CWB reports third quarter 2020 financial and strategic performance

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

EDMONTON, AB, Aug. 28, 2020 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced financial performance for the three and nine month periods ended July 31, 2020, with third quarter net income available to common shareholders of $62 million and adjusted earnings per common share of $0.74, up 21% and 23%, respectively, from the previous quarter.

Financial Performance

On June 1, 2020, we acquired the businesses of T.E. Wealth and Leon Frazer & Associates (the wealth acquisition). The operations of the wealth acquisition, which are included in our third quarter financial results for two months, negatively affected common shareholders' net income and operating leverage and had an insignificant impact on adjusted earnings per common share and adjusted return on equity. The wealth acquisition is expected to support adjusted earnings per common share modestly at first, with further accretion beginning in fiscal 2022.

Compared to the prior year, common shareholders' net income declined as 4% revenue growth was more than offset by an elevated estimated performing loan provision for credit losses and increased non-interest expenses, primarily related to the wealth acquisition. In line with our strategy, we delivered robust branch-raised deposit growth of 22%, which included a 34% increase in demand and notice deposits, contributing to a 14% reduction in higher cost broker deposits. Net interest income increased 1% as the benefit of 5% loan growth, including very strong growth in commercial loans, was largely offset by a 20 basis point decline in net interest margin in the current low interest rate environment. Non-interest income growth of 37% was primarily related to the wealth acquisition. Due to the impact of the COVID-19 pandemic, a more pessimistic outlook for the Canadian economy resulted in a performing loan provision for credit losses of 11 basis points, compared to a three basis point recovery in the prior year.

Compared to the prior quarter, the increase in common shareholders' net income was primarily driven by 6% revenue growth combined with a reduction in the estimated performing loan provision for credit losses, partially offset by higher non-interest expenses, entirely due to the wealth acquisition. Loan growth in the third quarter remained consistent with last quarter at 2%. Branch-raised deposit growth of 5% was driven by very strong 6% growth in demand and notice deposits. Net interest income increased by 5%, driven by the positive impacts of 2% loan growth, two additional interest-earning days and a stable net interest margin. Non-interest income increased 10% as the contribution of the wealth acquisition was partially offset by lower net gains on securities. Our estimated quarterly performing loan provision for credit losses represented 11 basis points as a percentage of average loans, compared to 27 basis points last quarter, which reflected continued evolution of economic forecasts related to the impact of the COVID-19 pandemic.

Compared to the prior year, common shareholders' net income declined as 3% revenue growth was more than offset by an increase in the estimated performing loan provision for credit losses, discussed above, and higher non-interest expenses. Net interest income increased 1%, driven by 5% loan growth partially offset by a 16 basis point decrease in net interest margin. Non-interest income growth of 20% benefited from net gains on securities and the contribution of the wealth acquisition. Non-interest expenses increased 5% from continued investment in our teams and technology to support overall business growth and the impact of the wealth acquisition, partially offset by reduced spending on certain expenses in the current operating environment.

Strategic Performance

The continued execution of our focused business transformation and investments in digital capabilities, supported by our talented teams, will enhance our differentiated full-service client experience and position us for accelerated growth as the economy stabilizes. This quarter, we:

• continued to work through the AIRB approval process and remain on track for regulatory approval this fiscal year;
• closed the acquisition and began integration of the businesses of T.E. Wealth and Leon Frazer & Associates, leading providers of financial planning and wealth management services across Canada, with an additional focus on serving Indigenous communities;
• continued to advance our digital capabilities and remained committed to achievement of key milestones, launching digital onboarding for Motive Financial clients; and
• opened our Mississauga full-service branch on August 4th, our first branch in Ontario.

About CWB Financial Group

CWB Financial Group (CWB) is a diversified financial services organization known for a highly proactive client experience serving businesses and individuals across Canada. Operating from headquarters in Edmonton, Alberta, CWB's key business lines include full-service business and personal banking offered through branch locations of Canadian Western Bank and Internet banking services provided by Motive Financial. Highly responsive nation-wide specialized financing is delivered under the banners of CWB Optimum Mortgage, CWB Equipment Financing, CWB National Leasing, CWB Maxium Financial and CWB Franchise Finance. Trust services are offered through CWB Trust Services. Comprehensive wealth management services are provided through CWB Wealth Management and its affiliate brands, including T.E. Wealth, Leon Frazer & Associates, CWB McLean & Partners, 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.

Forward-looking Statements

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

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

A variety of factors, many of which are beyond our control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada, including housing market conditions, the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, material changes to trade agreements, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, 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, 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 interim and/or annual Management's Discussion and Analysis (MD&A). These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. Unless required by securities law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by us or on our behalf. 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 businesses are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, we consider our own forecasts, economic data and forecasts provided by the Canadian government and its agencies, as well as certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific.

Where relevant, material economic assumptions underlying forward-looking statements are disclosed within the Outlook section of our annual MD&A. The emergence of COVID-19 has cast uncertainty on each of these assumptions and there can be no assurance that they continue to be valid. Given the rapid pace of change, it is premature to make further assumptions about these matters. The full extent of the impact that COVID-19, including government and/or regulatory responses to the outbreak, will have on the Canadian economy and our business is highly uncertain and difficult to predict at this time. See the Financial Results and Outlook and Risk Management sections of our interim MD&A for more information.

Non-IFRS Measures

We use a number of financial measures to assess our performance against strategic initiatives and operational benchmarks.

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

• Adjusted non-interest expenses – total non-interest expenses, excluding the pre-tax amortization of acquisition-related intangible assets, and acquisition and integration costs. Acquisition and integration costs include one-time direct and incremental costs incurred as part of the execution and ongoing integration of the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates (see calculation on page 6 of the 2020 Third Quarter Report to Shareholders).
• Adjusted common shareholders' net income – total common shareholders' net income, excluding the amortization of acquisition-related intangible assets, acquisition-related fair value changes, and acquisition and integration costs, net of tax. Acquisition and integration costs include one-time direct and incremental costs incurred as part of the execution and ongoing integration of the acquisition of the businesses of T.E. Wealth and Leon Frazer & Associates (see calculation on page 6 of the 2020 Third Quarter Report to Shareholders).
• Pre-tax, pre-provision income – total revenue less adjusted non-interest expenses (see calculation on page 6 of the 2020 Third Quarter Report to Shareholders).
• Adjusted earnings per common share – diluted earnings per common share calculated with adjusted common shareholders' net income. Prior to the third quarter of fiscal 2020, this metric was named 'Adjusted cash earnings per common share'.
• Return on common shareholders' equity – annualized common shareholders' net income divided by average common shareholders' equity.
• Adjusted return on common shareholders' equity – annualized adjusted common shareholders' net income divided by average common shareholders' equity.
• Return on assets – annualized common shareholders' net income divided by average total assets.
• Efficiency ratio – adjusted non-interest expenses divided by total revenue.
• Net interest margin – annualized net interest income divided by average total assets.
• Provision for credit losses on total loans as a percentage of average loans – annualized provision for credit losses on loans, committed but undrawn credit exposures and letters of credit divided by average total loans. Provisions for credit losses related to debt securities measured at fair value through other comprehensive income (FVOCI) and other financial assets are excluded.
• Provision for credit losses on impaired loans as a percentage of average loans – annualized provision for credit losses on impaired loans divided by average total loans.
• Provision for credit losses on performing loans as a percentage of average loans – annualized provision for credit losses on performing loans (Stage 1 and 2) divided by average total loans.
• Operating leverage – growth rate of total revenue less growth rate of adjusted non-interest expenses.
• Common share dividend payout ratio – common share dividends declared during the past twelve months divided by common shareholders' net income earned over the same period.
• Basel III common equity Tier 1, Tier 1, Total capital, and leverage ratios – calculated in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI);
• Risk-weighted assets – on and off-balance sheet assets assigned a risk weighting calculated in accordance with the Standardized approach guidelines issued by OSFI.
• Average balances – average daily balances.

SOURCE CWB Financial Group

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