Canadian Western Bank
TSX : CWB

Canadian Western Bank

June 04, 2015 08:00 ET

CWB Reports Solid Second Quarter Financial Results and Sound Credit Quality

EDMONTON, ALBERTA--(Marketwired - June 4, 2015) -

Second Quarter 2015 Highlights from Combined Operations1,2

(compared to the same period in the prior year)

  • Common shareholders' net income of $53.5 million, up 5%.
  • Diluted earnings per common share of $0.67, up 6%, and adjusted cash earnings per common share of $0.68, up 5%. Adjusted cash earnings per common share from Continuing Operations of $0.65, up 10%.
  • Loan growth of 2% in the quarter, 6% year-to-date and 11% over the past twelve months.
  • Net interest margin of 2.58% (teb), compared to 2.59% last year and 2.60% in the previous quarter.
  • Solid Basel III regulatory capital ratios using the Standardized approach for calculating risk-weighted assets of 7.9% common equity Tier 1 (CET1), 9.1% Tier 1 and 12.1% total ratio. Very conservative Basel III leverage ratio of 7.7%.
  • Provision for credit losses as a percentage of average loans of 17 basis points, compared to 16 basis points in both the same quarter last year and the previous quarter.
  • Effective May 1, 2015, CWB completed divestitures of its property and casualty insurance subsidiary, Canadian Direct Insurance, and the stock transfer business of its subsidiary, Valiant Trust Company, that will collectively contribute approximately $1.38 to third quarter earnings per common share.
  • Yesterday, CWB increased the cash dividend per common share to $0.22, 5% ($0.01) higher than the prior quarter and 10% ($0.02) higher than the quarterly dividend declared one year ago.
(1) Highlights include certain non-IFRS measures - refer to definitions following the table of Selected Financial Highlights on page 4.
(2) As a result of the sales of Canadian Direct Insurance (CDI) and the stock transfer business of Valiant Trust Company (Valiant), CWB has defined the contributions of both CDI and Valiant's stock transfer business as "Discontinued Operations", the remaining operations as "Continuing Operations", and the total Continuing Operations and Discontinued Operations as "Combined Operations".

Canadian Western Bank (TSX:CWB) (CWB) today announced solid second quarter financial performance driven by strong year-over-year loan growth and ongoing sound credit quality.

Compared to the same quarter last year, common shareholders' net income from Combined Operations of $53.5 million was up 5%. Diluted earnings per common share of $0.67 increased 6% and adjusted cash earnings per common share of $0.68 was up 5%. Total revenues (teb) of $159.9 million were up 4%, primarily reflecting the positive impact of strong 11% loan growth, partially offset by slightly lower net interest margin and decreased non-interest income.

Common shareholders' net income was relatively consistent with last quarter, as the combined positive impacts of 2% loan growth and higher non-interest income were offset by three fewer revenue earning days and a small decrease in net interest margin. Diluted earnings per share was unchanged sequentially and adjusted cash earnings per common share was down 1%.

Year-to-date common shareholders' net income of $107.8 million increased 4%, as the positive impacts of strong loan growth and lower preferred share dividends were partially offset by higher non-interest expenses, lower non-interest income and a slight decrease in net interest margin. Year-to-date diluted earnings per common share of $1.34 increased 4% and adjusted cash earnings per share of $1.36 was up 4%.

"We are pleased with CWB Group's financial performance through the first half of the year. We have continued to deliver strong loan growth and maintained sound credit quality against an uncertain macroeconomic backdrop within Alberta and Saskatchewan," said Chris Fowler, President and CEO. "While the full impact of lower oil prices has yet to make its way through all facets of the economy, we continue to work proactively with our clients to address specific challenges as they emerge. We are confident that our secured lending business model and relationship-based approach to client service have us well-positioned to maintain our strong growth and thrive through a range of possible outcomes."

"We continue to pursue opportunities to redeploy the significant value generated by the recently closed transactions involving CDI and Valiant Trust," continued Mr. Fowler. "Redeployment initiatives will be aligned with our well-defined strategic direction and we are confident they will generate superior long-term returns for CWB shareholders."

Outlook for Combined Operations

The performance target ranges established for the 2015 fiscal year for Combined Operations together with CWB's year-to-date performance are presented in the table below:

2015
Year-to-date Performance from Combined Operations
2015
Target Ranges for Performance from Combined Operations
Adjusted cash earnings per common share growth(1) (2) 4 % 5 - 8 %
Loan growth(3) 11 % 10 - 12 %
Provision for credit losses as a percentage of average loans(4) 0.16 % 0.17 - 0.22 %
Efficiency ratio (teb)(5) 48.2 % 47% or less
Return on common shareholders' equity(6) 13.6 % 14.0 - 15.0 %
Return on assets(7) 1.03 % 1.07 - 1.12 %
(1) Year-to-date performance for adjusted cash earnings per common share is the current year results over the same period in the prior 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 to be 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 common shareholders' net income divided by average common shareholders' equity.
(7) Return on assets is calculated as annualized common shareholders' net income divided by average total assets.

Compared to the same quarter last year, growth in adjusted cash earnings per common share was constrained by marginally lower net interest margin (teb) and a decline in non-interest income resulting from decreased net gains on securities and lower contributions from Discontinued Operations.

Gains on sale from the transactions involving CDI and Valiant Trust will contribute approximately $1.38 of earnings per common share in the third quarter. As a result, growth in adjusted cash earnings per common share and performance compared to the target ranges for efficiency and key profitability ratios will surpass expectations at the start of the year. Recognizing the financial impacts of these gains and elimination of future earnings contributions from the divested businesses, management has determined that, with the exception of targets related to loan growth and credit quality, the performance target ranges established for the 2015 fiscal year are not meaningful for Continuing Operations.

Outlook for Continuing Operations

Amongst other macroeconomic factors, the outlook for the Canadian economy remains under the influence of low oil prices. Economic conditions within the oil-exporting provinces have weakened and Alberta and Saskatchewan are expected to underperform the rest of Canada in 2015. In Alberta, the economic outlook is characterized by significantly reduced expectations for job creation, lower expected in-migration, decreased housing market activity and lower overall GDP growth. The outlook for British Columbia, Manitoba and Ontario is positive, with consensus forecasts calling for stable economic conditions and modest growth this year. Notwithstanding the potential for slower growth in Alberta and Saskatchewan, lower interest rates and a weaker Canadian dollar are expected to have positive impacts on the overall domestic economy during the second half of the year.

Second quarter loan growth was driven by solid overall activity in spite of continued economic uncertainty, reinforcing our expectation for another year of double-digit growth in fiscal 2015. Growth compared to both the prior quarter and year-over-year was particularly strong in Alberta. While strong competition from domestic banks and other financial services firms is expected to persist, we continue to gain market share through the effective execution of our strategic plan. CWB's strategic direction emphasizes competitive advantages within our core business banking platform, complemented by strategically aligned offerings in personal banking, equipment finance and leasing, alternative mortgages, wealth management, and trust services. Strong, ongoing growth within each business line demonstrates our continued progress to be seen as crucial to our clients' futures.

Overall credit quality is consistent with expectations, supporting our view that the annual provision for credit losses is likely to fall between 17 and 22 basis points of average loans for the full year. We continue to carefully monitor the loan portfolio for signs of weakness resulting from the impacts of lower oil prices.

We remain confident that the combination of disciplined underwriting, our secured lending practices and active account management will mitigate the potential impacts on our portfolio from slower economic growth in the oil-exporting provinces.

Based on the current composition of the securities portfolio, net losses on securities may reduce second-half non-interest income compared to assumptions at the beginning of 2015 and the level achieved year-to-date.

Continued pressure on net interest margin is expected in view of the current very low interest rate environment, competitive factors and the relatively flat yield curve. We continue to mitigate the revenue impact of margin pressure through stronger relative growth in higher yielding loan portfolios with an acceptable risk profile, such as equipment financing and leasing, and Optimum Mortgage. We have also been successful in optimizing the overall cost of funds through prudent management of both the funding mix and balances of cash and securities. While pressure on net interest margin is expected to constrain revenue growth compared to expectations at the start of the year, we continue to make progress in the above-mentioned areas and prudently manage the growth of non-interest expenses while maintaining long-term investments in the infrastructure and technology necessary to support future business growth. On this basis, we expect the efficiency ratio to remain within a narrow range around 47% for the full year.

Based on the results of stress tests simulating severe, negative economic conditions in Alberta and Saskatchewan over a multi-year timeframe, and assuming CWB's historical peak loss rates across all lending segments were experienced simultaneously within those regions, we are confident CWB would continue to deliver profits for shareholders while maintaining strong financial stability. Overall, we expect CWB to deliver ongoing profitable growth.

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 and divisions, National Leasing, Optimum Mortgage, Canadian Direct Financial, Canadian Western Trust, 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. CWB's common shares and Series 5 preferred shares are listed on the Toronto Stock Exchange under the trading symbols "CWB" and "CWB.PR.B", respectively. Refer to www.cwb.com for additional information.

Fiscal 2015 Second Quarter Results Conference Call

CWB's second quarter results conference call is scheduled for Thursday, June 4, 2015, at 1:30 p.m. ET (11:30 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 1-877-223-4471. 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 June 18, 2015, by dialing 416-621-4642 (Toronto) or 1-800-585-8367 (toll-free) and entering passcode 48139344.

Selected Financial Highlights

For the three months ended For the six months ended
(unaudited)
($ thousands, except per share amounts)
April 30
2015
January 31
2015
April 30
2014
Change from
April 30
2014
April 30
2015
April 30
2014
Change from
April 30
2014
Results from Combined Operations(1)
Net interest income (teb - see below) $ 134,886 $ 136,442 $ 123,727 9 % $ 271,328 $ 248,966 9 %
Less teb adjustment 1,650 1,686 1,989 (17 ) 3,336 4,079 (18 )
Net interest income 133,236 134,756 121,738 9 267,992 244,887 9
Non-interest income 25,024 23,422 29,794 (16 ) 48,446 58,325 (17 )
Total revenues (teb) 159,910 159,864 153,521 4 319,774 307,291 4
Total revenues 158,260 158,178 151,532 4 316,438 303,212 4
Common shareholders' net income 53,545 54,209 51,191 5 107,754 103,819 4
Earnings per common share
Basic(2) 0.67 0.67 0.64 5 1.34 1.30 3
Diluted(3) 0.67 0.67 0.63 6 1.34 1.29 4
Adjusted cash(4) 0.68 0.69 0.65 5 1.36 1.31 4
Return on common shareholders' equity(5) 13.6 % 13.5 % 14.4 % (80 ) bp 13.6 % 14.6 % (100 ) bp(6)
Return on assets(7) 1.02 1.03 1.07 (5 ) 1.03 1.09 (6 )
Efficiency ratio (teb)(8) 48.3 48.0 46.0 230 48.2 45.5 270
Efficiency ratio 48.8 48.5 46.6 220 48.7 46.1 260
Net interest margin (teb)(9) 2.58 2.60 2.59 (1 ) 2.59 2.62 (3 )
Net interest margin 2.55 2.57 2.55 - 2.56 2.57 (1 )
Provision for credit losses as a
Percentage of average loans 0.17 0.16 0.16 1 0.16 0.18 (2 )
Results from Continuing Operations(1)
Net interest income (teb - see below) $ 133,064 $ 134,389 $ 122,205 9 % $ 267,453 $ 245,723 9 %
Less teb adjustment 1,455 1,468 1,744 (17 ) 2,923 3,586 (18 )
Net interest income per
financial statements 131,609 132,921 120,461 9 264,530 242,137 9
Non-interest income 18,097 17,995 20,292 (11 ) 36,092 40,847 (12 )
Total revenues (teb) 151,161 152,384 142,497 6 303,545 286,570 6
Total revenues 149,706 150,916 140,753 6 300,622 282,984 6
Common shareholders' net income 51,520 52,405 46,673 10 103,925 95,739 9
Earnings per common share
Basic(2) 0.64 0.65 0.58 10 1.29 1.20 8
Diluted(3) 0.64 0.65 0.58 10 1.29 1.19 8
Adjusted cash(4) 0.65 0.66 0.59 10 1.31 1.21 8
Return on common shareholders' equity(5) 13.1 % 13.1 % 13.1 % - bp 13.1 % 13.5 % (40 ) bp(6)
Return on assets(7) 1.00 1.01 0.99 1 1.00 1.02 (2 )
Efficiency ratio (teb)(8) 47.1 47.1 46.0 110 47.1 45.4 170
Efficiency ratio 47.6 47.5 46.6 100 47.5 45.9 160
Net interest margin (teb)(9) 2.57 2.59 2.59 (2 ) 2.58 2.62 (4 )
Net interest margin 2.54 2.56 2.56 (2 ) 2.55 2.58 (3 )
Results of Discontinued Operations(1)
Common shareholders' net income $ 2,025 $ 1,804 $ 4,518 (55 ) % $ 3,829 $ 8,080 (53 ) %
Earnings per common share
Basic(2) 0.03 0.02 0.06 (50 ) 0.05 0.10 (50 )
Diluted(3) 0.03 0.02 0.05 (40 ) 0.05 0.10 (50 )
Adjusted cash(4) 0.03 0.03 0.06 (50 ) 0.05 0.10 (50 )
Per Common Share
Cash dividends $ 0.21 $ 0.21 $ 0.19 11 % $ 0.42 $ 0.38 11 %
Book value 20.19 19.99 18.52 9 20.19 18.52 9
Closing market value 31.37 25.77 37.14 (16 ) 31.37 37.14 (16 )
Common shares outstanding (thousands) 80,451 80,408 80,045 1 80,451 80,045 1
Balance Sheet and Off-Balance Sheet
Summary (Combined Operations)
Assets $ 21,522,061 $ 21,265,262 $ 19,616,599 10 %
Loans 18,564,168 18,141,984 16,698,435 11
Deposits 17,977,674 17,915,616 16,668,534 8
Debt 1,175,201 1,125,163 872,962 35
Shareholders' equity 1,749,008 1,732,096 1,607,486 9
Assets under administration 9,490,378 9,223,371 11,538,750 (18 )
Assets under management 1,910,863 1,868,262 1,763,256 8
Capital Adequacy(10)
Common equity Tier 1 ratio 7.9 % 7.9 % 8.1 % (20 ) bp
Tier 1 ratio 9.1 9.2 9.4 (30 )
Total ratio 12.1 12.2 13.1 (100 )
(1) On May 1, 2015, CWB sold its property and casualty insurance subsidiary and CWB's stock transfer business as described in Note 3 of the interim consolidated financial statements. The contributions of both the insurance and stock transfer businesses are defined as "Discontinued Operations", the remaining operations are defined as "Continuing Operations", and the total Continuing Operations and Discontinued Operations are defined as "Combined Operations". Return on shareholders' equity reflects equity from Combined Operations. All other measures reflect either Continuing or Combined Operations as indicated.
(2) Basic earnings per common share (EPS) is calculated as common shareholders' net income divided by the average number of common shares outstanding.
(3) Diluted EPS is calculated as common shareholders' net income 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 common shareholders' net income divided by average common shareholders' equity.
(6) bp - basis point change.
(7) Return on assets is calculated as annualized common shareholders' net income 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) 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 June 3, 2015, should be read in conjunction with Canadian Western Bank's (CWB) unaudited condensed interim consolidated financial statements for the period ended April 30, 2015, and the audited consolidated financial statements and MD&A for the year ended October 31, 2014, available on SEDAR at www.sedar.com and CWB's website at www.cwb.com.

Continuing and Discontinued Operations

On May 1, 2015, CWB completed the previously disclosed divestitures of its property and casualty insurance subsidiary, Canadian Direct Insurance (CDI), and the stock transfer business of its subsidiary, Valiant Trust Company (Valiant), ("Discontinued Operations") as described in Note 3 of the interim consolidated financial statements. The remaining operations are defined as "Continuing Operations" and the total Discontinued Operations and Continuing Operations are defined as "Combined Operations". In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, revenue and expenses associated with the businesses sold have been classified as Discontinued Operations in CWB's interim consolidated statements of income for all periods presented. Associated assets and liabilities have been classified as held for sale in CWB's interim consolidated balance sheets prospectively from January 31, 2015, and comparative information has not been adjusted. Return on shareholders' equity reflects equity from Combined Operations. All other measures reflect either Continuing or Combined Operations as indicated.

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, 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 2015 and how it will affect CWB's businesses are material factors considered when setting organizational objectives and targets. Performance target ranges for fiscal 2015 considered expectations for performance from Combined Operations and the following management assumptions:

  • Moderate economic growth in Canada and relatively stronger performance in the four western provinces;
  • A relatively stable net interest margin (teb) compared to the level achieved in the fourth quarter of 2014, primarily attributed to treasury management strategies and shifts in asset mix that help to offset impacts from the very low interest rate environment, a flat interest rate curve and competitive factors; and,
  • Sound credit quality with actual losses remaining within CWB's historical range of acceptable levels.

A number of potential risks that could have a material adverse impact on economic expectations and forecasts were identified, including a sustained period of materially lower energy and other commodity prices compared to average levels observed in fiscal 2014, 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 major global economies. Greater than expected pricing competition and/or disruptions in domestic or global financial markets that meaningfully impact loan yields and/or funding costs were also identified as risks which may contribute to adverse financial results compared to expectations.

Notwithstanding the increase in recent months, energy prices in the second quarter remained well below average levels observed last year. As a result, expectations for stronger relative economic performance in Alberta and Saskatchewan have been adjusted downward, elevating the risk of deterioration in residential real estate prices within these markets. However, moderate economic growth in Canada is still expected and the outlook for economic growth in British Columbia, Manitoba and Ontario has improved with lower energy costs and a lower Canadian dollar. The persistent very low interest rate environment, reinforced by the Bank of Canada's January 2015 interest rate cut, has a negative impact on loan yields and is expected to continue to constrain improvement in net interest margin compared to expectations at the start of the year.

Overview of Combined Operations

CWB reported solid quarterly and year-to-date performance based on strong year-over-year loan growth and ongoing sound credit quality.

Q2 2015 vs. Q2 2014

Common shareholders' net income of $53.5 million was up 5% as the benefits of strong 11% loan growth and lower preferred share dividends were partially offset by growth in non-interest expenses and a decrease in non-interest income. Non-interest income declined 16% ($4.8 million) primarily due to lower net gains on securities and, within Discontinued Operations, decreased trust services revenues. Diluted earnings per common share of $0.67 increased 6% and 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 5% to $0.68. Lower preferred share dividends reflect the second quarter 2014 issuance of $125 million of 4.40% Series 5 preferred shares and subsequent redemption of $209 million of 7.25% Series 3 preferred shares.

Q2 2015 vs. Q1 2015

Common shareholders' net income declined 1% as the revenue impact of 2% loan growth and slightly higher non-interest income was more than offset by three fewer revenue earning days and a modest decrease in net interest margin (teb).

YTD 2015 vs. YTD 2014

Common shareholders' net income of $107.8 million increased 4% as the benefits of strong loan growth and lower preferred share dividends were partially offset by higher non-interest expenses, decreased non-interest income and slightly lower net interest margin. The decrease in non-interest income reflects lower net gains on securities and, within Discontinued Operations, the impact of higher insurance claims expense this year and elevated depository interest income within Valiant Trust in the comparative period last year. Diluted earnings per common share of $1.34 and adjusted cash earnings per common share of $1.36 both increased 4%.

ROE and ROA

Second quarter return on common shareholders' equity (ROE) was 13.6%, compared to 14.4% last year and 13.5% last quarter. Year-to-date ROE of 13.6% compares to 14.6% last year. Return on assets (ROA) of 1.02% compares to 1.07% a year earlier and 1.03% last quarter. Year-to-date ROA of 1.03% was six basis points lower than last year.

Strategic Transactions

Subsequent to quarter end, CWB completed the previously disclosed divestitures of its property and casualty insurance subsidiary, CDI, for $197 million, and the stock transfer business of Valiant Trust for $33 million. These transactions resulted from a strategic assessment initiated early last year, and the combined gains on sale are expected to contribute approximately $1.38 of earnings per common share in the third quarter. Total sales proceeds represent approximately 15 times the combined normalized annual earnings contributions of divested operations.

CWB intends to deploy the capital generated from these transactions in due course for strategic and accretive opportunities that are better aligned with its strategic direction and management is actively pursuing opportunities for investment and/or acquisitions. CWB's primary areas of interest in this respect are equipment finance and leasing, and wealth management.

As a result of these transactions, CWB has defined the contributions of both CDI and Valiant's stock transfer business as "Discontinued Operations". Common shareholders' net income from Discontinued Operations for the current and prior periods is provided in the interim consolidated statements of income. Results of Continuing Operations have been restated to exclude Discontinued Operations for all periods.

Assets and liabilities of Discontinued Operations, along with detailed financial results, are provided in Note 3 to the interim consolidated financial statements. The remainder of this Management's Discussion and Analysis, unless otherwise stated, refers to financial results of, and the outlook for, Continuing Operations.

Overview of Continuing Operations

Q2 2015 vs. Q2 2014

Common shareholders' net income of $51.5 million was up 10% mainly reflecting the benefit of strong 11% loan growth and lower preferred share dividends, partially offset by higher non-interest expenses, a decrease in non-interest income and slightly lower net interest margin (teb). Total non-interest income declined $2.2 million, primarily due to lower net gains on securities. Diluted earnings per common share and adjusted cash earnings per common share both increased 10% to $0.64 and $0.65, respectively.

Q2 2015 vs. Q1 2015

Common shareholders' net income declined 2% as the impact of 2% loan growth was more than offset by three fewer revenue earning days and a two basis point decrease in net interest margin. Both non-interest income and non-interest expenses were relatively unchanged.

YTD 2015 vs. YTD 2014

Common shareholders' net income was up 9%, reflecting factors similar to those discussed above in the comparison of year-to-date results for Combined Operations. The benefit of strong loan growth and lower preferred share dividends was partially offset by higher non-interest expenses, lower non-interest income and a four basis point decrease in net interest margin. Diluted earnings per common share and adjusted cash earnings per common share of $1.29 and $1.31, respectively, both increased 8%.

ROE and ROA

Second quarter return on common shareholders' equity (ROE) was 13.1%, unchanged from last year and the previous quarter. Return on assets (ROA) of 1.00% compares to 0.99% a year earlier and 1.01% last quarter. Year-to-date ROE and ROA of 13.1% and 1.00%, respectively, compare to ROE of 13.5% and ROA of 1.02% last year. Capital generated from the expected gains on sale related to the transactions involving CDI and Valiant Trust will increase shareholders' equity during the third quarter. Dependent upon the timing of subsequent capital deployment initiatives, the 2015 ROE and ROA from Continuing Operations are expected to be constrained compared to expectations at the start of the year. However, this higher capital level will position CWB to move quickly on strategic and accretive capital deployment opportunities as they materialize.

Total Revenues (teb) from Continuing Operations

Second quarter total revenues of $151.2 million, comprised of both net interest income (teb) and non-interest income, grew 6% compared to the same quarter in 2014 and were 1% lower than the previous quarter. Year-to-date total revenues (teb) of $303.5 million were also up 6%.

Net Interest Income (teb)

Q2 2015 vs. Q2 2014

Net interest income of $131.6 million was up 9% ($11.1 million) as the revenue contribution from strong 11% loan growth was partially offset by a two basis point decline in net interest margin to 2.57%. The change in net interest margin mainly resulted from decreased loan yields, partially offset by a reduction in deposit costs and lower average balances of cash and securities. Lower loan yields reflect the combined impact of competitive factors and the Bank of Canada's January 2015 interest rate cut.

Q2 2015 vs. Q1 2015

Net interest income was down 1% ($1.3 million) as the benefit of 2% loan growth was more than offset by the impact of three fewer revenue earning days and a two basis point reduction in net interest margin (teb). Lower net interest margin primarily resulted from reduced loan yields, reflecting the factors discussed above, partially offset by lower deposit costs.

YTD 2015 vs. YTD 2014

Net interest income was up 9% ($22.4 million), reflecting the benefit of strong loan growth, partially offset by a four basis point decline in net interest margin to 2.58%. Lower net interest margin reflects factors similar to those described in the year-over-year comparison above.

Interest rate sensitivity

Note 13 to the unaudited interim consolidated financial statements summarizes CWB's exposure to interest rate risk as at April 30, 2015. 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 certain floating rate loans, and applied at the appropriate repricing dates; and,
  • no early redemptions.
($ thousands) April 30 2015 January 31 2015 April 30 2014
Estimated impact on net interest income of a 1% increase in interest rates
1 year $ 1,976 $ 7,409 $ 16,270
1 year percentage change 0.4 % 1.5 % 3.8 %
Estimated impact on net interest income of a 1% decrease in interest rates
1 year $ 1,660 $ (6,226 ) $ (29,418 )
1 year percentage change 0.3 % (1.3 )% (6.9 )%

The positive change in net interest income resulting from a decrease in interest rates reflects the impact of structural interest rate floors on certain floating rate loans, and the absence of such floors on the majority of floating rate deposits.

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 April 30, 2015 would increase unrealized losses 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 $50.7 million, net of tax (April 30, 2014 - $14.6 million). It is estimated that a one-percentage point decrease in all interest rates at April 30, 2015 would have the opposite effect, increasing other comprehensive income by approximately $51.2 million, net of tax (April 30, 2014 - $14.6 million).

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. Differences in the respective sensitivity of net interest income and other comprehensive income to changes in interest rates compared to the same quarter last year primarily reflects the increased use of interest rate swaps to maintain management's targeted asset liability structure and interest rate sensitivity.

Outlook for net interest margin (teb)

Second quarter net interest margin declined two basis points from both the previous quarter and the same period last year, while year-to-date net interest margin was down four basis points. Continued pressure on net interest margin is expected in view of the current low interest rate environment, competitive factors and the relatively flat yield curve. The Bank of Canada's January rate cut and the corresponding 15 basis point decrease in CWB's prime lending interest rate had a modest negative impact on net interest margin. CWB will maintain its strategic focus on mitigating the earnings impact of ongoing margin pressure through efforts to achieve stronger relative growth in higher yielding loan portfolios with an acceptable risk profile, managing the funding mix to optimize the overall cost of funds, and prudently managing balances of cash and securities.

Provision for Credit Losses

The quarterly provision for credit losses measured against average loans was 17 basis points, compared to16 basis points in both the previous quarter and the same period last year.

Based on the economic environment and current expectations for ongoing credit quality, management continues to expect the annual provision for credit losses to fall within a range of 17 to 22 basis points of average loans.

Non-interest Income from Continuing Operations

Q2 2015 vs. Q2 2014

Non-interest income of $18.1 million was down 11% ($2.2 million) as combined growth of $1.8 million in credit related fee income, fees for retail services, wealth management and trust services revenue was more than offset by a $4.0 million decrease in net gains on securities and lower 'other' non-interest income. The decrease in net gains on securities reflects ongoing management of the securities portfolio through less favourable market conditions in the current period and elevated gains realized in the second quarter of 2014. Within 'other' non-interest income, lower gains on the sale of residential mortgages were realized compared to the same quarter last year.

Q2 2015 vs. Q1 2015

Non-interest income was relatively unchanged as increases in 'other' non-interest income and fees for retail services were offset by lower net gains on securities and small declines in credit related fees and wealth management revenues. The increase in 'other' non-interest income mainly reflects the above-mentioned gain on sale of residential mortgages. Lower net gains on securities reflect the factors described above.

YTD 2015 vs. YTD 2014

Non-interest income of $36.1 million was 12% ($4.8 million) lower, as gains in most categories were more than offset by a $7.6 million decrease in net gains on securities. Lower year-to-date net gains on securities also reflect the factors described above.

Outlook for non-interest income from Continuing Operations

The outlook for growth in banking-related fee income is relatively consistent with anticipated loan growth. Trust and wealth management services are also expected to continue to provide stable growth and consistent contributions. Based on the current composition of the securities portfolio, net losses on securities may reduce second-half fiscal 2015 non-interest income compared to assumptions at the beginning of 2015 and the level achieved year-to-date, although equity and bond market conditions are inherently unpredictable in the short-term. Management will continue to realize gains on the sale of residential mortgage portfolios as opportunities become available. Such gains are anticipated to be a recurring, although sporadic, source of non-interest income.

Non-interest Expenses from Continuing Operations

Q2 2015 vs. Q2 2014

Quarterly non-interest expenses of $71.4 million were up 9% ($5.7 million) primarily due to 8% ($3.6 million) higher salaries and benefits, a 10% ($1.1 million) increase in 'other' expenses, and 9% ($1.0 million) higher premises and equipment costs. The change in salaries and benefits mainly resulted from a larger staff complement to support ongoing growth across all businesses and annual salary increments, as well as the implementation this year of a short-term incentive plan for non-executive employees. Higher 'other' expenses this year mainly reflect an operating loss recovery in the second quarter last year, as well as higher regulatory costs, and employee recruitment expenses in the current period. The increase in premises and equipment expense primarily resulted from increases in direct computer costs and higher rent expense, with the latter mainly related to the new Edmonton Main branch location.

Q2 2015 vs. Q1 2015

Non-interest expenses were down 1% ($0.5 million), primarily reflecting lower direct computer costs and maintenance expense.

YTD 2015 vs. YTD 2014

Non-interest expenses increased 10% ($13.1 million), mainly due to the factors discussed above in the comparison of second quarter results to the same period last year.

Outlook for non-interest expenses from Continuing Operations

One of management's key priorities is to deliver strong long-term growth through strategic investment in people, technology, infrastructure and other areas 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. Compliance with an increasing level of regulatory rules and oversight for all Canadian banks requires the investment of both time and resources, which further contributes to higher non-interest expenses.

Work towards implementation of a new core banking system continues. System implementation is scheduled for early fiscal 2016 and year-to-date progress is consistent with the $62 million capital budget and planned timeline.

Upgrades and expansion of branch infrastructure are also ongoing. An expanded branch location in Prince George, British Columbia, was opened during the second quarter, and work is underway on expanded premises in Medicine Hat, Alberta.

Efficiency ratio

The second quarter efficiency ratio (teb), which measures non-interest expenses as a percentage of total revenues (teb), was 47.1%, unchanged from the previous quarter and up from 46.0% in the same period last year. Compared to the second quarter last year, the positive impact on total revenues of strong loan growth was more than offset by higher expenses, lower non-interest income and the decrease in net interest margin. The year-to-date efficiency ratio was also 47.1%, up from 45.4% last year, reflecting the same factors described above.

Outlook for the efficiency ratio

Ongoing pressure on net interest margin and lower net gains on securities are expected to constrain revenue growth compared to expectations at the start of the year. However, management will continue to prudently manage the growth of non-interest expenses while maintaining long-term investments in the infrastructure and technology necessary to support future business growth. On this basis, the efficiency ratio is expected to remain within a narrow range around 47.0% for the full year.

Income Taxes

The second quarter effective income tax rate (teb) for Continuing Operations was 26.4%, compared to 26.3% last year. The year-to-date effective income tax rate (teb) for Continuing Operations was 26.4% compared to 26.2% last year.

Outlook for income taxes

With the change in Alberta's provincial government subsequent to quarter end, an increase in the corporate income tax rate may be included in the next provincial budget. The magnitude of the potential increase, should it occur, will not be known until the budget is tabled in the fall of 2015.

Overview of Discontinued Operations

Detailed financial results for Discontinued Operations are provided within Note 3 to the interim consolidated financial statements. The components of net income from Discontinued Operations included in the interim consolidated statements of income, which are attributable entirely to CWB common shareholders, follow:

For the three months ended For the six months ended
April 30
2015
January 31
2015
April 30
2014
Change from
April 30
2014
April 30
2015
April 30
2014
Change from
April 30
2014
Net interest income (teb) $ 1,822 $ 2,053 $ 1,522 20 % $ 3,875 $ 3,243 19 %
Non-interest income 6,927 5,427 9,502 (27 ) 12,354 17,478 (29 )
Total revenue (teb) 8,749 7,480 11,024 (21 ) 16,229 20,721 (22 )
Non-interest expenses 6,036 5,068 4,969 21 11,104 9,892 12
Net income before income taxes 2,713 2,412 6,055 (55 ) 5,125 10,829 (53 )
Income taxes (teb) 688 608 1,537 (55 ) 1,296 2,749 (53 )
Common shareholders' net income $ 2,025 $ 1,804 $ 4,518 (55 )% $ 3,829 $ 8,080 (53 )%
Earnings per common share
Basic $ 0.03 $ 0.02 $ 0.06 (50 )% $ 0.05 $ 0.10 (50 )%
Diluted 0.03 0.02 0.05 (40 ) 0.05 0.10 (50 )
Adjusted cash 0.03 0.03 0.06 (50 ) 0.05 0.10 (50 )

Q2 2015 vs. Q2 2014

Common shareholders' net income was down $2.5 million mainly reflecting a $1.3 million decrease in trust services revenues, $1.1 million higher non-interest expenses, and $1.0 million lower net gains on securities. The decrease in trust services revenues reflects elevated depository interest income within Valiant Trust last year, driven by client funds temporarily on hand related to a large corporate action. Lower net insurance revenues mainly resulted from increased policy acquisition costs and higher claims expense. The change in net gains on securities reflects less favourable market conditions in the current period.

Q2 2015 vs. Q1 2015

Common shareholders' net income was $0.2 million higher as the combination of a $1.7 million increase in net insurance revenues and slightly higher trust services revenues more than offset lower net gains on securities and increased non-interest expenses. Within net insurance revenues, a $3.9 million reduction in claims expense more than offset lower net earned premiums and higher policy acquisition costs.

YTD 2015 vs. YTD 2014

Common shareholders' net income of $3.8 million was down $4.3 million, reflecting the combination of decreased net revenues from both insurance and trust services, as well as lower net gains on securities and higher non-interest expenses.

Outlook for Discontinued Operations

Discontinued Operations are expected to contribute approximately $1.38 of earnings per common share in the third quarter through recognition of combined gains on the sale of CDI and the stock transfer business of Valiant Trust. No operating contributions are expected in subsequent periods.

Comprehensive Income

Comprehensive income is comprised of shareholders' net income from Combined Operations and other comprehensive income (OCI), all net of income taxes.

Q2 2015 vs. Q2 2014

Comprehensive income of $33.3 million was down from $67.0 million in the same period last year. The significant change was driven by lower OCI, which primarily reflects $17.1 million in unrealized losses, net of tax, on available-for-sale securities, compared to unrealized gains of $14.6 million last year. The decrease in fair value of available-for-sale securities mainly relates to a lower market value of securities within CWB's portfolio of preferred shares, combined with the realization of gains or losses on these and other available-for-sale securities. While the combined dollar investment in CWB's portfolios of preferred and common equities is relatively small in relation to total liquid assets, it increases the potential for comparatively larger fluctuations in OCI.

YTD 2015 vs. YTD 2014

Comprehensive income of $88.3 million was down from $122.4 million in the same period last year. The change reflects factors similar to those described above, with the decrease in fair value of available-for-sale securities partially offset by an increase in fair value of derivatives designated as cash flow hedges.

Balance Sheet

Total assets increased 10% in the past year and 1% in the quarter to reach $21,522 million at April 30, 2015.

Cash and Securities

Cash, securities and securities purchased or sold under resale or repurchase agreements totaled $2,241 million at April 30, 2015, compared to $2,535 million a year earlier and $2,504 million at the end of last quarter. The cash and 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.

Net unrealized losses on cash and securities from Continuing Operations recorded on the balance sheet of $39.8 million compares to net unrealized gains of $6.4 million as at April 30, 2014, and net unrealized losses of $19.2 million last quarter. Fluctuations in value are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. Volatility in equity markets also leads to fluctuations in value, particularly for common shares.

The difference compared to last year reflects decreases in the market value of preferred shares, certain debt securities and common shares. The change from the prior quarter primarily reflects lower market values of certain debt securities and common shares.

Net gains on securities from Continuing Operations in the second quarter were nil, compared to $3.9 million in the same period last year and $0.6 million in the previous quarter. The decrease in net gains on securities reflects ongoing management of the securities portfolio through less favourable market conditions in the current period and elevated gains realized in the second quarter of 2014. Based on the current composition of the securities portfolio, net losses on securities may reduce second-half fiscal 2015 non-interest income compared to both assumptions at the beginning of 2015 and the level achieved year-to-date, although equity and bond market conditions are inherently unpredictable in the short-term.

Treasury Management

Average balances of cash and securities were lower than both the same quarter last year and the prior quarter. Management expects the ratio of average liquid assets to remain relatively consistent with the current level through the remainder of the year.

CWB remained compliant with the Office of the Superintendent of Financial Institutions' (OSFI) Liquidity Adequacy Requirements Guideline.

Loans

Total loans, excluding the allowance for credit losses, grew 11% ($1,885 million) in the past twelve months, 2% ($429 million) in the quarter and 6% ($1,066 million) year-to-date to reach $18,672 million. In dollar terms, year-over-year growth by lending sector was led by real estate project loans ($510 million) as CWB continued to identify opportunities to finance well-capitalized developers on the basis of sound loan structures and acceptable pre-sale/lease levels. Growth in equipment financing and leasing was also strong ($417 million), followed by personal loans and mortgages ($340 million), commercial mortgages ($236 million), and corporate lending ($229 million). The portfolio of general commercial loans grew $107 million while oil and gas production loans were up $46 million.

Growth was apparent in all lending sectors on a sequential basis, led by commercial mortgages with an increase of $128 million, followed by growth in personal loans and mortgages of $99 million, and oil and gas production loans of $69 million. Growth in oil and gas production loans primarily reflects increased usage of existing credit facilities across a number of accounts, primarily within the syndicated loans segment of the oil and gas portfolio.

(unaudited)
(millions)
April 30 2015 January 31 2015 April 30 2014 % Change from April 30 2014
Commercial mortgages $ 3,748 $ 3,620 $ 3,512 7 %
General commercial loans 3,632 3,566 3,525 3
Equipment financing and leasing 3,538 3,501 3,121 13
Real estate project loans 3,142 3,124 2,632 19
Personal loans and mortgages 3,005 2,906 2,665 13
Corporate lending (1) 1,273 1,261 1,044 22
Oil and gas production loans 334 265 288 16
Total loans outstanding (2) $ 18,672 $ 18,243 $ 16,787 11 %
(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) Total loans outstanding by lending sector exclude the allowance for credit losses.

Measured by geographic concentration, on a year-over-year basis, lending activity in Alberta showed the highest growth in dollar terms, followed by British Columbia and Ontario. Growth over the past twelve months in the related categories of real estate project loans and commercial mortgages was particularly strong in Alberta. Of the residential projects underway in Edmonton and Calgary, Alberta, greater than 80% of aggregate units are pre-sold. To date there has been no evidence of presale rescissions or account deterioration related to these projects, and CWB continues to identify attractive lending opportunities in both markets. Alberta also led all provinces in growth on a sequential basis.

(unaudited)
(millions)
April 30 2015 January 31 2015 April 30 2014 % Change from April 30 2014
British Columbia $ 6,234 $ 6,116 $ 5,871 6 %
Alberta 7,861 7,612 6,981 13
Saskatchewan 1,243 1,222 1,100 13
Manitoba 480 472 413 16
Ontario 2,186 2,186 1,945 12
Other 668 635 477 40
Total loans outstanding (1) $ 18,672 $ 18,243 $ 16,787 11 %
(1) Total loans outstanding by province exclude the allowance for credit losses.

Optimum Mortgage

Net of portfolio sales, total loans of $1,622 million within the broker-sourced residential mortgage business, Optimum Mortgage (Optimum), increased 21% ($280 million) year-over-year, 6% ($89 million) compared to the prior quarter, and 10% ($152 million) in the past six months. Growth for the quarter was driven almost exclusively by alternative mortgages secured via first mortgages carrying a weighted average loan-to-value ratio at initiation of approximately 70%. The book value of alternative mortgages represented 87% of Optimum's total portfolio at quarter end, compared to 85% last year and 86% in the prior quarter. Ontario continues to account for more than half of all new originations. At approximately 38% of the total, Ontario also represents the largest geographic exposure by province within Optimum's portfolio, followed by Alberta at 32% and British Columbia at 17%. Optimum continues to deliver very strong performance with an attractive risk profile.

Securitization

Securitized leases are reported on-balance sheet with total loans. The gross amount of securitized leases at April 30, 2015 was $621 million, compared to $282 million one year ago and $564 million last quarter. Leases securitized in the second quarter and year-to-date totaled $113 million (2014 - $85 million) and $264 million (2014 - $102 million), respectively.

Outlook for loans

Consensus forecasts for economic performance in Western Canada have been further revised in recent months, primarily as a result of the anticipated impact of continued low oil prices. Alberta and Saskatchewan are expected to underperform the rest of Canada, reflecting expectations for reduced capital investment and slower in-migration owing to a more conservative mid-term outlook for resource-related activity. However, with the exception of slowing growth within the equipment finance and leasing portfolio in Alberta, ongoing loan growth was apparent in both provinces through the second quarter.

The combination of low oil prices and a weaker Canadian dollar has improved the outlook for Canada's non-oil exporting provinces, including British Columbia, Manitoba and Ontario. The foregoing factors, combined with improving economic conditions in the U.S., have resulted in consensus expectations for stable overall economic conditions in Canada this year. With the recent relative steadying of oil prices, most forecasters now anticipate a continuing moderate oil price recovery in the second half of calendar 2015, further supporting CWB's outlook for double-digit growth this fiscal year.

CWB's direct exposure to the energy industry is small relative to its overall portfolio at approximately 6% of total loans outstanding. This includes direct loans to energy producers of approximately 2%, and direct lending to service-related companies within the sector representing an additional 4% of total loans. Notwithstanding the increase in oil and gas production loans this quarter, growth opportunities in these areas are expected to be limited in the near term by the low oil price environment.

Canadian residential real estate markets have been resilient and affordability in most geographic areas outside of certain neighborhoods in Toronto and Vancouver remains within historical ranges, largely reflecting very low interest rates. However, reduced housing sector activity is apparent in Alberta and Saskatchewan, and the combination of historically high price levels and sentiment related to potential economic headwinds caused by low energy prices could also lead to further moderation of housing sector activity in these and other markets.

CWB's strategy continues to focus on enhancing existing competitive advantages within its core business banking platform while offering complementary financial services in personal banking, equipment finance and leasing, alternative mortgages, wealth management, and trust services. While strong competition from domestic banks and other financial services firms is expected to persist, 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 enhanced staffing in targeted areas and the effective execution of CWB's strategic plan. During prior periods of economic volatility, CWB has gained market share as certain competitors shifted their focus away from CWB's core geographic footprint. Although evidence of this behavior has not materialized through the end of the second quarter, CWB continues to pursue opportunities to service high quality borrowers operating within targeted industry segments notwithstanding current macroeconomic conditions.

Credit Quality

Overall credit quality reflects continued strong underwriting practices and relatively stable levels of economic activity within CWB's markets through the second quarter. The full impact of lower oil prices has yet to work its way through all facets of the economy, and CWB continues to proactively monitor all accounts with a particular focus on those located within the oil-exporting provinces. Based on the results of stress tests simulating severe, negative economic conditions in Alberta and Saskatchewan over a multi-year timeframe, and assuming CWB's peak loss rates across all lending segments were experienced simultaneously within those regions, management is confident CWB would continue to deliver profits for shareholders while maintaining strong financial stability.

For the three months ended
(unaudited)
($ thousands)
April 30 2015 January 31 2015 April 30 2014 Change from
April 30
2014
Gross impaired loans, beginning of period $ 79,798 $ 62,120 $ 53,937 48 %
New formations 29,442 41,609 23,129 27
Reductions, impaired accounts paid down or returned to performing status (13,969 ) (21,493 ) (17,189 ) (19 )
Write-offs (2,416 ) (2,438 ) (9,256 ) (74 )
Total(1) $ 92,855 $ 79,798 $ 50,621 83 %
Balance of the ten largest impaired accounts $ 57,629 $ 49,806 $ 22,009 162 %
Total number of accounts classified as impaired(3) 122 114 133 (8 )
Gross impaired loans as a percentage of total loans(4) 0.50 % 0.44 % 0.30 % 20 bp(2)
(1) Gross impaired loans include foreclosed assets held for sale with a carrying value of $2,262 (January 31, 2015 - $2,486 and April 30, 2014 - $4,157).
(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.
nm - not meaningful

The dollar level of gross impaired loans at April 30, 2015 represented 0.50% of total loans at quarter end, compared to 0.44% last quarter and 0.30% one year ago. Combined gross impaired loans in Alberta and Saskatchewan represented 42% of total gross impaired loans, which compares favourably with the 49% of total loans located in these two provinces.

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 increase in gross impaired loans compared to both the prior quarter and last year is consistent with management expectations in view of the very low levels of impairments experienced in prior quarters, and management does not view the increase to be evidence of unexpected weakness within CWB's portfolio. In spite of the higher level this quarter, gross impaired loans remain low as a percentage of total loans and compare to a five-year peak of 1.68% in the second quarter of 2010.

With updated engineering reports completed through the second quarter and oil price assumptions revised in January, nearly all of CWB's reserve-based credit facilities extended directly to oil and gas producers have been revised to reflect current reserves and very conservative oil price assumptions. CWB's current price assumptions are significantly lower than prevailing market prices for oil.

Specific allowances for expected write-offs are established through detailed analyses of both the overall quality and ultimate marketability of security held against impaired accounts. Despite the net increase in gross impaired loans, actual credit losses are expected to remain within CWB's historical range of acceptable levels.

As at April 30, 2015, the collective allowance for credit losses exceeded the balance of impaired loans, net of specific allowances. The total allowance for credit losses (collective and specific) was $107.9 million at April 30, 2015, compared to $100.5 million last quarter and $89.0 million a year earlier. The total allowance for credit losses represented 116% of gross impaired loans at quarter end, compared to 126% last quarter and 176% one year ago. Growth of the collective allowance over the past twelve months was consistent with loan portfolio growth of 11%.

Based on the economic environment and current expectations for credit quality looking forward, management expects the annual provision for credit losses to fall between 17 and 22 basis points of average loans.

Deposits

Total deposits were up 8% over the past year ($1,309 million), relatively unchanged from the previous quarter and increased 3% ($605 million) over the past six months. Total deposits by type and source are summarized below:

As at
(unaudited)
($ millions)
April 30 2015 January 31 2015 April 30 2014 Change from
April 30
2014
Deposits by type
Demand and notice deposits $ 6,484 $ 6,039 $ 5,216 24 %
Term deposits 9,454 9,680 9,734 (3 )
Capital markets 2,040 2,197 1,719 19
Total Deposits $ 17,978 $ 17,916 $ 16,669 8 %
As at
(unaudited)
($ millions)
April 30 2015 January 31 2015 April 30 2014 Change from
April 30
2014
Deposits by source
CWB Group $ 9,778 $ 9,615 $ 8,875 10 %
Deposit brokers 6,160 6,104 6,075 1
Capital markets 2,040 2,197 1,719 19
Total Deposits $ 17,978 $ 17,916 $ 16,669 8 %

Personal deposits represented 59% of total deposits at April 30, 2015, relatively consistent with 60% one year ago and 58% the prior quarter. Total branch-raised deposits, including trust services deposits, represented 54% of total deposits at April 30, 2015, unchanged from the previous quarter and up from 53% one year ago. Demand and notice deposits increased 24% from the same quarter last year and now compose 36% of total deposits, up from 31% in the same period last year and 34% in the previous quarter. Term deposits raised through debt capital markets were $2,040 million at quarter end, representing 11% of total deposits, up from 10% last year and down from 12% last quarter due to the redemption of certain deposit notes.

Outlook for deposits

One of management's long-term strategic objectives is to increase the level of deposits that are lower cost, provide associated transactional fee income and strengthen relationships by providing clients with relevant tools for managing their business and personal finances. Specific emphasis is placed on growing personal and business deposits raised within the branch network, trust services and Canadian Direct Financial, the internet-based division of CWB.

Recent improvements to CWB's product offerings for business clients, along with training programs and targeted staffing enhancements, continue to support this focus on growing branch-raised deposits. CWB's expanding market presence, including ongoing expansion and upgrades to existing branches, also supports the generation of branch-raised deposits. Very strong 24% year-over-year growth in lower cost demand and notice deposits reflects this ongoing strategic focus.

Management remains committed to further enhance and diversify all funding sources to support growth, manage the impact of competitive factors and mitigate pressure on net interest margins. The deposit broker network remains a valued channel 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.

Other Assets and Other Liabilities

Other assets, which include assets held for sale, totaled $564 million at April 30, 2015, compared to $383 million one year ago and $593 million last quarter.

Other liabilities, which include liabilities held for sale, were $618 million at quarter end, compared to $466 million a year earlier and $491 million the previous quarter. Higher other liabilities primarily relate to securities sold under repurchase agreements at April 30, 2015.

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 $9,490 million at April 30, 2015, compared to $11,539 million one year ago and $9,223 million last quarter. Higher assets under administration last year reflected funds temporarily on hand at Valiant Trust related to a large corporate action. Assets under management were $1,911 million at quarter end, compared to $1,763 million a year earlier and $1,868 million last quarter.

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 April 30, 2015, as well as Notes 11 and 21 of the audited consolidated financial statements in CWB's 2014 Annual Report.

Capital Management

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 April 30, 2015, CWB's capital ratios were 7.9% CET1, 9.1% Tier 1 and 12.1% total capital. The CET1 ratio was unchanged from the prior quarter, while the Tier 1 and Total ratios were each down 10 basis points, primarily reflecting an increase in unrealized losses within the securities portfolio. At 7.7%, the Basel III leverage ratio was consistent with the prior quarter and remains very conservative.

Impact of Divestitures

Effective May 1, 2015, subsequent to quarter end, CWB closed the transactions involving CDI and Valiant. Management estimates the capital generated from the gain on sale and the related adjustment to risk-weighted assets will increase CWB's common equity Tier 1 capital ratio by approximately 70 basis points next quarter. Management intends to redeploy this capital in due course for strategic and accretive opportunities that are consistent with CWB's strategic direction. This enhanced capital level positions CWB to move quickly on investment opportunities as they materialize.

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

(unaudited)
($ millions)
As at
April 30
2015
As at
January 31
2015
As at
April 30
2014
Regulatory capital
CET1 capital before deductions $ 1,615 $ 1,593 $ 1,492
Net CET1 deductions (132 ) (128 ) (115 )
CET1 capital 1,483 1,465 1,377
Tier 1 capital before deductions(1) 1,713 1,695 1,607
Net deductions - - -
Tier 1 capital 1,713 1,695 1,607
Total capital before deductions(1) 2,280 2,258 2,232
Net deductions - - -
Total capital $ 2,280 $ 2,258 $ 2,232
Risk-weighted assets $ 18,789 $ 18,500 $ 17,089
Capital adequacy ratios
CET1 7.9 % 7.9 % 8.1 %
Tier 1 9.1 9.2 9.4
Total 12.1 12.2 13.1
(1) The 2015 inclusion of non-common equity instruments that do not include non-viability contingent capital clauses is capped at 70% of the January 1, 2013 outstanding balances (2014 - 80%). At April 30, 2015, $153 million of outstanding subordinated debentures (January 31, 2015 - $153 million and April 30, 2014 - $85 million) were excluded from regulatory capital. For all periods, there was no exclusion from regulatory capital related to the Innovative Tier 1 capital (disclosed in deposits).

Proceeds of the recent divestitures are expected to result in capital levels considerably above the 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, which requires CWB to carry significantly more capital for certain credit exposures compared to requirements under the Advanced Internal Ratings Based (AIRB) methodology. For this reason, regulatory capital ratios of banks that utilize the Standardized approach are not directly comparable with the large Canadian banks and other financial institutions which utilize the AIRB methodology.

Plans for CWB's possible multi-year transition to an AIRB methodology for managing credit risk and calculating risk-weighted assets are being assessed, including the evaluation of resource requirements and associated costs. CWB's new core banking system, implementation of which is expected early in fiscal 2016, 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 for the period ended April 30, 2015 as well as the audited consolidated financial statements and MD&A for the year ended October 31, 2014.

Book value per common share at April 30, 2015 was $20.19, compared to $18.52 last year and $19.99 last quarter. The gain on sale from the strategic transactions involving CDI and Valiant is expected to add approximately $1.38 to CWB's book value per share.

Common shareholders received a quarterly cash dividend of $0.21 per common share on March 26, 2015. On June 3, 2015, CWB's Board of Directors declared a cash dividend of $0.22 per common share, payable on June 25, 2015 to shareholders of record on June 15, 2015. This quarterly dividend is 5% higher than last quarter and up 10% from the dividend declared one year ago.

Preferred shareholders received a quarterly cash dividend of $0.275 on April 30, 2015. On June 3, 2015, the Board of Directors also declared a cash dividend of $0.275 per Series 5 Preferred Share payable on July 31, 2015 to shareholders of record on July 23, 2015.

Significant Changes in Accounting Policies and Financial Statement Presentation

The unaudited interim consolidated financial statements for the quarter were prepared using the same accounting policies as the audited consolidated financial statements for the year ended October 31, 2014, except as noted below.

Held for Sale Classification and Discontinued Operations

Assets and liabilities subject to a plan of disposal are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is satisfied when a sale is highly probable and the assets are available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of this nature. For a sale to be highly probable, management must be committed to sell the assets and liabilities within one year from the date of classification.

Assets and liabilities classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss is recognized as a reduction to the carrying amount of the assets held for sale.

Discontinued operations are presented if the operations and cash flows can be clearly distinguished operationally and financially from the rest of CWB, and if it represents a separate major line of business or geographic area of operations that either has been disposed of, is classified as held for sale, or is part of a single coordinated plan of disposal.

On May 1, 2015, CWB sold its property and casualty insurance subsidiary, CDI, and the stock transfer business of Valiant, as described in Note 3 of the interim consolidated financial statements. The gains on disposal of an estimated $111 million, or $1.38 per diluted common share, will be reflected in the third quarter Interim Consolidated Financial Statements to coincide with the derecognition of the related assets and liabilities and the transfer of risks to the purchasers. The estimated gain reflects the sales proceeds less the net carrying value of the assets and liabilities classified as held for sale and related transaction costs. The gain is subject to adjustment and may differ from current estimates.

In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities of these businesses have been classified as held for sale in the interim consolidated balance sheets prospectively from January 31, 2015. No write downs to carrying amounts of the assets were required upon classification as held for sale. The interim consolidated statements of income have been restated to show the results of discontinued operations separately from continuing operations for all periods.

Future Accounting Changes

A number of standards and amendments have been issued by the International Accounting Standards Board (IASB) and are noted on page 70 of CWB's 2014 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.

During 2014, the IASB issued the complete version of IFRS 9 - Financial Instruments, which will be mandatorily effective for CWB's fiscal year beginning on November 1, 2018 with early adoption permitted. In January 2015, OSFI determined that Domestic Systemically Important Banks (D-SIBs) should adopt IFRS 9 for their annual periods beginning November 1, 2017, while early adoption is permitted but not required for other federally regulated Canadian banks with October year ends, such as CWB. CWB has not yet determined if it will early adopt IFRS 9.

CWB continues to monitor the IASB's proposed changes to IFRS. Additional discussion on future accounting standard changes that may impact CWB's future financial statements is included in Note 1 of the audited consolidated financial statements within CWB's 2014 Annual Report.

Controls and Procedures

There were no changes in CWB's internal controls over financial reporting that occurred during the quarter ended April 30, 2015 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 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 May 29, 2015, there were 80,451,520 CWB common shares outstanding. Also outstanding were employee stock options, which are or will be exercisable for up to 5,316,278 common shares for maximum proceeds of $161 million.

Dividend Reinvestment Plan

CWB common shares (TSX:CWB) and preferred shares (TSX:CWB.PR.B) are deemed eligible to participate in CWB's dividend reinvestment plan (the Plan). The Plan provides holders of eligible shares of CWB the opportunity to direct cash dividends toward the purchase of CWB common shares. Further details for the Plan are available on CWB's website. CWB has elected to issue common shares for the Plan at the average market price (as defined in the Plan).

Summary of Quarterly Financial Information

2015 2014 2013
($ thousands) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Combined Operations
Total revenues (teb) $ 159,910 $ 159,864 $ 159,536 $ 159,778 $ 153,521 $ 153,770 $ 150,956 $ 144,034
Total revenues 158,260 158,178 157,827 157,890 151,532 151,680 148,894 141,873
Common shareholders' net income
53,545
54,209 58,150 56,580 51,191 52,628 51,208 47,485
Earnings per common share
Basic 0.67 0.67 0.72 0.71 0.64 0.66 0.64 0.60
Diluted 0.67 0.67 0.72 0.70 0.63 0.65 0.64 0.60
Adjusted cash 0.68 0.69 0.73 0.71 0.65 0.67 0.65 0.61
Total assets ($ millions) 21,522 21,265 20,609 20,523 19,617 19,129 18,513 17,920
Continuing Operations
Total revenues (teb) $ 151,161 $ 152,384 $ 153,047 $ 149,276 $ 142,497 $ 144,073 $ 140,403 $ 142,324
Total revenues 149,706 150,916 151,542 148,074 140,753 142,231 138,581 140,420
Common shareholders' net income
51,520
52,405 56,883 52,715 46,673 49,066 46,856 49,729
Earnings per common share
Basic 0.64 0.65 0.71 0.66 0.58 0.62 0.59 0.63
Diluted 0.64 0.65 0.70 0.65 0.58 0.61 0.59 0.62
Adjusted cash 0.65 0.66 0.71 0.67 0.59 0.62 0.60 0.64
Discontinued Operations
Total revenues (teb) $ 8,749 $ 7,480 $ 6,489 $ 10,052 $ 11,024 $ 9,697 $ 10,553 $ 1,710
Total revenues 8,554 7,262 6,285 9,816 10,779 9,449 10,313 1,453
Common shareholders' net income (loss)
2,025
1,804 1,267 3,865 4,518 3,562 4,352 (2,244 )
Earnings per common share
Basic 0.03 0.02 0.01 0.05 0.06 0.04 0.05 (0.03 )
Diluted 0.03 0.02 0.02 0.05 0.05 0.04 0.05 (0.03 )
Adjusted cash 0.03 0.03 0.02 0.04 0.06 0.05 0.05 (0.03 )

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 of Discontinued Operations, 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, 2014 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.

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 common shareholders' net income divided by average common shareholders' equity;
  • return on assets - annualized common shareholders' net income 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 common shareholders' net income
(Combined Operations) For the three months ended For the six months ended
(unaudited) ($ thousands) April 30 2015 January 31 2015 April 30 2014 April 30 2015 April 30 2014
Common shareholders' net income $ 53,545 $ 54,209 $ 51,191 $ 107,754 $ 103,819
Adjustments:
Amortization of acquisition-related intangible assets (after tax) 696 877 903 1,573 1,794
Contingent consideration fair value change 338 300 150 638 300
Adjusted common shareholders' net income $ 54,579 $ 55,386 $ 52,244 $ 109,965 $ 105,913
Adjusted common shareholders' net income
(Continuing Operations) For the three months ended For the six months ended
(unaudited) ($ thousands) April 30 2015 January 31 2015 April 30 2014 April 30 2015 April 30 2014
Common shareholders' net income from Continuing Operations $ 51,520 $ 52,405 $ 46,673 $ 103,925 $ 95,739
Adjustments:
Amortization of acquisition-related intangible assets (after tax) 696 877 866 1,573 1,720
Contingent consideration fair value change 338 300 150 638 300
Adjusted common shareholders' net income $ 52,554 $ 53,582 $ 47,689 $ 106,136 $ 97,759
Consolidated Balance Sheets
(unaudited)
($ thousands)
As at April 30 2015 As at January 31 2015 As at October 31 2014 As at April 30 2014(1) Change from April 30 2014
Assets
Cash Resources
Cash and non-interest bearing deposits with financial institutions $ 65,395 $ 3,485 $ 13,320 $ 54,040 21 %
Interest bearing deposits with regulated financial institutions (Note 4) 104,793 85,747 491,255 342,179 (69 )
Cheques and other items in transit 1,790 7,425 3,839 280 539
171,978 96,657 508,414 396,499 (57 )
Securities (Note 4)
Issued or guaranteed by Canada 610,263 907,640 764,213 712,167 (14 )
Issued or guaranteed by a province or municipality 1,101,000 950,258 560,482 630,849 75
Other securities 510,186 575,268 764,510 795,779 (36 )
2,221,449 2,433,166 2,089,205 2,138,795 4
Securities Purchased Under Resale Agreements - - 99,566 - -
Loans (Notes 5 and 7)
Personal 3,005,075 2,906,222 2,841,154 2,665,550 13
Business 15,666,951 15,336,309 14,764,543 14,121,861 11
18,672,026 18,242,531 17,605,697 16,787,411 11
Allowance for credit losses (Note 6) (107,858 ) (100,547 ) (95,598 ) (88,976 ) 21
18,564,168 18,141,984 17,510,099 16,698,435 11
Other
Property and equipment 61,052 61,596 66,257 67,505 (10 )
Goodwill 43,475 43,475 50,408 50,408 (14 )
Intangible assets 91,539 86,415 85,137 76,375 20
Insurance related - - 65,764 63,541 (100 )
Derivative related (Note 8) 15,116 21,060 5,420 7,050 114
Other assets 119,637 124,702 128,386 117,991 1
Assets held for sale (Note 3) 233,647 256,207 - - nm
564,466 593,455 401,372 382,870 47
Total Assets $ 21,522,061 $ 21,265,262 $ 20,608,656 $ 19,616,599 10 %
Liabilities and Equity
Deposits
Personal $ 10,628,959 $ 10,405,829 $ 9,832,669 $ 10,040,387 6 %
Business and government 7,348,715 7,509,787 7,540,345 6,628,147 11
17,977,674 17,915,616 17,373,014 16,668,534 8
Other
Cheques and other items in transit 60,797 54,407 54,826 64,055 (5 )
Insurance related - - 165,903 155,961 (100 )
Securities sold under repurchase agreements 152,663 25,902 - - nm
Derivative related (Note 8) 3,021 4,913 386 44 nm
Other liabilities 242,273 230,206 282,944 246,184 (2 )
Liabilities held for sale (Note 3) 159,684 175,534 - - nm
618,438 490,962 504,059 466,244 33
Debt
Subordinated debentures 625,000 625,000 625,000 625,000 -
Debt securities 550,201 500,163 411,990 247,962 122
1,175,201 1,125,163 1,036,990 872,962 35
Equity
Preferred shares (Note 9) 125,000 125,000 125,000 125,000 -
Common shares (Note 9) 535,453 534,218 533,038 522,790 2
Retained earnings 1,085,136 1,048,477 1,011,147 928,501 17
Share-based payment reserve 27,399 26,389 25,339 25,278 8
Other reserves (23,980 ) (1,988 ) (997 ) 5,917 nm
Total Shareholders' Equity 1,749,008 1,732,096 1,693,527 1,607,486 9
Non-controlling interests 1,740 1,425 1,066 1,373 27
Total Equity 1,750,748 1,733,521 1,694,593 1,608,859 9
Total Liabilities and Equity $ 21,522,061 $ 21,265,262 $ 20,608,656 $ 19,616,599 10 %
(1) Reflects the retrospective application of a change in accounting policy for internal direct leasing costs effective May 1, 2014 as described on page 70 of CWB's 2014 Annual Report.
nm - not meaningful

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Income

For the three months ended For the six months ended
(unaudited)
($ thousands, except per share amounts)
April 30 2015 January 31 2015 April 30 2014 (1) Change from April 30 2014 April 30 2015 April 30 2014 (1) Change from April 30 2014
Interest Income
Loans $ 207,918 $ 211,387 $ 192,685 8 % $ 419,305 $ 386,510 8 %
Securities 10,462 10,330 9,411 11 20,792 18,506 12
Deposits with regulated
financial institutions 184 1,051 1,133 (84 ) 1,235 2,020 (39 )
218,564 222,768 203,229 8 441,332 407,036 8
Interest Expense
Deposits 77,599 80,591 75,092 3 158,190 149,400 6
Debt 9,356 9,256 7,676 22 18,612 15,499 20
86,955 89,847 82,768 5 176,802 164,899 7
Net Interest Income 131,609 132,921 120,461 9 264,530 242,137 9
Provision for Credit Losses (Note 6) 7,386 6,969 6,463 14 14,355 14,082 2
Net Interest Income after
Provision for Credit Losses 124,223 125,952 113,998 9 250,175 228,055 10
Non-interest Income
Credit related 6,654 6,762 5,966 12 13,416 11,953 12
Wealth management services 3,565 3,717 3,384 5 7,282 6,861 6
Retail services 3,520 3,175 2,934 20 6,695 5,704 17
Trust services 2,818 2,815 2,455 15 5,633 5,578 1
Gains on securities, net 46 643 3,879 (99 ) 689 8,302 (92 )
Other 1,494 883 1,674 (11 ) 2,377 2,449 (3 )
18,097 17,995 20,292 (11 ) 36,092 40,847 (12 )
Net Interest and
Non-interest Income 142,320 143,947 134,290 6 286,267 268,902 6
Non-interest Expenses
Salaries and employee benefits 47,223 47,174 43,601 8 94,397 86,355 9
Premises and equipment 11,414 11,979 10,448 9 23,393 20,522 14
Other expenses 12,736 12,717 11,600 10 25,453 23,284 9
71,373 71,870 65,649 9 143,243 130,161 10
Net Income before Income
Taxes from Continuing Operations 70,947 72,077 68,641 3 143,024 138,741 3
Income Taxes 17,689 17,894 16,775 5 35,583 33,688 6
Net Income from Continuing Operations 53,258 54,183 51,866 3 107,441 105,053 2
Net Income Attributable to
Non-Controlling Interests 363 403 218 67 766 554 38
Shareholders' Net Income from
Continuing Operations 52,895 53,780 51,648 2 106,675 104,499 2
Preferred share dividends 1,375 1,375 4,975 (72 ) 2,750 8,760 (69 )
Common Shareholders' Net Income
from Continuing Operations 51,520 52,405 46,673 10 103,925 95,739 9
Common Shareholders' Net Income
from Discontinuing Operations (Note 3) 2,025 1,804 4,518 (55 ) 3,829 8,080 (53 )
Common Shareholders' Net Income $ 53,545 $ 54,209 $ 51,191 5 % $ 107,754 $ 103,819 4 %
Average number of common
shares (in thousands) 80,424 80,381 79,955 - % 80,402 79,838 1 %
Average number of diluted common
shares (in thousands) 80,565 80,828 80,826 - 80,692 80,702 -
Earnings Per Common Share
Basic - Combined Operations $ 0.67 $ 0.67 $ 0.64 5 % $ 1.34 $ 1.30 3 %
Basic - Continuing Operations 0.64 0.65 0.58 10 1.29 1.20 8
Basic - Discontinued Operations 0.03 0.02 0.06 (50 ) 0.05 0.10 (50 )
Diluted - Combined Operations 0.67 0.67 0.63 6 1.34 1.29 4
Diluted - Continuing Operations 0.64 0.65 0.58 10 1.29 1.19 8
Diluted - Discontinued Operations 0.03 0.02 0.05 (40 ) 0.05 0.10 (50 )
(1) Comparative information has been restated to reflect the presentation of discontinued operations as described in Note 3.

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Comprehensive Income
For the three months ended For the six months ended
(unaudited)
($ thousands)
April 30 2015 April 30 2014 April 30 2015 April 30 2014
Net Income from Continuing Operations $ 53,258 $ 51,866 $ 107,441 $ 105,053
Common Shareholders' Net Income from Discontinued Operations 2,025 4,518 3,829 8,080
Net Income 55,283 56,384 111,270 113,133
Other Comprehensive Income (Loss), net of tax
Available-for-sale securities:
Gains (losses) from change in fair value(1) (17,132 ) 14,620 (30,224 ) 16,679
Reclassification to net income(2) 196 (3,237 ) (266 ) (6,762 )
(16,936 ) 11,383 (30,490 ) 9,917
Derivatives designated as cash flow hedges:
Gains (losses) from change in fair value(3) (3,445 ) 91 5,706 1,895
Reclassification to net income(4) (1,611 ) (887 ) 1,801 (2,506 )
(5,056 ) (796 ) 7,507 (611 )
(21,992 ) 10,587 (22,983 ) 9,306
Comprehensive Income for the Period $ 33,291 $ 66,971 $ 88,287 $ 122,439
Comprehensive income for the period attributable to:
Shareholders of CWB $ 32,928 $ 66,753 $ 87,521 $ 121,885
Non-controlling interests 363 218 766 554
Comprehensive Income for the Period $ 33,291 $ 66,971 $ 88,287 $ 122,439
(1) Net of income tax of $5,370 and $10,293 for the three and six months ended April 30, 2015, respectively (2014 - $5,366 and $6,075).
(2) Net of income tax of $67 and $91 for the three and six months ended April 30, 2015, respectively (2014 - $1,335 and $2,463).
(3) Net of income tax of $1,164 and $1,927 for the three and six months ended April 30, 2015, respectively (2014 - $31 and $640).
(4) Net of income tax of $544 and $608 for the three and six months ended April 30, 2015, respectively (2014 - $300 and $847).

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

For the six months ended
(unaudited)
($ thousands)
April 30 2015 April 30 2014
Retained Earnings
Balance at beginning of period $ 1,011,147 $ 858,167
Shareholders' net income from continuing operations 106,675 104,499
Common shareholders' net income from discontinued operations 3,829 8,080
Dividends - Preferred shares (2,750 ) (8,760 )
- Common shares (33,765 ) (30,338 )
Issuance costs on preferred shares - (3,147 )
Balance at end of period 1,085,136 928,501
Other Reserves
Balance at beginning of period (997 ) (3,389 )
Changes in available-for-sale securities (30,490 ) 9,917
Changes in derivatives designated as cash flow hedges 7,507 (611 )
Balance at end of period (23,980 ) 5,917
Preferred Shares (Note 9 )
Balance at beginning of period 125,000 208,815
Redeemed - (208,815 )
Issued - 125,000
Balance at end of period 125,000 125,000
Common Shares (Note 9 )
Balance at beginning of period 533,038 510,282
Issued under dividend reinvestment plan 1,938 9,172
Transferred from share-based payment reserve on the exercise or exchange of options 477 2,270
Issued on exercise of options - 1,066
Balance at end of period 535,453 522,790
Share-based Payment Reserve
Balance at beginning of period 25,339 24,632
Amortization of fair value of options (Note 10 ) 2,537 2,916
Transferred to common shares on the exercise or exchange of options (477 ) (2,270 )
Balance at end of period 27,399 25,278
Total Shareholders' Equity 1,749,008 1,607,486
Non-Controlling Interests
Balance at beginning of period 1,066 1,062
Net income attributable to non-controlling interests 766 554
Dividends to non-controlling interests (92 ) (146 )
Partial ownership increase - (97 )
Balance at end of period 1,740 1,373
Total Equity $ 1,750,748 $ 1,608,859

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Cash Flow For the six months ended
(unaudited)
($ thousands)
April 30 2015 April 30 2014
Cash Flows from Operating Activities
Net income from continuing operations $ 107,441 $ 105,053
Common shareholders' net income from discontinued operations 3,829 8,080
Adjustments to determine net cash flows:
Provision for credit losses 14,355 14,082
Depreciation and amortization 11,266 11,714
Current income taxes receivable and payable (20,768 ) (3,987 )
Amortization of fair value of employee stock options (Note 10 ) 2,537 2,916
Accrued interest receivable and payable, net (7,485 ) 3,949
Deferred income taxes, net (952 ) (4,762 )
Gain on securities, net (406 ) (9,225 )
Change in operating assets and liabilities:
Deposits, net 604,660 1,037,494
Loans, net (1,068,424 ) (1,145,078 )
Securities sold under repurchase agreements, net 152,663 -
Securities purchased under resale agreements, net 99,566 -
Other items, net (9,863 ) (21,849 )
(111,581 ) (1,613 )
Cash Flows from Financing Activities
Common shares issued (Note 9 ) 1,938 10,238
Debt securities issued 263,955 101,789
Debt securities repaid (125,744 ) (49,477 )
Dividends (36,515 ) (39,098 )
Preferred shares redeemed - (208,815 )
Preferred shares issued - 125,000
Dividends to non-controlling interests (92 ) (146 )
103,542 (60,509 )
Cash Flows from Investing Activities
Interest bearing deposits with regulated financial institutions, net 358,992 (83,499 )
Securities, purchased (2,869,156 ) (3,603,834 )
Securities, sale proceeds 2,143,897 2,223,556
Securities, matured 435,017 1,500,403
Property, equipment and intangible assets (16,656 ) (18,478 )
52,094 18,148
Change in Cash and Cash Equivalents 44,055 (43,974 )
Cash and Cash Equivalents at Beginning of Period (37,667 ) 34,239
Cash and Cash Equivalents at End of Period * $ 6,388 $ (9,735 )
* Represented by:
Cash and non-interest bearing deposits with financial institutions $ 65,395 $ 54,040
Cheques and other items in transit (included in Cash Resources) 1,790 280
Cheques and other items in transit (included in Other Liabilities) (60,797 ) (64,055 )
Cash and Cash Equivalents at End of Period $ 6,388 $ (9,735 )
Supplemental Disclosure of Cash Flow Information (Combined Operations)
Interest and dividends received $ 450,111 $ 415,537
Interest paid 181,528 160,072
Income taxes paid 58,186 44,693

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, 2014, 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, 2014 as set out on pages 62 to 102 of CWB's 2014 Annual Report.

The interim consolidated financial statements were authorized for issue by the Board of Directors on June 3, 2015.

Held for Sale Classification and Discontinued Operations

Assets and liabilities subject to a plan of disposal are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is satisfied when a sale is highly probable and the assets are available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of this nature. For a sale to be highly probable, management must be committed to sell the assets and liabilities within one year from the date of classification.

Assets and liabilities classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss is recognized as a reduction to the carrying amount of the assets held for sale.

Discontinued operations are presented if the operations and cash flows can be clearly distinguished operationally and financially from the rest of CWB, and if it represents a separate major line of business or geographic area of operations that either has been disposed of, is classified as held for sale, or is part of a single coordinated plan of disposal.

2. Future Accounting Changes

CWB continues to monitor the IASB's proposed changes to accounting standards. Although not expected to materially impact CWB's 2015 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 2014 Annual Report.

IFRS 9 - Financial Instruments

During 2014, the IASB issued the complete version of IFRS 9, which will be mandatorily effective for CWB's fiscal year beginning on November 1, 2018 with early adoption permitted. In January 2015, OSFI determined that Domestic Systemically Important Banks (D-SIBs) will adopt IFRS 9 for their annual periods beginning November 1, 2017, while early adoption is permitted but not required for other federally regulated Canadian banks with October year-ends, such as CWB. CWB has not yet determined if it will early adopt IFRS 9.

3. Strategic Transactions

The sales of CWB's property and casualty insurance subsidiary, Canadian Direct Insurance (CDI), and the stock transfer business of its subsidiary, Valiant Trust Company, closed effective May 1, 2015. The transactions consisted of the sale of 100% of the shares of CDI as well as the transfer of certain operating assets, systems and employees that supported the stock transfer business.

The gains on disposal of an estimated $111 million, or $1.38 per diluted common share, will be reflected in the third quarter Interim Consolidated Financial Statements to coincide with the derecognition of the related assets and liabilities and the transfer of risks to the purchasers. The estimated gain reflects the sales proceeds less the net carrying value of the assets and liabilities classified as held for sale and related transaction costs. The gain is subject to adjustment and may differ from current estimates.

In accordance with IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities of these businesses have been classified as held for sale in the interim consolidated balance sheets prospectively beginning in Q1 2015. No write downs to carrying amounts of the assets were required upon classification as held for sale. The interim consolidated statements of income have been restated to show the results of discontinued operations separately from continuing operations for all periods.

Assets and Liabilities Classified as Held for Sale

Assets and liabilities classified as held for sale follow:

As at
April 30
2015
As at
January 31
2015
Assets
Cash Resources
Interest bearing deposits with regulated financial institutions(1) $ 27,876 $ 30,039
Securities
Other securities(2) 123,724 141,935
Other
Insurance related 60,927 63,985
Goodwill and intangible assets 9,371 9,527
Property and equipment 1,755 2,343
Other assets 9,994 8,378
82,047 84,233
Total assets held for sale $ 233,647 $ 256,207
Liabilities
Cheques and other items in transit $ - $ 52
Insurance related 151,274 158,592
Other liabilities 8,410 16,890
Total liabilities held for sale $ 159,684 $ 175,534
(1) Includes unrealized gains of $405 (January 31, 2015 - $600).
(2) Includes unrealized gains of $1,127 (January 31, 2015 - $1,644) on debt securities, and unrealized losses of $5,721 and $201 (January 31, 2015 - $5,080 and $44), respectively, on preferred share and common share equities.

Results of Discontinued Operations

The components of net income from discontinued operations included in the interim consolidated statements of income, which are attributable entirely to CWB shareholders, follow:

For the three months ended For the six months ended
April 30
2015
January
31 2015
April 30
2014
Change from
April 30
2014
April 30
2015
April 30
2014
Change from
April 30
2014
Interest Income
Securities $ 1,617 $ 1,772 $ 1,214 33 % $ 3,389 $ 2,628 29 %
Deposits with regulated financial institutions 10 63 63 (84 ) 73 122 (40 )
Net Interest Income 1,627 1,835 1,277 27 3,462 2,750 26
Non-interest Income
Net earned premiums 32,624 33,638 31,646 3 66,262 64,265 3
Commissions and processing fees 353 389 317 11 742 742 -
Net claims and adjustment expenses (20,287 ) (24,164 ) (19,741 ) 3 (44,451 ) (40,993 ) 8
Policy acquisition costs (7,144 ) (5,993 ) (6,354 ) 12 (13,137 ) (12,135 ) 8
Insurance revenues, net 5,546 3,870 5,868 (5 ) 9,416 11,879 (21 )
Trust services 1,656 1,565 2,941 (44 ) 3,221 4,676 (31 )
Gains (losses) on securities, net (275 ) (8 ) 693 nm (283 ) 923 nm
6,927 5,427 9,502 (27 ) 12,354 17,478 (29 )
Net Interest and Non-interest
Income from Discontinued Operations 8,554 7,262 10,779 (21 ) 15,816 20,228 (22 )
Non-interest Expenses
Salaries and employee benefits 3,600 2,996 3,035 19 6,596 6,172 7
Premises and equipment 1,278 1,294 1,372 (7 ) 2,572 2,679 (4 )
Other expenses 1,158 778 562 106 1,936 1,041 86
6,036 5,068 4,969 21 11,104 9,892 12
Net Income before Income Taxes 2,518 2,194 5,810 (57 ) 4,712 10,336 (54 )
Income Taxes 493 390 1,292 (62 ) 883 2,256 (61 )
Common Shareholders' Net Income from
Discontinued Operations $ 2,025 $ 1,804 $ 4,518 (55 )% $ 3,829 $ 8,080 (53 )%

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of taxes, relating to the discontinued operations included in the consolidated statement of changes in equity as at April 30, 2015 follow:

As at
April 30
2015
As at
January 31
2015
Other Reserves
Relating to available-for-sale securities $ (3,454 ) $ (2,330 )

Cash Flows from Discontinued Operations

The details of the cash flows from discontinued operations included in the interim consolidated statements of cash flows follow:

For the six months ended
April 30
2015
April 30
2014
Net cash provided by (used in) operating activities $ (13,975 ) $ 3,227
Net cash provided by (used in) financing activities (8,000 ) -
Net cash provided by (used in) investing activities 22,028 (3,650 )
Increase (decrease) in Cash and Cash Equivalents $ 53 $ (423 )

4. Securities

Net unrealized gains (losses) reflected on the consolidated balance sheets from continuing operations follow:

As at
April 30
2015
(1)
As at
January 31
2015(1)
As at
October 31
2014
Interest bearing deposits with regulated financial institutions $ (141 ) $ 517 $ 91
Securities issued or guaranteed by
Canada (1,336 ) 7,381 347
A province or municipality (6,445 ) 6,067 559
Other debt securities 211 528 872
Equity securities
Preferred shares (29,269 ) (31,953 ) (3,834 )
Common shares (2,865 ) (1,736 ) (1,428 )
Unrealized losses, net $ (39,845 ) $ (19,196 ) $ (3,393 )
(1) Excludes unrealized gains and losses on securities of discontinued operations described in Note 3.

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. During the three months ended April 30, 2015, CWB assessed the securities with unrealized losses and, based on available objective evidence, no impairment charges relating to continuing operations were included in gains on securities, net in the interim consolidated statements of income (January 31, 2015 - $1,500; October 31, 2014 - $1,200).

5. Loans

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

Composition Percentage
($ millions) BC AB ON SK MB Other Total April 30 2015 January 31 2015 October 31 2014
Personal $ 885 $ 1,159 $ 649 $ 188 $ 88 $ 36 $ 3,005 16 % 16 % 16 %
Business
Real estate 3,079 3,131 483 454 105 57 7,309 39 39 39
Commercial 1,644 1,911 388 233 154 101 4,431 24 24 24
Equipment financing and energy(1) 626 1,660 666 368 133 474 3,927 21 21 21
5,349 6,702 1,537 1,055 392 632 15,667 84 84 84
Total Loans(2) $ 6,234 $ 7,861 $ 2,186 $ 1,243 $ 480 $ 668 $ 18,672 100 % 100 % 100 %
Composition Percentage
April 30, 2015 33 % 42 % 12 % 7 % 3 % 3 % 100 %
January 31, 2015 34 % 42 % 12 % 7 % 2 % 3 % 100 %
October 31, 2014 34 % 41 % 12 % 7 % 3 % 3 % 100 %
(1) Includes securitized leases reported on-balance sheet of $621 (January 31, 2015 - $564; October 31, 2014 - $465).
(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
April 30, 2015
For the three months ended
January 31, 2015


Specific Allowance
Collective Allowance for Credit Losses Total

Specific Allowance
Collective Allowance for Credit Losses Total
Balance at beginning of period $ 10,418 $ 90,129 $ 100,547 $ 5,523 $ 90,075 $ 95,598
Provision for credit losses 2,976 4,410 7,386 6,915 54 6,969
Write-offs (2,416 ) - (2,416 ) (2,438 ) - (2,438 )
Recoveries 2,341 - 2,341 418 - 418
Balance at end of period $ 13,319 $ 94,539 $ 107,858 $ 10,418 $ 90,129 $ 100,547
For the three months ended
April 30, 2014

Specific Allowance
Collective Allowance for Credit Losses Total
Balance at beginning of period $ 12,757 $ 78,597 $ 91,354
Provision for credit losses 338 6,125 6,463
Write-offs (9,256 ) - (9,256 )
Recoveries 415 - 415
Balance at end of period $ 4,254 $ 84,722 $ 88,976
For the six months ended
April 30, 2015
For the six 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 $ 5,523 $ 90,075 $ 95,598 $ 9,569 $ 76,217 $ 85,786
Provision for credit losses 9,891 4,464 14,355 5,577 8,505 14,082
Write-offs (4,854 ) - (4,854 ) (11,709 ) - (11,709 )
Recoveries 2,759 - 2,759 817 - 817
Balance at end of period $ 13,319 $ 94,539 $ 107,858 $ 4,254 $ 84,722 $ 88,976

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 April 30, 2015 As at January 31, 2015
Gross Amount Gross Impaired Amount Specific Allowance Net Impaired Loans Gross Amount Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Personal $ 3,005,075 $ 12,688 $ 380 $ 12,308 $ 2,906,222 $ 12,439 $ 487 $ 11,952
Business
Real estate(1) 7,308,254 34,235 1,900 32,335 7,130,266 36,964 665 36,299
Commercial 4,431,542 16,168 999 15,169 4,387,564 5,902 865 5,037
Equipment financing and energy 3,927,155 29,764 10,040 19,724 3,818,479 24,493 8,401 16,092
Total(2) $ 18,672,026 $ 92,855 $ 13,319 79,536 $ 18,242,531 $ 79,798 $ 10,418 69,380
Collective allowance(3) (94,539 ) (90,129 )
Net impaired loans after collective allowance $ (15,003 ) $ (20,749 )
As at October 31, 2014
Gross Amount Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Personal $ 2,841,154 $ 15,294 $ 518 $ 14,776
Business
Real estate(1) 6,810,834 26,058 909 25,149
Commercial 4,263,501 6,544 631 5,913
Equipment financing and energy 3,690,208 14,224 3,465 10,759
Total(2) $ 17,605,697 $ 62,120 $ 5,523 56,597
Collective allowance(3) (90,075 )
Net impaired loans after collective allowance $ (33,478 )
(1) Multi-family residential mortgages are included in real estate loans.
(2) Gross impaired loans include foreclosed assets with a carrying value of $2,262 (January 31, 2015 - $2,486 and October 31, 2014 - $2,393) 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 April 30, 2015 As at January 31, 2015
Gross Impaired Amount Specific Allowance Net
Impaired Loans
Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Alberta $ 36,247 $ 9,216 $ 27,031 $ 30,216 $ 7,108 $ 23,108
British Columbia 35,239 795 34,444 32,214 796 31,418
Ontario 14,901 1,351 13,550 6,110 978 5,132
Saskatchewan 3,102 678 2,424 7,891 549 7,342
Manitoba 1,043 256 787 1,282 220 1,062
Other 2,323 1,023 1,300 2,085 767 1,318