definitions provided on page 4 of this news release, with further detail provided on page 6 of the 2020 First Quarter Report to Shareholders.
^(2)	Declared by our Board of Directors on February 26, 2020.

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

EDMONTON, Feb. 27, 2020 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced our first quarter financial performance and continued strategic execution to enhance our differentiated full-service client experience. Our goal through these business transformation activities is to accelerate our growth to leverage our upcoming transition to the Advanced Internal Ratings Based (AIRB) approach for regulatory capital and risk management. Our AIRB project has moved into the final stages before submission of our application, with regulatory approval expected prior to our fiscal year end.

Financial Performance

"We delivered strong first quarter financial performance, increased funding diversification, and continued strategic execution," said Chris Fowler, President and CEO. "Our focus on further enhancements to our client experience generated robust growth in branch-raised deposits that resulted in a continued reduction in broker deposits. We also generated very strong new lending in our strategically targeted general commercial portfolio. Our expected and actual credit losses remain low despite two loan connections that made up the bulk of our new impaired loan formations this quarter. The first quarter has provided strong momentum for the balance of fiscal 2020. We remain on track to make the necessary investments to accomplish our planned strategic objectives and deliver strong financial performance through the balance of the year and beyond."

Q1 2020, compared to Q1 2019^(1)	Common shareholders' net income of $72 million	Up 8%
	Adjusted cash EPS of $0.83	Up 4%
	Adjusted ROE of 11.3%	Down 60 bp^(2)
	Operating leverage of negative 2.6%	Down 300 bp

^(1)	Includes certain non-IFRS measures – refer to definitions provided on page 4 of this news release, with further detail provided on page 6 of the 2020 First Quarter Report to Shareholders.
^(2)	bp – basis point

Growth in common shareholders' net income was supported by an increase in total revenue driven by strong loan growth. Robust growth in branch-raised deposits supported a further reduction in broker deposits. Growth in non-interest expenses has temporarily outpaced revenue growth, reflecting investments to support continued execution of our targeted business transformation activities. Our 18 basis point provision for credit losses on total loans as a percentage of average loans was six basis points below last year and at the low end of our historical range. Acquisition-related fair value changes were nil and $5 million lower due to last year's completion of the earn-out period related to the successful and accretive acquisition of CWB Maxium Financial. Adjusted cash earnings per common share, which excludes acquisition-related fair value changes, was up 4%.

Q1 2020, compared to Q4 2019^(1)	Common shareholders' net income of $72 million	Up 7%
	Adjusted cash EPS of $0.83	Up 6%
	Adjusted ROE of 11.3%	Up 60 bp^(2)
	Operating leverage of negative 2.6%	Improved 80 bp

^(1)	Includes certain non-IFRS measures – refer to definitions provided on page 4 of this news release, with further detail provided on page 6 of the 2020 First Quarter Report to Shareholders.
^(2)	bp – basis point

Compared to the prior quarter, total revenue was relatively unchanged. Loan growth of 1% was driven by strong funding volumes, mostly offset by a larger volume of paydowns. In line with our strategy, we delivered robust branch-raised deposit growth, including 8% sequential growth of notice and demand deposits and a continued reduction in higher cost broker deposits. Our provision for credit losses on total loans as a percentage of average loans improved one basis point sequentially while non-interest expenses were down 6%, largely reflecting normal seasonal patterns in our expenditures.

Strategic Performance

Focused business transformation and investments in digital capabilities will enhance our differentiated full-service client experience. This quarter, we:

• moved into the final stages before submission of our AIRB application, with regulatory approval expected within fiscal 2020;
  
  
• partnered with Temenos, our existing core banking system provider and an industry leader in the digital banking space, to accelerate our strategy to improve our client experience and fuel more efficient and higher levels of client growth. Our focus this year includes digital onboarding for personal banking clients in Motive Financial, followed by our remaining digital and branch channels; and,
  
  
• remain on track to open our first full-service branch in Mississauga, Ontario in the spring to support and expand our growing footprint in the province.

"Our 2020 initiatives will elevate our growth, culture, and client service to the next level," said Chris Fowler. "We took a significant step to enhance our digital capabilities through our agreement with Temenos to replace our current online banking platform with seamless end-to-end digital banking experiences for the owners of small- and medium-sized businesses. Combined with previous process improvements and credit centralization initiatives, our digital strategy will free up capacity to focus on growing and serving our customers. We remain confident that our ongoing transformation and digital investments will boost our capabilities to deliver on CWB's reputation for proactive, personalized service in a highly scalable manner, and accelerate customer growth to leverage our upcoming transition to AIRB." 

About CWB Financial Group

CWB Financial Group is a diversified financial services organization known for a highly proactive client experience serving businesses and individuals across Canada. Operating from headquarters in Edmonton, Alberta, CWB's key business lines include full service business and personal banking offered through branch locations of Canadian Western Bank and Internet banking services provided by Motive Financial. Highly responsive nation-wide specialized financing is delivered under the banners of CWB Optimum Mortgage, CWB Equipment Financing, CWB National Leasing, CWB Maxium Financial and CWB Franchise Finance. Trust services are offered through CWB Trust Services. Comprehensive wealth management offerings are provided through CWB Wealth Management, which includes the businesses of CWB McLean & Partners Wealth Management and Canadian Western Financial. As a public company on the Toronto Stock Exchange (TSX), CWB trades under the symbols "CWB" (common shares), "CWB.PR.B" (Series 5 preferred shares), "CWB.PR.C" (Series 7 preferred shares) and "CWB.PR.D" (Series 9 preferred shares). Learn more at www.cwb.com.

Fiscal 2020 First Quarter Results Conference Call

 

CWB's first quarter results conference call is scheduled for Thursday, February 27, 2020, at 10:00 a.m. ET (8:00 a.m.
MT). CWB's executives will comment on financial results and respond to questions from analysts.

 

The conference call may be accessed on a listen-only basis by dialing [phone] (Toronto) or [phone] (toll
free) and entering passcode: 73100240. The call will also be webcast live on CWB's website:

 

www.cwb.com/investor-relations/quarterly-reports.

 

A replay of the conference call will be available until March 5, 2020, by dialing [phone] (Toronto) or
[phone] (toll-free) and entering passcode 100240#.

Forward-looking Statements

From time to time, we make written and verbal forward-looking statements. Statements of this type are included in our Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as press releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about our objectives and strategies, targeted and expected financial results and the outlook for CWB's businesses or for the Canadian economy. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate", "may increase", "may impact", "goal", "focus", "potential", "proposed" and other similar expressions, or future or conditional verbs such as "will", "should", "would" and "could".

By their very nature, forward-looking statements involve numerous assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that our predictions, forecasts, projections, expectations and conclusions will not prove to be accurate, that our assumptions may not be correct and that our strategic goals will not be achieved.

A variety of factors, many of which are beyond our control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada, including housing market conditions, the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, material changes to trade agreements, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, changes in accounting standards and policies, information technology and cyber risk, the accuracy and completeness of information we receive about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and our ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors.

Additional information about these factors can be found in the Risk Management section of our annual Management's Discussion and Analysis (MD&A). These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. Unless required by securities law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by us or on our behalf.

Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect our businesses are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, we consider our own forecasts, economic data and forecasts provided by the Canadian government and its agencies, as well as certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific. Where relevant, material economic assumptions underlying forward-looking statements are disclosed within the Outlook sections of our interim and/or annual MD&A.

Non-IFRS Measures

We use a number of financial measures to assess our performance against strategic initiatives and operational benchmarks. Non-IFRS measures provide readers with an enhanced understanding of how we view our ongoing performance. These measures may also provide the ability to analyze trends related to profitability and the effectiveness of our operations and strategies, and determine compliance against regulatory standards. To arrive at certain non-IFRS measures, we make adjustments to the results prepared in accordance with IFRS. Adjustments relate to items which we believe are not indicative of underlying operating performance. Some of these financial measures do not have standardized meanings prescribed by IFRS, and therefore, may not be comparable to similar measures presented by other financial institutions. The non-IFRS measures used in this news release are calculated as follows:

• Adjusted non-interest expenses – total non-interest expenses, excluding the pre-tax amortization of acquisition-related intangible assets (see calculation on page 6 of the 2020 First Quarter Report to Shareholders).
• Adjusted common shareholders' net income – total common shareholders' net income, excluding the amortization of acquisition-related intangible assets and acquisition-related fair value changes, net of tax (see calculation on page 6 of the 2020 First Quarter Report to Shareholders).
• Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses (see calculation on page 6 of the 2020 First Quarter Report to Shareholders).
• Adjusted cash earnings per common share – diluted earnings per common share calculated with adjusted common shareholders' net income.
• Return on common shareholders' equity – annualized common shareholders' net income divided by average common shareholders' equity.
• Adjusted return on common shareholders' equity – annualized adjusted common shareholders' net income divided by average common shareholders' equity.
• Return on assets – annualized common shareholders' net income divided by average total assets.
• Efficiency ratio – adjusted non-interest expenses divided by total revenue.
• Net interest margin – annualized net interest income divided by average total assets.
• Provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at fair value through other comprehensive income (FVOCI) and other financial assets are excluded.
• Provision for credit losses on impaired loans as a percentage of average loans – annualized provision for credit losses on impaired loans divided by average total loans.
• Provision for credit losses on performing loans as a percentage of average loans – annualized provision for credit losses on performing loans (Stage 1 and 2) divided by average total loans.
• Operating leverage – growth rate of total revenue less growth rate of adjusted non-interest expenses.
• Common share dividend payout ratio – common share dividends declared during the past twelve months divided by common shareholders' net income earned over the same period.
• Basel III common equity Tier 1, Tier 1, Total capital, and leverage ratios – calculated in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI);
• Risk-weighted assets – on and off-balance sheet assets assigned a risk weighting calculated in accordance with the Standardized approach guidelines issued by OSFI.
• Average balances – average daily balances.

	For the three months ended									Change from
(unaudited)		January 31			October 31			January 31		January 31
($ thousands, except per share amounts)		2020^(2)			2019			2019		2019
Results from Operations
Net interest income	$	201,010		$	201,439		$	193,342		4	%
Non-interest income		18,962			19,414			19,097		(1)
Total revenue		219,972			220,853			212,439		4
Pre-tax, pre-provision income		119,788			114,390			118,073		1
Common shareholders' net income		71,943			67,512			66,499		8
Earnings per common share
Basic		0.82			0.77			0.75		9
Diluted		0.82			0.77			0.75		9
Adjusted cash		0.83			0.78			0.80		4
Return on common shareholders' equity		11.2	%		10.6	%		11.1	%	10	bp^(4)
Adjusted return on common shareholders' equity		11.3			10.7			11.9		(60)
Return on assets		0.91			0.86			0.90		1
Net interest margin		2.54			2.55			2.61		(7)
Efficiency ratio		45.5			48.2			44.4		110
Operating leverage		(2.6)			(3.4)			0.4		(300)
Provision for credit losses on total loans as a
percentage of average loans^(3)		0.18			0.19			0.24		(6)
Provision for credit losses on impaired
loans as a percentage of average loans^(3)		0.15			0.18			0.22		(7)
Number of full-time equivalent staff		2,289			2,278			2,200		4	%
Per Common Share
Cash dividends	$	0.28		$	0.28		$	0.26		8	%
Book value		29.81			29.29			27.39		9
Closing market value		32.72			33.35			29.42		11
Common shares outstanding (thousands)		87,273			87,250			87,210		-
Balance Sheet and Off-Balance Sheet Summary
Assets	$	31,571,598		$	31,424,235		$	29,348,618		8
Loans		28,653,132			28,365,893			26,780,617		7
Deposits		25,640,876			25,351,361			23,910,243		7
Debt		2,243,891			2,412,293			2,037,066		10
Shareholders' equity		2,991,732			2,945,810			2,778,408		8
Assets under administration		10,013,678			9,298,745			8,357,142		20
Assets under management		2,152,255			2,099,569			2,136,700		1
Capital Adequacy
Common equity Tier 1 ratio		9.1	%		9.1	%		9.1	%	-	bp^(4)
Tier 1 ratio		10.6			10.7			10.7		(10)
Total ratio		11.9			12.8			12.0		(10)

^(1)	Includes certain non-IFRS measures – refer to definitions provided on page 4 of this news release, with further detail provided on page 6 of the 2020 First Quarter Report to Shareholders.
^(2)	Results for periods beginning on November 1, 2019 have been prepared in accordance with IFRS 16 Leases (IFRS 16) (refer to Note 2 of the interim consolidated financial statements). Prior year comparatives have been prepared in accordance with IAS 17 Leases (IAS 17) and have not been restated.
^(3)	Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.
^(4)	bp – basis point

SOURCE CWB Financial Group

Chris Williams, MBA, AVP, Investor Relations, Phone: [phone], Email: [email protected]