CWB reports third quarter 2023 financial performance

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

EDMONTON, AB, Sept. 1, 2023 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced financial performance for the three and nine month periods ended July 31, 2023. Third quarter net income available to common shareholders of $83 million and adjusted earnings per common share (EPS)⁽¹⁾ of $0.88 increased by 19% from the previous quarter. The sequential growth in earnings was driven by a significant increase in net interest margin⁽¹⁾, prudent expense management, and three additional interest earning days. Compared to the same quarter last year, net income available to common shareholders was up 3%.

Our Board of Directors declared a cash dividend of $0.33 per common share, up two cents from the dividend declared last year and consistent with last quarter.

"Through the focused performance of our teams, we delivered the strong financial results that we expected this quarter, supported by branch-raised deposit⁽¹⁾ growth, improved revenues, and disciplined management of our expenses," said Chris Fowler, President and CEO. "We have targeted lending opportunities that provide strong returns within a prudent risk appetite for the current uncertain economic environment. Our secured lending model, prudent underwriting practices and proactive loan management have continued to support provisions for credit losses that remain below the low end of our historical range."

"CWB's strategic focus to meet the full-service financial needs of businesses and their owners differentiates us from our Canadian peers. Our high client satisfaction levels demonstrate the value we create for mid-market commercial businesses, which represents a significant segment of the Canadian economy. In the fourth quarter, we expect to benefit from continued revenue growth and management of our expenses to deliver an annual adjusted return on equity⁽¹⁾ within our 2023 target range of 10 to 11%."

^(1)	Adjusted EPS, net interest margin, branch-raised deposits and adjusted return on equity are non-GAAP measures. Refer to definitions and detail provided on page 5.

Financial Performance

Q3 2023, compared to   Q2 2023	Common shareholders' net income	$83 million	Up 19%
	Diluted EPS Adjusted EPS	$0.86 $0.88	Up 18% Up 19%
	Adjusted Return on Equity (ROE)	10.0 %	Up 110 bp
	Efficiency ratio^(1)	51.6 %	Down 370 bp

bp – basis point

Common shareholders' net income increased 19% as higher net interest income more than offset a higher provision for credit losses. Non-interest expenses were consistent with the prior quarter and reflected our continued actions to contain expense growth. Pre-tax, pre-provision income⁽¹⁾ increased 16%. Strong branch-raised deposit growth of 3% reflected continued expansion of our full-service client relationships.

Total revenue grew 7% sequentially. Net interest income increased 9% due to an 11 basis point increase in net interest margin and the impact of three additional interest earning days. Higher net interest margin was driven by focusing loan growth on our strategically targeted general commercial loan portfolio, which produced strong risk-adjusted returns. Net interest margin also benefitted from the maturing and repricing of fixed term assets at higher market interest rates, which had a larger impact than the increase in deposit costs this quarter. Non-interest income declined 8%, which reflected a reduction in foreign exchange income, partially offset by higher wealth management fees.

The provision for credit losses on total loans as a percentage of average loans⁽¹⁾ was 16 basis points this quarter, four basis points higher than last quarter. The impaired loan provision of 10 basis points was two basis points lower than last quarter and remained below our historical five-year average. We recognized a performing loan provision for credit losses of six basis points in the current quarter, reflecting the uncertainty of the economic environment.

Q3 2023, compared to   Q3 2022	Common shareholders' net income	$83 million	Up 3%
	Diluted EPS Adjusted EPS	$0.86 $0.88	Down 2% Down 2%
	Adjusted ROE	10.0 %	Down 70 bp
	Efficiency ratio	51.6 %	Up 30 bp

^(1)	Efficiency ratio, pre-tax, pre-provision income and provision for credit losses as a percentage of average loans are non-GAAP measures. Refer to definitions and detail provided on page 5.
	bp – basis point

Common shareholders' net income increased compared to the same quarter last year as revenue growth more than offset an increase in non-interest expenses. Pre-tax, pre-provision income increased 4%.   

Higher revenue reflected a 5% increase in net interest income and a 1% increase in non-interest income. The increase in net interest income was primarily due to the benefit of 6% annual loan growth, partially offset by a six basis point decrease in net interest margin. The decline in net interest margin reflected the impact of lower loan related fees, including payout penalties and a proportional shift in our funding mix towards fixed term branch-raised and insured broker deposits. Growth in fixed rate asset yields has lagged the increase of fixed rate deposit costs through the rising interest rate environment, as our fixed term deposit portfolio has a shorter 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. These pressures have lessened in recent periods and a proportional shift in our asset mix associated with strong loan growth in our general commercial loan portfolio has supported improved net interest margin performance in the current quarter.  

Non-interest expenses were up 4% from the prior year, primarily driven by higher people costs related to the impact of salary increments enacted in the prior year and a higher staffing complement, and our continued investment in our digital capabilities.

The provision for credit losses on total loans as a percentage of average loans was consistent with the same quarter last year, as a two basis point decrease in the impaired loan provision was offset by a two basis point increase in the performing loan provision.

YTD 2023,  compared to   YTD 2022	Common shareholders' net income	$247 million	Up 2%
	Diluted EPS Adjusted EPS	$2.58 $2.64	Down 3% Down 3%
	Adjusted ROE	10.3 %	Down 60 bp
	Efficiency ratio	53.2 %	Up 210 bp

	bp – basis point

Common shareholders' net income increased compared to last year as 3% growth in revenue and an eight basis point decline in the total provision for credit losses more than offset higher non-interest expenses. Pre-tax, pre-provision income decreased 1%.   

Total revenue increased 3%, reflecting a 4% increase in net interest income, partially offset by a 1% decrease in non-interest income. Net interest income increased from the prior year as 6% annual loan growth was partially offset by a 12 basis point decrease in net interest margin.

Non-interest expenses were up 7%, driven by higher people costs due to a higher staffing complement and our continued investment in our digital capabilities.

The total provision for credit losses as a percentage of average loans of six basis points was eight basis points lower than the prior year, driven by a decrease in the impaired loan provision that primarily reflected the reversal of a previously recognized impaired loan write-off recorded in the first quarter of this year.

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 Third Quarter Results Conference Call

CWB's third quarter results conference call is scheduled for Friday, September 1, 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: 74770285. 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 8, 2023 by dialing [phone] (Toronto) or 1 [phone] (toll-free) and entering passcode: 770285#.

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 and commercial real estate market conditions and household and business indebtedness, 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, changes in supervisory expectations or requirements for capital, interest rate and liquidity management, 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, changes in our third-party credit ratings or outlook, 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.

Adjusted Financial Measures
	For the three months ended									Change from July 31   2022		For the nine months ended						Change from July 31   2022
(unaudited) (thousands)		July 31 2023			April 30 2023			July 31 2022					July 31 2023			July 31 2022
Non-interest expenses	$	148,078		$	148,388		$	142,130		4	%	$	443,683		$	414,994		7	%
Adjustments (before tax):
Amortization of acquisition-related intangible assets		(1,749)			(2,032)			(2,557)		(32)			(6,762)			(7,655)		(12)
Acquisition and integration costs		(36)			(190)			(207)		(83)			(601)			(265)		127
Adjusted non-interest expenses	$	146,293		$	146,166		$	139,366		5	%	$	436,320		$	407,074		7	%
Common shareholders' net income
Adjustments (after-tax):	$	83,068		$	70,040		$	80,809		3	%	$	247,471		$	242,615		2	%
Amortization of acquisition-related intangible assets^(1)		1,282			1,500			1,914		(33)			5,228			5,728		(9)
Acquisition and integration costs^(2)		27			143			156		(83)			451			200		126
Adjusted common shareholders' net income	$	84,377		$	71,683		$	82,879		2	%	$	253,150		$	248,543		2	%
Total revenue	$	283,506		$	264,414		$	271,712		4	%	$	820,811		$	796,449		3	%
Less: Adjusted non-interest expenses (see above)		146,293			146,166			139,366		5			436,320			407,074		7
Pre-tax, pre-provision income	$	137,213		$	118,248		$	132,346		4	%	$	384,491		$	389,375		(1)	%

^(1)	Net of income tax of $467 for the three months ended July 31, 2023 (Q2 2023 – $532, Q3 2022 – $643) and $1,534 for the nine months ended July 31, 2023 (Q3 2022 – $1,927).
^(2)	Net of income tax of $9 for the three months ended July 31, 2023 (Q2 2023 – $47, Q3 2022 – $51) and $150 for the nine months ended July 31, 2023 (Q3 2022 – $65).

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 nine months ended						Change from
(unaudited) (thousands, except per share amounts)		July 31 2023			April 30 2023			July 31 2022		July 31 2022			July 31 2023			July 31 2022		July 31 2022
Results from Operations
Net interest income	$	252,158		$	230,523		$	240,593		5	%	$	724,961		$	699,774		4
Non-interest income		31,348			33,891			31,119		1			95,850			96,675		(1)
Total revenue		283,506			264,414			271,712		4			820,811			796,449		3
Pre-tax, pre-provision income^(1)		137,213			118,248			132,346		4			384,491			389,375		(1)
Common shareholders' net income		83,068			70,040			80,809		3			247,471			242,615		2
Common Share Information
Earnings per common share
Basic	$	0.86		$	0.73		$	0.88		(2)	%	$	2.58		$	2.67		(3)
Diluted		0.86			0.73			0.88		(2)			2.58			2.67		(3)
Adjusted^(1)		0.88			0.74			0.90		(2)			2.64			2.73		(3)
Cash dividends		0.33			0.32			0.31		6			0.97			0.91		7
Book value^(1)		35.08			34.90			33.90		3			35.08			33.90		3
Closing market value		26.35			24.30			25.87		2			26.35			25.87		2
Common shares outstanding (thousands)		96,378			96,308			92,988		4			96,378			92,988		4
Performance Measures^(1)
Return on common shareholders' equity		9.8	%		8.7	%		10.4	%	(60)	bp		10.0	%		10.7	%	(70)	bp
Adjusted return on common shareholders' equity		10.0			8.9			10.7		(70)			10.3			10.9		(60)
Return on assets		0.78			0.69			0.81		(3)			0.79			0.84		(5)
Net interest margin		2.37			2.26			2.43		(6)			2.32			2.44		(12)
Efficiency ratio		51.6			55.3			51.3		30			53.2			51.1		210
Operating leverage		(0.6)			(3.1)			(7.7)		710			(4.1)			(7.3)		320
Credit Quality^(1)
Provision for credit losses on total loans as a      percentage of average loans^(2)		0.16			0.12			0.16		-			0.06			0.14		(8)
Provision for credit losses on impaired loans as a      percentage of average loans^(2)		0.10			0.12			0.12		(2)			0.03			0.13		(10)
Balance Sheet^(3)
Assets	$	42,561,599		$	42,227,843		$	40,391,639		5	%
Loans^(4)		37,394,718			37,150,595			35,244,720		6
Deposits		33,672,195			33,255,533			32,378,117		4
Debt		3,851,081			3,846,915			3,426,519		12
Shareholders' equity		3,955,977			3,935,941			3,727,567		6
Off-Balance Sheet
Wealth Management
Assets under management and administration		8,177,884			8,149,296			8,055,456		2
Assets under advisement^(5)		2,297,438			2,208,618			1,968,299		17
Assets Under Administration – Other		15,401,453			15,092,141			14,090,563		9
Capital Adequacy^(6)
Common equity Tier 1 ratio		9.4	%		9.3	%		8.9	%	50	bp
Tier 1 ratio		11.2			11.1			10.7		50
Total ratio		13.1			13.1			12.2		90
Other
Number of full-time equivalent staff		2,669			2,734			2,674		-	%

^(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)	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