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CWB reports fourth quarter and full year 2022 financial and strategic performance

EDMONTON, AB, Dec. 2, 2022 /CNW/ - CWB Financial Group (TSX: CWB) (CWB) today announced financial performance for the year ended October 31, 2022. Annual diluted earnings per share of $3.39 and adjusted earnings per common share(1) of $3.62, were down 9% and 5%, respectively, reflecting an increase in the performing loan provision for credit losses due to a deterioration in macro-economic forecasts. Fourth quarter diluted earnings per share of $0.72 was down 18% sequentially and reflected the impact of the accelerated amortization of certain previously capitalized Advanced Internal Ratings Based (AIRB) assets recognized concurrently with material completion of the development of revised AIRB tools as we prepare for implementation into our business processes and data. Fourth quarter adjusted earnings per common share of $0.88 was down 2%, sequentially. Our Board of Directors declared a cash dividend of $0.32 per common share, which is up one cent, or 3%, from the dividend declared last quarter and two cents, or 7%, from one year ago.

CWB Financial Group logo (CNW Group/CWB Financial Group)
CWB Financial Group logo (CNW Group/CWB Financial Group)

"Our performance this year reflected solid growth and continued investment in strategically targeted full-service growth initiatives in a volatile economic environment," said Chris Fowler President and CEO. "Our teams delivered 14% annual loan growth in strategically targeted general commercial loans, 11% annual loan growth in Ontario and an 8% annual increase in branch-raised deposits. Our disciplined approach to driving growth within our prudent risk appetite has delivered very strong credit performance and we are in a position of strength to face the potential economic volatility on the horizon."

 

"Our strategic execution has delivered enhancements to our digital capabilities, increased our physical presence in key markets, and further improved our client offering to provide a foundation to accelerate full-service client growth. We are focused to deliver strong core operating performance next year and achieve the financial performance targets we have set for 2024." 

 

"At our upcoming investor day on December 7, 2022 in Toronto, we look forward to discussing how our strategic execution has positioned our talented teams to drive an unrivaled experience for more full-service clients and increase value for our investors as the best bank for business owners in Canada."

(1)  Non-GAAP measure – refer to definitions and detail provided on pages 6 and 7.

 

Financial Performance

Q4 2022,
compared to
Q4 2021(1)

Common shareholders' net income

$68 million

Down 25%

Diluted EPS

Adjusted EPS

$0.72

$0.88

Down 29%

Down 15%

Adjusted ROE

10.5 %

Down 200 bp

Efficiency ratio

52.6 %

Down 30 bp

Pre-tax, pre-provision income

$133 million

Up 8%

 

Compared to the same quarter last year, common shareholders' net income decreased as 7% revenue growth was more than offset by higher non-interest expenses and an increase in the provision for credit losses on performing loans. Pre-tax, pre-provision income increased 8%. Net interest income increased 4%, as the benefit of 9% loan growth was offset by a 14 basis point decrease in net interest margin(1). Annual loan growth of 9%, including 14% growth in the general commercial portfolio, reflects our strategic focus on full-service client opportunities. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs over the last year driven by the higher market interest rate environment, and the impact of a proportional shift in our funding mix towards higher-cost fixed term deposits. Net interest margin was also negatively impacted by higher average liquidity and a change in our lending mix to comparatively lower-yielding borrowers and portfolios. Non-interest income growth of 29% primarily reflects higher foreign exchange revenue recorded within 'other' non-interest income. Non-interest expenses were up 18%, which included the $17 million impact of the accelerated amortization of intangible assets as a result of a reduction in estimated useful lives of certain previously capitalized AIRB assets, concurrent with the completion of a material portion of our revised AIRB tools. Adjusted non-interest expenses(1) increased 7%, and we delivered positive operating leverage(1) this quarter. The provision for credit losses on total loans as a percentage of average loans(1) of 14 basis points was 26 basis points higher than last year due to a 22 basis point increase in the performing loan provision and a four basis point increase in the impaired loan provision. The increase in the performing loan provision was driven by the impact of a deterioration in the forward-looking macroeconomic outlook in the rising interest rate environment. We incurred a nil provision for credit losses on impaired loans, compared to a four basis point recovery last year. Gross impaired loan balances represented 0.46% of gross loans, down from 0.61% one year ago and reflect historically low levels.

Q4 2022,
compared to
Q3 2022(1)

Common shareholders' net income

$68 million

Down 16%

Diluted EPS

Adjusted EPS

$0.72

$0.88

Down 18%

Down 2%

Adjusted ROE

10.5 %

Down 20 bp

Efficiency ratio

52.6 %

Up 130 bp

Pre-tax, pre-provision income

$133 million

No change



(1)    

Adjusted EPS, adjusted ROE, efficiency ratio, pre-tax, pre-provision income, adjusted common shareholders' net income, operating leverage,
adjusted non-interest expenses, net interest margin and the provision for credit losses on total loans as a percentage of average loans are
non-GAAP measures. Refer to definitions and detail provided on pages 6 and 7.


bp – basis point

 

Common shareholders' net income decreased compared to last quarter as higher revenues and a lower provision for credit losses were more than offset by an increase in non-interest expenses, primarily due to the accelerated amortization of previously capitalized AIRB assets, as discussed in the comparison to the same quarter last year. Adjusted common shareholders' net income decreased 1% and pre-tax, pre-provision income remained unchanged. Net interest income was consistent with last quarter, as the benefit of 2% sequential loan growth was offset by a ten basis point decline in net interest margin. The decline in net interest margin reflects that growth in asset yields has lagged the growth in deposit costs driven by the higher market interest rate environment. Net interest margin was also negatively impacted by higher average liquidity and a change in our lending mix to comparatively lower-yielding borrowers and portfolios. Non-interest income growth of 27% primarily reflects higher foreign exchange revenue recorded within 'other' non-interest income. Adjusted non-interest expenses(1) of $147 million increased 6% and reflected continued investments in our strategic priorities, including our new AIRB tools and the harmonization of our wealth management brands with the launch of CWB Wealth, customary seasonal increases in advertising, community investment and employee training costs and higher people costs. The provision for credit losses on total loans as a percentage of average loans declined two basis points, primarily driven by a lower impaired loan provision, partially offset by a higher performing loan provision due to a further deterioration in the forward-looking macroeconomic outlook. Lower impaired loan provisions reflected the reversal of provisions related to previously impaired loans that were resolved with lower than expected realized losses, combined with a decline in new impaired loan formations.

 

Fiscal 2022
compared to
fiscal 2021(1)

Common shareholders' net income

$310 million

Down 5%

Diluted EPS

Adjusted EPS

$3.39

$3.62

Down 9%

Down 5%

Adjusted ROE

10.8 %

Down 100 bp

Efficiency ratio

51.5 %

Up 240 bp

Pre-tax, pre-provision income

$522 million

Up 1%



(1)

Adjusted EPS, adjusted ROE, efficiency ratio, pre-tax, pre-provision income, adjusted common shareholders' net income, adjusted non-interest expenses, net interest margin and the provision for credit losses on total loans as a percentage of average loans are non-GAAP measures. Refer to definitions and detail provided on pages 6 and 7.


bp – basis point

 

Compared to last year, the decrease in common shareholders' net income was primarily driven by a higher provision for credit losses on performing loans. Revenue growth included a 10% increase in non-interest income and a 5% increase in net interest income attributable to 9% annual loan growth, partially offset by an eight basis point decrease in net interest margin, primarily reflecting that growth in asset yields has lagged the growth in deposit costs over the last year. The increase in non-interest income primarily reflects higher foreign exchange revenue recorded within 'other' non-interest income. Non-interest expenses were up 14%, or approximately 11% on an adjusted basis, and reflected our continued strategic execution, including investment in our people, AIRB tools and processes, digital capabilities, the harmonization of our wealth management brands with the launch of CWB Wealth, our new banking centres in Markham, Ontario and downtown Vancouver and expanded client offerings to optimize our business, deliver an unrivaled experience to our clients, and accelerate full-service client growth. Our total annual provision for credit losses of 14 basis points as a percentage of average loans increased five basis points and compared to a nine basis point charge last year, primarily due to an increase in the performing loan provision for credit losses driven by a deterioration in macroeconomic forecasts. The provision for credit losses on impaired loans of ten basis points was seven basis points lower than last year and remained well below our five-year average of 19 basis points.

Strategic Performance

We continued to transform our capabilities to offer a superior full-service client experience through a complete range of in-person and digital channels. These improving capabilities, delivered by our highly engaged and client-centric teams, have accelerated growth of full-service client relationships in specifically targeted segments that fit within our strategic growth objectives and prudent risk appetite. Our strategic execution will enable us to continue to deliver strong growth of full-service clients and capitalize on the opportunities available to us as we continue to expand our presence in key markets. This quarter, we:

  • Successfully harmonized our wealth management brands with the launch of CWB Wealth. The launch further integrates our acquired wealth management operations under one brand and strategically positions us to expand full-service client offerings and opportunities, and provide a unique client experience in Canadian private wealth advisory services.

  • Materially completed the development of revised AIRB tools, incorporating targeted enhancements and the final 2023 Capital Adequacy Requirements (CAR) guidelines. Next year, we will commence the integration of our revised AIRB tools into our business processes and data. Once our AIRB tools have been successfully implemented across the business, we will operate them for a sufficient period of time to support a successful resubmission of our application.

Fiscal 2023 Outlook

Leveraging our enhanced capabilities and increased physical presence, we expect our team to continue to deliver strong full-service client growth in strategically targeted segments and within our risk appetite. We are selectively targeting high single-digit annual percentage loan growth, with stronger growth in our strategically targeted general commercial portfolio, where prudent. We also expect to deliver double-digit annual percentage growth of branch-raised deposits.

Based on the assumption of a more stable interest rate environment, our net interest margin is expected to increase over the next year to reflect the combined benefit of more normalized lending spreads and the benefit of fixed term loans re-pricing at higher market interest rates, which due to their longer duration lagged the re-pricing of fixed term deposits in the previous year.

Our approach to expense management will focus on execution of our most important strategic priorities and continued tight management of discretionary expenses. On an annual basis, we will manage to an annual efficiency ratio below 50% with positive operating leverage.

We expect that the combined impacts of the conclusion of COVID-19 government support programs, rapidly rising interest rates and a deteriorating economic outlook will drive an increase in the provision for credit losses next year. Our prudent approach and leveraging our enhanced credit risk management tools and processes supports our expectation that our provision for credit losses will remain within our strong historical range of 18 to 23 basis points next year, likely on the higher end of that range given potential economic volatility.

Based on the above assumptions, we expect to deliver annual double-digit pre-tax, pre-provision income growth, annual percentage growth of adjusted earnings per common share in the low- to mid- single-digit range and an annual adjusted ROE between 10 and 11%.

For further details on our expectations for fiscal 2023, refer to the Outlook section of our annual Management's Discussion and Analysis within the 2022 Annual Report.

Financial Scorecard

The following financial objectives reflect key performance metrics that we expect to drive over the next two years. The targets have been developed on the assumption of relatively stable economic conditions and under the Standardized approach for capital management.

Annual Metrics

Performance Target

Fiscal 2022 Performance

Pre-tax pre-provision income growth

Greater than 10%

1 %

Adjusted ROE

12% by 2024

10.8 %

Efficiency ratio

Less than 50%

51.5 %

 

About CWB Financial Group

CWB Financial Group (CWB) is the only full-service bank in Canada with a strategic focus to meet the unique financial needs of businesses and their owners. We provide our nation-wide clients with full-service business and personal banking, specialized financing, comprehensive wealth management offerings, and trust services. Clients choose CWB for a differentiated level of service through specialized expertise, customized solutions, and faster response times relative to the competition. Our people take the time to understand our clients and their business, and work as a united team to provide holistic solutions and advice.

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) and "CWB.PR.D" (Series 9 preferred shares). We are firmly committed to the responsible creation of value for all our stakeholders and our approach to sustainability will support our continued success. Learn more at www.cwb.com.

Fiscal 2022 Fourth Quarter and Fiscal 2022 Financial Results Conference Call


CWB's fourth quarter and fiscal 2022 results conference call is scheduled for Friday, December 2, 2022, at 10:00 a.m. ET (8:00 a.m. MT). CWB's executives will comment on financial results and respond to questions from analysts.

 

The conference call may be accessed on a listen-only basis by dialing (416) 764-8688 (Toronto) or 1 (888) 390-0546 (toll free) and entering passcode: 70750888. The call will also be webcast live on CWB's website:

www.cwb.com/investor-relations/quarterly-reports.

 

A replay of the conference call will be available until December 9, 2022, by dialing (416) 764-8677 (Toronto) or 1 (888) 390-0541 (toll-free) and entering passcode 750888#.

 

Selected Financial Highlights


For the three months ended


Change from

October 31
2021


For the year ended

Change from

October 31
2021


(unaudited)


October 31

2022



July 31

 2022



October 31
2021





October 31
2022



October 31
2021



(thousands, except per share amounts)














Results from Operations





















 Net interest income

$

240,202


$

240,593


$

229,925



4

%

$

939,976


$

892,363


5

%

 Non-interest income


39,636



31,119



30,699



29



136,311



123,670


10


 Total revenue


279,838



271,712



260,624



7



1,076,287



1,016,033


6


 Pre-tax, pre-provision income(1)


132,528



132,346



122,747



8



521,903



517,149


1


 Common shareholders' net income


67,687



80,809



89,998



(25)



310,302



327,471


(5)


Common Share Information

 Earnings per common share





















   Basic

$

0.72


$

0.88


$

1.01



(29)

%

$

3.39


$

3.74


(9)

%

   Diluted


0.72



0.88



1.01



(29)



3.39



3.73


(9)


   Adjusted(1)


0.88



0.90



1.03



(15)



3.62



3.81


(5)


 Cash dividends


0.31



0.31



0.29



7



1.22



1.16


5


 Book value(1)


33.48



33.90



33.10



1



33.48



33.10


1


 Closing market price


23.70



25.87



39.59



(40)



23.70



39.59


(40)


 Common shares outstanding (thousands)


94,326



92,988



89,390



6



94,326



89,390


6


 Performance Measures(1)





















 Return on common shareholders' equity


8.6

%


10.4

%


12.2

%


(360)

bp


10.1

%


11.6

%

(150)

bp

 Adjusted return on common shareholders'





















   equity


10.5



10.7



12.5



(200)



10.8



11.8


(100)


 Return on assets


0.66



0.81



0.97



(31)



0.79



0.92


(13)


 Net interest margin


2.33



2.43



2.47



(14)



2.41



2.49


(8)


 Efficiency ratio


52.6



51.3



52.9



(30)



51.5