Canadian Western Bank
TSX : CWB

Canadian Western Bank

March 04, 2015 19:55 ET

CWB Reports Very Strong Loan Growth, Sound Credit Quality and Solid Financial Results

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

First Quarter 2015 Highlights from Combined Operations1,2 (compared to the same period in the prior year)

  • Common shareholders' net income of $54.2 million, up 3%.

  • Diluted earnings per common share of $0.67, and adjusted cash earnings per common share of $0.69, both up 3%.

  • Loan growth of 4% in the quarter and 12% over the past twelve months.

  • Net interest margin of 2.60% (teb), compared to 2.64% last year and 2.56% 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), 9.2% Tier 1 and 12.2% total ratio. Basel III leverage ratio of 7.7%, compared to the regulatory minimum of 3.0%.

  • Provision for credit losses as a percentage of average loans of 16 basis points, compared to 19 basis points last year and nine basis points in the previous quarter.

  • Subsequent to quarter end, CWB announced refinements to its long-term growth strategy with definitive agreements to sell its property and casualty insurance subsidiary, Canadian Direct Insurance, and the stock transfer business of its subsidiary, Valiant Trust Company, for combined proceeds of $230 million in cash.

(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 definitive agreements to sell 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 first quarter financial performance, including very strong 4% quarterly loan growth, sound credit quality and relatively stable net interest margin.

Compared to the same quarter last year, common shareholders' net income of $54.2 million was up 3%. Diluted earnings per common share of $0.67 and adjusted cash earnings per common share of $0.69 both increased 3%. Total revenues (teb) of $159.9 million were up 4%, primarily reflecting the positive impact of strong 12% loan growth, partially offset by lower net interest margin and non-interest income, the latter attributed to reduced gains on the sale of securities and, within Discontinued Operations, elevated insurance claims expense.

Compared to last quarter, common shareholders' net income was 7% lower, as the combined positive impacts of very strong loan growth and higher net interest margin were more than offset by lower non-interest income, mainly reflecting the one-time gain on sale of CWB's former Edmonton Main Branch premises in the prior quarter. Adjusted cash earnings per common share was down 5%.

"First quarter financial performance within our core businesses was excellent. Very strong loan growth, sound credit quality and solid overall results demonstrate the ongoing strength of our business model," said Chris Fowler, President and CEO. "The expected benefits of our recently announced strategic divestitures will further strengthen CWB's competitive position and the outlook for growth from Continuing Operations."

"Credit quality remains consistent with our expectations and we are working proactively with our clients to assess the impacts on their businesses from dampened expectations for economic performance in parts of Western Canada. As we do so, we will continue to support clients as we always have, through responsive service and disciplined, secured credit underwriting. CWB Group has grown and thrived through past cycles of economic volatility and commodity price declines, and we believe we are better positioned to maintain this trend today than ever before."

"The sales of Canadian Direct Insurance and Valiant Trust's stock transfer business to leaders in their respective industries resulted from a purposeful strategic assessment initiated early last year," continued Mr. Fowler. "While these two businesses delivered meaningful contributions to CWB Group over the past decade, redeploying the significant value to be generated by these transactions into our faster-growing core businesses is strongly aligned with our well-defined strategic direction and we believe it will generate superior returns for CWB shareholders."

On March 4, 2015, CWB's Board of Directors declared a cash dividend of $0.21 per common share, payable on March 26, 2015 to shareholders of record on March 16, 2015. This quarterly dividend was consistent with the prior quarter and 11% ($0.02) higher than the quarterly dividend declared one year ago. The Board of Directors also declared a cash dividend of $0.275 per Series 5 Preferred Share payable on April 30, 2015 to shareholders of record on April 23, 2015.

Fiscal 2015 Performance Target Ranges

The performance target ranges established for the 2015 fiscal year together with CWB's year-to-date performance from Combined Operations 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) 3 % 5 - 8 %
Loan growth(3) 12 % 10 - 12 %
Provision for credit losses as a percentage of average loans(4) 0.16 % 0.17 - 0.22 %
Efficiency ratio (teb)(5) 48.0 % 47% or less
Return on common shareholders' equity(6) 13.5 % 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.

Very strong first quarter loan growth was driven by ongoing activity within our markets, reinforcing our expectation for another year of double-digit growth in fiscal 2015. Overall credit quality is consistent with expectations, supporting our view that the annual provision for credit losses will remain within the target range.

Compared to the same quarter last year, growth in adjusted cash earnings per common share was constrained by a four basis point decline in net interest margin (teb) and lower non-interest income, primarily resulting from lower net gains on securities and a decrease in net insurance revenues from higher claims expense this quarter. In the absence of increased insurance claims, growth in adjusted cash earnings per common share and key profitability ratios would all have been within our target ranges.

Continued pressure on net interest margin is expected in view of the current very low interest rate environment and the potential for further interest rate cuts by the Bank of Canada, along with competitive factors and lack of steepness in the yield curve. While pressure on this key metric is expected to constrain revenue growth compared to expectations at the start of the year, we plan to prudently manage the growth of non-interest expenses in view of planned investment necessary to support future business growth. On this basis, the efficiency ratio target of 47% or less is believed to be challenging but attainable. The first quarter efficiency ratio from Continuing Operations was 47.1%.

The expected gain on sales from the recently announced strategic transactions involving CDI and Valiant will contribute more than $1.25 of earnings per common share upon closing, which will drive considerable outperformance on a full-year basis relative to our published 2015 Combined Operations targets for growth in adjusted cash earnings per common share and key profitability ratios. We intend to redeploy this capital in due course for strategic and accretive opportunities that are consistent with our risk appetite. Our primary areas of interest for potential strategic acquisitions are centred on opportunities in equipment finance and leasing, and wealth management.

Outlook for Continuing Operations

The outlook for the Canadian economy has been affected by low oil prices, with a rebalancing of expectations for regional strength. While the outlook for oil-exporting provinces has moderated, expectations for the rest of the country, including British Columbia, Manitoba and Ontario, have improved. Consensus forecasts continue to call for stable economic conditions and modest growth throughout most of Canada in 2015, supported by expectations for a strengthening U.S. economy which could be further stimulated by the positive impact of low energy prices. The outlook for Alberta has weakened with reduced expectations for job creation, in-migration and GDP growth, while moderated levels of housing sector activity may persist in certain markets through the remainder of the year. However, the expected positive impacts of lower interest rates and a weaker Canadian dollar on the overall domestic economy support our expectation for 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, National Leasing, Canadian Western Trust, Valiant Trust, Canadian Direct Insurance, Canadian Western Financial, Adroit Investment Management, and McLean & Partners Wealth Management, collectively offer a diversified range of financial services across Canada and are together known as the CWB Group. The common shares of Canadian Western Bank are listed on the Toronto Stock Exchange under the trading symbol "CWB". CWB's Series 5 preferred shares trade on the Toronto Stock Exchange under the trading symbol "CWB.PR.B". Refer to www.cwb.com for additional information.

Fiscal 2015 First Quarter Results Conference Call

CWB's first quarter results conference call is scheduled for Thursday, March 5, 2015 at 2:00 p.m. ET (12:00 p.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 March 29, 2015 by dialing 416-621-4642 (Toronto) or 1-800-585-8367 (toll-free) and entering passcode 88518597.

Selected Financial Highlights

For the three months ended Change from January 31 2014
(unaudited) January 31 2015 October 31 2014 January 31 2014
($ thousands, except per share amounts)
Results from Combined Operations(1)
Net interest income (teb - see below) $ 136,442 $ 132,479 $ 125,239 9 %
Less teb adjustment 1,686 1,709 2,090 (19 )
Net interest income 134,756 130,770 123,149 9
Non-interest income 23,422 27,057 28,531 (18 )
Total revenues (teb) 159,864 159,536 153,770 4
Total revenues 158,178 157,827 151,680 4
Common shareholders' net income 54,209 58,150 52,628 3
Earnings per common share
Basic(2) 0.67 0.72 0.66 2
Diluted(3) 0.67 0.72 0.65 3
Adjusted cash(4) 0.69 0.73 0.67 3
Return on common shareholders' equity(5) 13.5 % 15.0 % 14.8 % (130 ) bp(6 )
Return on assets(7) 1.03 1.12 1.11 (8 )
Efficiency ratio (teb)(8) 48.0 47.2 45.1 290
Efficiency ratio 48.5 47.7 45.7 280
Net interest margin (teb)(9) 2.60 2.56 2.64 (4 )
Net interest margin 2.57 2.53 2.60 (3 )
Provision for credit losses as a percentage of average loans 0.16 0.09 0.19 (3 )
Results from Continuing Operations(1)
Net interest income (teb - see below) $ 134,389 $ 130,563 $ 123,518 9 %
Less teb adjustment 1,468 1,505 1,842 (20 )
Net interest income per financial statements 132,921 129,058 121,676 9
Non-interest income 17,995 22,484 20,555 (12 )
Total revenues (teb) 152,384 153,047 144,073 6
Total revenues 150,916 151,542 142,231 6
Common shareholders' net income 52,405 56,883 49,066 7
Earnings per common share
Basic(2) 0.65 0.71 0.62 5
Diluted(3) 0.65 0.70 0.61 7
Adjusted cash(4) 0.66 0.71 0.62 6
Return on common shareholders' equity(5) 13.1 % 14.6 % 13.8 % (70 ) bp(6 )
Return on assets(7) 1.01 1.11 1.05 (4 )
Efficiency ratio (teb)(8) 47.1 46.1 44.7 240
Efficiency ratio 47.5 46.5 45.3 220
Net interest margin (teb)(9) 2.59 2.55 2.64 (5 )
Net interest margin 2.56 2.52 2.60 (4 )
Results of Discontinued Operations(1)
Common shareholders' net income $ 1,804 $ 1,267 $ 3,562 (49 ) %
Earnings per common share
Basic(2) 0.02 0.01 0.04 (50 )
Diluted(3) 0.02 0.02 0.04 (50 )
Adjusted cash(4) 0.03 0.02 0.05 (40 )
Per Common Share
Cash dividends $ 0.21 $ 0.20 $ 0.19 11 %
Book value 19.99 19.52 17.94 11
Closing market value 25.77 37.75 36.43 (29 )
Common shares outstanding (thousands) 80,408 80,369 79,897 1
Balance Sheet and Off-Balance Sheet Summary (Combined Operations)
Assets $ 21,265,262 $ 20,608,656 $ 19,128,570 11
Loans 18,141,984 17,510,099 16,146,913 12
Deposits 17,915,616 17,373,014 16,243,496 10
Debt 1,125,163 1,036,990 812,780 38
Shareholders' equity 1,732,096 1,693,527 1,642,051 5
Assets under administration 9,223,371 10,101,698 8,463,935 9
Assets under management 1,868,262 1,795,975 1,683,813 11
Capital Adequacy(10)
Common equity Tier 1 ratio 7.9 % 8.0 % 8.0 % (10 ) bp(6 )
Tier 1 ratio 9.2 9.3 9.5 (30 )
Total ratio 12.2 12.8 13.2 (100 )
(1) Subsequent to quarter end, CWB announced the sales of 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 March 4, 2015, should be read in conjunction with Canadian Western Bank's (CWB) unaudited condensed interim consolidated financial statements for the period ended January 31, 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

Subsequent to quarter end, CWB announced the sales 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 Continued Operations are defined as "Combined Operations". In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, income and expenses associated with the businesses to be 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. The results of the Discontinued Operations will continue to be included in CWB's combined results until the sale transactions close in mid-2015.

Forward-looking Statements

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

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

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

Assumptions about the performance of the Canadian economy in 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 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.

Energy prices through the first quarter have fluctuated 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 British Columbia, Manitoba and Ontario has improved.

The current very low interest rate environment and potential for further interest rate cuts by the Bank of Canada may have a negative impact on loan yields and constrain improvement in net interest margin compared to expectations at the start of the year.

Overview of Combined Operations

CWB reported solid quarterly performance led by very strong loan growth, ongoing sound credit quality and higher net interest margin compared to the prior quarter.

Q1 2015 vs. Q1 2014

Common shareholders' net income of $54.2 million was up 3% as the benefit of strong 12% loan growth was partially offset by slightly lower net interest margin (teb), growth in non-interest expenses and a decrease in non-interest income. Total non-interest income declined $5.1 million due to lower net gains on securities and decreased net insurance revenues resulting from higher claims expense within Discontinued Operations this quarter. Diluted earnings per common share 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, were both up 3% to $0.67 and $0.69, respectively. Higher claims expense this quarter reduced adjusted cash earnings per common share by approximately $0.02.

Q1 2015 vs. Q4 2014

Common shareholders' net income declined 7% as the positive revenue impacts of very strong 4% loan growth and a four basis point increase in net interest margin (teb) were more than offset by a 13% decrease in non-interest income. Lower non-interest income primarily reflects the one-time gain on sale of CWB's former Edmonton Main Branch premises in the prior quarter, as well as lower net gains on securities.

ROE and ROA

First quarter return on common shareholders' equity (ROE) was 13.5%, compared to 14.8% last year and 15.0% last quarter. Return on assets (ROA) of 1.03% compares to 1.11% a year earlier and 1.12% last quarter.

Strategic Transactions

Subsequent to quarter end, CWB announced definitive agreements to sell its property and casualty insurance subsidiary, CDI, for $197 million, and to sell Valiant's stock transfer business for $33 million. These transactions resulted from a purposeful strategic assessment initiated early last year, and the combined gains on sale are expected to contribute at least $1.25 of earnings per common share upon closing. Total sales proceeds represent approximately 15 times the combined normalized earnings contributions of divested operations.

CWB intends to deploy the capital generated from these transactions in due course for strategic and accretive opportunities within faster growing business lines that are better aligned with its strategic direction. CWB's primary areas of interest for potential strategic acquisitions are centred on opportunities in equipment finance and leasing, and wealth management.

As a result of these agreements, which are subject to regulatory and other customary conditions of closing, 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 within Note 3 to the interim consolidated financial statements.

Overview of Continuing Operations

Q1 2015 vs. Q1 2014

Common shareholders' net income of $52.4 million was up 7% as the benefit of strong loan growth was partially offset by lower net interest margin (teb), growth in non-interest expenses and a decrease in non-interest income. Total non-interest income declined $2.6 million, primarily due to lower net gains on securities. Diluted earnings per common share was up 7% to $0.65, while adjusted cash earnings per common share increased 6% to $0.66.

Q1 2015 vs. Q4 2014

Common shareholders' net income declined 8% as the positive revenue impacts of very strong 4% loan growth and a four basis point increase in net interest margin were more than offset by $4.5 million lower non-interest income. Lower non-interest income primarily reflects the one-time gain on sale of CWB's former Edmonton Main Branch premises in the prior quarter, as well as lower net gains on securities.

ROE and ROA

First quarter return on common shareholders' equity (ROE) was 13.1% compared to 13.8% last year and 14.6% last quarter. Return on assets (ROA) of 1.01% compares to 1.05% a year earlier and 1.11% last quarter. Capital generated from the expected gains on sale related to the transactions involving CDI and Valiant Trust will result in an increase in shareholders' equity upon closing of the respective transactions. Dependent upon the timing of closing dates and subsequent capital deployment initiatives, the 2015 return on common shareholders' equity and return on assets from Continuing Operations are expected to be constrained at levels below the lower end of the 2015 target ranges for Combined Operations. However, this capital level will position CWB to move quickly on strategic and accretive capital deployment opportunities as they materialize.

Total Revenues (teb) from Continuing Operations

Total revenues of $152.4 million, comprised of both net interest income (teb) and non-interest income, grew 6% compared to the same quarter in 2014 and were relatively unchanged from the previous quarter.

Net Interest Income (teb)

Q1 2015 vs. Q1 2014

Net interest income of $134.4 million was up 9% ($10.9 million) as the revenue contribution from strong 12% loan growth was partially offset by a five basis point decline in net interest margin to 2.59%. The change in net interest margin mainly resulted from reduced loan yields, partially offset by lower average balances of cash and securities.

Q1 2015 vs. Q4 2014
Net interest income was up 3% ($3.8 million) as the benefit of very strong 4% loan growth was augmented by a four basis

point improvement in net interest margin (teb). Higher net interest margin primarily resulted from lower average balances of cash and securities and extended duration within the securities portfolio.

Interest rate sensitivity

Note 13 to the unaudited interim consolidated financial statements summarizes CWB's exposure to interest rate risk as at January 31, 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 applied at the appropriate repricing dates; and,

  • no early redemptions.

($ thousands) January 31 2015 October 31
2014
January 31
2014
Estimated impact on net interest income of a 1% increase in interest rates
1 year $ 7,409 $ 9,185 $ 13,980
1 year percentage change 1.5 % 2.0 % 3.1 %
Estimated impact on net interest income of a 1% decrease in interest rates
1 year $ (6,226 ) $ (18,221 ) $ (23,587 )
1 year percentage change (1.3 )% (3.9 )% (5.2 )%

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.

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 January 31, 2015 would decrease unrealized gains related to available-for-sale securities and the fair value of interest rate swaps designated as hedges, and result in a reduction in other comprehensive income of approximately $47.3 million, net of tax (January 31, 2014 - $13.0 million). It is estimated that a one-percentage point decrease in all interest rates at January 31, 2015 would have the opposite effect, increasing other comprehensive income by approximately $40.8 million, net of tax (January 31, 2014 - $13.0 million).

Outlook for net interest margin (teb)

Net interest margin improved four basis points from the previous quarter but was down five basis points compared to last year. Continued pressure on net interest margin is expected in view of the current low interest rate environment, competitive factors and lack of steepness in the yield curve. The Bank of Canada's January rate cut and the corresponding 15 basis point decrease in CWB's prime lending interest rate is not expected to have a material impact on net interest margin compared to expectations at the start of the year, however the potential for further cuts by the Bank of Canada within fiscal 2015 cannot be ruled out. 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 16 basis points, up from nine basis points in the previous quarter and down from 19 basis points last year. Based on the economic environment and current expectations for credit quality looking forward, management expects the annual provision for credit losses will fall within the target range of 17 to 22 basis points of average loans.

Non-interest Income from Continuing Operations

Q1 2015 vs. Q1 2014

Non-interest income of $18.0 million was down 12% ($2.6 million) as combined growth of $1.5 million in credit related fee income, fees for retail services, wealth management revenue and 'other' non-interest income was more than offset by a decrease of $3.8 million in net gains on securities and lower trust services fee income. The decrease in net gains on securities mainly resulted from less favourable market conditions in the current period and elevated gains realized in the first quarter of 2014. Lower trust services fee income reflects the realization of unusually high fee income within Canadian Western Trust last year.

Q1 2015 vs. Q4 2014

Non-interest income was down $4.5 million as growth in most categories was more than offset by a decrease in 'other' non-interest income and lower net gains on securities. 'Other' non-interest income was down $4.4 million compared to last quarter, reflecting the one-time gain on sale of CWB's former Edmonton Main Branch premises. The decrease in net gains on securities reflects 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 lead to lower non-interest income compared to expectations at the beginning of 2015, although equity and bond market conditions are inherently unpredictable in the short-term. Management will continue to realize gains on the sale of non-core residential mortgage portfolios as opportunities become available. Such gains are anticipated to be a recurring, although periodic, source of non-interest income.

Non-interest Expenses from Continuing Operations

Q1 2015 vs. Q1 2014

Quarterly non-interest expenses of $71.9 million were up 11% ($7.4 million) primarily due to 10% ($4.4 million) higher salaries and benefits and a 19% ($1.9 million) increase in premises and equipment costs. The change in salaries and benefits mainly resulted from higher full-time salary expense associated with annual salary increments, a larger staff complement to support ongoing growth across all businesses and changes extending from a formal review of non-executive compensation completed last year. Higher premises and equipment expense primarily resulted from increases in direct computer costs and higher rent expense.

Q1 2015 vs. Q4 2014

Non-interest expenses were up 2% ($1.3 million). Increases in salaries and benefits and premises and equipment expense, reflecting the same factors discussed above, were partially offset by a decrease in general expenses. Lower general expenses primarily reflect seasonality in advertising and promotion.

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. Following completion of the analysis and design phases of the core banking system project during fiscal 2014, management established a revised capital budget of $62 million. System implementation is scheduled for early fiscal 2016 and progress this quarter was consistent with the current budget and timeline.

Upgrades and expansion of branch infrastructure are also ongoing, including the expected opening of an expanded branch location in Prince George, British Columbia, during the second quarter.

Efficiency ratio

The first quarter efficiency ratio (teb) from Continuing Operations, which measures non-interest expenses as a percentage of total revenues (teb), was 47.1%, compared to 44.7% last year and 46.1% in the previous quarter.

The increase compared to last year mainly reflects the fact that the positive impact on total revenues of very strong loan growth was more than offset by the decrease in net interest margin, lower non-interest income and higher expenses. The change compared to the prior quarter reflects similar factors, with the benefit of loan growth augmented by higher net interest margin.

Notwithstanding the sequential improvement in net interest margin this quarter, pressure on this key metric is expected to constrain revenue growth compared to expectations at the start of the year. However, management expects to prudently manage the growth of non-interest expenses in view of planned investment necessary to support future business growth and, on this basis, the efficiency ratio target of 47% or less is believed to be challenging but attainable.

Income Taxes

The first quarter effective income tax rate (teb) for Continuing Operations was 26.3%, compared to 26.1% in the same quarter last year and 25.3% in the previous quarter.

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
January 31 2015 October 31 2014 January 31 2014 Change from January 31 2014
Net interest income (teb) $ 2,053 1,916 1,721 19 %
Non-interest income 5,427 4,573 7,976 (32 )
Total revenue (teb) 7,480 6,489 9,697 (23 )
Non-interest expenses 5,068 4,803 4,923 3
Net income before income taxes 2,412 1,686 4,774 (49 )
Income taxes (teb) 608 419 1,212 (50 )
Common shareholders' net income $ 1,804 $ 1,267 $ 3,562 (49 )%
Earnings per common share
Basic $ 0.02 0.01 0.04 (50 )%
Diluted 0.02 0.02 0.04 (50 )
Adjusted cash 0.03 0.02 0.05 (40 )

Q1 2015 vs. Q1 2014

Common shareholders' net income was down $1.8 million, primarily reflecting a $2.1 million decrease in net insurance revenues and lower trust services fee income, partially offset by higher net interest income. Lower net insurance revenues mainly resulted from a $2.9 million increase in claims expense.

Q1 2015 vs. Q4 2014

Common shareholders' net income increased $0.5 million as increases in net insurance revenues and net interest income more than offset lower trust services fee income. Within net insurance results, growth in net earned premiums and lower policy acquisition costs were partially offset by a $0.4 million increase in claims expense.

Comprehensive Income

Comprehensive income on a Combined Operations basis is comprised of shareholders' net income and other comprehensive income (OCI), all net of income taxes, and totaled $55.0 million for the first quarter, relatively unchanged from $55.5 million in the same period last year.

The small change in comprehensive income was mainly driven by lower net income from Discontinued Operations, primarily the result of lower net insurance revenues. OCI was consistent with last year, with higher unrealized losses, net of tax, on available-for-sale securities mostly offset by higher unrealized gains, net of tax, on derivatives designated as cash flow hedges.

The change in fair value of available-for-sale securities relates to changes in the market value of securities and/or the realization of gains or losses within CWB's portfolios of preferred and common equities. While the combined dollar investment in these portfolios is relatively small in relation to total liquid assets, it increases the potential for comparatively larger fluctuations in OCI.

Balance Sheet

Total assets increased 11% in the past year and 3% in the quarter to reach $21,265 million at January 31, 2015.

Cash and Securities

Cash and securities totaled $2,530 million at January 31, 2015, compared to $2,596 million a year earlier and, inclusive of $100 million of securities purchased under resale agreements, $2,697 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 recorded on the balance sheet of $22.1 million compares to unrealized losses of $8.8 million last year and $3.4 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. Differences compared to both the prior quarter and last year primarily reflect a decrease in the market value of preferred shares, partially offset by an increase in the market value of interest-bearing securities. The lower market value of preferred shares was mainly due to changes in credit spreads. The higher market value of interest-bearing securities primarily resulted from changes in interest rates combined with an increased average duration of securities within this portfolio.

Net gains on securities from Continuing Operations in the first quarter of $0.6 million compares to $4.4 million in the same period last year and $1.4 million in the previous quarter. Based on the level of gains realized and current composition of the cash and securities portfolio, net losses on securities may lead to lower non-interest income compared to expectations at the beginning of 2015, 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 total assets to fluctuate above the current level through the remainder of the year.

The strategic transactions involving CDI and Valiant Trust are not expected to have a material impact on CWB's liquidity ratios. As at January 31, 2015, CWB was compliant with the Office of the Superintendent of Financial Institutions' (OSFI) Liquidity Adequacy Requirements Guideline which became effective this quarter.

Loans

Total loans excluding the allowance for credit losses grew 12% ($2,005 million) in the past twelve months and 4% ($637 million) in the quarter to reach $18,243 million. In dollar terms, year-over-year growth by lending sector was led by real estate project loans ($706 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 ($495 million), followed by corporate lending ($310 million), personal loans and mortgages ($304 million), and commercial mortgages ($145 million). The portfolio of general commercial loans grew $61 million while oil and gas production loans were down $16 million.

Real estate project loans also led growth by lending sector on a sequential basis with an increase of $253 million, followed by growth in corporate lending of $114 million and equipment financing and leasing of $107 million. Growth in personal loans and mortgages compared to the prior quarter was $65 million, while commercial mortgages and general commercial loans grew $46 million and $41 million, respectively. Oil and gas production loans were $11 million higher than last quarter.

(unaudited) January 31 2015 October 31 2014 January 31 2014 % Change from January 31 2014
(millions)
Commercial mortgages $ 3,620 $ 3,574 $ 3,475 4 %
General commercial loans 3,566 3,525 3,505 2
Equipment financing and leasing 3,501 3,394 3,006 16
Real estate project loans 3,124 2,871 2,418 29
Personal loans and mortgages 2,906 2,841 2,602 12
Corporate lending (1) 1,261 1,147 951 33
Oil and gas production loans 265 254 281 (6 )
Total loans outstanding (2) $ 18,243 $ 17,606 $ 16,238 12 %
(1) Corporate lending represents a diversified portfolio that is centrally sourced and administered through a designated lending group located in Edmonton. These loans include participation in select syndications that are structured and led primarily by the major Canadian banks, but exclude participation in various other syndicated facilities sourced through relationships developed at CWB branches.
(2) 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, Ontario and Saskatchewan. Growth on a sequential basis in dollar terms generally followed the same order.

(unaudited) January 31 2015 October 31 2014 January 31 2014 % Change from January 31 2014
(millions)
British Columbia $ 6,116 $ 6,000 $ 5,605 9 %
Alberta 7,612 7,295 6,810 12
Saskatchewan 1,222 1,166 1,079 13
Manitoba 472 478 425 11
Ontario 2,186 2,094 1,822 20
Other 635 573 497 28
Total loans outstanding (1) $ 18,243 $ 17,606 $ 16,238 12 %
(1) Total loans outstanding by province exclude the allowance for credit losses.

Optimum Mortgage

Total loans of $1,533 million within the broker-sourced residential mortgage business, Optimum Mortgage (Optimum), increased 17% ($227 million) year-over-year and 4% ($63 million) compared to the prior quarter, net of portfolio sales. 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 86% of Optimum's total portfolio at quarter end, compared to 80% last year and 85% in the prior quarter. Ontario currently accounts for more than half of all new originations. At approximately 40% of the total, Ontario represents the largest geographic exposure within Optimum's portfolio, followed by Alberta at 32% and British Columbia at 17%. Optimum continues to deliver very strong performance with a good risk profile.

Securitization

Securitized leases are reported on-balance sheet with total loans. The gross amount of securitized leases at January 31, 2015 was $564 million, compared to $223 million one year ago and $465 million last quarter. Leases securitized in the first quarter totaled $151 million (2014 - $17 million).

Outlook for loans

Consensus forecasts for economic performance in Western Canada have been revised in recent months, primarily as a result of the anticipated impact of low oil prices. Alberta is no longer expected to outperform 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, low oil prices and a weaker Canadian dollar have combined to improve the outlook for Canada's non-oil exporting provinces, including British Columbia, Manitoba and Ontario. Combined with improving economic conditions in the U.S., this has resulted in consensus expectations for stable overall economic conditions in Canada this year. Most forecasters anticipate a moderate oil price recovery beginning in the second half of 2015, further supporting CWB's outlook for double-digit growth this 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 companies within the sector representing approximately 4% of total loans. Related growth opportunities in these areas are expected to continue 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 remains within historical ranges, largely reflecting very low interest rates. However, the combination of historically high price levels and sentiment related to potential economic headwinds caused by low energy prices could lead to moderated housing sector activity in certain markets.

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 focused training initiatives and 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.

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.

Credit Quality

Overall credit quality reflects continued strong underwriting practices and relatively stable levels of economic activity within CWB's markets through the first quarter.

For the three months ended Change from
January 31
2014
(unaudited) January 31 2015 October 31 2014 January 31 2014
($ thousands)
Gross impaired loans, beginning of period $ 62,120 $ 58,088 $ 64,211 (3 ) %
New formations 41,609 13,679 5,634 nm
Reductions, impaired accounts paid down or returned to performing status (21,493 ) (7,276 ) (13,455 ) 60
Write-offs (2,438 ) (2,371 ) (2,453 ) (1 )
Total(1) $ 79,798 $ 62,120 $ 53,937 48 %
Balance of the ten largest impaired accounts $ 49,806 $ 31,308 $ 27,929 78 %
Total number of accounts classified as impaired(3) 114 120 132 (14 )
Gross impaired loans as a percentage of total loans(4) 0.44 % 0.35 % 0.33 % 11 bp(2)
(1) Gross impaired loans include foreclosed assets held for sale with a carrying value of $2,486 (October 31, 2014 - $2,393 and January 31, 2014 - $5,014).
(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 January 31, 2015 represented 0.44% of total loans at quarter end, compared to 0.35% last quarter and 0.33% one year ago. 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 was partially offset by higher pay downs and loans returned to performing status, and is consistent with management expectations in view of the very low levels of impairments experienced in prior quarters. The total number of accounts classified as impaired fell 5% during the first quarter, from 120 to 114.

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, and higher specific provisions mainly related to a single account, actual credit losses are expected to remain within CWB's historical range of acceptable levels. As at January 31, 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 $100.5 million at January 31, 2015, compared to $95.6 million last quarter and $91.4 million a year earlier. The total allowance for credit losses represented 126% of gross impaired loans at quarter end, compared to 154% last quarter and 169% one year ago.

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

Deposits

Total deposits were up 10% over the past year and 3% over the previous quarter. Total deposits by type and source are summarized below:

As at Change from
January 31
2014
(unaudited) January 31 2015 October 31 2014 January 31 2014
($ millions)
Deposits by type
Demand and notice deposits $ 6,039 $ 5,762 $ 5,116 18 %
Term deposits 9,680 9,241 9,453 2
Capital markets 2,197 2,370 1,674 31
Total Deposits $ 17,916 $ 17,373 $ 16,243 10 %
As at Change from
January 31
2014
(unaudited) January 31 2015 October 31 2014 January 31 2014
($ millions)
Deposits by source
CWB Group $ 9,615 $ 9,480 $ 8,810 9 %
Deposit brokers 6,104 5,523 5,760 6
Capital markets 2,197 2,370 1,674 31
Total Deposits $ 17,916 $ 17,373 $ 16,243 10 %

Personal deposits represented 58% of total deposits at January 31, 2015, down from 59% one year ago and up from 56% the prior quarter. Total branch-raised deposits, including trust services deposits, represented 54% of total deposits at January 31, 2015, consistent with one year ago and down from 55% at the previous quarter end. Demand and notice deposits were 34% of total deposits, up from 31% in the same period last year and 33% in the previous quarter. Term deposits raised through debt capital markets were $2,197 at quarter end, representing 12% of total deposits, up from 10% last year and down from 14% 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.

Meaningful enhancements to CWB's cash management offerings for business clients continue to support this focus on growing branch-raised deposits, as do focused training programs and staffing enhancements. CWB's expanding market presence, including ongoing expansion and upgrades to existing branches, also supports the generation of branch-raised deposits.

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, beginning this quarter, include assets held for sale, totaled $593 million at January 31, 2015, compared to $385 million one year ago and $401 million last quarter. Other liabilities, which include liabilities held for sale, were $491 million at quarter end, compared to $429 million a year earlier and $504 million the previous quarter.

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 $9,223 million at January 31, 2015, compared to $8,464 million one year ago and $10,102 million last quarter. Assets under management were $1,868 million at quarter end, compared to $1,684 million a year earlier and $1,796 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 January 31, 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 January 31, 2015, CWB's capital ratios were 7.9% CET1, 9.2% Tier 1 and 12.2% total capital. The CET1 and Tier 1 ratios were down 10 basis points from the previous quarter, primarily reflecting an increase in unrealized losses within the securities portfolio, while the total capital ratio was down 60 basis points. The change in the total capital ratio was largely the result of the ongoing phase-out of CWB's non-Basel III qualifying capital instruments. The Basel III leverage ratio, effective this quarter, was 7.7%, compared to a regulatory minimum of 3%.

Impact of Divestitures

Upon the close of the transactions involving CDI and Valiant, management estimates the capital generated from the expected gains on sale and the related adjustment to risk-weighted assets will increase CWB's common equity Tier 1 capital ratio by more than 70 basis points. 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) As at
January 31 2015
As at
October 31
2014
As at
January 31
2014
($ millions)
Regulatory capital
CET1 capital before deductions $ 1,593 $ 1,567 $ 1,438
Net CET1 deductions (128 ) (123 ) (112 )
CET1 capital 1,465 1,444 1,326
Tier 1 capital before deductions(1) 1,695 1,674 1,578
Net deductions - - (2 )
Tier 1 capital 1,695 1,674 1,576
Total capital before deductions(1) 2,258 2,304 2,195
Net deductions - - -
Total capital $ 2,258 $ 2,304 $ 2,195
Risk-weighted assets $ 18,500 $ 18,026 $ 16,671
Capital adequacy ratios
%

%

%
CET1 7.9 8.0 8.0
Tier 1 9.2 9.3 9.5
Total 12.2 12.8 13.2
(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 (October 31, 2014 and January 31, 2014 - 80%). At January 31, 2015 and October 31, 2014, there was no exclusion from regulatory capital related to the Innovative Tier 1 capital (disclosed in deposits). At January 31, 2015, $153 million of outstanding subordinated debentures (October 31 2014 - $85 million) were excluded from regulatory capital. At January 31, 2014 a combined $62 million of outstanding Innovative Tier 1 capital and preferred shares as well as $85 million of outstanding subordinated debentures were excluded from regulatory capital.

Retention of earnings associated with anticipated 2015 performance from Continuing Operations is expected to support capital requirements 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 others which utilize the AIRB methodology.

Required resources, costs and potential timelines related to CWB's possible multi-year transition to an AIRB methodology for managing credit risk and calculating risk-weighted assets continue to be evaluated. CWB's new core banking system, implementation of which is expected 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 January 31, 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 January 31, 2015 was $19.99, compared to $17.94 last year and $19.52 last quarter. The gain on sale from the strategic transactions involving CDI and Valiant is expected to add more than $1.25 to CWB's book value per share upon closing.

Common shareholders received a quarterly cash dividend of $0.21 per common share on January 8, 2015. On March 4, 2015, CWB's Board of Directors declared a cash dividend of $0.21 per common share, payable on March 26, 2015 to shareholders of record on March 16, 2015. This quarterly dividend was up 11% from the dividend declared one year ago.

Preferred shareholders received a quarterly cash dividend of $0.275 on January 31, 2015. On March 4, 2015, the Board of Directors also declared a cash dividend of $0.275 per Series 5 Preferred Share payable on April 30, 2015 to shareholders of record on April 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.

Subsequent to quarter end, CWB announced the sales of 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. 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 all other federally regulated Canadian banks 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 January 31, 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 February 25, 2015, there were 80,409,805 CWB common shares outstanding. Also outstanding were employee stock options, which are or will be exercisable for up to 4,674,743 common shares for maximum proceeds of $144 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. For dividends declared commencing in December 2014, CWB has elected to issue common shares for the Plan from treasury with no discount from the average market price (as defined in the Plan).

Summary of Quarterly Financial Information

2015 2014 2013
($ thousands) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Combined Operations
Total revenues (teb) $ 159,864 $ 159,536 $ 159,778 $ 153,521 $ 153,770 $ 150,956 $ 144,034 $ 135,319
Total revenues 158,178 157,827 157,890 151,532 151,680 148,894 141,873 133,319
Common shareholders' net income 54,209 58,150 56,580 51,191 52,628 51,208 47,485 42,987
Earnings per common share
Basic 0.67 0.72 0.71 0.64 0.66 0.64 0.60 0.54
Diluted 0.67 0.72 0.70 0.63 0.65 0.64 0.60 0.54
Adjusted cash 0.69 0.73 0.71 0.65 0.67 0.65 0.61 0.55
Total assets ($ millions) 21,265 20,609 20,523 19,617 19,129 18,513 17,920 17,772
Continuing Operations
Total revenues (teb) $ 152,384 $ 153,047 $ 149,276 $ 142,497 $ 144,073 $ 140,403 $ 142,324 $ 125,283
Total revenues 150,916 151,542 148,074 140,753 142,231 138,581 140,420 123,521
Common shareholders' net income 52,405 56,883 52,715 46,673 49,066 46,856 49,729 38,976
Earnings per common share
Basic 0.65 0.71 0.66 0.58 0.62 0.59 0.63 0.49
Diluted 0.65 0.70 0.65 0.58 0.61 0.59 0.62 0.49
Adjusted cash 0.66 0.71 0.67 0.59 0.62 0.60 0.64 0.50
Discontinued Operations
Total revenues (teb) $ 7,480 $ 6,489 $ 10,052 $ 11,024 $ 9,697 $ 10,553 $ 1,710 $ 10,036
Total revenues 7,262 6,285 9,816 10,779 9,449 10,313 1,453 9,798
Common shareholders' net income (loss) 1,804 1,267 3,865 4,518 3,562 4,352 (2,244) 4,011
Earnings per common share
Basic 0.02 0.01 0.05 0.06 0.04 0.05 (0.03) 0.05
Diluted 0.02 0.02 0.05 0.05 0.04 0.05 (0.03) 0.05
Adjusted cash 0.03 0.02 0.04 0.06 0.05 0.05 (0.03) 0.05

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

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

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

For additional details on variations between the prior quarters, refer to the summary of quarterly results section of CWB's MD&A for the year ended October 31, 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
(unaudited) January 31 2015 October 31 2014 January 31 2014
($ thousands)
Common shareholders' net income $ 54,209 $ 58,150 $ 52,628
Adjustments:
Amortization of acquisition-related intangible assets (after tax) 877 867 891
Contingent consideration fair value change 300 300 150
Adjusted common shareholders' net income $ 55,386 $ 59,317 $ 53,669
Adjusted common shareholders' net income (Continuing Operations) For the three months ended
(unaudited) January 31 2015 October 31 2014 January 31 2014
($ thousands)
Common shareholders' net income from Continuing Operations $ 52,405 $ 56,883 $ 49,066
Adjustments:
Amortization of acquisition-related intangible assets (after tax) 877 867 854
Contingent consideration fair value change 300 300 150
Adjusted common shareholders' net income $ 53,582 $ 58,050 $ 50,070

Consolidated Balance Sheets

As at As at As at Change from
(unaudited) January 31 October 31 January 31 January 31
($ thousands) 2015 2014 2014(1) 2014
Assets
Cash Resources
Cash and non-interest bearing deposits with financial institutions $ 3,485 $ 13,320 $ 273 nm %
Interest bearing deposits with regulated financial institutions (Note 4 ) 85,747 491,255 375,717 (77 )
Cheques and other items in transit 7,425 3,839 7,288 2
96,657 508,414 383,278 (75 )
Securities (Note 4 )
Issued or guaranteed by Canada 907,640 764,213 734,924 24
Issued or guaranteed by a province or municipality 950,258 560,482 619,242 53
Other securities 575,268 764,510 858,776 (33 )
2,433,166 2,089,205 2,212,942 10
Securities Purchased Under Resale Agreements - 99,566 - -
Loans (Notes 5 and 7 )
Personal 2,906,222 2,841,154 2,602,391 12
Business 15,336,309 14,764,543 13,635,876 12
18,242,531 17,605,697 16,238,267 12
Allowance for credit losses (Note 6 ) (100,547 ) (95,598 ) (91,354 ) 10
18,141,984 17,510,099 16,146,913 12
Other
Property and equipment 61,596 66,257 65,626 (6 )
Goodwill 43,475 50,408 50,408 -
Intangible assets 86,415 85,137 72,767 19
Insurance related - 65,764 63,637 (100 )
Derivative related (Note 8 ) 21,060 5,420 6,975 202
Other assets 124,702 128,386 126,024 (1 )
Assets held for sale (Note 3 ) 256,207 - - 100
593,455 401,372 385,437 54
Total Assets $ 21,265,262 $ 20,608,656 $ 19,128,570 11 %
Liabilities and Equity
Deposits
Personal $ 10,405,829 $ 9,832,669 $ 9,632,095 8 %
Business and government 7,509,787 7,540,345 6,611,401 14
17,915,616 17,373,014 16,243,496 10
Other
Cheques and other items in transit 54,407 54,826 36,853 48
Insurance related - 165,903 159,372 (100 )
Derivative related (Note 8 ) 4,913 386 82 nm
Other liabilities 230,206 282,944 232,733 (1 )
Securities sold under repurchase agreements 25,902 - - 100
Liabilities held for sale (Note 3 ) 175,534 - - 100
490,962 504,059 429,040 14
Debt
Subordinated debentures 625,000 625,000 625,000 -
Debt securities 500,163 411,990 187,780 166
1,125,163 1,036,990 812,780 38
Equity
Preferred shares (Note 9 ) 125,000 125,000 208,815 (40 )
Common shares (Note 9 ) 534,218 533,038 518,010 3
Retained earnings 1,048,477 1,011,147 895,648 17
Share-based payment reserve 26,389 25,339 24,248 9
Other reserves (1,988 ) (997 ) (4,670 ) (57 )
Total Shareholders' Equity 1,732,096 1,693,527 1,642,051 5
Non-controlling interests 1,425 1,066 1,203 18
Total Equity 1,733,521 1,694,593 1,643,254 5
Total Liabilities and Equity $ 21,265,262 $ 20,608,656 $ 19,128,570 11 %
(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 Change from January 31 2014
(unaudited) January 31 2015 October 31 2014(1) January 31 2014(1)
($ thousands, except per share amounts)
Interest Income
Loans $ 211,387 $ 207,148 $ 193,825 9 %
Securities 10,330 9,883 9,095 14
Deposits with regulated financial institutions 1,051 1,500 887 18
222,768 218,531 203,807 9
Interest Expense
Deposits 80,591 80,692 74,308 8
Debt 9,256 8,781 7,823 18
89,847 89,473 82,131 9
Net Interest Income 132,921 129,058 121,676 9
Provision for Credit Losses (Note 6 ) 6,969 4,017 7,619 (9 )
Net Interest Income after Provision for Credit Losses 125,952 125,041 114,057 10
Non-interest Income
Credit related 6,762 6,702 5,987 13
Wealth management services 3,717 3,532 3,477 7
Retail services 3,175 2,864 2,770 15
Trust services 2,815 2,696 3,123 (10 )
Gains on securities, net 643 1,433 4,423 (85 )
Other 883 5,257 775 14
17,995 22,484 20,555 (12 )
Net Interest and Non-interest Income 143,947 147,525 134,612 7
Non-interest Expenses
Salaries and employee benefits 47,174 44,921 42,754 10
Premises and equipment 11,979 11,581 10,074 19
Other expenses 12,717 14,117 11,684 9
71,870 70,619 64,512 11
Net Income before Income Taxes from Continuing Operations 72,077 76,906 70,100 3
Income Taxes 17,894 18,295 16,913 6
Net Income from Continuing Operations 54,183 58,611 53,187 2 %
Net Income Attributable to Non-Controlling Interests 403 353 336 20
Shareholders' Net Income from Continuing Operations 53,780 58,258 52,851 2
Preferred share dividends 1,375 1,375 3,785 (64 )
Common Shareholders' Net Income from Continuing Operations 52,405 56,883 49,066 7 %
Common Shareholders' Net Income from Discontinued Operations (Note 3 ) 1,804 1,267 3,562 (49 )
Common Shareholders' Net Income $ 54,209 $ 58,150 $ 52,628 3 %
Average number of common shares (in thousands) 80,381 80,312 79,724 1
Average number of diluted common shares (in thousands) 80,828 81,301 80,514 -
Earnings Per Common Share
Basic earnings per share $ 0.67 $ 0.72 $ 0.66 2 %
Basic earnings per share from continuing operations 0.65 0.71 0.62 5
Basic earnings per share from discontinued operations 0.02 0.01 0.04 (50 )
Diluted earnings per share 0.67 0.72 0.65 3
Diluted earnings per share from continuing operations 0.65 0.70 0.61 7
Diluted earnings per share from discontinued operations 0.02 0.02 0.04 (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
(unaudited)
($ thousands)
January 31 2015 January 31 2014
Net Income from Continuing Operations $ 54,183 $ 53,187
Common Shareholders' Net Income from Discontinued Operations 1,804 3,562
Net Income 55,987 56,749
Other Comprehensive Income (Loss), net of tax
Available-for-sale securities:
Gains (losses) from change in fair value(1) (13,092 ) 2,058
Reclassification to net income(2) (462 ) (3,524 )
(13,554 ) (1,466 )
Derivatives designated as cash flow hedges:
Gains from change in fair value(3) 9,151 1,804
Reclassification to net income(4) 3,412 (1,619 )
12,563 185
(991 ) (1,281 )
Comprehensive Income for the Period $ 54,996 $ 55,468
Comprehensive income for the period attributable to:
Shareholders of CWB $ 54,593 $ 55,132
Non-controlling interests 403 336
Comprehensive Income for the Period $ 54,996 $ 55,468
(1) Net of income tax of $4,923 (2014 - $709).
(2) Net of income tax of $173 (2014 - $1,129).
(3) Net of income tax of $3,091 (2014 - $609).
(4) Net of income tax of $1,153 (2014 - $547).
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 three months ended
(unaudited) January 31 2015 January 31 2014
($ thousands)
Retained Earnings
Balance at beginning of period $ 1,011,147 $ 858,167
Shareholders' net income from continuing operations 53,780 52,851
Common shareholders' net income from discontinued operations 1,804 3,562
Dividends
- Preferred shares (1,375 ) (3,785 )
- Common shares (16,879 ) (15,147 )
Balance at end of period 1,048,477 895,648
Other Reserves
Balance at beginning of period (997 ) (3,389 )
Changes in available-for-sale securities (13,554 ) (1,466 )
Changes in derivatives designated as cash flow hedges 12,563 185
Balance at end of period (1,988 ) (4,670 )
Preferred Shares (Note 9)
Balance at beginning and end of period 125,000 208,815
Common Shares (Note 9)
Balance at beginning of period 533,038 510,282
Issued under dividend reinvestment plan 1,023 4,802
Transferred from share-based payment reserve on the exercise or exchange of options 157 1,891
Issued on exercise of options - 1,035
Balance at end of period 534,218 518,010
Share-based Payment Reserve
Balance at beginning of period 25,339 24,632
Amortization of fair value of options (Note 10) 1,207 1,507
Transferred to common shares on the exercise or exchange of options (157 ) (1,891 )
Balance at end of period 26,389 24,248
Total Shareholders' Equity 1,732,096 1,642,051
Non-Controlling Interests
Balance at beginning of period 1,066 1,062
Net income attributable to non-controlling interests 403 336
Dividends to non-controlling interests (44 ) (98 )
Partial ownership increase - (97 )
Balance at end of period 1,425 1,203
Total Equity $ 1,733,521 $ 1,643,254
The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Cash Flow

For the three months ended

(unaudited)
January 31 2015 January 31
2014
($ thousands)
Cash Flows from Operating Activities
Net income from continuing operations $ 54,183 $ 53,187
Common shareholders' net income from discontinued operations 1,804 3,562
Adjustments to determine net cash flows:
Provision for credit losses 6,969 7,619
Depreciation and amortization 5,767 5,677
Current income taxes receivable and payable (12,956 ) (6,315 )
Amortization of fair value of employee stock options (Note 10 ) 1,207 1,507
Accrued interest receivable and payable, net (1,275 ) 3,755
Deferred income taxes, net (317 ) (4,264 )
Gain on securities, net (635 ) (4,653 )
Change in operating assets and liabilities:
Deposits, net 542,602 612,456
Loans, net (638,854 ) (587,093 )
Securities sold under repurchase agreements, net 25,902 -
Securities purchased under resale agreements, net 99,566 -
Other items, net (30,487 ) (30,642 )
53,476 54,796
Cash Flows from Financing Activities
Common shares issued (Note 9 ) 1,023 5,837
Debt securities issued 150,775 16,659
Debt securities repaid (62,602 ) (24,529 )
Dividends (18,254 ) (18,932 )
Dividends to non-controlling interests (44 ) (98 )
70,898 (21,063 )
Cash Flows from Investing Activities
Interest bearing deposits with regulated financial institutions, net 376,360 (116,896 )
Securities, purchased (1,697,392 ) (1,656,814 )
Securities, sale proceeds 1,034,752 1,106,869
Securities, matured 163,345 577,277
Property, equipment and intangible assets (7,321 ) (7,700 )
(130,256 ) (97,264 )
Change in Cash and Cash Equivalents (5,882 ) (63,531 )
Cash and Cash Equivalents at Beginning of Period (37,667 ) 34,239
Cash and Cash Equivalents at End of Period * $ (43,549 ) $ (29,292 )
* Represented by:
Cash and non-interest bearing deposits with financial institutions $ 3,485 $ 273
Cheques and other items in transit (included in Cash Resources) 7,425 7,288
Cheques and other items in transit (included in Other Liabilities) (54,407 ) (36,853 )
Cheques and other items in transit (included in Liabilities held for sale) (52 ) -
Cash and Cash Equivalents at End of Period $ (43,549 ) $ (29,292 )
Supplemental Disclosure of Cash Flow Information (Combined Operations)
Interest and dividends received $ 227,932 $ 210,079
Interest paid 90,962 80,001
Income taxes paid 31,556 28,456
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 March 4, 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 all other federally regulated Canadian banks such as CWB. CWB has not yet determined if it will early adopt IFRS 9.

3. Strategic Transactions

Subsequent to quarter end, CWB announced the sales of its property and casualty insurance subsidiary, Canadian Direct Insurance (CDI), and the stock transfer business of its subsidiary, Valiant Trust Company, for combined cash proceeds of $230 million. The transactions are subject to customary closing conditions, including regulatory approvals, and are expected to close in mid-2015.

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
January 31
2015
Assets
Cash Resources
Interest bearing deposits with regulated financial institutions(1) $ 30,039
Securities
Other securities(2) 141,935
Other
Insurance related 63,985
Goodwill and intangible assets 9,527
Property and equipment 2,343
Other assets 8,378
84,233
Total assets held for sale $ 256,207
Liabilities
Other
Cheques and other items in transit $ 52
Insurance related 158,592
Other liabilities 16,890
Total liabilities held for sale $ 175,534
(1) Includes unrealized gains of $600.
(2) Includes unrealized gains of $1,644 on debt securities, and unrealized losses of $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
January 31 2015 October 31 2014 January 31 2014
Interest Income
Securities $ 1,772 $ 1,625 $ 1,414
Deposits with regulated financial institutions 63 87 59
Net Interest Income 1,835 1,712 1,473
Non-interest Income
Net earned premiums 33,638 33,090 32,619
Commissions and processing fees 389 420 425
Net claims and adjustment expenses (24,164 ) (23,742 ) (21,252 )
Policy acquisition costs (5,993 ) (6,238 ) (5,781 )
Insurance revenues, net 3,870 3,530 6,011
Trust services 1,565 1,913 1,735
Gains (losses) on securities, net (8 ) (870 ) 230
5,427 4,573 7,976
Net Interest and Non-interest Income from Discontinued Operations 7,262 6,285 9,449
Non-interest Expenses
Salaries and employee benefits 2,996 2,946 3,137
Premises and equipment 1,294 1,328 1,307
Other expenses 778 529 479
5,068 4,803 4,923
Net Income before Income Taxes 2,194 1,482 4,526
Income Taxes 390 215 964
Common Shareholders' Net Income from Discontinued Operations $ 1,804 $ 1,267 $ 3,562

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 January 31, 2015 follow:

As at
January 31
2015
Other Reserves
Relating to available-for-sale securities $ (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 three months ended
January 31 2015 January 31 2014
Net cash provided by (used in) operating activities $ (2,058 ) $ 1,071
Net cash provided by (used in) financing activities - -
Net cash provided by (used in) investing activities 2,059 (1,071 )
Increase (decrease) in Cash and Cash Equivalents $ 1 $ -

4. Securities

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

As at
January 31 2015
(1)
As at
October 31 2014
As at
January 31
2014
Interest bearing deposits with regulated financial institutions $ 517 $ 91 $ 822
Securities issued or guaranteed by
Canada 7,381 347 424
A province or municipality 6,067 559 (70 )
Other debt securities 528 872 1,455
Equity securities
Preferred shares (31,953 ) (3,834 ) (15,923 )
Common shares (1,736 ) (1,428 ) 4,459
Unrealized losses, net $ (19,196 ) $ (3,393 ) $ (8,833 )
(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 January 31, 2015, CWB assessed the securities with unrealized losses and, based on available objective evidence, $1,500 (October 31, 2014 - $1,200; January 31, 2014 - nil) of pre-tax impairment charges relating to continuing operations were included in gains on securities, net.

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 January 31 2015 October 31 2014 January 31 2014
Personal $ 876 $ 1,128 $ 605 $ 181 $ 86 $ 30 $ 2,906 16 % 16 % 16 %
Business
Real estate 3,017 2,991 506 455 101 60 7,130 39 39 38
Commercial 1,602 1,891 412 226 153 104 4,388 24 24 26
Equipment financing and energy(1) 621 1,602 663 360 132 441 3,819 21 21 20
5,240 6,484 1,581 1,041 386 605 15,337 84 84 84
Total Loans(2) $ 6,116 $ 7,612 $ 2,186 $ 1,222 $ 472 $ 635 $ 18,243 100 % 100 % 100 %
Composition Percentage
January 31, 2015 34 % 42 % 12 % 7 % 2 % 3 % 100 %
October 31, 2014 34 % 41 % 12 % 7 % 3 % 3 % 100 %
January 31, 2014 35 % 42 % 11 % 7 % 2 % 3 % 100 %
(1) Includes securitized leases reported on-balance sheet of $564 (October 31, 2014 - $465; January 31, 2014 - $223).
(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
January 31, 2015
For the three months ended
October 31, 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 $ 3,874 $ 89,629 $ 93,503
Provision for credit losses 6,915 54 6,969 3,571 446 4,017
Write-offs (2,438 ) - (2,438 ) (2,371 ) - (2,371 )
Recoveries 418 - 418 449 - 449
Balance at end of period $ 10,418 $ 90,129 $ 100,547 $ 5,523 $ 90,075 $ 95,598
For the three months ended
January 31, 2014

Specific Allowance
Collective Allowance for Credit Losses Total
Balance at beginning of period $ 9,569 $ 76,217 $ 85,786
Provision for credit losses 5,239 2,380 7,619
Write-offs (2,453 ) - (2,453 )
Recoveries 402 - 402
Balance at end of period $ 12,757 $ 78,597 $ 91,354

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 January 31, 2015 As at October 31, 2014
Gross Amount Gross Impaired Amount Specific Allowance Net Impaired Loans Gross Amount Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Personal $ 2,906,222 $ 12,439 $ 487 $ 11,952 $ 2,841,154 $ 15,294 $ 518 $ 14,776
Business
Real estate(1) 7,130,266 36,964 665 36,299 6,810,834 26,058 909 25,149
Commercial 4,387,564 5,902 865 5,037 4,263,501 6,544 631 5,913
Equipment financing and energy 3,818,479 24,493 8,401 16,092 3,690,208 14,224 3,465 10,759
Total(2) $ 18,242,531 $ 79,798 $ 10,418 69,380 $ 17,605,697 $ 62,120 $ 5,523 56,597
Collective allowance(3) (90,129 ) (90,075 )
Net impaired loans after collective allowance $ (20,749 ) $ (33,478 )
As at January 31, 2014
Gross Amount Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Personal $ 2,602,391 $ 15,561 $ 507 $ 15,054
Business
Real estate(1) 6,132,790 23,226 7,476 15,750
Commercial 4,198,341 3,801 221 3,580
Equipment financing and energy 3,304,745 11,349 4,553 6,796
Total(2) $ 16,238,267 $ 53,937 $ 12,757 41,180
Collective allowance(3) (78,597 )
Net impaired loans after collective allowance $ (37,417 )
(1) Multi-family residential mortgages are included in real estate loans.
(2) Gross impaired loans include foreclosed assets with a carrying value of $2,486 (October 31, 2014 - $2,393 and January 31, 2014 - $5,014) 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 January 31, 2015 As at October 31, 2014
Gross Impaired Amount Specific Allowance Net
Impaired Loans
Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Alberta $ 30,216 $ 7,108 $ 23,108 $ 17,742 $ 2,508 $ 15,234
British Columbia 32,214 796 31,418 32,862 1,039 31,823
Ontario 6,110 978 5,132 6,336 877 5,459
Saskatchewan 7,891 549 7,342 1,968 384 1,584
Manitoba 1,282 220 1,062 1,695 152 1,543
Other 2,085 767 1,318 1,517 563 954
Total $ 79,798 $ 10,418 69,380 $ 62,120 $ 5,523 56,597
Collective allowance(1) (90,129 ) (90,075 )
Net impaired loans after collective allowance $ (20,749 ) $ (33,478 )
As at January 31, 2014
Gross Impaired Amount
Specific Allowance
Net Impaired Loans
Alberta $ 29,764 $ 10,168 $ 19,596
British Columbia 14,920 406 14,514
Ontario 5,084 954 4,130
Saskatchewan 2,329 505 1,824
Manitoba 715 196 519
Other 1,125 528 597
Total $ 53,937 $ 12,757 41,180
Collective allowance(1) (78,597 )
Net impaired loans after collective allowance $ (37,417 )
(1) The collective allowance for credit risk is not allocated by province.

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

As at January 31, 2015
1 - 30 days 31 - 60 days 61 - 90 days More than
90 days
Total
Personal $ 13,789 $ 18,987 $ 4,925 $ 1,451 $ 39,152
Business 25,292 22,651 6,035 - 53,978
$ 39,081 $ 41,638 $ 10,960 $ 1,451 $ 93,130
Total as at October 31, 2014 $ 35,851 $ 35,908 $ 4,412 $ 2,299 $ 78,470
Total as at January 31, 2014 $ 37,076 $ 28,980 $ 17,491 $ 1,897 $ 85,444

8. Derivative Financial Instruments

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

For the three months ended January 31, 2015, $9,151 of net unrealized after tax gains (2014 - $1,804) were recorded in other comprehensive income for changes in fair value of the effective portion of equity and interest rate swap derivatives designated as cash flow hedges, and no amounts (2014 - $nil) were recorded in other income for changes in fair value of the ineffective portion of derivatives classified as cash flow hedges. Amounts accumulated in other comprehensive income are reclassified to net income in the same period that the hedged item affects income. For the three months ended January 31, 2015, $3,412 of net losses after tax (2014 - $1,619 of net gains after tax) were reclassified to net income.

At January 31, 2015, hedged cash flows are expected to occur and affect profit or loss within the next three years.

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

As at January 31, 2015 As at October 31, 2014
Notional Amount Positive
Fair Value
Negative Fair Value Notional Amount Positive
Fair Value
Negative
Fair Value
Interest rate swaps designated as hedges(1)
$
2,150,000 $ 20,762 $ - $ 1,725,000 $ 1,612 $ 27
Equity swaps designated as hedges(2) 19,205 157 3,553 19,205 3,785 246
Equity swaps not designated as hedges(3) 3,754 - 1,234 3,754 - 101
Foreign exchange contracts(4) 2,687 141 126 1,964 23 12
Derivative related amounts $ 2,175,646 $ 21,060 $ 4,913 $ 1,749,923 $ 5,420 $ 386
As at January 31, 2014
Notional Amount Positive
Fair Value
Negative
Fair Value
Interest rate swaps designated as hedges $ 700,000 $ 763 $ 26
Equity swaps designated as hedges 17,470 6,142 -
Foreign exchange contracts 4,134 70 56
Derivative related amounts $ 721,604 $ 6,975 $ 82
(1) Interest rate swaps designated as hedges outstanding at January 31, 2015 mature between February 2015 and July 2017.
(2) Equity swaps designated as hedges outstanding at January 31, 2015 mature between June 2015 and June 2017.
(3) Equity swaps not designated as hedges outstanding at January 31, 2015 mature in June 2015.
(4) Foreign exchange contracts outstanding at January 31, 2015 mature between February and July 2015.

There were no forecasted transactions that failed to occur during the three months ended January 31, 2015.

9. Capital Stock

Share Capital

For the three months ended
January 31, 2015 January 31, 2014
Number of Shares Amount Number of Shares Amount
Preferred Shares - Series 5
Outstanding at beginning and end of period(1) 5,000,000 $ 125,000 - $ -
Preferred Shares - Series 3
Outstanding at beginning and end of period - - 8,352,596 208,815
Common Shares
Outstanding at beginning of period 80,369,305 533,038 79,619,595 510,282
Issued under dividend reinvestment plan(2) 32,211 1,023 127,081 4,802
Issued on exercise or exchange of options 6,410 - 150,681 1,035
Transferred from share-based payment reserve on exercise or exchange of options - 157 - 1,891
Outstanding at end of period 80,407,926 534,218 79,897,357 518,010
Share Capital $ 659,218 $ 726,825
(1) Holders of the Preferred Shares - Series 5 are entitled to receive a non-cumulative fixed dividend for the initial five-year period ending April 30, 2019 of $1.10 annually, payable quarterly, as and when declared. The quarterly dividend represents an annual yield of 4.40% based on the stated issue price per share.
(2) Shares were issued at no discount (2014 - 2% discount) from the average closing price of the five trading days preceding the dividend payment date.

10. Share-based Payments

Stock Options

For the three months ended
January 31, 2015 January 31, 2014


Number of Options
Weighted Average Exercise Price

Number of Options
Weighted Average Exercise Price
Options
Balance at beginning of period 4,743,277 $ 30.76 4,217,908 $ 26.96
Granted - - 623,320 37.50
Exercised or exchanged (23,497 ) 23.31 (298,406 ) 22.00
Forfeited (32,045 ) 32.40 (18,219 ) 29.02
Balance at end of period 4,687,735 $ 30.78 4,524,603 $ 28.73

Since March 1, 2014, all options exercised are settled via cashless settlement, which provides the option holder the number of shares equivalent to the excess of the market value of the shares under option, determined at the exercise date, over the exercise price. Prior to March 1, 2014, option holders could also elect to receive shares by delivering cash to CWB in the amount of the option exercise price. During the three months ended January 31, 2015, option holders exchanged the rights to 23,497 (2014 - 252,901) options and received 6,410 (2014 - 105,176) shares in return by way of the cashless settlement.

For the three months ended January 31, 2015, salary expense of $1,207 (2014 - $1,507) was recognized relating to the estimated fair value of options granted. No stock options were granted during the three months ended January 31, 2015. The fair value of options granted during the three months ended January 31, 2014 were estimated using a binomial option pricing model with the following variables and assumptions: (i) risk-free interest rate of 1.5% (ii) expected option life of 4.0 years, (iii) expected annual volatility of 19%, and (iv) expected annual dividends of 2.0%. The weighted average fair value of options granted was estimated at $5.19 per share.

Further details relating to stock options outstanding and exercisable at January 31, 2015 follow:

Options Outstanding Options Exercisable
Range of Exercise Prices


Number of Options
Weighted Average Remaining Contractual Life (years )
Weighted Average Exercise Price



Number of Options

Weighted Average Exercise
Price
$22.09 to $23.43 76,620 0.3 $ 23.30 76,620 $ 23.30
$25.46 to $29.42 3,027,670 2.6 27.43 831,711 26.25
$30.75 to $39.42 1,583,445 3.8 37.55 210,281 30.76
Total 4,687,735 3.0 $ 30.78 1,118,612 $ 26.89

Restricted Share Units and Performance Share Units

During the quarter, CWB amended its Restricted Share Unit (RSU) and Performance Share Unit (PSU) plans to revise the manner in which participating employees receive the equivalent of common share dividends declared and paid during the vesting periods of the plans. Prior to December 2014, employees participating in the RSU and PSU plans received a cash equivalent to common share dividends declared and paid during the vesting period. Commencing in December 2014, any common share dividends declared and paid during the vesting period accrue to the employees in the form of additional units of the plans.

11. Contingent Liabilities and Commitments

In the normal course of business, CWB enters into various commitments and has contingent liabilities, which are not reflected in the consolidated balance sheets. At January 31, 2015, these items include guarantees and standby letters of credit of $404,163 (October 31, 2014 - $407,681). Significant contingent liabilities and commitments, including guarantees provided to third parties, are discussed in Note 21 of CWB's audited consolidated financial statements for the year ended October 31, 2014 (see pages 89 and 90 of the 2014 Annual Report).

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

12. Fair Value of Financial Instruments

Financial Assets and Liabilities by Measurement Basis

The table below provides the carrying amount of financial instruments (excluding those classified as held for sale in Note 3) by category as defined in IAS 39 - Financial Instruments: Recognition and Measurement and by balance sheet heading. The table does not include assets and liabilities that are not considered financial instruments. The table also excludes assets and liabilities which are considered financial instruments, but are not recorded at fair value and for which the carrying amount approximates fair value.

As at January 31, 2015



Derivatives
Loans and Receivables and Non-trading Liabilities


Available-for-sale


Total Carrying Amount




Fair Value
Fair Value Over (Under) Carrying Amount
Financial Assets
Cash resources $ - $ - $ 96,657 $ 96,657 $ 96,657 $ -
Securities - - 2,433,166 2,433,166 2,433,166 -
Loans (1) - 18,233,847 - 18,233,847 18,273,795 39,948
Derivative related 21,060 - - 21,060 21,060 -
Total Financial Assets $ 21,060 $ 18,233,847 $ 2,529,823 $ 20,784,730 $ 20,824,678 $ 39,948
Financial Liabilities
Deposits (1) $ - $ 17,932,351 $ - $ 17,932,351 $ 18,009,533 $ 77,182
Securities sold under repurchase agreements - - 25,902 25,902 25,902 -
Debt - 1,125,163 - 1,125,163 1,151,835 26,672
Acquisition contingent consideration - 2,979 - 2,979 2,979 -
Derivative related 4,913 - - 4,913 4,913 -
Total Financial Liabilities $ 4,913 $ 19,060,493 $ 25,902 $ 19,091,308 $ 19,195,162 $ 103,854
As at October 31, 2014
Total Financial Assets $ 5,420 $ 17,582,480 $ 2,697,185 $ 20,285,085 $ 20,273,855 $ (11,230 )
Total Financial Liabilities $ 386 $ 18,428,406 $ - $ 18,428,792 $ 18,473,449 $ 44,657
As at January 31, 2014
Total Financial Assets $ 6,975 $ 16,231,199 $ 2,596,220 $ 18,834,394 $ 18,854,197 $ 19,803
Total Financial Liabilities $ 82 $ 17,080,699 $ - $ 17,080,781 $ 17,143,049 $ 62,268
(1) Loans and deposits exclude deferred premiums and deferred revenue, which are not financial instruments.

Fair values are based on management's best estimates based on market conditions and pricing policies at a certain point in time. The estimates are subjective and involve particular assumptions and matters of judgment and, as such, may not be reflective of future fair values. Further information on how the fair value of financial instruments is determined is included in Note 30 of the October 31, 2014 consolidated audited financial statements (see page 97 of the 2014 Annual Report).

Fair Value Hierarchy

CWB categorizes its fair value measurements of financial instruments recorded on the consolidated balance sheets according to a three-level hierarchy. Level 1 fair value measurements reflect unadjusted quoted prices in active markets for identical assets and liabilities that CWB can access at the measurement date. Level 2 fair value measurements were estimated using observable inputs, including quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model inputs that are either observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 fair value measurements were determined using one or more inputs that are unobservable and significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement date. There were no transfers between Level 1, Level 2 or Level 3 during the three months ended January 31, 2015.

Further information on how the fair value of financial instruments is determined is included in Note 30 of the October 31, 2014 consolidated audited financial statements (see page 97 of the 2014 Annual Report).
The following table presents CWB's financial assets and liabilities (excluding those classified as held for sale in Note 3) that are either carried at fair value on the balance sheet or for which fair value is disclosed, categorized by level under the fair value hierarchy:

Valuation Technique
As at January 31, 2015 Fair Value Level 1 Level 2 Level 3
Financial assets
Cash resources $ 96,657 $ 63,404 $ 33,253 $ -
Securities 2,433,166 2,433,166 - -
Loans 18,273,795 - 18,273,795 -
Derivative related 21,060 - 21,060 -
$ 20,824,678 $ 2,496,570 $ 18,328,108 $ -
Financial liabilities
Deposits $ 18,009,533 $ - $ 18,009,533 $ -
Securities sold under repurchase agreements 25,902 25,902 - -
Debt 1,151,835 1,151,835 -
Acquisition contingent consideration(1) 2,979 - - 2,979
Derivative related 4,913 - 4,913 -
$ 19,195,162 $ 25,902 $ 19,166,281 $ 2,979
As at October 31, 2014
Financial assets $ 20,273,855 $ 2,660,414 $ 17,613,441 $ -
Financial liabilities $ 18,473,449 $ - $ 18,470,770 $ 2,679
As at January 31, 2014
Financial assets $ 18,854,197 $ 2,559,982 $ 16,294,215 $ -
Financial liabilities $ 17,143,049 $ - $ 17,141,220 $ 1,829
(1) Level 3 financial instruments are comprised of the contingent consideration related to the acquisition of McLean & Partners Wealth Management Ltd.

Financial instruments that are not carried on the balance sheet at fair value, but for which fair value is disclosed above, include loans, deposits and debt.

Level 3 Financial Instrument

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

For the three months ended
January 31
2015 2014
Balance at beginning of period $ 2,679 $ 1,679
Change in fair value charged to other income 300 150
Balance at end of period $ 2,979 $ 1,829

13. Interest Rate Sensitivity

CWB's exposure to interest rate risk as a result of a difference or gap between the maturity or repricing behavior of interest sensitive assets and liabilities, including derivative financial instruments, is discussed in Note 29 of the audited consolidated financial statements for the year ended October 31, 2014 (see page 96 of the 2014 Annual Report). The following table shows the gap position for selected time intervals. The table includes the interest sensitive assets and liabilities of the discontinued operations described in Note 3.

Asset Liability Gap Positions

($ millions) Floating Rate and Within 1 Month 1 to 3 Months
3 Months to 1 Year

Total Within 1 Year
1 Year to 5 Years

More than
5 Years

Non-interest Sensitive



Total
January 31, 2015
Assets
Cash resources and securities $ 483 $ 950 $ 132 $ 1,565 $ 983 $ 173 $ (19 ) $ 2,702
Loans 8,644 966 2,444 12,054 6,040 114 (66 ) 18,142
Other assets - - - - - - 421 421
Derivative financial instruments(1) 100 100 138 338 1,835 - 3 2,176
Total 9,227 2,016 2,714 13,957 8,858 287 339 23,441
Liabilities and Equity
Deposits 6,428 1,558 3,843 11,829 6,104 - (17 ) 17,916
Other liabilities 4 8 34 46 31 - 414 491
Debt 13 29 430 472 653 - - 1,125
Equity - - - - - - 1,733 1,733
Derivative financial instruments(1) 2,173 - - 2,173 - - 3 2,176
Total 8,618 1,595 4,307 14,520 6,788 - 2,133 23,441
Interest Rate Sensitive Gap $ 609 $ 421 $ (1,593 ) $ (563 ) $ 2,070 $ 287 $ (1,794 ) $ -
Cumulative Gap $ 609 $ 1,030 $ (563 ) $ (563 ) $ 1,507 $ 1,794 $ - $ -
Cumulative Gap as a Percentage of Total Assets 2.6
%
4.4
%
(2.4 )% (2.4 )% 6.4 % 7.7
%
-
%
-
%
October 31, 2014