cwb-reports-second-quarter-2021-financial-and-strategic-performance

CWB reports second quarter 2021 financial and strategic performance

 

CWB Financial Group (TSX: CWB) (CWB) today announced financial performance for the three and six month periods ended April 30, 2021, with second quarter net income available to common shareholders of $72 million, up 40% compared to the same period last year. Second quarter pre-tax, pre-provision income was up 11% from the same period last year and down 3% sequentially, with three fewer interest-earning days compared to the prior quarter.

“Our financial results surpassed our expectations again this quarter, supported by very strong branch-raised deposit and loan growth across the country,” said Chris Fowler, President and CEO. “Our focus to create an unrivaled experience for our clients and invest in our capabilities and product offering is creating exciting growth opportunities for CWB, especially as the near-term economic outlook improves. Based on the expected trajectory of our financial performance for the rest of the year, we now expect to deliver high single-digit loan growth and mid-teens adjusted earnings per share growth on a full year basis in fiscal 2021.”

“Our focus to offer a superior client experience by transforming our capabilities has accelerated growth of full-service relationships within our risk appetite. The $805 million of net loan growth this quarter is one of the highest levels of quarterly organic loan growth that we have delivered in our history. We also continued to drive strong growth of lower cost branch-raised deposits, which has contributed to another sequential increase in our net interest margin.”

“As the economy recovers, we will be well-positioned to accelerate our growth and capture increased market share through our continued expansion in Ontario, where we are planning for the opening of our second full-service banking centre in fiscal 2022. I am also pleased with the progress we have made in the development of our digital client offering, which complements our proactive relationship-based client experience. In the second half of 2021, we will commence a limited initial roll-out of our Virtual COO, a digital solution powered by explainable artificial-intelligence that will provide small business owners with access to real-time information on their financial health and relevant insights to accelerate their business growth. This innovative digital tool enables us to be a disruptor as we proactively support small business owners across Canada.”

“As we look to the year ahead, we are seeing signals of a strong economic recovery that could provide additional accretive opportunities to surpass our baseline loan growth expectations within our risk appetite. To provide the capital flexibility to take full advantage of these potential opportunities, we plan to establish an at-the-market common equity distribution program. This program will provide a flexible and efficient tool to grow our regulatory capital base, if needed, in parallel with stronger levels of loan growth to drive incremental shareholder returns.”

“The parallel run of our AIRB tools and processes continued this quarter. We have gained significant insights as we continue to use these tools across our business and identified opportunities for enhancements that we expect will improve our efficiency and effectiveness as a model-enabled bank. We plan to implement these enhancements and expect to extend our previously communicated timeline for resubmission of our AIRB application beyond the first half of 2022, but believe this approach will result in more favorable long-term outcomes for our teams and our investors.”

“The success we have achieved would not be possible without our talented and dedicated teams. I am very proud that for the second consecutive year, CWB Financial Group was recognized as one of the 50 Best Work PlacesTM in Canada. This award is based on confidential employee trust and engagement survey results, and reflects the strength of our culture. Our continued strategic execution and strong financial results reflects our teams’ passion and dedication to realize our full potential across Canada.”

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 contributed to non-interest income growth while negatively affecting our efficiency ratio compared to the prior year. The wealth acquisition has contributed approximately $0.01 to adjusted earnings per common share in the first half of fiscal 2021, with higher levels of accretion anticipated starting in fiscal 2022.

Q2 2021,
compared to
Q2 2020(1)

Common shareholders’ net income of $72 million

Up 40%

Adjusted EPS of $0.84

Up 40%

Adjusted ROE of 10.8%

Up 280 bp(2)

Efficiency ratio of 48.9%

(47.1% excluding the impact of the wealth acquisition)

Worsened 180 bp

(No change)

Compared to the same quarter last year, common shareholders’ net income increased as 15% revenue growth and a decline in the provision for credit losses more than offset the impact of higher non-interest expenses. Accelerated growth of full-service client relationships was the primary driver of very strong branch-raised deposit growth of 18%, which included a 34% increase in lower-cost demand and notice deposits. Net interest income increased 14%, driven by a 13 basis point increase in net interest margin and 7% loan growth, including 10% growth in Ontario. Non-interest income growth of 29% was primarily related to the wealth acquisition. Non-interest expenses were up 20%, or approximately 9% excluding the wealth acquisition and costs associated with operating our Advanced Internal Ratings Based (AIRB) tools and processes. The provision for credit losses as a percentage of average loans was 29 basis points lower than last year, primarily due to improved macroeconomic forecasts associated with the ongoing economic recovery, which drove a 34 basis point decrease in the performing loan provision for credit losses.

Q2 2021,
compared to
Q1 2021(1)

Common shareholders’ net income of $72 million

Down 9%

Adjusted EPS of $0.84

Down 10%

Adjusted ROE of 10.8%

Down 70 bp(2)

Efficiency ratio of 48.9%

Worsened 210 bp

Compared to the prior quarter, common shareholders’ net income decreased as 1% revenue growth was more than offset by a 5% increase in non-interest expenses and the impact of the first semi-annual coupon payment on our Series 1 Non-Viability Contingent Capital (NVCC) Limited Recourse Capital Notes (LRCN) during the quarter of $4 million, after-tax. Revenue increased, despite three fewer interest-earning days, primarily due to the impact of a six basis point increase in net interest margin, which included a one-time two basis point benefit associated with adjusting certain balance sheet management activities in response to a shift in our funding mix, and very strong 3% loan growth. Strong growth in branch-raised deposits, including 6% sequential growth in lower cost demand and notice deposits, supported continued net interest margin expansion during the quarter. The provision for credit losses as a percentage of average loans was two basis points higher than last quarter, primarily due to an increase in the impaired loan provision for credit losses.

YTD 2021,
compared to
YTD 2020(1)

Common shareholders’ net income of $151 million

Up 23%

Adjusted EPS of $1.77

Up 24%

Adjusted ROE of 11.2%

Up 160 bp(2)

Efficiency ratio of 47.8%

(46.1% excluding the impact of the wealth acquisition)

Worsened 150 bp

(Improved 20 bp)

(1)

Includes certain non-IFRS measures – refer to definitions provided on page 6 of this news release, with further detail provided on page 7 of the 2021 Second Quarter Report to Shareholders.

(2)

bp – basis point

On a year-to-date basis, the increase in common shareholders’ net income was driven by 13% growth in revenue and a decline in the provision for credit losses, partially offset by an increase in non-interest expenses. Revenue growth included a 10% increase in net interest income and a 41% increase in non-interest income from the wealth acquisition. The increase in net interest income was attributable to 7% annual loan growth and a three basis point increase in net interest margin. Non-interest expenses were up 18%, or approximately 7% excluding the wealth acquisition and costs associated with operating our AIRB tools and processes. A 19 basis point provision for credit losses as a percentage of average loans was 15 basis points lower than the prior year, reflecting a 21 basis point decline in the performing loan provision for credit losses due to an improved macroeconomic outlook through the first half of 2021, offset by a six basis point increase in the impaired loan provision for credit losses.

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, delivered by our highly engaged teams that operate within a client-centric, collaborative and change-ready culture. Our differentiated market position and transformation-focused strategy sets the stage for CWB to be a disruptive force in Canadian financial services, deliver profitable long-term growth and provide attractive, sustainable returns to investors.

This quarter, work progressed as expected on our key strategic projects, including the development of digital onboarding for small business clients and enhanced digital banking platforms for all business and personal clients. In addition, this quarter we:

  • were recognized by Great Place to Work® as one of the 50 Best WorkplacesTM in Canada, for the second consecutive year;
  • continued to focus on our geographic diversification strategy, with formalized plans to open a new banking centre in Ontario in fiscal 2022, building on the success of our Mississauga banking centre opened in August 2020;
  • continued our progress towards AIRB approval. We plan to implement enhancements to improve the efficiency and effectiveness of our AIRB tools and processes that we identified through our parallel run. We expect the implementation of these enhancements to extend our timeline for resubmission of our application to the Office of the Superintendent of Financial Institutions Canada (OSFI) beyond the first half of 2022, as previously expected; and,
  • progressed development of the Virtual COO solution in partnership with Temenos, a global leader in banking software, to provide small business owners with a differentiated digital banking experience and accelerate our full-service client growth. The explainable artificial-intelligence powered solution, which is scheduled for a limited initial roll-out in the second half of 2021, will provide our small business owner clients with access to real-time information on their financial health and relevant insights to accelerate their business growth.

Capital Management

During the third quarter of fiscal 2021, we intend to establish an at-the-market (ATM) common equity distribution program that will allow for the incremental issuance, at our discretion and if needed, of up to $150 million of common shares at market prices in effect at the time. This program will provide additional flexibility to gradually support stronger than expected loan growth, while prudently managing our regulatory capital ratios.

Following the successful issuance of our $175 million Series 1 NVCC LRCN in October 2020, we completed the issuance of $150 million Series 2 NVCC LRCN in March 2021. With the recent LRCN issuances that bolstered our Tier 1 and Total capital ratios, we intend to redeem all of the outstanding NVCC Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 7, in accordance with the provisions of the Series 7 Preferred Shares. If we proceed with the redemption, we estimate that it will reduce our Tier 1 and Total capital ratios by approximately 50 basis points. This announcement does not constitute a notice of redemption. If a decision is made to proceed with the redemption, formal notice will be provided in accordance with the provisions of the Series 7 Preferred Shares.

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