Canadian Western Bank

TSX : CWB


Canadian Western Bank

August 27, 2014 17:56 ET

CWB Reports Record Quarterly Earnings

Common Share Dividend of $0.20 per Share Declared, Up 11% Over the Dividend Declared a Year Earlier

Quarterly Dividend Declared on Series 5 Preferred Shares

EDMONTON, ALBERTA--(Marketwired - Aug. 27, 2014) - Canadian Western Bank (TSX:CWB) (CWB) -

Third Quarter 2014 Highlights1 (compared to the same period in the prior year)

  • Record net income available to common shareholders of $56.6 million, up 19%.
  • Record diluted earnings per common share of $0.70, up 17%, and adjusted cash earnings per common share of $0.71, up 16%.
  • Record total revenues, on a taxable equivalent basis (teb)1, of $159.8 million, up 11%.
  • Strong loan growth of 3% in the quarter, 10% year-to-date and 12% over the past twelve months.
  • Net interest margin (teb) of 2.58%, compared to 2.59% in the previous quarter and 2.70% last year.
  • Solid Basel III regulatory capital ratios using the Standardized approach for calculating risk-weighted assets of 8.0% common equity Tier 1 (CET1), 9.3% Tier 1 and 12.9% total ratio.
  • Surpassed $20 billion of total balance sheet assets.

1 Highlights include certain non-IFRS measures - refer to definitions following the table of Selected Financial Highlights on page 4.

Canadian Western Bank today announced strong third quarter financial performance including the achievement of record quarterly earnings. Compared to the same quarter last year, net income available to common shareholders of $56.6 million was up 19%, while diluted earnings per common share increased 17% to $0.70. Adjusted cash earnings per common share, which excludes the after-tax amortization of acquisition-related intangible assets and non-tax deductible changes in fair value of contingent consideration, increased 16% to $0.71. Total revenues (teb) of $159.8 million increased 11%, reflecting the positive impact of strong 12% loan growth and a 22% increase in non-interest income, which more than offset a 12 basis point decline in net interest margin (teb) to 2.58%.

Compared to last quarter, net income available to common shareholders increased 11% as the benefits of three additional revenue earning days, 3% loan growth, and lower preferred share dividends offset higher non-interest expenses and lower non-interest income. Adjusted cash earnings per share was up 9%.

Year-to-date net income available to common shareholders of $160.4 million increased 18% as the combined impact of strong growth in loans and non-interest income as well as lower preferred share dividends more than offset a four basis point decline in net interest margin and higher non-interest expenses. Diluted earnings per share increased 16% to reach $1.98 and adjusted cash earnings per share increased 17% to $2.03.

"Record earnings this quarter were driven by solid results across our banking, trust, insurance and wealth management businesses, as well as the impact of last quarter's preferred share transactions," said Chris Fowler, CWB Group President and CEO. "We've achieved our annual double-digit loan growth target within the first nine months and credit quality has been better than expected. While relatively stable net interest margin supported our results this quarter, a challenging interest rate environment and competitive factors continue to pressure this key metric."

"Activity within our key western Canadian markets continues to be strong relative to other regions and our pipeline for new business remains very encouraging," continued Mr. Fowler. "In order to capitalize on these opportunities we continue to invest strategically in developing our people, as well in the technology and infrastructure required to further enhance our product and service offerings. We expect these investments to provide material future benefits to all of our stakeholders, including clients, employees and shareholders."

On August 27, 2014, CWB's Board of Directors declared a cash dividend of $0.20 per common share, payable on September 25, 2014 to shareholders of record on September 15, 2014. This quarterly dividend was 11% ($0.02) higher than the quarterly dividend declared one year ago and consistent with the prior quarter. The Board of Directors also declared a cash dividend of $0.275 per Series 5 Preferred Share, payable on October 31, 2014 to shareholders of record on October 24, 2014.

Fiscal 2014 Performance Target Ranges and Outlook

CWB's actual year-to-date performance together with the 2014 performance target ranges are presented in the table below:

2014
Year-to-date
Performance
2014
Target Ranges
Adjusted cash earnings per common share growth(1) (2) 17% 12 - 16%
Total revenue (teb) growth(1) 13% 10 - 12%
Loan growth(3) 12% 10 - 12%
Provision for credit losses as a percentage of average loans(4) 0.17% 0.18 - 0.23%
Efficiency ratio (teb)(5) 45.7% 46% or less
Return on common shareholders' equity(6) 14.7% 14.0 - 15.0%
Return on assets(7) 1.10% 1.05 - 1.15%
(1) Year-to-date performance for adjusted cash earnings per common share and total revenue growth (teb) is the current year results over the same period last year.
(2) Adjusted cash earnings per common share is calculated as diluted earnings per common share excluding the after-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration (which represent non-cash charges that are not considered indicative of ongoing business performance).
(3) Loan growth is the increase over the past twelve months.
(4) Year-to-date provision for credit losses, annualized, divided by average total loans.
(5) Efficiency ratio (teb) is calculated as non-interest expenses divided by total revenues (teb) excluding the non-tax deductible change in fair value of contingent consideration.
(6) Return on common shareholders' equity is calculated as annualized net income available to common shareholders divided by average common shareholders' equity.
(7) Return on assets is calculated as annualized net income available to common shareholders divided by average total assets.

Financial performance through the first nine months of 2014 has CWB positioned to achieve favourable full-year results compared to all of our 2014 performance target ranges. Growth in loans, total revenues and adjusted cash earnings per share was driven by ongoing activity across our key markets. Year-to-date net interest margin (teb) was down four basis points compared to last year, as the benefit of more favourable fixed term deposit costs and debt expense, coupled with a lower average balance of cash and securities as a percentage of total assets, was more than offset by lower loan yields. Continued pressure on this key metric is expected in the absence of increases in the prime lending interest rate and/or a sustained steepening of the yield curve. Achievement of our revenue growth target for the year will be challenging in view of our strong results in the final quarter last year and the expected decline in fourth quarter net insurance revenues this year resulting from claims expense related to severe Alberta hailstorms in August. Based on year-to-date performance and in consideration of expected revenues and planned expenditures through the final quarter, we believe the 2014 efficiency ratio target is also challenging but attainable. Overall credit quality continues to be strong and we expect the annual provision for credit losses as a percentage of average loans to remain below the target range.

Economic fundamentals within CWB's key markets in Western Canada remain strong relative to the rest of the country. Consensus forecasts call for ongoing economic stability in the United States (U.S.) and globally and further expansion within the domestic economy through the remainder of 2014 and into 2015. Along with expectations for continued outperformance in Canada's western provinces, these views support our optimistic outlook for continued profitable growth.

We look forward to providing our fourth quarter and fiscal year end results, along with performance target ranges for 2015, on December 4, 2014.

About CWB Group

Canadian Western Bank offers a full range of business and personal banking services across the four western provinces and is the largest publicly traded Canadian bank headquartered in Western Canada. CWB, along with its operating affiliates, National Leasing, Canadian Western Trust, Valiant Trust, Canadian Direct Insurance, Canadian Western Financial, Adroit Investment Management, and McLean & Partners Wealth Management, collectively offer a diversified range of financial services across Canada and are together known as the CWB Group. The common shares of Canadian Western Bank are listed on the Toronto Stock Exchange under the trading symbol "CWB". CWB's Series 5 preferred shares trade on the Toronto Stock Exchange under the trading symbol "CWB.PR.B". Refer to www.cwb.com for additional information.

Fiscal 2014 Third Quarter Results Conference Call

CWB's third quarter results conference call is scheduled for Thursday, August 28, 2014 at 1:00 p.m. ET (11:00 a.m. MT). CWB's executives will comment on financial results and respond to questions from analysts and institutional investors.

The conference call may be accessed on a listen-only basis by dialing 647-788-4922 or toll-free
877-223-4471. The call will also be webcast live on CWB's website:

www.cwb.com/investor-relations/presentations-and-events

A replay of the conference call will be available until September 11, 2014 by dialing 416-621-4642 (Toronto) or 1-800-585-8367 (toll-free) and entering passcode 78022131.

Selected Financial Highlights

For the three
months ended
Change
from
July 31
2013
For the nine
months ended
Change
from
July 31
2013
(unaudited)
($ thousands, except per share amounts)
July 31
2014
April 30
2014
July 31
2013(1)
July 31
2014
July 31
2013(1)
Results of Operations
Net interest income (teb - see below) $ 131,751 $ 123,727 $ 121,002 9 % $ 380,717 $ 345,983 10 %
Less teb adjustment 1,888 1,989 2,161 (13) 5,967 6,076 (2)
Net interest income per financial statements 129,863 121,738 118,841 9 374,750 339,907 10
Non-interest income 28,027 29,794 23,032 22 86,352 68,801 26
Total revenues (teb) 159,778 153,521 144,034 11 467,069 414,784 13
Total revenues 157,890 151,532 141,873 11 461,102 408,708 13
Net income available to common shareholders 56,580 51,191 47,484 19 160,399 135,954 18
Earnings per common share
Basic(2) 0.71 0.64 0.60 18 2.01 1.72 17
Diluted(3) 0.70 0.63 0.60 17 1.98 1.71 16
Adjusted cash(4) 0.71 0.65 0.61 16 2.03 1.74 17
Return on common shareholders' equity(5) 14.9 % 14.4 % 14.1 % 80 bp 14.7 % 13.9 % 80 bp(6)
Return on assets(7) 1.11 1.07 1.06 5 1.10 1.04 6
Efficiency ratio (teb)(8) 45.9 46.0 46.5 (60) 45.7 46.7 (100)
Efficiency ratio 46.4 46.6 47.2 (80) 46.2 47.4 (120)
Net interest margin (teb)(9) 2.58 2.59 2.70 (12) 2.60 2.64 (4)
Net interest margin 2.54 2.55 2.65 (11) 2.56 2.60 (4)
Provision for credit losses as a
percentage of average loans 0.16 0.16 0.20 (4) 0.17 0.19 (2)
Per Common Share
Cash dividends $ 0.20 $ 0.19 $ 0.18 11 % $ 0.58 $ 0.52 12 %
Book value 19.03 18.52 16.97 12 19.03 16.97 12
Closing market value 41.62 37.14 28.92 44 41.62 28.92 44
Common shares outstanding (thousands) 80,270 80,045 79,372 1 80,270 79,372 1
Balance Sheet and Off-Balance Sheet Summary
Assets $ 20,522,735 $ 19,616,599 $ 17,919,636 15 %
Loans(10) 17,141,881 16,698,435 15,273,422 12
Deposits 17,457,554 16,668,534 15,067,142 16
Debt(11) 939,204 872,962 852,789 10
Shareholders' equity(10)(11) 1,652,708 1,607,486 1,556,813 6
Assets under administration 10,278,307 11,538,750 8,209,949 25
Assets under management 1,788,500 1,763,256 1,811,068 (1)
Capital Adequacy(12)
Common equity Tier 1 ratio 8.0 % 8.1 % 7.9 % 10 bp
Tier 1 ratio 9.3 9.4 9.6 (30)
Total ratio 12.9 13.1 13.9 (100)
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note 1 of the consolidated financial statements.
(2) Basic earnings per common share (EPS) is calculated as net income available to common shareholders divided by the average number of common shares outstanding.
(3) Diluted EPS is calculated as net income available to common shareholders divided by the average number of common shares outstanding adjusted for the dilutive effects of stock options.
(4) Adjusted cash EPS is diluted EPS excluding the after-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration. These exclusions represent non-cash charges and are not considered indicative of ongoing business performance.
(5) Return on common shareholders' equity is calculated as annualized net income available to common shareholders divided by average common shareholders' equity.
(6) bp - basis point change.
(7) Return on assets is calculated as annualized net income available to common shareholders divided by average total assets.
(8) Efficiency ratio is calculated as non-interest expenses divided by total revenues excluding the non-tax deductible change in fair value of contingent consideration.
(9) Net interest margin is calculated as annualized net interest income divided by average total assets.
(10) Effective May 1, 2014, CWB retrospectively applied a change in accounting policy for internal direct leasing costs as described in Note 1 of the consolidated financial statements.
(11) During the quarter, CWB retrospectively changed the financial statement classification of the First Preferred Shares Series 5 issued in the second quarter of 2014 from debt to equity as described in Note 1 of the consolidated financial statements.
(12) Capital adequacy is calculated in accordance with Basel III guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI).

Taxable Equivalent Basis (teb)

Most banks analyze revenue on a taxable equivalent basis to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends received is significantly lower than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they would have been had the tax-exempt securities been taxed at the statutory rate. The taxable equivalent basis does not have a standardized meaning prescribed by International Financial Reporting Standards (IFRS) and, therefore, may not be comparable to similar measures presented by other financial institutions. Total revenues, net interest income and income taxes are discussed on a taxable equivalent basis throughout this quarterly report to shareholders.

Non-IFRS Measures

CWB uses a number of financial measures to assess its performance. These measures provide readers with an enhanced understanding of how management views the results. Non-IFRS measures may also provide readers the ability to analyze trends and provide comparisons with our competitors. Taxable equivalent basis, adjusted cash earnings per common share, return on common shareholders' equity, return on assets, efficiency ratio, net interest margin, common equity Tier 1, Tier 1 and total capital adequacy ratios, and average balances do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other financial institutions.

Management's Discussion and Analysis

This management's discussion and analysis (MD&A), dated August 27, 2014, should be read in conjunction with Canadian Western Bank's (CWB) unaudited condensed interim consolidated financial statements for the period ended July 31, 2014, and the audited consolidated financial statements and MD&A for the year ended October 31, 2013, available on SEDAR at www.sedar.com and CWB's website at www.cwb.com.

Forward-looking Statements

From time to time, CWB makes written and verbal forward-looking statements. Statements of this type are included in the Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as press releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about CWB's objectives and strategies, targeted and expected financial results and the outlook for CWB's businesses or for the Canadian or U.S. economy. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate", "may increase", "may impact" and other similar expressions, or future or conditional verbs such as "will", "should", "would" and "could."

By their very nature, forward-looking statements involve numerous assumptions. A variety of factors, many of which are beyond CWB's control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada including the volatility and lack of liquidity in financial markets, fluctuations in interest rates and currency values, changes in monetary policy, changes in economic and political conditions, regulatory and legal developments, the level of competition in CWB's markets, the occurrence of weather-related and other natural catastrophes, changes in accounting standards and policies, the accuracy of and completeness of information CWB receives about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of CWB's business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and management's ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors.

These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause CWB's actual results to differ materially from the expectations expressed in such forward looking statements. Unless required by securities law, CWB does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by it or on its behalf.

Assumptions about the performance of the Canadian economy in 2014 and how it will affect CWB's businesses are material factors considered when setting organizational objectives and targets. Performance target ranges for fiscal 2014 consider the following management assumptions: a modest acceleration of economic growth in Canada and relatively stronger performance in the four western provinces; prices for energy and other commodities remaining at levels comparable with those observed at October 31, 2013; sound credit quality with actual losses remaining within CWB's historical range of acceptable levels; and, a relatively stable net interest margin (teb) compared to the prior year, attributed to favourable deposit costs and shifts in asset mix that help to offset impacts from the very low interest rate environment and competitive factors. Management's assumptions at the end of the third quarter remained relatively unchanged compared to those at the 2013 fiscal year end, although compression of net interest margin has been greater than anticipated.

Potential risks that would have a material adverse impact on current economic expectations and forecasts include a slowing rate of economic growth in the U.S., a significant and sustained deterioration in Canadian residential real estate prices, or a significant disruption in other global economies. Unexpected pricing competition, including competition for core deposits, and/or disruptions in domestic or global financial markets that meaningfully impact the costs of overall deposit funding may also contribute to adverse financial results compared to expectations.

Overview

CWB reported record quarterly financial performance led by solid operating results across all business lines and supported by capital structure efficiencies achieved through last quarter's preferred share transactions. Strong loan growth continued at 3% in the quarter, 10% year-to-date and 12% over the past twelve months.

Q3 2014 vs. Q3 2013

Net income available to common shareholders was up 19% to a record $56.6 million as the benefit of strong loan growth, higher non-interest income and lower preferred share dividends more than offset a 12 basis point decrease in net interest margin (teb) and higher non-interest expenses. Non-interest income was 22% higher primarily reflecting a significant increase in net insurance revenues and higher trust and wealth management revenues. Net insurance revenues in the third quarter last year were materially reduced by net claims expense related to catastrophic flooding in southern Alberta. Diluted earnings per common share was up 17% to $0.70 while adjusted cash earnings per common share, which excludes the after-tax amortization of acquisition-related intangible assets and non-tax deductible changes in fair value of contingent consideration, increased 16% to $0.71.

Q3 2014 vs. Q2 2014

Net income available to common shareholders was 11% higher. The positive revenue impacts of three additional revenue earning days and strong loan growth, combined with lower preferred share dividends, offset higher non-interest expenses and lower non-interest income.

YTD 2014 vs. YTD 2013

Net income available to common shareholders of $160.4 million was up 18% as growth in total revenues (teb) of 13% more than offset higher non-interest expenses. Higher total revenues were driven by a 10% increase in net interest income (teb) and 26% higher non-interest income. The year-to-date net interest margin (teb) of 2.60% was down four basis points. Adjusted cash earnings per share increased 17% to $2.03.

ROE and ROA

Third quarter return on common shareholders' equity (ROE) was 14.9%, compared to 14.4% last quarter and 14.1% last year. Year-to-date ROE of 14.7% was 80 basis points higher than 2013. Return on assets (ROA) of 1.11% was up four basis points from last quarter and five basis points compared to a year earlier. Year-to-date ROA of 1.10% compares to 1.04% last year.

Total Revenues (teb)

Total revenues, comprised of both net interest income (teb) and non-interest income, of $159.8 million were 11% higher than the same quarter in 2013 and up 4% from the previous quarter. Year-to-date total revenues of $467.1 million were up 13% compared to last year.

Net Interest Income (teb)

Q3 2014 vs. Q3 2013

Net interest income of $131.8 million was up 9% as the revenue contribution from strong 12% loan growth more than offset a 12 basis point decline in net interest margin (teb) to 2.58%. The change in net interest margin mainly resulted from lower asset yields.

Q3 2014 vs. Q2 2014

Net interest income was up 6%, mainly due to the combined benefits of three additional revenue earning days, strong 3% loan growth and relatively stable net interest margin.

YTD 2014 vs. YTD 2013

Net interest income of $380.7 million was up 10% as strong loan growth more than offset a decline of four basis points in net interest margin (teb) to 2.60%. The decline in net interest margin (teb) primarily reflects lower loan yields, partially offset by more favourable fixed term deposit costs and debt expense, as well as a lower average balance of cash and securities.

Interest rate sensitivity

Note 13 to the unaudited interim consolidated financial statements summarizes CWB's exposure to interest rate risk as at July 31, 2014. The estimated sensitivity of net interest income to a change in interest rates is presented in the table below. The amounts represent the estimated change in net interest income that would result over the following twelve months from a one-percentage point change in interest rates. The estimates are based on a number of assumptions and factors, which include:

  • a constant structure in the interest sensitive asset and liability portfolios;
  • interest rate changes affecting interest sensitive assets and liabilities by proportionally the same amount, except floor levels for various deposit liabilities, and applied at the appropriate repricing dates; and,
  • no early redemptions.
($ thousands) July 31
2014
April 30
2014
July 31
2013
Estimated impact on net interest income of a 1% increase in interest rates
1 year $ 7,584 $ 16,270 $ 15,324
1 year percentage change 1.6 % 3.8 % 3.6 %
Estimated impact on net interest income of a 1% decrease in interest rates
1 year $ (24,579) $ (29,418) $ (25,267)
1 year percentage change (5.3) % (6.9) % (5.9) %

Management maintains the asset liability structure and interest rate sensitivity within CWB's established policies through pricing and product initiatives, as well as the use of interest rate swaps and other appropriate strategies. Higher sensitivity to a decrease in rates is due to asymmetry in the impact of falling rates on loans and deposits. A decrease of one-percentage point in rates is assumed to reduce loan yields by a nearly equivalent amount. The assumed change in total deposit costs is lower because deposits yielding less than one percent cannot be reduced to a rate lower than zero.

In addition to the projected changes in net interest income noted above, it is estimated that a one-percentage point increase in all interest rates at July 31, 2014 would decrease unrealized gains related to available-for-sale securities and the fair value of interest rate swaps designated as hedges, and result in a reduction in other comprehensive income of approximately $30.8 million, net of tax (July 31, 2013 - $12.7 million). It is estimated that a one-percentage point decrease in all interest rates at July 31, 2014 would have the opposite effect, increasing other comprehensive income by approximately $31.6 million, net of tax (July 31, 2013 - $12.7 million).

Outlook for net interest margin

Net interest margin (teb) was down one basis point from the previous quarter and continued pressure on this key metric is expected in the absence of increases in the prime lending interest rate and/or a sustained steepening of the interest rate curve. CWB will maintain its long-term strategic focus on mitigating the earnings impact of ongoing margin pressure through efforts to identify quality lending opportunities that offer suitable return for risk, improving the funding mix to lower the overall cost of funds, prudently managing the balance of cash and securities and ongoing contributions from non-interest income sources.

Non-interest Income

Q3 2014 vs. Q3 2013

Non-interest income of $28.0 million was up 22% ($5.0 million) mainly due to increases in net insurance revenues and trust and wealth management revenues, partially offset by lower other non-interest income and net gains on securities. The increase in net insurance revenues primarily reflects the significant impact on third quarter 2013 insurance results of net claims expense related to catastrophic flooding in southern Alberta. Other non-interest income was higher in the third quarter last year mainly because of gains realized on the sale of insured residential mortgages. No such gains were realized in the current period. Net gains on securities were also unusually high in the third quarter last year reflecting strategic management of the portfolio in view of favourable conditions within equity and bond markets.

Q3 2014 vs. Q2 2014

Non-interest income was 6% ($1.8 million) lower as an increase of $0.4 million in credit related fee income was more than offset by a $1.2 million decrease in other non-interest income and smaller decreases in the remaining categories. While gains on the sale of residential mortgages contributed to other non-interest income in the prior quarter, no such gains were realized this quarter.

YTD 2014 vs. YTD 2013

Non-interest income was up 26% ($17.6 million) reflecting increases across all categories with the exception of other non-interest income. Trust and wealth management revenues were up $8.5 million, mainly due to the third quarter 2013 investment in McLean & Partners, while the $8.2 million increase in net insurance revenues reflects the flood-related factors discussed above. The decrease in other non-interest income primarily reflects lower gains on the sale of residential mortgages, as well as $0.7 million in charges for changes in the fair value of contingent consideration.

Outlook for non-interest income

Net claims expense related to severe Alberta hailstorms in August 2014 will decrease net insurance revenues in the fourth quarter. Based on the level of net gains on securities realized this quarter and the current composition of the securities portfolio, contributions from this source are expected to be lower through the final quarter of the year, although equity and bond market conditions are inherently unpredictable in the short-term. Management will continue to realize gains on the sale of non-core residential mortgage portfolios as opportunities become available. Such gains are expected to be a recurring, although periodic, source of non-interest income.

Credit Quality

Overall credit quality reflects disciplined underwriting practices and strong economic activity in Western Canada. The dollar level of gross impaired loans at July 31, 2014 represented 0.34% of total loans at quarter end, compared to 0.30% last quarter and 0.48% one year ago.


(unaudited)
($ thousands)
For the three months ended Change
from
July 31
2013
July 31
2014
April 30
2014
July 31
2013
Gross impaired loans, beginning of period $ 50,621 $ 53,937 $ 61,623 (18) %
New formations 21,398 23,129 23,285 (8)
Reductions, impaired accounts paid down or returned to performing status (10,942) (17,189) (9,086) 20
Write-offs (2,989) (9,256) (3,083) (3)
Total Gross Impaired Loans(1) $ 58,088 $ 50,621 $ 72,739 (20) %
Balance of the ten largest impaired accounts $ 30,562 $ 22,009 $ 42,831 (29) %
Total number of accounts classified as impaired(3) 117 133 142 (18)
Gross impaired loans as a percentage of total loans(4) 0.34 % 0.30 % 0.48 % (14) bp(2)
(1) Gross impaired loans include foreclosed assets held for sale with a carrying value of $1,154 (April 30, 2014 - $4,157 and July 31, 2013 - $6,857).
(2) bp - basis point change.
(3) Total number of accounts excludes National Leasing.
(4) Total loans do not include an allocation for credit losses or deferred revenue and premiums.

The level of gross impaired loans fluctuates as loans become impaired and are subsequently resolved, and does not directly reflect the dollar value of expected write-offs given tangible security held in support of lending exposures. The sequential increase in gross impaired loans is consistent with management's previously disclosed expectations that impaired loans would increase from the second quarter's very low levels reflecting normal fluctuations of the credit cycle. The reduction compared to last year mainly resulted from unusually low new formations compared to pay downs, loans returned to performing status and write-offs earlier this year.

Specific allowances for expected write-offs are established through detailed analyses of both the overall quality and ultimate marketability of the security held against impaired accounts. Actual credit losses are expected to remain within CWB's historical range of acceptable levels. As at July 31, 2014, the collective allowance for credit losses exceeded the balance of impaired loans, net of specific allowances, and has also increased as a percentage of total loans.

The total allowance for credit losses (collective and specific) represented 161% of gross impaired loans at quarter end, compared to 176% last quarter and 116% one year ago. The total allowance for credit losses was $93.5 million at July 31, 2014, compared to $89.0 million last quarter and $84.5 million a year earlier.

The quarterly provision for credit losses measured against average loans was 16 basis points, down four basis points from the same quarter last year and consistent with the prior quarter. On a year-to-date basis, the provision for credit losses measured against average loans of 17 basis points was down two basis points from last year. The full year provision for credit losses as a percentage of average loans is likely to fall slightly below the target range of 18 - 23 basis points based on strong credit quality and assumptions for stable credit performance through the final quarter.

Non-interest Expenses

Q3 2014 vs. Q3 2013

Quarterly non-interest expenses of $73.5 million were up 10% ($6.5 million) primarily due to higher full-time salaries and benefits, and premises expense. The change in salaries and benefits mainly resulted from annual salary increments and a larger staff complement to support ongoing growth across all businesses. Premises expense was 19% higher partly reflecting increased rent and depreciation costs related to the relocation of CWB's flagship Edmonton Main Branch to significantly expanded premises.

Q3 2014 vs. Q2 2014

Non-interest expenses were up 4% ($2.9 million). Higher expenses mainly reflect the factors discussed above, as well as increases in general expenses and fees to retain external consultants in support of several strategic initiatives.

YTD 2014 vs. YTD 2013

Non-interest expenses of $213.6 million were 10% ($19.7 million) higher as a result of increases in all categories. Of the total increase in non-interest expenses, one fifth reflects the third quarter 2013 addition of McLean & Partners. Higher salaries and benefits, and premises and equipment expense reflect the factors discussed above. The change in general expenses was driven by regulatory costs, the impact of a higher CWB common share price on Deferred Share Units (DSUs) for directors, and the above-mentioned external consultants fees.

Outlook for non-interest expenses

One of management's key priorities is to deliver strong long-term growth through strategic investment in people, technology, and infrastructure while maintaining effective control of costs. This strategy is aligned with a commitment to maximize long-term shareholder value and is expected to provide material benefits in future periods.

A formal review has been initiated to ensure total compensation is competitive within key markets and enables CWB to continue to attract and retain the most qualified employees. This review is expected to result in changes which may impact salary expense in the coming year.

Work toward implementation of a new core banking system with an initial capital budget of $50 million proceeded through the end of the third quarter. Management expects to finalize a 2015 system implementation date and final budget for this significant project following completion of the analysis and design phases in the fourth quarter.

Opportunities to upgrade and expand branch infrastructure continue to be reviewed. Compliance with an increasing level of regulatory rules and oversight for all Canadian banks also requires the investment of both time and resources. These factors may contribute to higher non-interest expenses in the future.

Efficiency ratio

The third quarter efficiency ratio (teb), which measures non-interest expenses as a percentage of total revenues (teb), was 45.9%, compared to 46.5% last year and 46.0% in the previous quarter.

Improved efficiency compared to last year reflects the revenue benefit of strong growth in loans and non-interest income, partially offset by a 12 basis point decline in net interest margin (teb) and higher non-interest expenses. Improvement in the year-to-date efficiency ratio from 46.7% to 45.7% this year highlights the benefit of positive operating leverage.

Based on year-to-date performance and in consideration of expected revenues and planned expenditures through the final quarter, management believes the 2014 efficiency ratio target of 46% or better is challenging but attainable.

Income Taxes

The third quarter effective income tax rate (teb) was 26.5%, compared to 25.2% last year. The effective income tax rate (teb) for the first nine months of 2014 was 26.3%, compared to 25.6% last year.

Comprehensive Income

Comprehensive income is comprised of net income and other comprehensive income or loss, all net of income taxes, and totaled $57.7 million for the third quarter, compared to $36.0 million last year. The increase in third quarter comprehensive income was driven by a significant decrease in other comprehensive loss and higher net income. The decrease in other comprehensive loss mainly resulted from higher unrealized gains, net of tax, from changes in fair value of available-for-sale securities, primarily driven by changes in the market value of securities. Year-to-date comprehensive income of $180.1 million compares to $135.6 million last year. Higher year-to-date comprehensive income was the result of increases in both net income and other comprehensive income, with the latter driven by the factors described above. While the combined dollar investment in CWB's securities portfolios is relatively small in relation to total liquid assets, it increases the potential for comparatively larger fluctuations in OCI.

Balance Sheet

Total assets increased 5% in the quarter, 15% in the past year and 11% year-to-date to reach $20,523 million at July 31, 2014.

Cash and Securities

Cash and securities totaled $2,992 million at July 31, 2014, compared to $2,285 million a year earlier and $2,535 million at the end of last quarter. Average balances of cash and securities as a percentage of total assets were higher than both the prior quarter and the same quarter last year. Assuming an ongoing supportive economic environment, management expects average balances of cash and securities as a percentage of total assets to remain relatively consistent with the current level through the fourth quarter.

Net unrealized gains recorded on the balance sheet of $4.8 million compare to unrealized gains of $6.4 million last quarter and unrealized losses of $7.1 million a year earlier. The securities portfolio is primarily comprised of high quality debt instruments, preferred shares and common equities that are not held for trading purposes and, where applicable, are typically held until maturity. Volatility in equity markets can lead to fluctuations in value, particularly for common shares. Fluctuations in the value of interest rate sensitive securities, such as preferred shares and debt instruments, are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. Changes in unrealized gains or losses result from the combined impact of strategic repositioning of the securities portfolio and changes in market values.

Net realized gains on securities in the third quarter of $4.2 million compare to $7.0 million in the same period last year and $4.6 million in the previous quarter. Year-to-date net gains of $13.4 million were up from $12.8 million last year. Net gains reflect strategic management of the securities portfolio in view of favourable conditions in both equity and bond markets. Based on the level of gains realized and the current composition of the portfolio, net gains on securities are expected to be lower through the final quarter of the year although equity and bond market conditions are inherently unpredictable in the short-term.

Loans

Total loans grew 3% ($443 million) in the quarter, 12% ($1,868 million) in the past twelve months and 10% ($1,574 million) year-to-date to reach $17,142 million.

Lending activity in British Columbia showed the highest growth in dollar terms for all comparative periods, led by strong growth in real estate project loans and general commercial loans. Growth in Alberta was also strong for all comparative periods, with particularly robust activity in real estate project loans and equipment financing and leasing.

Loan balances by portfolio are provided in the table below.

(unaudited)
(millions)
July 31
2014

April 30
2014
October 31
2013
July 31
2013
% Change
from
July 31
2013
Commercial mortgages $ 3,548 $ 3,512 $ 3,311 $ 3,257 9 %
General commercial loans 3,538 3,525 3,428 3,403 4
Equipment financing and leasing 3,281 3,121 2,932 2,861 15
Personal loans and mortgages 2,768 2,665 2,502 2,410 15
Real estate project loans 2,768 2,632 2,304 2,196 26
Corporate lending(1) 1,069 1,044 902 941 14
Oil and gas production loans 263 288 274 290 (9)
Total loans outstanding(2) $ 17,235 $ 16,787 $ 15,653 $ 15,358 12 %
(1) Corporate lending represents a diversified portfolio that is centrally sourced and administered through a designated lending group located in Edmonton. These loans include participation in select syndications that are structured and led primarily by the major Canadian banks, but exclude participation in various other syndicated facilities sourced through relationships developed at CWB branches.
(2) Loans by lending sector exclude the allowance for credit losses.

Growth compared to the prior quarter was led by equipment financing and leasing, while real estate project loans led on a year-over-year and year-to-date basis. With respect to real estate project loans, CWB has continued to identify opportunities to finance well-capitalized developers on the basis of sound loan structures and acceptable pre-sale/lease levels. Although recent growth in this area has been very strong, CWB's total exposure to real estate remains within CWB's established risk appetite. Lower than anticipated growth in general commercial loans mainly resulted from a combination of unexpected payouts and approved credit facilities remaining undrawn. The potential growth represented by undrawn credit facilities and CWB's promising pipeline of new commercial loans supports management's expectations for strong relative overall growth in this portfolio over time.

Optimum Mortgage

Total loans of $1,417 million within Optimum represented an increase of 6% compared to the prior quarter, 25% year-over-year, and 16% on a year-to-date basis. Adjusted for a loan sale in the prior quarter, loan growth was 4% for the quarter, 18% over the past twelve months and 16% year-to-date. Net growth was driven almost exclusively by alternative mortgages secured via conventional residential first mortgages carrying a weighted average loan-to-value ratio at initiation of approximately 73% in the third quarter and 71% year-to-date. The book value of alternative mortgages represented 85% of Optimum's total portfolio at quarter end, unchanged from the prior quarter and up from 79% last year, with the year-over-year increase partly resulting from the prior quarter's loan sale. Overall, Optimum continues to deliver very strong financial performance and expand its geographic footprint beyond Western Canada. In addition to its growing presence in Ontario, Optimum added sales staff in Atlantic Canada this year.

Securitization

Securitized leases are reported on-balance sheet with total loans. The gross amount of securitized leases at July 31, 2014 was $360 million, compared to $282 million last quarter and $262 million one year ago. Leases securitized in the third quarter and year-to-date totaled $108 million and $210 million, respectively.

Outlook for loans

While strong competition from domestic banks and other financial services firms is expected to continue, management believes CWB will continue to gain market share through a combination of several positive influences. These include an expanded market presence, increased brand awareness in core geographic markets due in part to ongoing marketing initiatives, and the effective execution of CWB's strategic plan focused on targeted client solutions and superior customer service.

CWB's strategy continues to focus on enhancing existing competitive advantages in business banking, while offering complementary products and personalized services in personal banking, trust, wealth management and insurance.

Consensus forecasts for CWB's key western markets continue to anticipate strong performance relative to the rest of Canada. Although housing activity remains historically elevated in specific geographic regions, affordability in most areas remains within historical ranges, partly reflecting very low interest rates.

The combination of historically high home prices, elevated levels of Canadian consumer debt and the potential for increasing interest rates could slow construction and other related lending activity over time, particularly in Vancouver and Toronto.

Price volatility and ongoing uncertainty surrounding long-term transportation solutions for both natural gas and heavy oil could lead to moderated growth in capital investment related to natural gas production and oil sands development in the near term. However, opportunities related to the maintenance of existing facilities within the resource sector remain abundant and the current overall economic outlook remains supportive of management's expectations for continued strong loan growth.

Deposits

Total deposits at July 31, 2014 were $17,458 million, up 5% over the previous quarter, 16% over the past year and 12% on a year-to-date basis. Personal deposits represented 59% of total deposits at July 31, 2014, compared to 60% at the prior quarter end and 62% at July 31, 2013. Total branch-raised deposits, including trust services deposits, represented 53% of total deposits at July 31, 2014, consistent with 53% at April 30, 2014 and down from 55% at the end of the third quarter last year. Demand and notice deposits were 32% of total deposits, up from 31% at the prior quarter end and consistent with July 31, 2013.

Total branch deposits of $9,161 million were up 3% over the prior quarter, 10% over the past twelve months and 7% year-to-date. The demand and notice component within branch-raised deposits, which includes lower cost balances, was up 6% compared to the prior quarter, 14% from the same time last year and 11% year-to-date to reach $5,538 million.

At the end of the third quarter, a total of $2,039 million of term deposits raised through debt capital markets were outstanding, representing 12% of total deposits, up from 10% in the previous quarter and 8% last year. The increase from the prior quarter mainly reflects a $300 million senior deposit note issued in June 2014. The increase from last year reflects the combined impact of the June deposit note issuance, a $300 million senior deposit note issuance in January 2014 and expansion of CWB's Bearer Deposit Note (BDN) program to $334 million.

Outlook for deposits

CWB remains committed to further enhance and diversify all funding sources to support growth, manage the impact of competitive factors and support net interest margin. One of management's long-term strategic objectives is to increase the level of personal and business deposits raised within the branch network, trust companies and Canadian Direct Financial, the Internet-based division of CWB. Specific emphasis is placed on growing deposits that are lower cost, provide associated transactional non-interest income and strengthen relationships by providing clients with relevant tools for managing their business and personal finances. Enhancements to CWB's cash management offerings for business clients this quarter included pilot group testing of desktop wire capability and improved foreign exchange services, with full delivery of these capabilities scheduled for the fourth quarter. Product and service enhancements continue to support a focus on growing branch-raised deposits over time, as do targeted training programs that have reached a significant number of branch employees. CWB's growing market presence, including ongoing expansion and upgrades to existing branches, also supports the generation of branch-raised deposits.

The deposit broker network remains a valued source for raising insured fixed term retail deposits and has proven to be an effective and efficient way to access funding and liquidity over a wide geographic base. Selectively utilizing debt capital markets is also part of management's strategy to further diversify the funding base over time. Management will continue to evaluate the funding potential available through securitization of portfolios that may include equipment loans and leases, residential mortgages and commercial mortgages.

Other Assets and Other Liabilities

Other assets at July 31, 2014 totaled $388 million, up from $383 million in the prior quarter and $361 million one year ago. Other liabilities at quarter end were $473 million, compared to $466 million the previous quarter and $443 million a year earlier.

Off-Balance Sheet

Off-balance sheet items include assets under administration and assets under management. Total assets under administration, which are comprised of trust assets and third-party leases under administration, as well as mortgages under service agreements, totaled $10,278 million at July 31, 2014, compared to $11,539 million last quarter and $8,210 million one year ago. Lower assets under administration this quarter primarily resulted from changes in the level of client funds related to corporate actions temporarily held at Valiant Trust.

Assets under management were $1,789 million at quarter end, compared to $1,763 million last quarter and $1,811 million a year earlier.

Other off-balance sheet items are comprised of standard industry credit instruments (guarantees, standby letters of credit and commitments to extend credit). CWB does not utilize, nor does it have exposure to, collateralized debt obligations or credit default swaps. For additional information regarding other off-balance sheet items refer to Note 11 of the unaudited interim consolidated financial statements for the period ended July 31, 2014, as well as Notes 11 and 20 of the audited consolidated financial statements in CWB's 2013 Annual Report.

Capital Management

The Office of the Superintendent of Financial Institutions Canada (OSFI) requires Canadian financial institutions to manage and report regulatory capital in accordance with the Basel III capital management framework. CWB's required minimum regulatory capital ratios, including a 250 basis point capital conservation buffer, are 7.0% common equity Tier 1 (CET1), 8.5% Tier 1 and 10.5% total capital.

At July 31, 2014, CWB's capital ratios were 8.0% CET1, 9.3% Tier 1 and 12.9% total capital. Lower capital ratios compared to April 30, 2014 primarily reflect changes in accounting policies described on pages 14 and 15.

Further details regarding CWB's regulatory capital and capital adequacy ratios are included in the following table:

(unaudited)
($ millions)
As at
July 31
2014
As at
April 30
2014
As at
July 31
2013
Regulatory capital
CET1 capital before deductions $ 1,526 $ 1,492 $ 1,354
Net CET1 deductions (119) (115) (110)
CET1 capital 1,407 1,377 1,244
Tier 1 capital before deductions(1) 230 230 283
Net deductions - - (11)
Tier 1 capital 1,637 1,607 1,516
Tier 2 capital before deductions(1) 630 625 679
Net deductions - - (1)
Total capital $ 2,267 $ 2,232 $ 2,194
Risk-weighted assets $ 17,556 $ 17,089 $ 15,846
Capital adequacy ratios
CET1 8.0 % 8.1 % 7.9 %
Tier 1 9.3 9.4 9.6
Total 12.9 13.1 13.9
(1) The 2014 inclusion of non-common equity instruments that do not include non-viability contingent capital clauses is capped at 80% of the January 1, 2013 outstanding balances (July 31, 2013 - 90%). At July 31, 2014 and April 30, 2014, there was no exclusion from regulatory capital related to the Innovative Tier 1 capital (disclosed in deposits). At July 31, 2013 a combined $31 million of outstanding Innovative Tier 1 capital and preferred shares were excluded from regulatory capital.At July 31, 2014, $85 million of outstanding subordinated debentures (April 30, 2014 - $85 million and July 31, 2013 - $18 million) were excluded from regulatory capital.

Retention of earnings associated with anticipated performance within the 2014 target ranges is expected to support capital requirements, including targets established through CWB's Internal Capital Adequacy Assessment Process (ICAAP).

CWB currently reports its regulatory capital ratios using the Standardized approach for calculating risk-weighted assets. This approach requires CWB to carry significantly more capital for certain credit exposures compared to requirements under the Advanced Internal Ratings Based (AIRB) methodology used by larger Canadian financial institutions. For this reason, regulatory capital ratios of banks that utilize the Standardized approach versus the AIRB methodology are not directly comparable.

Required resources, costs and potential timelines related to CWB's possible multi-year transition to an AIRB methodology for managing credit risk and calculating risk-weighted assets continue to be evaluated. CWB's new core banking system, implementation of which is expected in late 2015, is a critical component for a number of requirements necessary for AIRB compliance, including the collection and analysis of certain types of data.

Further information relating to CWB's capital position is provided in Note 14 of the unaudited interim consolidated financial statements as well as the audited consolidated financial statements and MD&A for the year ended October 31, 2013.

In July 2014, OSFI published its Draft Leverage Requirements Guideline outlining expectations for Canadian banks related to the Basel III leverage ratio framework effective January 2015. The stated requirement for banks to maintain a minimum leverage ratio of 3% at all times is not expected to be a constraint for CWB. In August 2014, the Department of Finance published a consultation paper on the Canadian bail-in debt regime. Under the terms of this proposal, the bail-in debt regime will not impact CWB.

Book value per share and dividends

Book value per common share at July 31, 2014 was $19.03, compared to $18.52 last quarter and $16.97 one year ago.

Common shareholders received a quarterly cash dividend of $0.20 per common share on June 26, 2014. On July 31, 2014, holders of Series 5 preferred shares received a cash dividend of $0.275 per share. On August 27, 2014, CWB's Board of Directors declared a cash dividend of $0.20 per common share, payable on September 25, 2014 to shareholders of record on September 15, 2014. This quarterly dividend was 11% ($0.02) higher than the quarterly dividend declared one year ago. The Board of Directors also declared a cash dividend of $0.275 per Series 5 Preferred Share, payable on October 31, 2014 to shareholders of record on October 24, 2014.

Significant Changes in Accounting Policies

Significant accounting policies are described in the notes to the audited consolidated financial statements for the year ended October 31, 2013, together with a discussion of certain accounting estimates that are considered particularly important as they require management to make significant judgments, some of which relate to matters that are inherently uncertain. Readers are encouraged to review that discussion on page 69 and 70 of the 2013 Annual Report.

Consolidated financial statements

Effective November 1, 2013, CWB adopted IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosures of Interests in Other Entities, which establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities, and new disclosure requirements for all forms of interests in other entities. As a result of the application of IFRS 10, CWB has changed its accounting policy for determining whether it has control over its investees and consequently, has de-consolidated Canadian Western Bank Capital Trust (the Trust) through which certain regulatory capital instruments are issued. In accordance with the transitional provisions, CWB has applied IFRS 10 retrospectively and comparative figures have been restated to reflect the de-consolidation of the Trust. The de-consolidation of the Trust resulted in a $105 million decrease in CWB Capital Trust Capital Securities Series 1 (WesTS) previously classified as non-controlling interest and an increase of $105 million in deposit liabilities, and reclassification of the associated distribution, which totaled $1.7 million and $5.0 million for the three and nine months ended July 31, 2013, from non-controlling interest to interest expense. Additional information on the Trust is discussed in Note 19 of CWB's audited consolidated financial statements for the year ended October 31, 2013.

Accounting for internal direct leasing costs

IAS 17 Leases requires that the lessor capitalize initial direct leasing costs in the initial measurement of the lease, and defines initial direct costs as incremental costs directly attributable to negotiating and arranging a lease. Prior to May 1, 2014, CWB capitalized costs of certain employees and other internal costs directly attributable to arranging new leases within initial direct leasing costs on initial measurement of a lease. The IFRS Interpretations Committee has issued clarification that certain internal leasing costs do not qualify as incremental costs. As a result, effective May 1, 2014, CWB has changed its accounting policy to expense, rather than capitalize, non-incremental internal costs for negotiating and arranging new leases as incurred. CWB has applied this accounting policy retrospectively and comparative figures have been restated, resulting in a decrease of $9.5 million in loans, an increase in other assets of $2.5 million for deferred income taxes, and a decrease of $6.9 million in retained earnings for all presented comparative periods. This change did not result in a change to the consolidated statements of income.

Fair value measurement

Effective November 1, 2013, CWB adopted IFRS 13 Fair Value Measurement, which applies to other IFRS standards that require or permit fair value measurements or disclosures about fair value measurements and sets out a framework on how to measure fair value using the assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk.

In accordance with the transitional provisions of IFRS 13, CWB has applied the new fair value measurement guidance prospectively. This new standard had no impact on the measurement of CWB's assets and liabilities. Additional disclosures required by IFRS 13 are included in Note 12.

Change in Classification of First Preferred Shares Series 5

During the third quarter, CWB changed the financial statement classification of the First Preferred Shares Series 5 from debt to equity. The First Preferred Shares Series 5 are now included in preferred shares within equity on the consolidated balance sheets, with prior periods reclassified to conform with this presentation. The related preferred share issue costs of $3.1 million, net of income tax, were also reclassified from other assets to retained earnings. The dividends continue to be charged to retained earnings.

Future Accounting Changes

A number of standards and amendments have been issued by the International Accounting Standards Board (IASB) and are noted on page 45 of the 2013 Annual Report. These standards and amendments may impact the presentation of financial statements in the future and management is currently reviewing these changes to determine the impact, if any.

CWB continues to monitor activities of the IASB as well as proposed changes to IFRS. Several accounting standards in the process of being amended by the IASB (e.g. leases and insurance) may have an impact on the presentation of CWB's consolidated financial statements in the future. Although not expected to materially impact CWB's 2014 consolidated financial statements, these proposed changes may have a significant impact on future financial statements.

In July 2014, the IASB issued the final revised IFRS 9 Financial Instruments standard. IFRS 9 will be effective for CWB's fiscal year beginning on November 1, 2018, and early adoption is permitted. IFRS 9 specifies that financial assets be classified into one of three categories: financial assets measured at amortized cost, financial assets measured at fair value through profit or loss or financial assets measured at fair value through other comprehensive income. The standard also includes an expected credit loss model and a general hedging model. CWB is currently assessing the impact of the standard on its future financial results.

Controls and Procedures

There were no changes in CWB's internal controls over financial reporting that occurred during the quarter ended July 31, 2014 that have materially affected, or are reasonably likely to materially affect, CWB's internal controls over financial reporting.

Prior to its release, this quarterly report to shareholders was reviewed by the Audit Committee and, on the Audit Committee's recommendation, approved by the Board of Directors of CWB.

Third-party Credit Ratings

DBRS Limited (DBRS) maintains published credit ratings on CWB's senior debt (deposits), short-term debt, subordinated debentures and Basel III-compliant First Preferred Shares Series 5 of "A (low)", "R1 (low)", "BBB (high)" and "Pfd-3", respectively, all with a stable outlook. Credit ratings do not consider market price or address the suitability of any financial instrument for a particular investor and are not recommendations to purchase, sell or hold securities.

Ratings are subject to revision or withdrawal at any time by the rating organization. Management believes the ratings widen the base of clients and investors who can participate in CWB's offerings, while also lowering overall funding costs and the cost of capital.

Updated Share Information

As at August 20, 2014, there were 80,274,617 CWB common shares outstanding. Also outstanding were employee stock options, which are or will be exercisable for up to 4,815,641 common shares for maximum proceeds of $148 million.

Dividend Reinvestment Plan

CWB common shares (TSX:CWB) and Series 5 preferred shares (TSX:CWB.PR.B) have been deemed eligible to participate in CWB's dividend reinvestment plan (the Plan). The Plan provides holders of eligible shares the opportunity to direct cash dividends toward the purchase of CWB common shares. Further details for the Plan are available on CWB's website at www.cwb.com/investor_relations/drip.

At the current time, for the purposes of the Plan, CWB has elected to issue common shares from treasury at a 2% discount from the average market price (as defined in the Plan).

Summary of Quarterly Financial Information

2014 2013(1) 2012(1)
($ thousands) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Total revenues (teb) $ 159,778 $ 153,521 $ 153,770 $ 150,956 $ 144,034 $ 135,319 $ 135,431 $ 131,482
Total revenues 157,890 151,532 151,680 148,894 141,873 133,319 133,516 129,503
Net income 58,288 56,384 56,749 55,332 51,623 46,887 49,365 46,920
Net income available to common shareholders 56,580 51,191 52,628 51,210 47,484
42,988
45,482
43,046
Earnings per common share
Basic 0.71 0.64 0.66 0.64 0.60 0.54 0.58 0.55
Diluted 0.70 0.63 0.65 0.64 0.60 0.54 0.57 0.55
Adjusted cash 0.71 0.65 0.67 0.65 0.61 0.55 0.58 0.56
Total assets ($ millions)(2) 20,523 19,617 19,129 18,513 17,920 17,772 17,155 16,866
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note 1 of the consolidated financial statements. 2012 financial results have been restated for the purposes of this chart.
(2) Effective May 1, 2014, CWB retrospectively applied a change in accounting policy for internal direct leasing costs as described in Note 1 of the consolidated financial statements. Total assets for prior periods have been restated to reflect this change.

The financial results for each of the last eight quarters are summarized above. In general, CWB's performance reflects a relatively consistent trend, although the second quarter contains three fewer revenue-earning days.

CWB's quarterly financial results are subject to some fluctuation due to its exposure to property and casualty insurance. Insurance operations, which are primarily reflected in non-interest income, are subject to seasonal weather conditions, cyclical patterns of the industry and natural catastrophes.

Among other things, quarterly results can also fluctuate from the recognition of periodic income tax items.

For additional details on variations between the prior quarters, refer to the summary of quarterly results section of CWB's MD&A for the year ended October 31, 2013 and the individual quarterly reports to shareholders which are available on SEDAR at www.sedar.com and on CWB's website at www.cwb.com/investor-relations/quarterly-reports.

Taxable Equivalent Basis (teb)

Most banks analyze revenue on a taxable equivalent basis to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends received is significantly lower than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they would have been had the tax-exempt securities been taxed at the statutory rate. The taxable equivalent basis does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions. Total revenues, net interest income and income taxes are discussed on a taxable equivalent basis throughout this quarterly report to shareholders.

Non-IFRS Measures

CWB uses a number of financial measures to assess its performance. These measures provide readers with an enhanced understanding of how management views the results. Non-IFRS measures may also provide readers the ability to analyze trends and provide comparisons with our competitors. Taxable equivalent basis, adjusted cash earnings per common share, return on common shareholders' equity, return on assets, efficiency ratio, net interest margin, common equity Tier 1, Tier 1 and total capital adequacy ratios, and average balances do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other financial institutions. The non-IFRS measures used in this MD&A are calculated as follows:

  • taxable equivalent basis - described above;
  • adjusted cash earnings per common share - diluted earnings per common share excluding the after-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration (see calculation below). These exclusions represent non-cash charges and are not considered to be indicative of ongoing business performance;
  • return on common shareholders' equity - annualized net income available to common shareholders divided by average common shareholders' equity;
  • return on assets - annualized net income available to common shareholders divided by average total assets;
  • efficiency ratio - non-interest expenses divided by total revenues excluding the non-tax deductible change in fair value of contingent consideration;
  • net interest margin - net interest income divided by average total assets;
  • Basel III common equity Tier 1, Tier 1 and total capital ratios - in accordance with guidelines issued by OSFI; and
  • average balances - average daily balances.
Adjusted net income available to common shareholders
For the three
months ended
For the nine
months ended
(unaudited)
($ thousands)
July 31
2014
April 30
2014
July 31
2013
July 31
2014
July 31
2013
Net income available to common shareholders $ 56,580 $ 51,191 $ 47,484 $ 160,399 $ 135,954
Adjustments:
Amortization of acquisition-related intangible assets (after tax) 866 903 930 2,660 2,391
Contingent consideration fair value change 400 150 - 700 -
Adjusted net income available to common shareholders $ 57,846 $ 52,244 $ 48,414 $ 163,759 $ 138,345
Consolidated Balance Sheets
(unaudited)
($ thousands)
As at
July 31
2014
As at
April 30
2014(2)(3)
As at
October 31
2013(1)(2)
As at
July 31
2013(1)(2)
Change
from
July 31
2013
Assets
Cash Resources
Cash and non-interest bearing deposits with financial institutions $ 45,626 $ 54,040 $ 83,856 $ 3,009 nm %
Interest bearing deposits with regulated financial institutions (Note 4) 418,220 342,179 258,466 93,478 347
Cheques and other items in transit 2,697 280 5,673 1,252 115
466,543 396,499 347,995 97,739 377
Securities (Note 4)
Issued or guaranteed by Canada 1,074,895 712,167 927,077 785,135 37
Issued or guaranteed by a province or municipality 676,319 630,849 410,984 388,240 74
Other securities 774,703 795,779 894,271 1,014,203 (24)
2,525,917 2,138,795 2,232,332 2,187,578 15
Loans (Notes 5 and 7)
Personal 2,768,458 2,665,550 2,502,295 2,410,165 15
Business 14,466,926 14,121,861 13,150,931 12,947,746 12
17,235,384 16,787,411 15,653,226 15,357,911 12
Allowance for credit losses (Note 6) (93,503) (88,976) (85,786) (84,489) 11
17,141,881 16,698,435 15,567,440 15,273,422 12
Other
Property and equipment 67,111 67,505 66,647 65,170 3
Goodwill 50,408 50,408 49,424 49,424 2
Intangible assets 80,698 76,375 70,197 66,894 21
Insurance related 63,557 63,541 64,365 61,666 3
Derivative related (Note 8) 6,616 7,050 4,509 1,249 430
Other assets 120,004 117,991 110,431 116,494 3
388,394 382,870 365,573 360,897 8
Total Assets $ 20,522,735 $ 19,616,599 $ 18,513,340 $ 17,919,636 15 %
Liabilities and Equity
Deposits
Personal $ 10,293,130 $ 10,040,387 $ 9,420,754 $ 9,393,847 10 %
Business and government 7,164,424 6,628,147 6,210,286 5,673,295 26
17,457,554 16,668,534 15,631,040 15,067,142 16
Other
Cheques and other items in transit 52,922 64,055 55,290 39,719 33
Insurance related 159,291 155,961 167,816 165,277 (4)
Derivative related (Note 8) 178 44 36 168 6
Other liabilities 260,119 246,184 238,939 237,557 9
472,510 466,244 462,081 442,721 7
Debt
Subordinated debentures 625,000 625,000 625,000 625,000 -
Debt securities 314,204 247,962 195,650 227,789 38
939,204 872,962 820,650 852,789 10
Equity
Preferred shares(3) (Note 9) 125,000 125,000 208,815 208,965 (40)
Common shares (Note 9) 529,283 522,790 510,282 504,380 5
Retained earnings 969,066 928,501 858,167 821,255 18
Share-based payment reserve 24,048 25,278 24,632 24,611 (2)
Other reserves 5,311 5,917 (3,389) (3,028) nm
Total Shareholders' Equity 1,652,708 1,607,486 1,598,507 1,556,183 6
Non-controlling interests 759 1,373 1,062 801 (5)
Total Equity 1,653,467 1,608,859 1,599,569 1,556,984 6
Total Liabilities and Equity $ 20,522,735 $ 19,616,599 $ 18,513,340 $ 17,919,636 15 %
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note 1.
(2) Effective May 1, 2014, CWB retrospectively applied a change in accounting policy for internal direct leasing costs as described in Note 1.
(3) During the quarter, CWB retrospectively changed the financial statement classification of the First Preferred Shares Series 5 issued in the second quarter of 2014 from debt to equity as described in Note 1.
nm - not meaningful
The accompanying notes are an integral part of the interim consolidated financial statements.
Consolidated Statements of Income
(unaudited)
($ thousands, except per share amounts)
For the three
months ended
Change
from
July 31
2013
For the nine
months ended
Change
from
July 31
2013
July 31
2014
April 30
2014
July 31
2013(1)
July 31
2014
July 31
2013(1)

Interest Income
Loans $ 206,251 $ 192,685 $ 187,420 10 % $ 592,761 $ 543,620 9 %
Securities 11,454 10,625 11,522 (1) 32,588 34,018 (4)
Deposits with regulated financial institutions 1,516 1,165 261 481 3,598 1,117 222
219,221 204,475 199,203 10 628,947 578,755 9
Interest Expense
Deposits 81,086 75,061 72,002 13 230,426 214,414 7
Debt 8,272 7,676 8,360 (1) 23,771 24,434 (3)
89,358 82,737 80,362 11 254,197 238,848 6
Net Interest Income 129,863 121,738 118,841 9 374,750 339,907 10
Provision for Credit Losses (Note 6) 6,958 6,463 7,491 (7) 21,040 20,502 3
Net Interest Income after Provision for Credit Losses 122,905 115,275 111,350 10 353,710 319,405 11
Non-Interest Income
Trust and wealth management services 8,611 8,780 6,825 26 25,726 17,239 49
Credit related 6,359 5,966 5,475 16 18,312 15,962 15
Insurance, net (Note 3) 5,505 5,868 (2,225) nm 17,384 9,178 89
Gains on securities, net 4,211 4,572 7,020 (40) 13,436 12,756 5
Retail services 2,830 2,934 2,373 19 8,534 7,615 12
Other 511 1,674 3,564 (86) 2,960 6,051 (51)
28,027 29,794 23,032 22 86,352 68,801 26
Net Interest and Non-Interest Income 150,932 145,069 134,382 12 440,062 388,206 13
Non-Interest Expenses
Salaries and employee benefits 47,477 46,636 44,038 8 140,004 127,680 10
Premises and equipment 12,955 11,820 10,900 19 36,156 31,884 13
Other expenses 13,065 12,162 12,021 9 37,390 34,289 9
73,497 70,618 66,959 10 213,550 193,853 10
Net Income before Income Taxes 77,435 74,451 67,423 15 226,512 194,353 17
Income Taxes 19,147 18,067 15,800 21 55,091 46,478 19
Net Income 58,288 56,384 51,623 13 171,421 147,875 16
Net Income Attributable to Non-Controlling Interests 333 218 320 4 887 493 80
Net Income Attributable to Shareholders of CWB 57,955 56,166 51,303 13 170,534 147,382 16
Preferred share dividends 1,375 4,975 3,796 (64) 10,135 11,398 (11)
Premium paid on purchase of preferred shares for cancellation - - 23 (100) - 30 (100)
Net Income Available to Common Shareholders $ 56,580 $ 51,191 $ 47,484 19 % $ 160,399 $ 135,954 18 %
Average number of common shares (in thousands) 80,141 79,955 79,248 1 79,940 79,041 1
Average number of diluted common shares (in thousands) 81,121 80,826 79,590 2 80,841 79,437 2
Earnings Per Common Share
Basic $ 0.71 $ 0.64 $ 0.60 18 % $ 2.01 $ 1.72 17 %
Diluted 0.70 0.63 0.60 17 1.98 1.71 16
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note 1.
nm - not meaningful
The accompanying notes are an integral part of the interim consolidated financial statements.
Consolidated Statements of Comprehensive Income


(unaudited)
($ thousands)
For the three
months ended
For the nine
months ended
July 31
2014
July 31
2013(1)
July 31
2014
July 31
2013(1)
Net Income $ 58,288 $ 51,623 $ 171,421 $ 147,875
Other Comprehensive Income (Loss), net of tax
Available-for-sale securities:
Gains (losses) from change in fair value(2) 1,942 (10,426) 18,621 (2,531)
Reclassification to net income(3) (3,176) (5,257) (9,938) (9,439)
(1,234) (15,683) 8,683 (11,970)
Derivatives designated as cash flow hedges:
Gains (loss) from change in fair value(4) 2,264 161 4,159 (204)
Reclassification to net income(5) (1,636) (128) (4,142) (101)
628 33 17 (305)
(606) (15,650) 8,700 (12,275)
Comprehensive Income for the Period $ 57,682 $ 35,973 $ 180,121 $ 135,600
Comprehensive income for the period attributable to:
Shareholders of CWB $ 57,349 $ 35,653 $ 179,234 $ 135,107
Non-controlling interests 333 320 887 493
Comprehensive Income for the Period $ 57,682 $ 35,973 $ 180,121 $ 135,600
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note
(2) Net of income tax of $700 and $6,564 for the three and nine months ended July 31, 2014, respectively (2013 - $3,743 and $794).
(3) Net of income tax of $1,035 and $3,498 for the three and nine months ended July 31, 2014, respectively (2013 - $1,763 and $3,317).
(4) Net of income tax of $765 and $1,405 for the three and nine months ended July 31, 2014, respectively (2013 - $54 and $69).
(5) Net of income tax of $552 and $1,399 for the three and nine months ended July 31, 2014, respectively (2013 - $43 and $34).
Items presented in other comprehensive income will be subsequently reclassified to the Consolidated Statement of Income when specific conditions are met.
The accompanying notes are an integral part of the interim consolidated financial statements.
Consolidated Statements of Changes in Equity

(unaudited)
($ thousands)
For the nine months ended
July 31
2014
(2)
July 31
2013(1)(2)
Retained Earnings
Balance at beginning of period $ 858,167 $ 726,378
Net income attributable to shareholders of CWB 170,534 147,382
Dividends - Preferred shares (10,135) (11,398)
- Common shares (46,353) (41,077)
Issuance costs on preferred shares (3,147) -
Premium paid on preferred shares purchased for cancellation - (30)
Balance at end of period 969,066 821,255
Other Reserves
Balance at beginning of period (3,389) 9,247
Changes in available-for-sale securities 8,683 (11,970)
Changes in derivatives designated as cash flow hedges 17 (305)
Balance at end of period 5,311 (3,028)
Preferred Shares (Note 9)e 9)
Balance at beginning of period 208,815 209,750
Issued 125,000 -
Redeemed (208,815) -
Purchased for cancellation - (785)
Balance at end of period 125,000 208,965
Common Shares (Note 9)
Balance at beginning of period 510,282 490,218
Issued under dividend reinvestment plan 12,877 10,571
Transferred from share-based payment reserve on the exercise or exchange of options 5,058 2,397
Issued on exercise of options 1,066 1,194
Balance at end of period 529,283 504,380
Share-based Payment Reserve
Balance at beginning of period 24,632 22,468
Amortization of fair value of options (Note 10) 4,474 4,540
Transferred to common shares on the exercise or exchange of options (5,058) (2,397)
Balance at end of period 24,048 24,611
Total Shareholders' Equity 1,652,708 1,556,183
Non-Controlling Interests
Balance at beginning of period 1,062 244
Net income attributable to non-controlling interests 887 493
Dividends to non-controlling interests (1,093) (252)
Partial ownership increase (97) -
Business acquisition - 316
Balance at end of period 759 801
Total Equity $ 1,653,467 $ 1,556,984
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note 1.
(2) Effective May 1, 2014, CWB retrospectively applied a change in accounting policy for internal direct leasing costs as described in Note 1.
The accompanying notes are an integral part of the interim consolidated financial statements.
Consolidated Statements of Cash Flow
For the nine months ended

(unaudited)
($ thousands)
July 31
2014

July 31
2013(1)
Cash Flows from Operating Activities
Net income $ 171,421 $ 147,875
Adjustments to determine net cash flows:
Provision for credit losses 21,040 20,502
Depreciation and amortization 17,644 15,884
Current income taxes receivable and payable 9,219 (4,450)
Amortization of fair value of employee stock options (Note 10) 4,474 4,540
Accrued interest receivable and payable, net 1,764 7,061
Deferred income taxes, net (6,066) 2,468
Gain on securities, net (13,436) (12,756)
Change in operating assets and liabilities:
Deposits, net 1,826,514 817,305
Loans, net (1,595,481) (1,349,691)
Securities sold under repurchase agreements, net - (70,089)
Other items, net 357 (3,922)
437,450 (425,273)
Cash Flows from Financing Activities
Common shares issued (Note 9) 13,943 11,765
Debt securities issued 210,021 90,596
Debt securities repaid (91,467) (72,079)
Dividends (56,488) (52,475)
Preferred shares issued (Note 9) 125,000 -
Issuance costs on preferred shares (3,147) -
Preferred shares redeemed (Note 9) (208,815) -
Preferred shares purchased and cancelled - (815)
Debentures issued - 250,000
Debentures redeemed - (50,000)
Distributions to non-controlling interests (1,093) (252)
(12,046) 176,740
Cash Flows from Investing Activities
Interest bearing deposits with regulated financial institutions, net (159,756) 83,362
Securities, purchased (5,745,372) (4,578,671)
Securities, sale proceeds 3,268,636 3,002,929
Securities, matured 2,200,209 1,728,735
Property, equipment and intangible assets (27,959) (19,108)
Business acquisition - (10,098)
(464,242) 207,149
Change in Cash and Cash Equivalents (38,838) (41,384)
Cash and Cash Equivalents at Beginning of Period 34,239 5,926
Cash and Cash Equivalents at End of Period * $ (4,599) $ (35,458)
* Represented by:
Cash and non-interest bearing deposits with financial institutions $ 45,626 $ 3,009
Cheques and other items in transit (included in Cash Resources) 2,697 1,252
Cheques and other items in transit (included in Other Liabilities) (52,922) (39,719)
Cash and Cash Equivalents at End of Period $ (4,599) $ (35,458)
Supplemental Disclosure of Cash Flow Information
Interest and dividends received $ 636,692 $ 600,916
Interest paid 250,219 232,722
Income taxes paid 51,938 49,125
(1) Effective November 1, 2013, CWB retrospectively adopted IFRS 10 Consolidated Financial Statements as described in Note 1.
The accompanying notes are an integral part of the interim consolidated financial statements.

Notes to Interim Consolidated Financial Statements

(unaudited)

($ thousands, except per share amounts)

1. Basis of Presentation and Significant Accounting Policies

These unaudited condensed interim consolidated financial statements of Canadian Western Bank (CWB) have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) using the same accounting policies as the audited consolidated financial statements for the year ended October 31, 2013, except as noted below. These interim consolidated financial statements of CWB, domiciled in Canada, have also been prepared in accordance with subsection 308 (4) of the Bank Act and the accounting requirements of the Office of the Superintendent of Financial Institutions Canada (OSFI). Under International Financial Reporting Standards (IFRS), additional disclosures are required in annual financial statements and accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2013 as set out on pages 62 to 102 of CWB's 2013 Annual Report.

The interim consolidated financial statements were authorized for issue by the Board of Directors on August 27, 2014.

Significant Changes in Accounting Policies

Consolidated Financial Statements

Effective November 1, 2013, CWB adopted IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosures of Interests in Other Entities, which establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities, and new disclosure requirements for all forms of interests in other entities. As a result of the application of IFRS 10, CWB has changed its accounting policy for determining whether it has control over its investees and consequently, has de-consolidated Canadian Western Bank Capital Trust (the Trust) through which certain regulatory capital instruments are issued. In accordance with the transitional provisions, CWB has applied IFRS 10 retrospectively and comparative figures have been restated to reflect the de-consolidation of the Trust. The de-consolidation of the Trust resulted in a $105,000 decrease in CWB Capital Trust Capital Securities Series 1 (WesTS) previously classified as non-controlling interest and an increase of $105,000 in deposit liabilities, and reclassification of the associated distribution, which totaled $1,700 and $5,044 for the three and nine months ended July 31, 2013, from non-controlling interest to interest expense. Additional information on the Trust is discussed in Note 19 of CWB's audited consolidated financial statements for the year ended October 31, 2013.

Accounting for internal direct leasing costs

IAS 17 Leases requires that the lessor capitalize initial direct leasing costs in the initial measurement of the lease, and defines initial direct costs as incremental costs directly attributable to negotiating and arranging a lease. Prior to May 1, 2014, CWB capitalized costs of certain employees and other internal costs directly attributable to arranging new leases within initial direct leasing costs on initial measurement of a lease. The IFRS Interpretations Committee has issued clarification that certain internal costs do not qualify as incremental costs. As a result, effective May 1, 2014, CWB has changed its accounting policy to expense, rather than capitalize, non-incremental internal costs for negotiating and arranging new leases as incurred. CWB has applied this accounting policy retrospectively, resulting in a decrease of $9,453 in loans, an increase in other assets of $2,533 for deferred income taxes, and a decrease of $6,920 in retained earnings for all presented comparative periods. This change did not result in a change to the consolidated statements of income.

Fair value measurement

Effective November 1, 2013, CWB adopted IFRS 13 Fair Value Measurement, which applies to other IFRS standards that require or permit fair value measurements or disclosures about fair value measurements and sets out a framework on how to measure fair value using the assumptions that market participants would use when pricing the asset or liability under current market conditions, including assumptions about risk. In accordance with the transitional provisions of IFRS 13, CWB has applied the new fair value measurement guidance prospectively. This new standard had no impact on the measurement of CWB's assets and liabilities. Additional disclosures required by IFRS 13 are included in Note 12.

Change in Classification of First Preferred Shares Series 5

During the third quarter, CWB retrospectively changed the financial statement classification of the First Preferred Shares Series 5 issued in the second quarter of 2014 from debt to equity. The First Preferred Shares Series 5 are now included in preferred shares within equity on the consolidated balance sheets, with prior periods reclassified to conform with this presentation. The related preferred share issue costs of $3,147, net of income tax, were also reclassified from other assets to retained earnings. The dividends continue to be charged to retained earnings.

2. Future Accounting Changes

CWB continues to monitor the IASB's proposed changes to accounting standards. Although not expected to materially impact CWB's 2014 consolidated financial statements, these proposed changes may have a significant impact on future financial statements. Additional discussion on certain accounting standards that may impact CWB is included in the audited consolidated financial statements within CWB's 2013 Annual Report.

In July 2014, the IASB issued the final revised IFRS 9 Financial Instruments standard. IFRS 9 will be effective for CWB's fiscal year beginning on November 1, 2018, and early adoption is permitted. IFRS 9 specifies that financial assets be classified into one of three categories: financial assets measured at amortized cost, financial assets measured at fair value through profit or loss or financial assets measured at fair value through other comprehensive income. The standard also includes an expected credit loss model and a general hedging model. CWB is currently assessing the impact of the standard on its future financial results.

3. Insurance Revenues, Net

Insurance revenues, net, as reported in non-interest income on the consolidated statement of income are presented net of net claims and adjustment expenses, and policy acquisition costs.

For the three
months ended
For the nine
months ended
July 31
2014
April 30
2014
July 31
2013
July 31
2014
July 31
2013
Net earned premiums $ 33,055 $ 31,646 $ 32,122 $ 97,320 $ 94,318
Commissions and processing fees 418 317 487 1,160 1,329
Net claims and adjustment expenses (21,262) (19,741) (28,226) (62,255) (67,223)
Policy acquisition costs (6,706) (6,354) (6,608) (18,841) (19,246)
Total, net $ 5,505 $ 5,868 $ (2,225) $ 17,384 $ 9,178

4. Securities

Net unrealized gains (losses) reflected on the consolidated balance sheet follow:

As at
July 31
2014
As at
April 30
2014
As at
October 31
2013
Interest bearing deposits with regulated financial institutions $ 75 $ 435 $ 569
Securities issued or guaranteed by
Canada 78 150 632
A province or municipality 394 181 161
Other debt securities 1,159 1,166 1,180
Equity securities
Preferred shares (512) (258) (16,301)
Common shares 3,556 4,730 6,657
Unrealized gains (losses), net $ 4,750 $ 6,404 $ (7,102)

The securities portfolio is primarily comprised of high quality debt instruments, preferred shares and common shares that are not held for trading purposes and, where applicable, are typically held until maturity. Fluctuations in value are generally attributed to changes in interest rates, market credit spreads and shifts in the interest rate curve. Volatility in equity markets also leads to fluctuations in value, particularly for common shares. For the three and nine months ended July 31, 2014, CWB assessed the securities with unrealized losses and, based on available objective evidence, no impairment charges (2013 - nil) were included in gains on securities, net.

5. Loans

The composition of CWB's loan portfolio by geographic region and industry sector follows:


($ millions)
Composition Percentage
BC AB ON SK MB Other Total July 31
2014
April 30
2014
October 31
2013
Personal $ 868 $ 1,110 $ 531 $ 175 $ 79 $ 5 $ 2,768 16 % 16 % 16 %
Business
Real estate 2,938 2,599 468 455 123 21 6,604 38 38 37
Commercial 1,576 1,865 409 199 148 92 4,289 25 25 26
Equipment financing and energy(1) 607 1,505 627 308 123 404 3,574 21 21 21
Total Business 5,121 5,969 1,504 962 394 517 14,467 84 84 84
Total Loans(2) $ 5,989 $ 7,079 $ 2,035 $ 1,137 $ 473 $ 522 $ 17,235 100 % 100 % 100 %
Composition Percentage
July 31, 2014 35 % 41 % 12 % 7 % 2 % 3 % 100 %
April 30, 2014 35 % 41 % 11 % 7 % 3 % 3 % 100 %
October 31, 2013 35 % 42 % 11 % 7 % 2 % 3 % 100 %
(1) Includes securitized leases reported on-balance sheet of $360 (April 30, 2014 - $282; October 31, 2013 - $230).
(2) This table does not include an allocation for credit losses.

6. Allowance for Credit Losses

The following table shows the changes in the allowance for credit losses:

For the three months ended
July 31, 2014
For the three months ended
April 30, 2014


Specific
Allowance
Collective
Allowance
for
Credit
Losses
Total

Specific
Allowance
Collective
Allowance
for
Credit
Losses
Total
Balance at beginning of period $ 4,254 $ 84,722 $ 88,976 $ 12,757 $ 78,597 $ 91,354
Provision for credit losses 2,051 4,907 6,958 338 6,125 6,463
Write-offs (2,989) - (2,989) (9,256) - (9,256)
Recoveries 558 - 558 415 - 415
Balance at end of period $ 3,874 $ 89,629 $ 93,503 $ 4,254 $ 84,722 $ 88,976
For the three months ended
July 31, 2013

Specific
Allowance
Collective
Allowance
for
Credit
Losses
Total
Balance at beginning of period $ 8,971 $ 70,500 $ 79,471
Provision for credit losses 6,067 1,424 7,491
Write-offs (3,083) - (3,083)
Recoveries 610 - 610
Balance at end of period $ 12,565 $ 71,924 $ 84,489
For the nine months ended
July 31, 2014
For the nine months ended
July 31, 2013


Specific
Allowance
Collective
Allowance
for
Credit
Losses
Total
Specific
Allowance
Collective
Allowance
for
Credit
Losses
Total
Balance at beginning of period $ 9,569 $ 76,217 $ 85,786 $ 14,379 $ 67,344 $ 81,723
Provision for credit losses 7,628 13,412 21,040 15,922 4,580 20,502
Write-offs (14,698) - (14,698) (20,131) - (20,131)
Recoveries 1,375 - 1,375 2,395 - 2,395
Balance at end of period $ 3,874 $ 89,629 $ 93,503 $ 12,565 $ 71,924 $ 84,489

7. Impaired and Past Due Loans

Outstanding gross loans and impaired loans, net of allowance for credit losses, by loan type, are as follows:

As at July 31, 2014 As at April 30, 2014
Gross
Amount
Gross
Impaired
Amount
Specific
Allowance
Net
Impaired
Loans
Gross
Amount
Gross
Impaired
Amount

Specific
Allowance
Net
Impaired
Loans
Personal $ 2,768,458 $ 14,276 $ 345 $ 13,931 $ 2,665,550 $ 14,883 $ 665 $ 14,218
Business
Real estate(1) 6,604,351 27,761 244 27,517 6,401,392 20,101 300 19,801
Commercial 4,288,731 3,673 441 3,232 4,277,615 4,526 196 4,330
Equipment financing and energy 3,573,844 12,378 2,844 9,534 3,442,854 11,111 3,093 8,018
Total(2) $ 17,235,384 $ 58,088 $ 3,874 54,214 $ 16,787,411 $ 50,621 $ 4,254 46,367
Collective allowance(3) (89,629) (84,722)
Net impaired loans after collective allowance $ (35,415) $ (38,355)
As at October 31, 2013
Gross
Amount
Gross
Impaired
Amount

Specific
Allowance
Net
Impaired
Loans
Personal $ 2,502,295 $ 17,052 $ 748 $ 16,304
Business
Real estate(1) 5,829,225 31,937 6,349 25,588
Commercial 4,091,371 4,612 293 4,319
Equipment financing and energy 3,230,335 10,610 2,179 8,431
Total(2) $ 15,653,226 $ 64,211 $ 9,569 54,642
Collective allowance(3) (76,217)
Net impaired loans after collective allowance $ (21,575)
(1) Multi-family residential mortgages are included in real estate loans.
(2) Gross impaired loans include foreclosed assets with a carrying value of $1,154 (April 30, 2014 - $4,157 and October 31, 2013 - $12,407) which are held for sale. CWB pursues timely realization on foreclosed assets and does not use the assets for its own operations.
(3) The collective allowance for credit risk is not allocated by loan type.

Outstanding impaired loans, net of allowance for credit losses, by provincial location of security, are as follows:

As at July 31, 2014 As at April 30, 2014
Gross
Impaired
Amount
Specific
Allowance
Net
Impaired
Loans
Gross
Impaired
Amount

Specific
Allowance
Net
Impaired
Loans
Alberta $ 12,826 $ 1,055 $ 11,771 $ 11,343 $ 1,465 $ 9,878
British Columbia 34,478 996 33,482 28,890 716 28,174
Ontario 6,594 827 5,767 6,524 904 5,620
Saskatchewan 2,105 387 1,718 1,973 475 1,498
Manitoba 498 120 378 542 162 380
Other 1,587 489 1,098 1,349 532 817
Total $ 58,088 $ 3,874 54,214 $ 50,621 $ 4,254 46,367
Collective allowance(1) (89,629) (84,722)
Net impaired loans after collective allowance $ (35,415) $ (38,355)
As at October 31, 2013
Gross
Impaired
Amount

Specific
Allowance
Net
Impaired
Loans
Alberta $ 38,886 $ 7,475 $ 31,411
British Columbia 17,904 476 17,428
Ontario 2,886 728 2,158
Saskatchewan 1,861 381 1,480
Manitoba 1,214 146 1,068
Other 1,460 363 1,097
Total $ 64,211 $ 9,569 54,642
Collective allowance(1) (76,217)
Net impaired loans after collective allowance $ (21,575)
(1) The collective allowance for credit risk is not allocated by province.

Gross impaired loans exclude certain past due loans where payment of interest or principal is contractually in arrears. Details of such past due loans that have not been included in the gross impaired amount are as follows:

As at July 31, 2014
1 - 30
days
31 - 60
days
61 - 90
days
More than
90 days
Total
Personal $ 10,313 $ 12,687 $ 1,467 $ 811 $ 25,278
Business 17,157 22,954 8,434 49 48,594
$ 27,470 $ 35,641 $ 9,901 $ 860 $ 73,872
Total as at April 30, 2014 $ 69,900 $ 19,882 $ 6,336 $ 1,506 $ 97,624
Total as at October 31, 2013 $ 24,710 $ 48,102 $ 2,075 $ 2,400 $ 77,287

8. Derivative Financial Instruments

CWB designates certain derivative financial instruments as either a hedge of the fair value of recognized assets or liabilities or firm commitments (fair value hedges), or a hedge of highly probable future cash flows attributable to a recognized asset or liability or a forecasted transaction (cash flow hedges). On an ongoing basis, the derivatives used in hedging transactions are assessed to determine whether they are effective in offsetting changes in fair values or cash flows of the hedged items. If a hedging transaction becomes ineffective or if the derivative is not designated as a cash flow hedge, any subsequent change in the fair value of the hedging instrument is recognized in net income.

For the three and nine months ended July 31, 2014, $2,264 and $4,159 of net unrealized after tax gains (2013 - $161 of net unrealized after tax gains and $204 unrealized after tax losses) were recorded in other comprehensive income for changes in fair value of the effective portion of equity and interest rate swap derivatives designated as cash flow hedges, and no amounts (2013 - $nil) were recorded in non-interest income for changes in fair value of the ineffective portion of derivatives classified as cash flow hedges. Amounts accumulated in other comprehensive income are reclassified to net income in the same period that the hedged item affects income. For the three and nine months ended July 31, 2014, $1,636 and $4,142 of net gains after tax (2013 - $128 and $101 of net gains after tax) were reclassified to net income.

The following table shows the notional value outstanding for derivative financial instruments and the related fair value:

As at July 31, 2014 As at April 30, 2014
Notional
Amount
Positive
Fair Value
Negative
Fair Value
Notional
Amount
Positive
Fair Value
Negative
Fair Value
Interest rate swaps designated ashedges(1)
$
1,325,000 $ 657 $ 175 $ 775,000 $ 329 $ 40
Equity swaps designated as hedges(2) 19,205 5,693 - 17,470 6,712 -
Equity swaps not designated as hedges(3) 3,754 253 - - - -
Foreign exchange contracts(4) 842 13 3 858 9 4
Derivative related amounts $ 1,348,801 $ 6,616 $ 178 $ 793,328 $ 7,050 $ 44
As at October 31, 2013
Notional
Amount
Positive
Fair Value
Negative
Fair Value
Interest rate swaps designated as hedges $ 800,000 $ 367 $ 32
Equity swaps designated as hedges 17,470 4,131 -
Foreign exchange contracts 1,235 11 4
Derivative related amounts $ 818,705 $ 4,509 $ 36
(1) Interest rate swaps designated as hedges outstanding at July 31, 2014 mature between December 2014 and July 2017.
(2) Equity swaps designated as hedges outstanding at July 31, 2014 mature between June 2015 and June 2017.
(3) Equity swaps not designated as hedges outstanding at July 31, 2014 mature June 2015.
(4) Foreign exchange contracts outstanding at July 31, 2014 mature between August 2014 and March 2015.

There were no forecasted transactions that failed to occur during the three and nine months ended July 31, 2014.

9. Capital Stock

Share Capital
For the nine months ended
July 31, 2014 July 31, 2013
Number of
Shares
Amount Number of
Shares
Amount
Preferred Shares - Series 5
Outstanding at beginning of period - $ - - $ -
Issued 5,000,000 125,000 - -
Outstanding at end of period 5,000,000 125,000 - -
Preferred Shares - Series 3
Outstanding at beginning of period 8,352,496 208,815 8,390,000 209,750
Redeemed (8,352,496) (208,815) - -
Purchased for cancellation - - (31,404) (785)
Outstanding at end of period - - 8,358,596 208,965
Common Shares
Outstanding at beginning of period 79,619,595 510,282 78,742,812 490,218
Issued under dividend reinvestment plan(1) 345,559 12,877 384,296 10,571
Issued on exercise or exchange of options 305,091 1,066 245,066 1,194
Transferred from share-based payment reserve on exercise or exchange of options - 5,058 - 2,397
Outstanding at end of period 80,270,245 529,283 79,372,174 504,380
Share Capital $ 654,283 $ 713,345
(1) Shares are issued at a 2% discount from the average closing price of the five trading days preceding the dividend payment date.

On February 10, 2014, CWB issued five million Basel III-compliant, non-cumulative, five year rate reset First Preferred Shares Series 5 (Series 5 Preferred Shares) at $25 per share, for gross proceeds of $125,000. For the initial five year period to the earliest redemption date of April 30, 2019, the shares pay quarterly cash dividends, if declared, at a rate of 4.40%. Additional information on the Series 5 preferred shares is discussed in Note 9 of CWB's unaudited interim financial statements for the second quarter ended April 30, 2014.

10. Share-based Payments

Stock Options
For the three months ended
July 31, 2014 July 31, 2013


Number of
Options
Weighted
Average
Exercise
Price


Number of
Options
Weighted
Average
Exercise
Price
Options
Balance at beginning of period 4,422,880 $ 28.83 3,735,818 $ 25.60
Granted 799,037 39.42 986,232 28.47
Exercised or exchanged (387,835) 26.62 (206,858) 19.60
Forfeited (4,761) 32.23 (8,355) 27.92
Balance at end of period 4,829,321 $ 30.75 4,506,837 $ 26.49
For the nine months ended
July 31, 2014 July 31, 2013


Number of
Options
Weighted
Average
Exercise
Price


Number of
Options
Weighted
Average
Exercise
Price
Options
Balance at beginning of period 4,217,908 $ 26.96 3,441,100 $ 24.51
Granted 1,422,357 38.58 1,810,899 28.30
Exercised or exchanged (747,444) 24.35 (550,580) 18.58
Forfeited (63,500) 29.60 (32,507) 27.53
Expired - - (162,075) 31.18
Balance at end of period 4,829,321 $ 30.75 4,506,837 $ 26.49

Until March 1, 2014, the terms of the share incentive plan allowed the holders of vested options a cashless settlement alternative whereby the option holder could either (i) elect to receive shares by delivering cash to CWB in the amount of the option exercise price or (ii) elect to receive the number of shares equivalent to the excess of the market value of the shares under option, determined at the exercise date, over the exercise price (cashless settlement). Effective March 1, 2014, all options exercised are settled via cashless settlement. Of the 747,444 (2013 - 550,580) options exercised or exchanged in the nine months ended July 31, 2014, option holders exchanged the rights to 700,952 (2013 - 487,739) options and received 258,599 (2013 - 182,225) shares in return under the cashless settlement alternative.

For the nine months ended July 31, 2014, salary expense of $4,474 (2013 - $4,540) was recognized relating to the estimated fair value of options granted. The fair value of options granted was estimated using a binomial option pricing model with the following variables and assumptions: (i) risk-free interest rate of 1.5% (2013 - 1.4%), (ii) expected option life of 4.0 (2013 - 4.0) years, (iii) expected annual volatility of 18% (2013 - 22%), and (iv) expected annual dividends of 2.1% (2013 - 2.5%). The weighted average fair value of options granted was estimated at $4.61 (2013 - $3.93) per share.

Further details relating to stock options outstanding and exercisable at July 31, 2014 follow:

Options Outstanding Options Exercisable




Range of Exercise Prices



Number of
Options
Weighted
Average
Remaining
Contractual
Life
(years)

Weighted
Average
Exercise
Price



Number of
Options

Weighted
Average
Exercise
Price
$22.09 to $23.43 99,875 0.7 $ 23.07 99,875 $ 23.07
$25.46 to $29.42 3,101,896 3.1 27.44 173,221 29.42
$30.75 to $39.42 1,627,550 4.3 37.54 216,732 30.76
Total 4,829,321 3.5 $ 30.75 489,828 $ 28.72

11. Contingent Liabilities and Commitments

In the normal course of business, CWB enters into various commitments and has contingent liabilities, which are not reflected in the consolidated balance sheets. At July 31, 2014, these items include guarantees and standby letters of credit of $390,808 (October 31, 2013 - $354,083). Significant contingent liabilities and commitments, including guarantees provided to third parties, are discussed in Note 20 of CWB's audited consolidated financial statements for the year ended October 31, 2013 (see page 89 of the 2013 Annual Report).

In the ordinary course of business, CWB and its subsidiaries are party to legal proceedings. Based on current knowledge, CWB does not expect the outcome of any of these proceedings to have a material effect on the consolidated financial position or results of operations.

12. Fair Value of Financial Instruments

Financial Assets and Liabilities by Measurement Basis

The table below provides the carrying amount of financial instruments by category as defined in IAS 39 - Financial Instruments: Recognition and Measurement and by balance sheet heading. The table does not include assets and liabilities that are not considered financial instruments.

As at July 31, 2014



Derivatives
Loans and
Receivables
and
Non-trading
Liabilities



Available-
for-sale


Total
Carrying
Amount




Fair Value
Fair Value
Over
(Under)
Carrying
Amount
Financial Assets
Cash resources $ - $ - $ 466,543 $ 466,543 $ 466,543 $ -
Securities - - 2,525,917 2,525,917 2,525,917 -
Loans (1) - 17,222,873 - 17,222,873 17,215,761 (7,112)
Other assets (2) - 126,747 - 126,747 126,747 -
Derivative related 6,616 - - 6,616 6,616 -
Total Financial Assets $ 6,616 $ 17,349,620 $ 2,992,460 $ 20,348,696 $ 20,341,584 $ (7,112)
Financial Liabilities
Deposits (1) $ - $ 17,474,722 $ - $ 17,474,722 $ 17,499,855 $ 25,133
Other liabilities(3) - 378,272 - 378,272 378,272 -
Debt - 939,204 - 939,204 962,800 23,596
Derivative related 178 - - 178 178 -
Total Financial Liabilities $ 178 $ 18,792,198 $ - $ 18,792,376 $ 18,841,105 $ 48,729
As at April 30, 2014
Total Financial Assets $ 7,050 $ 16,893,597 $ 2,535,294 $ 19,435,941 $ 19,440,590 $ 4,649
Total Financial Liabilities $ 44 $ 17,933,239 $ - $ 17,933,283 $ 17,989,847 $ 56,564
As at October 31, 2013
Total Financial Assets $ 4,509 $ 15,750,288 $ 2,580,327 $ 18,335,124 $ 18,320,618 $ (14,506)
Total Financial Liabilities $ 36 $ 16,834,175 $ - $ 16,834,211 $ 16,867,410 $ 33,199
(1) Loans and deposits exclude deferred premiums and deferred revenue, which are not financial instruments.
(2) Other assets exclude property and equipment, goodwill and other intangible assets, reinsurers' share of unpaid claims and adjustment expenses, deferred tax asset, prepaid and deferred expenses, financing costs and other items that are not financial instruments.
(3) Other liabilities exclude deferred tax liability, deferred revenue, unearned insurance premiums and other items that are not financial instruments.

Fair values are based on management's best estimates based on market conditions and pricing policies at a certain point in time. The estimates are subjective and involve particular assumptions and matters of judgment and, as such, may not be reflective of future fair values. Further information on how the fair value of financial instruments is determined is included in Note 29 of the October 31, 2013 consolidated audited financial statements (see page 97 of the 2013 Annual Report).

Fair Value Hierarchy

CWB categorizes its fair value measurements of financial instruments recorded on the consolidated balance sheets according to a three-level hierarchy. Level 1 fair value measurements reflect published market prices quoted in active markets. Level 2 fair value measurements were estimated using a valuation technique based on observable market data. Level 3 fair value measurements were determined using a valuation technique based on unobservable market data. There were no transfers between Level 1 and Level 2 during the three and nine months ended July 31, 2014.

Further information on how the fair value of financial instruments is determined is included in Note 29 of the October 31, 2013 consolidated audited financial statements (see page 97 of the 2013 Annual Report).

The following table presents CWB's financial assets and liabilities that are carried at fair value, categorized by level under the fair value hierarchy:

Valuation Technique
As at July 31, 2014 Fair Value Level 1 Level 2 Level 3
Financial assets
Cash resources $ 466,543 $ 460,001 $ 6,542 $ -
Securities 2,525,917 2,525,917 - -
Derivative related 6,616 - 6,616 -
$ 2,999,076 $ 2,985,918 $ 13,158 $ -
Financial liabilities
Other liability $ 2,379 $ - $ - $ 2,379
Derivative related 178 - 178 -
$ 2,557 $ - $ 178 $ 2,379
As at April 30, 2014
Financial assets $ 2,542,344 $ 2,521,234 $ 21,110 $ -
Financial liabilities $ 2,023 $ - $ 44 $ 1,979
As at October 31, 2013
Financial assets $ 2,584,836 $ 2,533,327 $ 51,509 $ -
Financial liabilities $ 1,715 $ - $ 36 $ 1,679

Financial instruments that are not carried on the balance sheet at fair value include loans, deposits and debt. Based on the inputs used to calculate fair values disclosed above, these financial instruments are classified as Level 2 in the fair value hierarchy.

Level 3 Financial Instruments

The Level 3 financial instrument are comprised of the contingent consideration related to a subsidiary acquisition. The following table shows a reconciliation of the fair value measurements related to the Level 3 valued instrument:

For the nine months ended
July 31
2014 2013
Balance at beginning of period $ 1,679 $ -
Business acquisition - 1,679
Change in fair value charged to other income 700 -
Balance at end of period $ 2,379 $ 1,679

13. Interest Rate Sensitivity

CWB's exposure to interest rate risk as a result of a difference or gap between the maturity or repricing behavior of interest sensitive assets and liabilities, including derivative financial instruments, is discussed in Note 28 of the audited consolidated financial statements for the year ended October 31, 2013 (see page 96 of the 2013 Annual Report). The following table shows the gap position for selected time intervals.

Asset Liability Gap Positions
($ millions) Floating
Rate
and
Within
1 Month
1 to 3
Months

3 Months
to
1 Year

Total
Within
1 Year
1 Year
to
5 Years


More than
5 Years

Non-
interest
Sensitive



Total
July 31, 2014
Assets
Cash resources and securities $ 368 $ 983 $ 509 $ 1,860 $ 903 $ 185 $ 45 $ 2,993
Loans 7,999 886 2,286 11,171 5,945 107 (81) 17,142
Other assets - - - - - - 388 388
Derivative financialinstruments(1) - - 338 338 1,010 - 1 1,349
Total 8,367 1,869 3,133 13,369 7,858 292 353 21,872
Liabilities and Equity
Deposits 6,548 1,220 3,499 11,267 6,208 - (17) 17,458
Other liabilities 4 7 33 44 26 13 390 473
Debt 10 21 82 113 576 250 - 939
Equity - - - - - - 1,653 1,653
Derivative financialinstruments(1) 1,348 - - 1,348 - - 1 1,349
Total 7,910 1,248 3,614 12,772 6,810 263 2,027 21,872
Interest Rate Sensitive Gap $ 457 $ 621 $ (481) $ 597 $ 1,048 $ 29 $ (1,674) $ -
Cumulative Gap $ 457 $ 1,078 $ 597 $ 597 $ 1,645 $ 1,674 $ - $ -
Cumulative Gap as aPercentage of Total Assets 2.1
%
4.9
%
2.7 % 2.7
%
7.5 % 7.7
%
-
%
-
%
April 30, 2014
Cumulative Gap $ 1,560 $ 2,069 $ 1,100 $ 1,100 $ 1,541 $ 1,557 $ - $ -
Cumulative Gap as aPercentage of Total Assets 7.6
%
10.1
%
5.4 % 5.4
%
7.5 % 7.6
%
-
%

-

%
October 31, 2013
Cumulative Gap $ 1,289 $ 1,785 $ 240 $ 240 $ 1,499 $ 1,541 $ - $ -
Cumulative Gap as a Percentage of Total Assets 6.7
%
9.2
%
1.2 % 1.2
%
7.8 % 8.0
%
-
%

-

%
(1) Derivative financial instruments are included in this table at the notional amount.
(2) Accrued interest is excluded in calculating interest sensitive assets and liabilities.
(3) Potential prepayments of fixed rate loans and early redemption of redeemable fixed term deposits have not been estimated. Redemptions of fixed term deposits where depositors have this option are not expected to be material. The majority of fixed rate loans, mortgages and leases are either closed or carry prepayment penalties.

The effective, weighted average interest rates of financial assets and liabilities are shown below:

July 31, 2014 Floating
Rate
and
Within
1 Month



1 to 3
Months


3 Months
to
1 Year
Total
Within
1 Year



1 Year
to
5 Years


More
than
5 Years




Total
Total assets 3.6 % 2.4 % 4.0 % 3.6 % 4.0 % 4.6 % 3.8 %
Total liabilities 1.2 1.7 2.0 1.5 2.4 3.3 1.8
Interest rate sensitive gap 2.4 % 0.7 % 2.0 % 2.1 % 1.6 % 1.3 % 2.0 %
April 30, 2014
Total assets 3.3 % 2.4 % 4.2 % 3.4 % 4.5 % 4.7 % 3.8 %
Total liabilities 1.3 1.8 2.0 1.6 2.4 3.3 1.9
Interest rate sensitive gap 2.0 % 0.6 % 2.2 % 1.8 % 2.1 % 1.4 % 1.9 %
October 31, 2013
Total assets 3.8 % 2.3 % 4.0 % 3.6 % 4.6 % 4.8 % 4.0 %
Total liabilities 1.3 1.9 2.0 1.6 2.4 3.3 1.9
Interest rate sensitive gap 2.5 % 0.4 % 2.0 % 2.0 % 2.2 % 1.5 % 2.1 %

14. Capital Management

Capital for Canadian financial institutions is managed and reported in accordance with a capital management framework specified by OSFI commonly called Basel III. Additional information about CWB's capital management practices is provided in Note 31 to the fiscal 2013 audited consolidated financial statements within 2013 Annual Report (see page 100 of the 2013 Annual Report) and in the Capital Management section in the Q3 2014 Management's Discussion and Analysis.

Capital funds are managed in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors and take into account forecasted capital needs and markets. The goal is to maintain adequate regulatory capital to be considered well capitalized, protect customer deposits and provide capacity for internally generated growth and strategic opportunities that do not otherwise require accessing the public capital markets, all while providing a satisfactory return for shareholders.

Capital Structure and Regulatory Ratios
As at
July 31
2014
As at
April 30
2014
As at
July 31
2013
Regulatory capital, net of deductions
Common equity Tier 1 $ 1,406,960 $ 1,376,624 $ 1,243,708
Tier 1 1,637,318 1,606,780 1,515,961
Total 2,267,031 2,231,539 2,194,220
Capital ratios
Common equity Tier 1 8.0 % 8.1 % 7.9 %
Tier 1 9.3 9.4 9.6
Total 12.9 13.1 13.9
Asset to capital multiple 9.0 x 8.7 x 8.0 x

During the nine months ended July 31, 2014, CWB complied with all internal and external capital requirements.

15. Comparative Figures

Certain comparative figures have been reclassified to conform to the current period's presentation.

Shareholder Information

Head Office
Canadian Western Bank Group
Suite 3000, Canadian Western Bank Place
10303 Jasper Avenue
Edmonton, AB T5J 3X6
Telephone: (780) 423-8888
Fax: (780) 423-8897
cwb.com
Subsidiary Offices
National Leasing Group Inc.
1525 Buffalo Place
Winnipeg, MB R3T 1L9
Toll-free: 1-800-665-1326
Toll-free fax: 1-866-408-0729
nationalleasing.com
Canadian Western Trust Company
Suite 600, 750 Cambie Street
Vancouver, BC V6B 0A2
Toll-free: 1-800-663-1124
Fax: (604) 669-6069
cwt.ca
Valiant Trust Company
Suite 310, 606 4th Street S.W.
Calgary, AB T2P 1T1
Toll-free: 1-866-313-1872
Fax: (403) 233-2857
valianttrust.com
Canadian Direct Insurance Incorporated
Suite 600, 750 Cambie Street
Vancouver, BC V6B 0A2
Telephone: (604) 699-3678
Fax: (604) 699-3851
canadiandirect.com
Adroit Investment Management Ltd.
Suite 1250, Canadian Western Bank Place
10303 Jasper Avenue
Edmonton, AB T5J 3N6
Telephone: (780) 429-3500
Fax: (780) 429-9680
adroitinvestments.ca
McLean & Partners Wealth Management Ltd.
801 10th Avenue SW
Calgary, AB T2R 0B4
Telephone: (403) 234-0005
Fax: (403) 234-0606
mcleanpartners.com
Stock Exchange Listings
The Toronto Stock Exchange
Common Shares: CWB
Series 5 Preferred Shares: CWB.PR.B
Transfer Agent and Registrar
Valiant Trust Company
Suite 310, 606 4th Street S.W.
Calgary, AB T2P 1T1
Telephone: (403) 233-2801
Fax: (403) 233-2857
Website: http://www.valianttrust.com/
Email: inquiries@valianttrust.com
Eligible Dividends Designation
CWB designates all dividends for both common and preferred shares paid to Canadian residents as "eligible dividends", as defined in the Income Tax Act (Canada), unless otherwise noted.
Dividend Reinvestment Plan
CWB's dividend reinvestment plan allows common and preferred shareholders to purchase additional common shares by reinvesting their cash dividend without incurring brokerage and commission fees. For information about participation in the plan, please contact the Transfer Agent and Registrar or visit cwb.com.
Investor Relations
Investor & Public Relations
Canadian Western Bank
Telephone: (780) 969-8337
Toll-free: 1-800-836-1886
Fax: (780) 969-8326
Email: InvestorRelations@cwbank.com
Online Investor Information
Additional investor information including supplemental financial information and corporate presentations are available on CWB's website at cwb.com.
Quarterly Conference Call and Webcast
CWB's quarterly conference call and live audio webcast will take place on August 28th, 2014 at 1:00 p.m. ET (11:00 a.m. MT). The conference call may be accessed on a listen-only basis by dialing 647-788-4922 or toll-free 877-223-4471. The webcast will be archived on CWB's website at cwb.com for sixty days. A replay of the conference call will be available until September 11, 2014 by dialing 416-621-4642 (Toronto) or 1-800-585-8367 (toll-free) and entering passcode 78022131.

Contact Information

  • Canadian Western Bank
    Matt Evans, CFA
    Senior Manager, Investor Relations
    (780) 969-8337
    matt.evans@cwbank.com