CWB reports second quarter financial performance and continued strategic execution
Strong 10% annual loan growth and higher net interest margin compared to last year and the prior quarter
Branch-raised deposit growth of 6% from last year and 3% from the prior quarter
Total revenue up 7% compared to last year, with pre-tax, pre-provision income up 4%
"CWB closed the first half of the year with a solid second quarter as we continue to execute against our Balanced Growth strategy," said Chris Fowler, President and CEO. "Double-digit year-over-year loan growth delivered continued geographic and industry diversification, with 14% growth in Central and Eastern Canada as well as within the strategically targeted general commercial lending category. We also continue to execute on key strategic obectives to diversify funding sources. Sequential growth of branch-raised deposits accelerated to 3%, and we delivered higher net interest margin compared to both last year and last quarter."
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Second Quarter 2019 Highlights(1)(2) (compared to the same period in the prior year)
- Common shareholders' net income of $62 million, up 2%, pre-tax, pre-provision income of $112 million, up 4%, and total revenue of $210 million, up 7%.
- Diluted and adjusted cash earnings per common share of $0.71 and $0.74, up 4% and 1%, respectively.
- Operating leverage of negative 3.1%, partially reflecting higher acquisition-related revenue in the second quarter last year and increased investment in the current period to advance our strategic direction.
- Strong 10% loan growth drove total assets over the $30 billion milestone for the first time in CWB's history.
- Loan growth reflected continued execution of CWB's Balanced Growth strategy, including very strong 14% growth in general commercial loans and expansion in every province, with the strongest growth rates in Central and Eastern Canada.
- Net interest margin of 2.63%, up two basis points from last year and last quarter.
- Provision for credit losses represented 23 basis points of average loans, compared to 20 basis points last year and 24 basis points last quarter.
- Gross impaired loans represented 0.62% of gross loans, up from 0.49% last year and 0.51% last quarter, with the increase largely reflecting one impairment within the general commercial category in Saskatchewan.
- Strong Basel III regulatory capital ratios under the Standardized approach for calculating risk-weighted assets of 9.1% common equity Tier 1 (CET1), 10.7% Tier 1 and 11.9% Total capital.
(1) |
Highlights include certain non-IFRS measures – refer to definitions provided on page 5 of this news release, with further detail provided on page 22 of the 2019 Second Quarter Report to Shareholders. |
(2) |
Effective November 1, 2018, CWB adopted IFRS 9 Financial Instruments (IFRS 9). Amounts for the periods ended April 30, 2019 and January 31, 2019 have been prepared in accordance with IFRS 9 (refer to Notes 2 and 3 of the interim consolidated financial statements). Prior periods comparatives have been prepared in accordance with IAS 39 Financial Instruments: Classification and Measurement (IAS 39) and have not been restated. |
This news release and accompanying financial highlights are supplementary to CWB's 2019 Second Quarter Report to Shareholders and the 2018 Annual Report and should be read in conjunction with those documents. |
EDMONTON, May 29, 2019 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced second quarter financial performance with common shareholders' net income of $62 million and pre-tax, pre-provision income of $112 million, up 2% and 4%, respectively, from the second quarter last year. Total revenue of $210 million was up 7%, including a 7% increase in net interest income. Higher net interest income reflects the combined benefits of strong 10% loan growth and a two basis point increase in net interest margin to 2.63%. Non-interest income was relatively unchanged. Higher revenues were partially offset within common shareholders' net income by increases in non-interest expenses and the provision for credit losses. Acquisition-related fair value changes decreased 43%, reflecting conclusion one month into the quarter of the three-year earn-out period for the contingent consideration related to the CWB Maxium acquisition. The provision for credit losses represented 23 basis points of average loans, compared to 20 basis points last year. Diluted and adjusted cash earnings per common share of $0.71 and $0.74 were up 4% and 1%, respectively.
Compared to the prior quarter, common shareholders' net income and pre-tax, pre-provision income were 7% and 5% lower, respectively, with total revenue and net interest income both down 1%. Within net interest income, the benefits of 2% loan growth and a two basis point increase in net interest margin were more than offset by the impact of three fewer interest-earning days. Non-interest income was down 2%. The provision for credit losses as a percentage of average loans improved one basis point to 23 basis points. Non-interest expenses were 4% higher sequentially, while acquisition-related fair value changes decreased 41% reflecting the same factor noted above. Diluted and adjusted cash earnings per common share were down 5% and 8%, respectively.
Year-to-date common shareholders' net income of $128 million and pre-tax, pre-provision income of $230 million were up 5% and 7%, respectively. Strong earnings growth reflects an 8% increase in total revenue, including 10% growth of net interest income partially offset by a 7% decrease in non-interest income. Higher net interest income was driven by 10% loan growth and a five basis point increase in net interest margin. Non-interest income was down 7%, primarily due to the impact of approximately $3 million of gains realized from the CWT strategic transactions recorded within 'other' non-interest income in the first quarter last year. The year-to-date provision for credit losses of 24 basis points as a percentage of average loans was up from 19 basis points last year. Non-interest expenses were 9% higher, while acquisition-related fair value changes were 22% lower reflecting the same factor noted above. Diluted and adjusted cash earnings per common share of $1.46 and $1.55 were up 7% and 5%, respectively.
Execution of CWB Financial Group's Balanced Growth strategy |
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Balanced Growth Objective |
Strategic Execution |
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Full-service client growth with a focus on |
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10% loan growth compared to last year, including 14% growth in Central Proportion of loan portfolio in Central and Eastern Canada of 27% up 1% Increased business diversification with 14% annual growth of general |
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• |
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Growth and diversification of funding sources |
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Branch-raised deposits growth of 6% from last year, including very strong 11% |
Optimized capital management through |
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Expect to submit final application and receive regulatory approval in fiscal |
Balanced growth of assets and funding sources
Total assets were up 7% from last year, surpassing the $30 billion milestone for the first time in CWB's history. Total loans, excluding allowance for credit losses, of $27.4 billion increased 10% from last year, 2% from the prior quarter and 4% from October 31, 2018. Year-over-year loan growth was consistent with CWB's Balanced Growth strategy, including strong growth of 14% in Central and Eastern Canada, as well as 14% growth in general commercial loans across CWB's targeted markets. Central and Eastern Canada accounted for 38% of CWB's lending growth and now comprise 27% of CWB's total loan portfolio, up from 26% last year. Growth in British Columbia and Alberta was strong at 9% and 8%, respectively. British Columbia represents 33%, and Alberta comprises 32% of the total portfolio. We also continue to execute on key strategic objectives to grow and diversify core funding sources. Total deposits increased 8% from April 30, 2018. Branch-raised deposits were up 6% on an annual basis, driven by very strong 3% sequential growth of demand and notice deposits. Funding from capital markets was 11% higher than the same quarter last year, and the proportion of our deposits raised through the broker market remained unchanged at 36% of total deposits.
Ongoing business transformation initiatives to enhance CWB's client experience and support development of full-service client relationships
Focused business transformation and ongoing investment in core technology continue to drive development of our differentiated full-service client experience, supported through more efficient processes. Initiatives to optimize client-facing operations within banking branches continue, building upon our prior centralization of credit support processes. Together, we expect these improvements to drive strong growth by supporting teams to deliver on CWB's reputation for proactive, personalized service in a highly scalable manner. We also expect these initiatives to contribute to CWB's operational efficiency and support capital and risk management through enhanced data integrity and analytics capabilities.
Going forward, we will bring more awareness to our story with the launch of a refreshed brand and a new marketing approach beginning in the third quarter. This represents a key step forward as CWB seeks to be recognized as a disruptive force in Canadian banking, and a clear alternative to meet the financial needs of successful business owners across the country.
Credit quality
Strong overall credit quality continues to reflect CWB's secured lending business model, disciplined underwriting practices and proactive loan management. The dollar level of gross impaired loans in the second quarter totaled $168 million, compared to $123 million last year and $136 million in the prior quarter. This level of gross impaired loans represented 0.62% of gross loans at quarter-end, compared to 0.49% last year and 0.51% in the previous quarter. The sequential increase in gross impaired loans largely resulted from one impairment within the general commercial category in Saskatchewan. Although periodic increases in the balance of impaired loans may occur, loss rates on current and future impaired loans are expected to be consistent with CWB's prior experience, where write-offs have been low as a percentage of impaired loans.
The provision for credit losses this year is estimated under IFRS 9, with the provision in fiscal 2018 estimated under IAS 39. Under IFRS 9, the second quarter provision for credit losses as a percentage of average loans was 23 basis points. This consisted of 22 basis points related to impaired loans and one basis point related to performing loans, and compares favourably to 24 basis points in the first quarter, consisting of 22 basis points related to impaired loans and two basis points related to performing loans. Under IAS 39, provisions for credit losses represented 20 basis points in the second quarter of last year and was entirely related to impaired loans. On a year-to-date basis, under IFRS 9 the provision for credit losses as a percentage of average loans of 24 basis points consisted of 22 basis points related to impaired loans and two basis points related to performing loans. This compares to 18 basis points related to impaired loans and one basis point related to performing loans last year under IAS 39. CWB continues to carefully monitor the entire loan portfolio for signs of weakness and has not identified any current or emerging systemic issues.
Efficient operations and operating leverage
The second quarter efficiency ratio of 46.8%, which measures adjusted non-interest expenses divided by total revenue, compares to 45.4% in the same period last year and 44.4% in the previous quarter. The year-to-date efficiency ratio of 45.6% was up 60 basis points from a year ago.
Operating leverage, which is calculated as the growth rate of total revenue less the growth rate of adjusted non-interest expenses, was negative 3.1% compared to positive 5.4% last year and positive 0.4% last quarter. On a year-to-date basis, operating leverage of negative 1.4% compares to positive 4.6% last year. Changes in operating leverage partly reflect the impact of higher acquisition-related revenue in the second quarter last year from the business lending assets acquired on January 31, 2018, and the subsequent partial run-off of that portfolio, which occurred as expected. Operating leverage in the current period also reflects the impact within non-interest expenses of continued investment to advance our strategic execution in both the second half of last year and this quarter.
Prudent capital management and dividends
At April 30, 2019, CWB's capital ratios were 9.1% CET1, 10.7% Tier 1 and 11.9% Total capital. With a strong capital position under the more conservative Standardized approach for calculating risk-weighted assets, CWB is well-positioned to create value for shareholders through a range of capital deployment options consistent with our Balanced Growth strategy. Ongoing support and development of each of CWB's businesses will remain a key priority, and management will continue to evaluate potential strategic acquisitions.
The common share dividend declared yesterday of $0.27 per share is up two cents, or 8%, from the dividend declared one year ago and consistent with the dividend declared last quarter. While the dividend payout ratio this quarter was approximately 36%, we expect earnings growth to result in migration of this metric toward 30% over the medium-term while supporting our track record of dividend increases.
Medium-term Performance Target Ranges
Medium-term target ranges are based on expectations for performance under the more conservative Standardized approach for risk and capital management, moderate economic growth and a relatively stable net interest margin environment in Canada over the three- to five-year forecast horizon. Our target ranges are presented in the following table:
Key Metrics(1) |
Medium-term |
2019 Year-to-date Context |
Adjusted cash earnings per common share growth |
7 - 12% |
Delivered 5%. |
Adjusted return on common shareholders' equity |
12 - 15% |
Delivered 11.4%. |
Operating leverage |
Positive |
Delivered negative 1.4%. |
Common equity Tier 1 capital ratio under the Standardized approach |
Strong |
Delivered a very strong ratio of 9.1%. |
Common share dividend payout ratio |
~30% |
Delivered 36%. |
(1) |
Refer to definitions provided on page 5 of this news release, with further detail provided on page 22 of the 2019 Second Quarter Report to Shareholders |
About CWB Financial Group
CWB Financial Group (CWB) is a diversified financial services organization serving businesses and individuals across Canada. Operating from headquarters in Edmonton, Alberta, CWB's key business lines include full service business and personal banking offered through branch locations of Canadian Western Bank, including CWB Virtual Branch, and Internet banking services provided by Motive Financial. Highly responsive 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 Canadian Western Trust. 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 2019 Second Quarter Results Conference Call
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Forward-looking Statements
From time to time, CWB makes written and verbal forward-looking statements. Statements of this type are included in the Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as press releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about CWB's objectives and strategies, targeted and expected financial results and the outlook for CWB's businesses or for the Canadian economy. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate", "may increase", "may impact", "goal", "focus", "potential", "proposed" and other similar expressions, or future or conditional verbs such as "will", "should", "would" and "could".
By their very nature, forward-looking statements involve numerous assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that management's predictions, forecasts, projections, expectations and conclusions will not prove to be accurate, that its assumptions may not be correct and that its strategic goals will not be achieved.
A variety of factors, many of which are beyond CWB's control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada, including housing market conditions, the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, material changes to standing free trade agreements, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, changes in accounting standards and policies, information technology and cyber risk, the accuracy and completeness of information CWB receives about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and management's ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors.
Additional information about these factors can be found in the Risk Management section of CWB's annual Management's Discussion and Analysis (MD&A). These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause CWB's actual results to differ materially from the expectations expressed in such forward-looking statements. Unless required by securities law, CWB does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by it or on its behalf.
Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect CWB's businesses are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, CWB considers its own economic forecasts, 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 CWB's MD&A for the quarter ended April 30, 2019, and/or Outlook sections of CWB's MD&A for the year ended October 31, 2018.
Non-IFRS Measures
Non-IFRS measures provide readers with an enhanced understanding of how management views CWB's ongoing operating performance. The non-IFRS measures used in this 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 below);
- adjusted common shareholders' net income – total common shareholders' net income, excluding the amortization of acquisition-related intangible assets and contingent consideration fair value changes, net of tax (see calculation below);
- pre-tax, pre-provision income – total revenue less adjusted non-interest expenses (see calculation below);
- adjusted cash earnings per common share – diluted earnings per common share calculated with adjusted common shareholders' net income;
- return on common shareholders' equity – annualized common shareholders' net income divided by average common shareholders' equity;
- adjusted return on common shareholders' equity – annualized adjusted common shareholders' net income divided by average common shareholders' equity;
- return on assets – annualized common shareholders' net income divided by average total assets;
- efficiency ratio – adjusted non-interest expenses divided by total revenue;
- net interest margin – annualized net interest income divided by average total assets;
- provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at FVOCI and other financial assets are excluded;
- provision for credit losses on impaired loans as a percentage of total loans – annualized provision for credit losses on impaired loans divided by average total loans;
- operating leverage – growth rate of total revenue less growth rate of adjusted non-interest expenses;
- common share dividend payout ratio – common share dividends declared during the past twelve months divided by common shareholders' net income earned over the same period;
- Basel III common equity Tier 1, Tier 1 and Total capital ratios – in accordance with guidelines issued by OSFI;
- risk-weighted assets – on and off-balance sheet assets assigned a risk weighting calculated in accordance with the Standardized approach guidelines issued by OSFI; and
- average balances – average daily balances.
Selected Financial Highlights(1)
For the three months ended |
Change from April 30 2018 |
For the six months ended |
Change from April 30 2018 |
||||||||||||||||
(unaudited) |
April 30 |
January 31 |
April 30 |
April 30 |
April 30 2018 |
||||||||||||||
($ thousands, except per share amounts) |
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Results from Operations |
|||||||||||||||||||
Net interest income |
$ |
191,057 |
$ |
193,342 |
$ |
177,986 |
7 |
% |
$ |
384,399 |
$ |
349,253 |
10 |
% |
|||||
Non-interest income |
18,771 |
19,097 |
18,600 |
1 |
37,868 |
40,550 |
(7) |
||||||||||||
Total revenue |
209,828 |
212,439 |
196,586 |
7 |
422,267 |
389,803 |
8 |
||||||||||||
Pre-tax, pre-provision income |
111,692 |
118,073 |
107,247 |
4 |
229,765 |
214,311 |
7 |
||||||||||||
Common shareholders' net income |
61,965 |
66,499 |
60,464 |
2 |
128,464 |
122,393 |
5 |
||||||||||||
Earnings per common share |
|||||||||||||||||||
Basic |
0.71 |
0.75 |
0.68 |
4 |
1.46 |
1.38 |
6 |
||||||||||||
Diluted |
0.71 |
0.75 |
0.68 |
4 |
1.46 |
1.37 |
7 |
||||||||||||
Adjusted cash |
0.74 |
0.80 |
0.73 |
1 |
1.55 |
1.48 |
5 |
||||||||||||
Return on common shareholders' equity |
10.5 |
% |
11.1 |
% |
11.1 |
% |
(60) |
bp(5) |
10.8 |
% |
11.1 |
% |
(30) |
bp(5) |
|||||
Adjusted return on common shareholders' |
|||||||||||||||||||
equity |
11.0 |
11.9 |
12.0 |
(100) |
11.4 |
12.0 |
(60) |
||||||||||||
Return on assets |
0.85 |
0.90 |
0.89 |
(4) |
0.88 |
0.90 |
(2) |
||||||||||||
Efficiency ratio |
46.8 |
44.4 |
45.4 |
140 |
45.6 |
45.0 |
60 |
||||||||||||
Net interest margin |
2.63 |
2.61 |
2.61 |
2 |
2.62 |
2.57 |
5 |
||||||||||||
Operating leverage |
(3.1) |
0.4 |
5.4 |
(850) |
(1.4) |
4.6 |
(600) |
||||||||||||
Provision for credit losses on total loans as |
|||||||||||||||||||
a percentage of average loans(3)(4) |
0.23 |
0.24 |
0.20 |
3 |
0.24 |
0.19 |
5 |
||||||||||||
Provision for credit losses on impaired |
|||||||||||||||||||
loans as a percentage of average loans(3)(4) |
0.22 |
0.22 |
0.20 |
2 |
0.22 |
0.18 |
4 |
||||||||||||
Number of full-time equivalent staff |
2,263 |
2,200 |
2,112 |
7 |
% |
2,263 |
2,112 |
7 |
% |
||||||||||
Per Common Share |
|||||||||||||||||||
Cash dividends |
$ |
0.27 |
$ |
0.26 |
$ |
0.25 |
8 |
% |
$ |
0.53 |
$ |
0.49 |
8 |
% |
|||||
Book value |
28.20 |
27.39 |
25.40 |
11 |
28.20 |
25.40 |
11 |
||||||||||||
Closing market value |
30.04 |
29.42 |
34.07 |
(12) |
30.04 |
34.07 |
(12) |
||||||||||||
Common shares outstanding (thousands) |
87,239 |
87,210 |
88,831 |
(2) |
87,239 |
88,831 |
(2) |
||||||||||||
Balance Sheet and Off-Balance Sheet |
|||||||||||||||||||
Assets |
$ |
30,054,181 |
$ |
29,348,618 |
$ |
28,134,203 |
7 |
% |
|||||||||||
Loans |
27,240,042 |
26,780,617 |
24,793,351 |
10 |
|||||||||||||||
Deposits |
24,718,173 |
23,910,243 |
22,828,859 |
8 |
|||||||||||||||
Debt |
1,887,541 |
2,037,066 |
2,004,306 |
(6) |
|||||||||||||||
Shareholders' equity |
2,850,398 |
2,778,408 |
2,521,583 |
13 |
|||||||||||||||
Assets under administration |
8,856,962 |
8,357,142 |
8,568,385 |
3 |
|||||||||||||||
Assets under management |
2,137,489 |
2,136,700 |
2,161,473 |
(1) |
|||||||||||||||
Capital Adequacy |
|||||||||||||||||||
Common equity Tier 1 ratio |
9.1 |
% |
9.1 |
% |
9.4 |
% |
(30) |
bp(5) |
|||||||||||
Tier 1 ratio |
10.7 |
10.7 |
10.6 |
10 |
|||||||||||||||
Total ratio |
11.9 |
12.0 |
12.3 |
(40) |
|||||||||||||||
(1) |
Non-IFRS measures defined on page 5 with further detail on page 22 of the 2019 Second Quarter Report to Shareholders. |
(2) |
Results for fiscal 2019 have been prepared in accordance with IFRS 9 (refer to Notes 2 and 3 of the interim consolidated financial statements). Fiscal 2018 comparatives have been prepared in accordance with IAS 39 and have not been restated. |
(3) |
Under IFRS 9, provisions for credit losses related primarily to loans, committed but undrawn credit exposures and letters of credit, and also apply to debt securities measured at fair value through other comprehensive income and other financial assets. Prior to the adoption of IFRS 9, provisions for credit losses only related to loans, committed but undrawn credit exposures and letters of credit. |
(4) |
Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit. |
(5) |
bp – basis point change. |
SOURCE Canadian Western Bank
Chris Williams, MBA, AVP, Investor Relations, Phone: (780) 508-8229, Email: [email protected]
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