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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]. The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings Limited (England and Wales)(CRA, DRO affiliate); and DBRS Ratings México, Institución Calificadora de Valores S.A. de C.V. (Mexico)(CRA, NRSRO affiliate, DRO affiliate). Please note that DBRS Ratings Limited is not an NRSRO and ratings assigned by it are non-NRSRO ratings. For more information on regulatory registrations, recognitions and approvals, please see: http://www.dbrs.com/research/225752/highlights.pdf. © 2017, DBRS. All rights reserved. The information upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be reliable. 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