Mr. Chris Fowler reports

CWB REPORTS FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL PERFORMANCE

Canadian Western Bank has released its financial performance for the year ended Oct. 31, 2023. Annual diluted earnings per share of $3.38 were relatively consistent with the prior year and adjusted earnings per common share of $3.58 declined 1 per cent.

Fourth quarter diluted earnings per share of 80 cents were down six cents sequentially and reflected the impact of costs incurred to execute reorganization initiatives to realize efficiencies in the Canadian Western's banking centre footprint, operational support functions and administrative processes. Fourth quarter adjusted earnings per common share of 94 cents increased six cents from last quarter and one year ago, as the bank benefited from an increase in net interest margin and prudent expense management.

The bank's board of directors declared a cash dividend of 34 cents per common share, which is up one cent, or 3 per cent, from the dividend declared last quarter and two cents, or 6 per cent, from one year ago.

"We delivered a strong fourth quarter performance, and exited the year with positive momentum and a resilient balance sheet," said Chris Fowler, president and chief executive officer. "As the year progressed, our teams drove improved financial results through targeted loan growth and disciplined expense management. Our secured lending model and disciplined underwriting continue to produce credit losses below historical averages.

"We expect to maintain strong financial results in fiscal 2024 against continued volatility in economic and market conditions. Our outlook is supported by an increase in our operational efficiency from the reorganization initiatives we executed late this quarter, which will result in the redeployment of resources to priority activities consistent with our differentiated strategy.

"We are confident our talented teams will continue to deliver an unrivalled client experience to business owners and their families, and I would like to thank each of our team members for their achievements in a challenging environment. We are well positioned to create value for our investors in the year ahead as we continue to grow full-service client relationships, maintain our prudent and secured lending approach, and pro-actively manage our expenses to drive positive operating leverage."

Compared with last quarter, common shareholders' net income decreased, as 3-per-cent revenue growth and a five-basis-point decline in the provision for credit losses as a percentage of average loans were more than offset by higher non-interest expenses, primarily due to costs incurred related to a reorganization of the bank's operations late in the quarter. Adjusted common shareholders' net income and pretax, preprovision income increased 8 per cent and 4 per cent, respectively.

Revenue growth reflected a 2-per-cent increase in net interest income and a 13-per-cent increase in non-interest income, primarily due to higher foreign exchange revenue. Net interest income growth was driven by a three-basis-point improvement in net interest margin. Higher net interest margin reflected the benefit of increased yields on fixed-term assets from higher market interest rates, which had a larger impact than the increase in deposit costs.

Non-interest expenses increased 13 per cent and included $17-million of costs incurred to execute reorganization initiatives to realize efficiencies in Canadian Western's banking centre footprint, operational support functions and administrative processes. Adjusted non-interest expenses increased 2 per cent and the bank delivered positive operating leverage of 3.3 per cent this quarter.

The provision for credit losses on total loans of 11 basis points was five basis points lower than last quarter. The performing loan provision for credit losses of three basis points declined by three basis points compared with last quarter and reflected continued uncertainty in the economic environment. The impaired loan provision of eight basis points declined two basis points from last quarter and remained below the bank's five-year historical average.

Compared with the same quarter last year, higher common shareholders' net income reflected higher revenues and a three-basis-point decrease in the provision for credit losses. Pretax, preprovision income increased 8 per cent.

Higher total revenue reflected a 7-per-cent increase in net interest income, partially offset by an 11-per-cent decrease in non-interest income, as foreign exchange revenue was significantly elevated in the same quarter last year. Higher net interest income was primarily due to 4-per-cent loan growth and a seven-basis-point improvement in net interest margin. The increase in net interest margin was driven by focusing loan growth on the bank's strategically targeted general commercial loan portfolio, which produced strong risk-adjusted returns.

Adjusted non-interest expenses were up 1 per cent from the same quarter last year as the impact of salary increments enacted in the prior year and higher capital taxes were partially offset by lower spending on strategic projects and the bank's continued actions undertaken during the year to carefully manage its staffing levels and limit discretionary expenditures. Non-interest expenses also benefited from a scientific research and experimental development (SR&ED) investment tax credit realized in the current quarter.

Canadian Western's provision for credit losses on total loans as a percentage of average loans was three basis points lower compared with the same quarter last year due to a decrease in the performing loan provision, partially offset by a higher impaired loan provision. The performing loan provision was elevated in the same quarter last year due to a more significant deterioration in the forward-looking macroeconomic outlook at that time.

Compared with last year, the increase in common shareholders' net income was primarily driven by higher revenues and a lower provision for credit losses, partially offset by higher non-interest expenses. Pretax, preprovision income increased 1 per cent.

Total annual revenue of $1.1-billion increased 3 per cent, reflecting a 4-per-cent increase in net interest income, partially offset by a 4-per-cent decline in non-interest income. Net interest income increased 4 per cent due to the benefit of 4-per-cent annual loan growth, partially offset by a seven-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 the bank's financing mix toward fixed-term branch-raised and insured broker deposits. Lower non-interest income reflected a decrease in foreign exchange revenue recorded within other non-interest income, partially offset by higher credit-related fees.

Total adjusted non-interest expenses were up 6 per cent due to a higher average staffing complement, the impact of annual salary increments, the investment in the bank's digital capabilities and higher capital taxes. Higher non-interest expenses were partially offset by lower spending on strategic projects and Canadian Western's continued actions undertaken during the year to contain expense growth, and the beneficial impact associated with a larger SR&ED investment tax credit realized in the year.

The bank's total annual provision for credit losses represented seven basis points as a percentage of average loans, compared with 14 basis points last year. Canadian Western recognized a three-basis-point provision related to performing loans, relatively consistent with the four-basis-point performing loan provision recorded in the prior year, and reflective of continued uncertainty in the economic environment. The provision for credit losses on impaired loans of four basis points was six basis points lower than last year, primarily due to an increase in recoveries of impaired loan write-offs upon final resolution.

Fiscal 2024 outlook

Despite persistent levels of inflation and an elevated interest rate environment, growth of the Canadian economy remained moderately positive in fiscal 2023. As the impact of elevated interest rates continues to work through the economy, economic growth in fiscal 2024 is expected to be weak in the first part of the year before expanding in the latter half of the year. The bank anticipates a relatively stable policy interest rate in fiscal 2024, with the potential for policy interest rate reductions in the latter part of the year on the assumption that core inflation continues to decline to reach the Bank of Canada's target level.

Against this expected economic backdrop, Canadian Western's teams remain focused on winning full-service clients within the bank's risk-adjusted pricing criteria. The bank expects to deliver mid-single-digit annual percentage loan growth, if prudent and within its disciplined risk appetite, with a strategic focus on portfolios that support further full-service client opportunities. The bank expects strong loan growth in Ontario will drive further geographic diversification of its loans as it continues to expand its physical presence with the opening of its Toronto financial district and Kitchener banking centres in fiscal 2024.

Canadian Western expects to launch its new digital and cash management platform next year and will commence with a phased migration of existing commercial clients onto the new platform. It expects gradual momentum in branch-raised deposit growth as the year progresses, with mid-single-digit percentage growth of branch-raised deposits on an annual basis.

Based on the assumption of a more stable interest rate environment, the bank's net interest margin is expected to gradually increase over the next year and reflect the benefits of the growth in fixed-term asset yields continuing to outpace growth in financing costs, and loan growth that is targeted to optimize risk-adjusted returns.

Canadian Western will continue to carefully manage discretionary costs while prioritizing investments in key roles and capabilities to support its differentiated strategy to be the best bank for business owners in Canada. The reorganization initiatives undertaken in late fiscal 2023 provide the bank with additional operational efficiency to continue to advance its strategy, while ensuring it maintains an appropriate level of expenses relative to its expected revenues. The bank executed most of the planned organizational redesign activities in the fourth quarter of fiscal 2023 and expect limited further activity within fiscal 2024. It will carefully monitor and manage its expenditures and expects to deliver positive operating leverage next year.

Canadian Western expects that the sustained impact of higher interest rates will result in increased borrower defaults and impaired loans as the year progresses. Consistent with its experience in prior periods of economic volatility, the bank's prudent lending approach supports its expectation that its provision for credit losses will be within its historical normal range of 18 to 23 basis points next year.

Based on the assumptions described above and presuming no significant adverse shifts in the macroeconomic environment, the bank expects annual percentage growth of adjusted earnings per common share in the low- to mid-single-digit range.

About Canadian Western Bank

Canadian Western is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. It provides its nationwide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose Canadian Western for a differentiated level of service through specialized expertise, customized solutions and faster response times relative to the competition. Its people take the time to understand the bank's clients and their business, and work as a united team to provide holistic solutions and advice.

Fiscal 2023 fourth quarter and fiscal 2023 financial results conference call

Canadian Western's fourth quarter and fiscal 2023 results conference call is scheduled for Friday, Dec. 8, 2023, at 9 a.m. ET (7 a.m. MT). Canadian Western's executives will comment on financial results and respond to questions from analysts.

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