CWB reports third quarter 2022 financial and strategic performance

Third Quarter 2022 Highlights (compared to the same period in the prior year)

Diluted earnings per share (EPS)	Total revenue	Pre-tax, pre- provision income^(1)	Loans^(2)	Branch-raised deposits^(1)
$0.88	$272 million	$132 million	$35.2 billion	$20.4 billion
Down 10%	Up 3%	Down 4%	Up 9% in total; Up 13% in Ontario	Up 9%

This news release and accompanying financial highlights are supplementary to CWB's 2022 Third Quarter Report to Shareholders and 2021 Annual Report and should be read in conjunction with those documents.

EDMONTON, AB, Aug. 26, 2022 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) announced financial performance for the three and nine months ended July 31, 2022, with quarterly common shareholders' net income of $81 million, up 9% sequentially and down 6% from the same period last year. Our Board of Directors declared a cash dividend of $0.31 per common share, consistent with the dividend declared last quarter and up two cents, or 7% from last year.

"Our teams delivered very strong loan growth this quarter from clients within our risk appetite that met our strict underwriting and pricing criteria," said Chris Fowler, President and CEO. "We expect annual percentage loan growth in the high single-digits for fiscal 2022 as we maintain our disciplined lending approach in the current environment. We continue to expect double-digit annual growth of branch-raised deposits by deepening customer relationships and winning new full-service banking clients."

"Our strategy remains focused on building the best bank for business owners in Canada, and our teams have made strong progress this quarter. We opened our new banking centre in Markham to build on strong growth momentum in Ontario and drive further geographic diversification of our business. Our new personal and small business digital platforms were launched to enhance our client experience and support efficient full-service client growth. We also made significant progress on our Advanced Internal Ratings Based (AIRB) transition project, which further supports our long-term growth and diversification aspirations with a sustainable and scalable operating model. Later this year, the full integration of our Virtual COO solution into our digital banking offering will provide a differentiated tool for small business owners to better understand and predict their cash flow needs and financial health of their operations."

"Execution of our strategic priorities continues to elevate the strength of our organization, and our demonstrated history of prudent risk management positions us well to navigate through recessionary conditions, should they arise. The progress we have made to transform our business provides a strong foundation to accelerate growth of full-service client relationships and enhance our profitability."

⁽¹⁾      Non-GAAP measure – refer to definitions and detail provided on page 5.

⁽²⁾      Excludes the allowance for credit losses.

Financial Performance

Q3 2022, compared to Q2 2022^(1)	Common shareholders' net income of $81 million	Up 9%
	Diluted EPS of $0.88	Up 7%
	Adjusted Return on Equity (ROE) of 10.7%	Up 40 bp
	Efficiency ratio of 51.3%	Down 240 bp

Compared to the prior quarter, common shareholders' net income increased as the impact of 5% revenue growth more than offset a two basis point increase in the total provision for credit losses as a percentage of average loans⁽¹⁾. Higher revenue reflected a 6% increase in net interest income partially offset by a 5% decrease in non-interest income. Higher net interest income reflected the combined impact of strong 4% sequential loan growth, including 3% in Ontario, three additional interest-earning days and a one basis point expansion in net interest margin⁽¹⁾. The increase in net interest margin reflected the net positive impact of the Bank of Canada policy interest rate changes in the second and third quarters, partially offset by an increased proportion of higher-cost broker deposits in our funding mix. Further expansion of net interest margin has been constrained by an increase in funding costs that has outpaced growth in loan yields in a highly competitive environment, which we expect will eventually normalize. We delivered very strong branch-raised deposit⁽¹⁾ growth of 3% in the quarter, which helped support stability in our net interest margin. Non-interest expenses were comparable to the prior quarter as we continued to execute on our strategic priorities as planned, but reduced other expenditures which improved our efficiency ratio. The total provision for credit losses as a percentage of average loans was two basis points higher than the prior quarter, with a four basis point increase in the performing loan provision, primarily driven by a slight deterioration in macroeconomic factors compared to the prior quarter and strong sequential loan growth. To support strong loan growth while prudently managing our capital, we issued common shares for net proceeds of $35 million at an average share price of $26.10 under our at-the-market common equity distribution program (ATM) this quarter. Despite the recent downward pressure on our share price, the net earnings contributed by the incremental loan growth supported by the ATM issuances this quarter more than offsets the dilutive impact of the incremental common shares issued, driving an ongoing increase in earnings per share and ROE.

Q3 2022, compared to Q3 2021^(1)	Common shareholders' net income of $81 million	Down 6%
	Diluted EPS of $0.88	Down 10%
	Adjusted ROE of 10.7%	Down 160 bp
	Efficiency ratio of 51.3%	Up 360 bp

Compared to the same quarter last year, common shareholders' net income decreased as 3% revenue growth was more than offset by higher non-interest expenses and an increase in the total provision for credit losses as a percentage of average loans. Branch-raised deposit growth of 9% reflects our franchise building strategy to expand our full-service client relationships. Net interest income increased 5%, driven by 9% loan growth partially offset by an eight basis point decline in net interest margin. The decrease in net interest margin primarily reflected higher growth in funding costs as compared to asset yields with an increased proportion of higher-cost broker deposits in our funding mix and lower yielding loans in our asset mix. Non-interest income decreased 6%, primarily due to higher net gains on security sales recognized last year. Non-interest expenses were up 11% from the prior year, primarily driven by additional costs associated with the continued investment in our people, AIRB tools and processes, digital capabilities, and product offering to optimize our business, deliver an unrivaled experience to our clients, and accelerate full-service client growth. The total provision for credit losses as a percentage of average loans was five basis points higher than the same quarter last year, which reflected a 13 basis point increase in the performing loan provision, as we recognized a performing loan recovery last year due to the significant improvement in forecast economic conditions, partially offset by an eight basis point decline in the impaired loan provision.   

YTD 2022, compared to YTD 2021^(1)	Common shareholders' net income of $243 million	Up 2%
	Diluted EPS of $2.67	Down 2%
	Adjusted ROE of 10.9%	Down 70 bp
	Efficiency ratio of 51.1%	Up 330 bp

⁽¹⁾   Adjusted ROE, efficiency ratio, branch-raised deposits, net interest margin and the provision for credit losses on total loans as a percentage of average loans are non-GAAP measures. Refer to definitions and detail provided on page 5.

bp – basis point

On a year-to-date basis, the increase in common shareholders' net income was driven by 5% growth in revenue and a decline in the provision for credit losses, partially offset by an increase in non-interest expenses. Revenue growth reflected a 6% increase in net interest income attributable to 9% annual loan growth, partially offset by a six basis point decline in net interest margin. Non-interest income was up 4%. Non-interest expenses were up 13% and reflected the impact of our strategic investments in our people, AIRB tools and processes, digital capabilities, and product offering. The total provision for credit losses as a percentage of average loans was two basis points lower than prior year, due to an 11 basis point decline in the impaired loan provision partially offset by a nine basis point increase in the performing loan provision, as we recognized an eight basis point recovery last year due the significant improvement in forecast economic conditions.

Strategic Performance

We continue to transform our capabilities to offer a superior full-service client experience through a complete range of in-person and digital channels. These expanded capabilities, delivered by our highly engaged and client-centric teams, will accelerate growth of full-service client relationships in specifically targeted segments that fit within our strategic growth objectives and prudent risk appetite. Our strategic execution will enable us to continue to deliver strong growth of full-service client relationships and capitalize on the opportunities available to us as we continue to expand our presence in key markets. This quarter, we:

• Opened the new Markham banking centre, building on the strategic success of our first Ontario location in Mississauga in 2020. The targeted expansion of our banking centre footprint in Ontario and enhancement of our digital capabilities supports further geographic diversification of our business.
• Successfully launched our new personal and small business digital banking platforms. The new platforms feature a rich user interface underpinned by enhanced security capabilities. The small business platform will initially provide cash flow predictive modelling and integration with third party accounting platforms. Incremental features will be integrated into the platform as part of the full Virtual COO launch later this year, which include the ability to perform simulations that enable small businesses to better understand and predict the cash flow needs and financial health of their operations.
• Delivered strong progress on the development of revised AIRB tools incorporating significant enhancements and the final 2023 Capital Adequacy Requirements (CAR) guidelines, with completion of a material portion targeted around the end of the current fiscal year. Upon completion, we will implement and operate our revised AIRB tools across the business for a sufficient period of time to support a successful resubmission of our application. We expect to incur incremental and non-recurring non-interest expenses from the accelerated depreciation of our legacy AIRB intangible assets as further discussed in the Outlook section of our Q3 2022 Management's Discussion and Analysis.
• Consolidated and relocated our regional office and banking centre within downtown Vancouver to a new modern flagship banking centre. The highly visible location on West Georgia provides prominent branding and supports a hybrid workspace that elevates our client experience.

About CWB Financial Group

CWB Financial Group (CWB) is the only full-service financial institution 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. Our teams deliver a uniquely proactive and differentiated level of service to clients in targeted industries where we have deep expertise. Clients choose CWB for our highly personalized service, specialized expertise, customized solutions and faster response times.

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 Third Quarter Results Conference Call

CWB's third quarter results conference call is scheduled for Friday, August 26, 2022, 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: 06609647. 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 September 2, 2022 by dialing [phone] (Toronto) or 1 [phone] (toll-free) and entering passcode: 609647#.

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, supply chain disruptions, 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 sections of our 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. 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 the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates that occurred in June 2020.
• 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.

Adjusted Financial Measures
	For the three months ended										Change from July 31   2021		For the nine months ended						Change from July 31   2021
(unaudited) (thousands)		July 31 2022			April 30 2022			July 31 2021						July 31 2022			July 31 2021
Non-interest expenses	$	142,130		$	141,457		$	128,112			11	%	$	414,994		$	367,916		13	%
Adjustments (before tax):
Amortization of acquisition-related intangible assets^(1)		(2,557)			(2,557)			(2,032)			26			(7,655)			(6,041)		27
Acquisition and integration costs^(2)		(207)			(58)			(451)			(54)			(265)			(868)		(69)
Adjusted non-interest expenses	$	139,366		$	138,842		$	125,629			11	%	$	407,074		$	361,007		13	%
Common shareholders' net income
Adjustments (after-tax):	$	80,809		$	74,164		$	86,280			(6)	%	$	242,615		$	237,473		2	%
Amortization of acquisition-related intangible assets^(1)		1,914			1,913			1,485			29			5,728			4,416		30
Acquisition and integration costs^(2)		156			44			340			(54)			200			655		(69)
Adjusted common shareholders' net income	$	82,879		$	76,121		$	88,105			(6)	%	$	248,543		$	242,544		2	%
Total revenue	$	271,712		$	258,761		$	263,215			3	%	$	796,449		$	755,409		5	%
Less:
Adjusted non-interest expenses (see above)		139,366			138,842			125,629			11			407,074			361,007		13
Pre-tax, pre-provision income	$	132,346		$	119,919		$	137,586			(4)	%	$	389,375		$	394,402		(1)	%

⁽¹⁾      Net of income tax of $643 for the three months ended July 31, 2022 (Q2 2022 – $644, Q3 2021 – $547) and $1,927 for the nine months ended July 31, 2022 (Q3 2021 – $1,625).

⁽²⁾      Net of income tax of $51 for the three months ended July 31, 2022 (Q2 2022 – $nil, Q3 2021 – $111) and $65 for the nine months ended July 31, 2022 (Q3 2021 – $213).

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. 

	For the three months ended									Change from		For the nine months ended						Change from
(unaudited) (thousands, except per share amounts)		July 31 2022			April 30 2022			July 31 2021		July 31 2021			July 31 2022			July 31 2021		July 31 2021
Results from Operations
Net interest income	$	240,593		$	226,109		$	230,021		5	%	$	699,774		$	662,438		6
Non-interest income		31,119			32,652			33,194		(6)			96,675			92,971		4
Total revenue		271,712			258,761			263,215		3			796,449			755,409		5
Pre-tax, pre-provision income^(1)		132,346			119,919			137,586		(4)			389,375			394,402		(1)
Common shareholders' net income		80,809			74,164			86,280		(6)			242,615			237,473		2
Common Share Information
Earnings per common share
Basic	$	0.88		$	0.82		$	0.99		(11)	%	$	2.67		$	2.72		(2)
Diluted		0.88			0.82			0.98		(10)			2.67			2.72		(2)
Adjusted^(1)		0.90			0.84			1.01		(11)			2.73			2.78		(2)
Cash dividends		0.31			0.30			0.29		7			0.91			0.87		5
Book value		33.90			33.43			32.88		3			33.90			32.88		3
Closing market value		25.87			32.41			34.01		(24)			25.87			34.01		(24)
Common shares outstanding (thousands)		92,988			91,569			88,122		6			92,988			88,122		6
Performance Measures^(1)
Return on common shareholders' equity		10.4	%		10.0	%		12.1	%	(170)	bp		10.7	%		11.3	%	(60)	bp
Adjusted return on common shareholders' equity		10.7			10.3			12.3		(160)			10.9			11.6		(70)
Return on assets		0.81			0.79			0.94		(13)			0.84			0.90		(6)
Net interest margin		2.43			2.42			2.51		(8)			2.44			2.50		(6)
Efficiency ratio		51.3			53.7			47.7		360			51.1			47.8		330
Operating leverage		(7.7)			(10.3)			(1.7)		(600)			(7.3)			(3.0)		(430)
Credit Quality^(1)
Provision for credit losses on total loans as a percentage of average loans^(2)		0.16			0.14			0.11		5			0.14			0.16		(2)
Provision for credit losses on impaired loans as a percentage of average loans^(2)		0.12			0.14			0.20		(8)			0.13			0.24		(11)
Balance Sheet
Assets	$	40,403,938		$	38,927,826		$	36,649,461		10	%
Loans^(3)		35,244,720			34,041,369			32,256,833		9
Deposits		32,386,014			31,298,278			29,605,018		9
Debt		3,430,921			3,135,870			2,849,182		20
Shareholders' equity		3,727,567			3,636,036			3,472,517		7
Off-Balance Sheet
Wealth management^(4)
Assets under management and administration		8,055,456			8,278,744			8,416,975		(4)
Assets under advisement^(5)		1,968,299			1,992,438			2,061,520		(5)
Assets under administration - other^(6)		14,090,563			14,471,848			13,274,099		6
Capital Adequacy^(7)
Common equity Tier 1 ratio		8.9	%		8.9	%		8.8	%	10	bp
Tier 1 ratio		10.7			10.8			10.8		(10)
Total ratio		12.2			12.3			12.4		(20)
Other
Number of full-time equivalent staff		2,674			2,617			2,593		3	%

⁽¹⁾      Non-GAAP measure – refer to definitions and detail provided on page 5.

⁽²⁾      Includes provisions for credit losses on loans, committed but undrawn credit exposures and letters of credit.

⁽³⁾      Excludes the allowance for credit losses.

⁽⁴⁾      Certain comparative figures have been reclassified to conform with the current period's presentation.

⁽⁵⁾      Primarily comprised of assets under advisement related to our Indigenous Services wealth management business.

⁽⁶⁾      Comprised of trust assets under administration, third-party leases under administration and loans under service agreements.

⁽⁷⁾      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

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