CWB reports second quarter 2023 performance

This news release and accompanying financial highlights are supplementary to CWB's 2023 Second Quarter Report to Shareholders and 2022 Annual Report and should be read in conjunction with those documents.

EDMONTON, AB, May 26, 2023 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) announced financial performance for the three and six months ended April 30, 2023. Quarterly common shareholders' net income of $70 million was down 26% and adjusted earnings per share (EPS)⁽¹⁾ of $0.74 was down 27% from last quarter, primarily reflecting a 21 basis point increase in the provision for credit losses as a percentage of average loans⁽¹⁾, the impact of three fewer interest-earning days and a six basis point decrease in net interest margin⁽¹⁾. The prior quarter results reflected the reversal of a previously recognized impaired loan write-off, which drove a net recovery of credit losses and the recognition of additional interest income that provided a three basis point increase to net interest margin. The provision for credit losses of 12 basis points this quarter remained below our five-year historical average, and reflected continued strong credit performance.

Our Board of Directors declared a cash dividend of $0.33 per common share, up one cent, or 3%, from the dividend declared last quarter and up two cents, or 6%, from last year.

"The strength and stability of our organization enabled us to navigate the significant volatility in the global banking industry this quarter. Subsequent to the emergence of these events, we grew branch-raised deposits⁽¹⁾, continued to maintain prudent levels of liquidity, and increased our regulatory capital ratios with no use of the at-the-market (ATM) program this quarter," said Chris Fowler, President and CEO. "We drove solid loan growth across our national footprint, with especially strong growth in Ontario and general commercial loans, and delivered another quarter of low credit losses."

"Based on our assessment of market pricing relative to risk and considering the expected volatility in economic conditions, we have targeted lower annual loan growth than previously expected. We are well positioned to capitalize on opportunities to accelerate new client growth when conditions improve, as we have in past periods of economic volatility. While we do not expect to achieve our annual pre-tax, pre-provision income⁽¹⁾ and efficiency ratio⁽¹⁾ targets for this year, we are adjusting our expense trajectory to align to the lower loan growth outlook and deliver an annual adjusted return on equity⁽¹⁾ in line with our 2023 target."

"We continue to earn national recognition for our commitment to a people first culture and are very proud that for the second consecutive year CWB placed within the top 25 on this year's Best Workplaces™ in Canada. We thank our teams for their continued dedication and focus to make CWB the best bank for business owners in Canada."

^(1)	Adjusted EPS, the provision for credit losses on total loans as a percentage of average loans, net interest margin, branch-raised deposits, pre-tax, pre-provision income, efficiency ratio and adjusted return on equity are non-GAAP measures. Refer to definitions and detail provided on page 6.

Financial Performance

Q2 2023, compared to Q1 2023	Common shareholders' net income	$70 million	Down 26%
	Diluted EPS Adjusted EPS	$0.73 $0.74	Down 26% Down 27%
	Adjusted Return on Equity (ROE)	8.9 %	Down 310 bp
	Efficiency ratio	55.3 %	Up 260 bp
bp – basis point

Compared to the prior quarter, lower common shareholders' net income was primarily driven by a 21 basis point increase in the total provision for credit losses as a percentage of average loans and a 3% decline in revenue. Pre-tax, pre-provision income⁽¹⁾ decreased 8%.

Lower revenue reflected a 5% decrease in net interest income, partially offset by an 11% increase in non-interest income. Higher non-interest income was primarily due to an increase in foreign exchange revenue recorded within 'other' non-interest income, reflective of a strengthening U.S. dollar in the quarter. Net interest income decreased compared to last quarter as 2% sequential loan growth was more than offset by three fewer interest-earning days and a six basis point decrease in net interest margin. Net interest margin was lower primarily due to a three basis point interest income recovery recorded in the prior quarter related to the reversal of a previously recognized impaired loan. The remaining decline in net interest margin was primarily due to lower loan related fees and strategic pricing adjustments to certain administered rate deposit products. As expected, the impact on net interest margin from higher fixed rate deposit costs continued to decline this quarter, and was offset by the benefit from repricing fixed rate loans at higher market interest rates.    

Non-interest expenses were well-contained and increased 1%, primarily driven by the seasonal increase in statutory employee benefits.

The provision for credit losses on total loans as a percentage of average loans represented 12 basis points this quarter and was 21 basis points higher than last quarter. The impaired loan provision of 12 basis points remained below our historical five-year average of 19 basis points, but increased 24 basis points from the net recovery of 12 basis point last quarter. The previous quarter impaired loan provision included the impact of the reversal of a previously recognized impaired loan write-off. A nil performing loan provision in the quarter was three basis points lower than last quarter.

We recognized a 20 basis point increase to our Common Equity Tier 1 (CET1) capital ratio this quarter, reflecting the adoption of the Capital Adequacy Requirements (CAR) 2023 guidelines effective February 1, 2023 and lower accumulated other comprehensive losses related to a reversal of previously recognized unrealized losses on our debt securities portfolio. No common shares were issued under the ATM equity distribution program this quarter.

Q2 2023, compared to Q2 2022	Common shareholders' net income	$70 million	Down 6%
	Diluted EPS Adjusted EPS	$0.73 $0.74	Down 11% Down 12%
	Adjusted ROE	8.9 %	Down 140 bp
	Efficiency ratio	55.3 %	Up 160 bp
bp – basis point

Common shareholders' net income decreased compared to the same quarter last year as a 2% increase in revenue was more than offset by a 5% increase in non-interest expenses. Pre-tax, pre-provision income decreased 1%.   

Higher revenue reflected a 2% increase in net interest income and a 4% increase in non-interest income. The increase in net interest income was primarily due to the benefit of 9% annual loan growth, partially offset by a 16 basis point decrease in net interest margin. The decline in net interest margin reflects the impact of lower loan related fees, including payout penalties, a proportional shift in our funding mix towards fixed term branch-raised and insured broker deposits, and fixed rate asset yields that have lagged the growth of fixed rate deposit costs through the rising interest rate environment. Our fixed term deposit portfolio has repriced faster to reflect higher market interest rates than our fixed term loans, which have a longer average duration. Loan yields have also been slower to reflect the changes in market interest rates due to higher levels of competition for new lending. The decline in net interest margin was partially offset by the net positive impact of rising Bank of Canada policy interest rates on our floating rate loans and deposits.

Non-interest expenses were up 5% from the prior year, primarily driven by higher people costs related to the impact of salary increments in the prior year and a higher staffing complement, including in the Ontario market to support our continued expansion.

The provision for credit losses on total loans as a percentage of average loans was two basis points lower than the same quarter last year due to a decline in the provision for credit losses on impaired loans.

YTD 2023, compared to YTD 2022	Common shareholders' net income	$164 million	Up 2%
	Diluted EPS Adjusted EPS	$1.72 $1.76	Down 4% Down 4%
	Adjusted ROE	10.4 %	Down 70 bp
	Efficiency ratio	54.0 %	Up 300 bp
bp – basis point

Common shareholders' net income increased compared to last year as an 11 basis point decline in the total provision for credit losses and 2% growth in revenue more than offset higher non-interest expenses. Pre-tax, pre-provision income decreased 4%.   

Total revenue increased 2%, reflecting a 3% increase in net interest income, partially offset by a 2% decrease in non-interest income. Net interest income increased from the prior year as 9% annual loan growth was partially offset by a 15 basis point decrease in net interest margin.

Non-interest expenses were up 8%, driven by higher people costs due to the same factors as noted in the comparison to the same quarter last year and our continued investment in our digital capabilities.

The total provision for credit losses as a percentage of average loans of one basis point was 11 basis points lower than the prior year, due to a 14 basis point decrease in the impaired loan provision, partially offset by a three basis point increase in the performing loan provision. The lower impaired loan provision primarily reflects the reversal of a previously recognized impaired loan write-off recorded in the first quarter of this year.

Financial Targets

The financial targets outlined below reflect key financial objectives we expected to drive on the assumption of relatively stable economic conditions and under the Standardized approach for capital management.   

Annual Metrics	Performance Target
Pre-tax pre-provision income growth	Greater than 10%
Adjusted ROE	10-11% in 2023, 12% by 2024
Efficiency ratio	Less than 50%

Economic and financial market conditions have been volatile over the past quarter. As described further in the Outlook section of our 2023 Second Quarter Management Discussion and Analysis, based on our assessment of market pricing relative to risk and considering the expected volatility in economic conditions, we have targeted lower annual loan growth than previously expected. Given a lower outlook for loan growth, we no longer expect to achieve our annual pre-tax, pre-provision income and efficiency ratio performance targets for fiscal 2023. We continue to expect to deliver annual adjusted ROE in line with our 2023 performance target, supported by lower than expected credit losses and management of non-interest expenses reflecting our expectation of lower loan growth.

We will provide our 2024 outlook in our 2023 Annual Management Discussion and Analysis, reflecting the expected economic conditions at that time.

About CWB Financial Group

CWB Financial Group (CWB) is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our nation-wide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to the competition. Our people take the time to understand our clients and their business, and work as a united team to provide holistic solutions and advice.

As a public company on the Toronto Stock Exchange (TSX), CWB trades under the symbols "CWB" (common shares), "CWB.PR.B" (Series 5 preferred shares) and "CWB.PR.D" (Series 9 preferred shares). We are firmly committed to the responsible creation of value for all our stakeholders and our approach to sustainability will support our continued success. Learn more at www.cwb.com.

Fiscal 2023 Second Quarter Results Conference Call

CWB's second quarter results conference call is scheduled for Friday, May 26, 2023, at 10:00 a.m. ET (8:00 a.m. MT). CWB's executives will comment on financial results and respond to questions from analysts.

The conference call may be accessed on a listen-only basis by dialing [phone] (Toronto) or 1 [phone] (toll-free) and entering passcode: 07376453. 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 June 2, 2023 by dialing [phone] (Toronto) or 1 [phone] (toll-free) and entering passcode: 376453#.

FOR FURTHER INFORMATION CONTACT:

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

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 media 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, transition to the Advanced Internal Ratings Based (AIRB) approach for regulatory capital purposes, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, outbreaks of disease or illness that affect local, national or international economies, changes in accounting standards and policies, information technology and cyber risk, the accuracy and completeness of information we receive about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, the impact of bank failures or other adverse developments at other banks that drive negative investor and depositor sentiment regarding the stability and liquidity of banks, 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 2022 Annual MD&A. These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. Any forward-looking statements contained in this document represent our views as of the date hereof. Unless required by securities law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by us or on our behalf. The forward-looking statements contained in this document are presented for the purpose of assisting readers in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

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

Non-GAAP Measures

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

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

• Adjusted non-interest expenses – total non-interest expenses, excluding pre-tax amortization of acquisition-related intangible assets, and acquisition and integration costs. Acquisition and integration costs include direct and incremental costs incurred as part of the execution and integration of business acquisitions.
• Adjusted common shareholders' net income – total common shareholders' net income, excluding the amortization of acquisition-related intangible assets, and acquisition and integration costs, net of tax.
• Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses.

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

	For the three months ended									Change from April 30 2022		For the six months ended					Change from April 30  2022
(unaudited) (thousands)		April 30 2023			January 31 2023			April 30 2022					April 30 2023			April 30 2022
Non-interest expenses	$	148,388		$	147,217		$	141,457		5	%	$	295,605		$	272,864	8	%
Adjustments (before tax):
Amortization of acquisition-related intangible assets		(2,032)			(2,981)			(2,557)		(21)			(5,013)			(5,098)	(2)
Acquisition and integration costs		(190)			(375)			(58)		228			(565)			(58)	874
Adjusted non-interest expenses	$	146,166		$	143,861		$	138,842		5	%	$	290,027		$	267,708	8	%
Common shareholders' net income
Adjustments (after-tax):	$	70,040		$	94,363		$	74,164		(6)	%	$	164,403		$	161,806	2	%
Amortization of acquisition-related intangible assets^(1)		1,500			2,446			1,913		(22)			3,946			3,814	3
Acquisition and integration costs^(2)		143			281			44		225			424			44	864
Adjusted common shareholders' net income	$	71,683		$	97,090		$	76,121		(6)	%	$	168,773		$	165,664	2	%
Total revenue	$	264,414		$	272,891		$	258,761		2	%	$	537,305		$	524,737	2	%
Less:
Adjusted non-interest expenses (see above)		146,166			143,861			138,842		5			290,027			267,708	8
Pre-tax, pre-provision income	$	118,248		$	129,030		$	119,919		(1)	%	$	247,278		$	257,029	(4)	%

^(1)	Net of income tax of $532 for the three months ended April 30, 2023 (Q1 2023 – $535, Q2 2022 – $644) and $1,067 for the six months ended April 30, 2023 (Q2 2022 – $1,284).
^(2)	Net of income tax of $47 for the three months ended April 30, 2023 (Q1 2023 – $94, Q2 2022 – $14) and $141 for the six months ended April 30, 2023 (Q2 2022 – $14).

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

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

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

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

Selected Financial Highlights

	For the three months ended									Change from		For the six months ended						Change from
(unaudited) (thousands, except per share amounts)		April 30 2023			January 31 2023			April 30 2022		April 30 2022			April 30 2023			April 30 2022		April 30 2022
Results from Operations
Net interest income	$	230,523		$	242,280		$	226,109		2	%	$	472,803		$	459,181		3
Non-interest income		33,891			30,611			32,652		4			64,502			65,556		(2)
Total revenue		264,414			272,891			258,761		2			537,305			524,737		2
Pre-tax, pre-provision income^(1)		118,248			129,030			119,919		(1)			247,278			257,029		(4)
Common shareholders' net income		70,040			94,363			74,164		(6)			164,403			161,806		2
Common Share Information
Earnings per common share
Basic	$	0.73		$	0.99		$	0.82		(11)	%	$	1.72		$	1.80		(4)
Diluted		0.73			0.99			0.82		(11)			1.72			1.79		(4)
Adjusted^(1)		0.74			1.02			0.84		(12)			1.76			1.83		(4)
Cash dividends		0.32			0.32			0.30		7			0.64			0.60		7
Book value^(1)		34.90			34.26			33.43		4			34.90			33.43		4
Closing market value		24.30			28.12			32.41		(25)			24.30			32.41		(25)
Common shares outstanding (thousands)		96,308			96,229			91,569		5			96,308			91,569		5
Performance Measures^(1)
Return on common shareholders' equity		8.7	%		11.6	%		10.0	%	(130)	bp		10.1	%		10.8	%	(70)	bp
Adjusted return on common shareholders' equity		8.9			12.0			10.3		(140)			10.4			11.1		(70)
Return on assets		0.69			0.90			0.79		(10)			0.80			0.86		(6)
Net interest margin		2.26			2.32			2.42		(16)			2.29			2.44		(15)
Efficiency ratio		55.3			52.7			53.7		160			54.0			51.0		300
Operating leverage		(3.1)			(9.0)			(10.3)		720			(5.9)			(7.1)		120
Credit Quality^(1)
Provision for (recovery of) credit losses on total loans    as a percentage of average loans^(2)		0.12			(0.09)			0.14		(2)			0.01			0.12		(11)
Provision for (recovery of) credit losses on    impaired loans as a percentage of average    loans^(2)		0.12			(0.12)			0.14		(2)			(0.01)			0.13		(14)
Balance Sheet^(3)
Assets	$	42,227,843		$	41,706,375		$	38,915,020		9	%
Loans^(4)		37,150,595			36,416,656			34,041,369		9
Deposits		33,255,533			33,113,849			31,289,488		6
Debt		3,846,915			3,803,068			3,131,854		23
Shareholders' equity		3,935,941			3,871,964			3,636,036		8
Off-Balance Sheet
Wealth Management
Assets under management and administration		8,149,296			8,260,366			8,278,744		(2)
Assets under advisement^(5)		2,208,618			1,924,278			1,992,438		11
Assets Under Administration – Other		15,092,141			14,290,188			14,471,848		4
Capital Adequacy^(6)
Common equity Tier 1 ratio		9.3	%		9.1	%		8.9	%	40	bp
Tier 1 ratio		11.1			10.9			10.8		30
Total ratio		13.1			12.8			12.3		80
Other
Number of full-time equivalent staff		2,734			2,737			2,617		4	%

^(1)	Non-GAAP measure – refer to definitions and detail provided on page 6.
^(2)	Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.
^(3)	Certain comparative figures have been reclassified to conform with the current period's presentation.
^(4)	Excludes the allowance for credit losses.
^(5)	Primarily comprised of assets under advisement related to our Indigenous Services wealth management business.
^(6)	Calculated using the Standardized approach in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI).
bp – basis point

SOURCE CWB Financial Group