Download Canadian Western Bank Reports Better Q1 2017

Maria-Gabriella Khoury
Vice President,
Global FIG
+1 416 597 7561
[email protected]
Commentary
Sohail Ahmer
Vice President,
Global FIG
+1 416 597 7409
[email protected]
DBRS: Canadian Western Bank Reports Better Q1 2017 Earnings; Loan Growth Outpaced by Prepayments in Western Canada
•
Canadian Western Bank’s (CWB) net income increased by 3.6% quarter-over-quarter (QOQ) to $49.5 million in Q1 2017. The improvement was driven by a 4.4% rise in
net interest income to $156 million, as a result of prepayment fees, as clients took the opportunity to deleverage in Western Canada, partially offset by a higher provisioning
expense of $14.9 million in Q1 2017. DBRS notes that $6.5 million of the provisioning expense was related to a single large loan.
•
The balance sheet shrunk by 2% QOQ to $24.8 billion because of the aforementioned payouts that outpaced new loan origination. As a result, funding declined by a similar
amount in Q1 2017. Broker-sourced deposits saw a reduction of 3%, to $7.5 billion, as CWB continues to target lower cost branch raised deposits by leveraging the new
core banking system. Liquid resources (cash and near liquid assets) increased 23% QOQ to $2.1 billion and were in compliance with regulatory guidelines.
•
Asset quality improved sequentially, driven by a decline in new formations of impaired loans, which resulted in a decline of gross impaired loans (GIL) of 2.2% to $124.4
million, or 0.57% of total loans. CWB has made a concerted effort to reduce its risky oil and gas exposure, decreasing these loans to 1% of the total book at Q1 2017.
Overall, commercial loans experienced an increase in GIL of 91%, to $35 million over Q1 2017 primarily because of a large loan in Ontario. DBRS is cautious that CWB’s
higher exposure to commercial lending versus its peers could result in faster asset quality deterioration under a recessionary environment.
•
The CET1 capital ratio improved as a result of lower risk-weighted assets that declined as a result of loan repayments and good capital retention resulting in a CET1 ratio
of 9.5% in Q1 2017. The dividend payment was maintained at $0.23 per share. CWB’s Basel III leverage ratio was strong at 8.4%.
1Q17
4Q16
3Q16
2Q16
1Q16
Canadian Western Bank
Canadian Western Bank
Canadian Western Bank
Canadian Western Bank
Return on Average Common Equity (%)
9.5
9.3
9.4
7.0
11.6
Leverage Ratio (%)
8.4
8.6
8.4
8.0
7.7
Efficiency Ratio (%)
47.1
48.1
46.4
47.7
47.6
Provisions/Income before Prov. & Taxes (%)
16.9
15.6
20.1
46.1
10.7
Tier 1 Common Capital (CET1) Ratio (%)
9.5
9.2
9.0
8.2
8.6
Table Key (QoQ % Change)
More than 40%
Improvement
21% to
11% to
40%
20%
6% to 10%
0% to 5% 0% to 5%
Current DBRS Ratings: Canadian Western Bank
Deposits & Senior Debt:
Short-Term Instruments:
A (low)
R-1 (low)
Stable
Stable
6% to 10%
Deterioration
11% to
21% to
20%
40%
More than 40%
DBRS: Canadian Western Bank Reports Better Q1 2017 Earnings; Loan Growth Outpaced by Pre-payments in Western
Canada
DBRS.COM
Notes:
All figures are in Canadian dollars unless otherwise noted.
DBRS uses a two-point average to calculate Average Equity ratios.
The Efficiency Ratio is as calculated by DBRS.
Sources:
SNL Financial and Company Documents.
For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].
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see: http://www.dbrs.com/research/225752/highlights.pdf.
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Financial Institutions: Banks & Trusts
March 3, 2017