Corporate Presentation. 2 nd Quarter 2018

Transcription

1 Corporate Presentation 2 nd Quarter 2018

2 Advisory 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 economy. Forward-looking statements are typically identified by the words believe, expect, anticipate, intend, estimate, may increase, may impact, goal, focus, potential, proposed 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 and are subject to inherent risks and uncertainties, which give rise to the possibility that management s predictions, forecasts, projections, expectations and conclusions will not prove to be accurate, that its assumptions may not be correct and that its strategic goals will not be achieved. 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 level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, changes in accounting standards and policies, the accuracy 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 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. Additional information about these factors can be found in the Risk Management section of CWB s annual Management s Discussion and Analysis (MD&A). 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 over the forecast horizon and how it will affect CWB s businesses are material factors considered when setting organizational objectives and targets. In determining our expectations for economic growth, we primarily consider economic data and forecasts provided by the Canadian government and its agencies, as well as an average of certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific. Where relevant, material economic assumptions underlying forward looking statements are disclosed. 2

3 Table of Contents SLIDE SECTION 4 Corporate Overview 9 Strategic Focus on Business Owners 20 Complementary Lines of Business 26 Strong Financial Performance 36 Appendix 3

4 Corporate Overview 4

5 CWB s Balanced Growth strategy is focused to deliver high-quality balance sheet and earnings growth through development of full-service banking relationships with business owners across Canada Banking Trust Wealth Management Business Personal Alternative mortgage lending Commercial equipment leasing Corporate Personal Mutual fund services Discretionary investment management Canadian Western Bank CWB Optimum Mortgage Motive Financial CWB National Leasing CWB Maxium Financial CWB Franchise Finance 43 Branches Canadian Western Trust CWB Wealth Management McLean & Partners Wealth Management Canadian Western Financial 1 Location 2 Locations April 30, 2018 Total Assets ~ $28.1 billion Market Capitalization (TSX:CWB) ~ $3.0 billion Number of Consecutive Profitable Quarters 120 Credit Ratings (DBRS) Stable Trend Long-term Senior Debt/Long-term Deposits Short-term Debt Subordinated Debentures Preferred Shares A (low) R1 (low) BBB (high) Pfd-3 5

6 Executive Committee CHRIS FOWLER President & CEO CAROLYN GRAHAM Executive VP & CFO Finance and Tax, Treasury, Strategy and Investor Relations, Legal, Internal Audit BOGIE OZDEMIR Executive VP & CRO Enterprise Risk Management, Credit Risk Management, Risk Data Aggregation, Analytics and Reporting, Regulatory Compliance STEPHEN MURPHY Executive VP Branch Banking Operations, Equipment Financing Group, CWB National Leasing, CWB Optimum Mortgage, CWB Maxium Financial, CWB Franchise Finance GLEN EASTWOOD Executive VP DARRELL JONES Executive VP & CIO KELLY BLACKETT Executive VP Business Transformation, Wealth Management, Trust Services Information Services, Infrastructure Planning Human Resources, Corporate Communications 6

7 Business Footprint Growing Coast to Coast 7

8 Second Quarter 2018 Performance Highlights VERY STRONG FINANCIAL PERFORMANCE CONTINUED EXECUTION OF BALANCED GROWTH STRATEGY CONTINUED EXECUTION OF FUNDING DIVERSIFICATION STRATEGY Common shareholders net income of $60 million, up 27% from last year, and pre-tax, pre-provision income of $107 million, up 19% Diluted and adjusted cash earnings per common share of $0.68 and $0.73, up 26% and 24%, respectively Record total revenue of $197 million, up 14% year-over-year Robust operating leverage of 5.4% Strong 12% increase in total loans, with 9% organic growth complemented by purchased assets to deliver further industry and geographic diversification Strategically targeted general commercial and equipment financing and leasing categories accounted for over 80% of the increase from last year Total deposits up 12%, with 2% growth in branch-raised deposits Increased use of securitization funding compared to last year, mainly reflecting success in funding the January 31 purchase of business lending assets primarily via securitization Increased use of debt capital markets through four successful issuances of senior deposit notes totaling $1.3 billion over the past 12 months ONGOING ENHANCEMENTS TO CLIENT EXPERIENCE Successfully onboarded our first full-service Virtual Branch clients in Ontario Light bricks and mortar, high touch, high tech offering supports capability to develop broader client relationships across the country 8

9 Strategic Focus on Business Owners 9

10 Business Footprint Locations and Loans by Province (*) Banking Branches Western Canada CWB Maxium Financial Richmond Hill, ON CWB Franchise Finance Mississauga, ON Montreal, QC CWB National Leasing Winnipeg, MB (Headquarters) Satellite offices across Canada Trust Services Office Vancouver, BC Wealth Management Offices Edmonton, AB Calgary, AB * Based on location of security 10

11 Composition of Loans by Lending Sector As at April 30, 2018 General commercial loans - 28% Personal loans & mortgages - 20% Equipment financing and leasing - 19% Commercial mortgages - 17% Real estate project loans - 16% Oil & gas production loans - 0% 20% 28% 19% 17% 16% ($ millions excluding the allowance for credit losses) Q Q Change $ Change % General commercial loans $ 6,992 $ 5,605 $ 1,387 25% Personal loans and mortgages 4,974 4, Equipment financing and leasing 4,565 3, Commercial mortgages 4,266 4, Real estate project loans 4,008 4,148 (140) (3) Oil and gas production loans (40) (26) Total loans outstanding, excluding the allowance for credit losses $ 24,916 $ 22,328 $ 2,588 12% 11

12 Composition of Deposits As at April 30, 2018 Branch demand & notice deposits - 32% Branch term deposits - 20% 32% 20% 12% Capital markets term deposits - 12% Broker deposits - 36% 36% Business & government deposits Personal deposits 61% 39% 12

13 Funding Sources Growing Relationship-based Deposits Total Branch-raised Deposits ($ millions) (1) Total Demand and Notice Deposits ($ millions) $14,000 $12,000 $10,000 $8,000 $6,000 $11,714 $11,963 2% $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $8,012 $7,388 8% $4,000 Q Q $3,000 Q Q (1) Branch-raised deposits include deposits raised through CWB s trust businesses, Canadian Western Trust and Valiant Trust. (2) As of Q1 11, financial results are reported under IFRS, as opposed to GAAP, and are not directly comparable. 13

14 Financial Performance Solid Credit Quality * Canadian Bank Avg. (6) as referenced within this presentation is calculated based on information contained in the publicly available company reports of Canada s six largest banks (TSX trading symbols: BMO, BNS, CM, NA, RY, TD). Demonstrated history of low credit losses relative to the six largest Canadian banks 14

15 Financial Performance Credit Gross Impaired Loans & Write-offs (as a percentage of average loans) 1.75% 1.50% (1) 1.25% 1.00% 0.75% 0.50% 0.25% 0.00% Q Q Q Q Q Q Q Q Q Q $ Gross impaired loans as a % of avg. loans $ Write-offs as a % of avg. loans (1) As of Q1 11, financial results are reported under IFRS, as opposed to GAAP, and are not directly comparable. The dollar 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 Actual credit losses as a percentage of total loans remain low and continue to demonstrate the benefits of CWB s secured lending practices and disciplined underwriting 15

16 Financial Performance Solid Credit Quality (1) As of Q1 11, financial results are reported under IFRS, as opposed to GAAP, and are not directly comparable. * Canadian Bank Avg. (6) as referenced within this presentation is calculated based on information contained in the publicly available company reports of Canada s six largest banks (TSX trading symbols: BMO, BNS, CM, NA, RY, TD). 16

17 Financial Performance Strong Capital & Low Leverage Regulatory Capital Ratios (Standardized approach for calculating risk-weighted assets) Q Regulatory Minimum Common equity Tier 1 capital (CET1) 9.4% 7.0% Tier 1 capital 10.6% 8.5% Total capital 12.3% 10.5% Basel III Leverage Ratio 8.0% 3.0% * Canadian Bank Avg. (6) as referenced within this presentation is calculated based on information contained in the publicly available company reports of Canada s six largest banks (TSX trading symbols: BMO, BNS, CM, NA, RY, TD). 17

18 Financial Performance Strong Capital & Low Leverage Capital Ratios and Risk-Weighted Assets (RWA) Standardized Advanced Internal Rating Based (AIRB) Average CWB Variance CWB LB BMO BNS CM NA RY TD (AIRB banks) (from Average) Common Equity Tier 1 Ratio (Basel III) (1) 9.5% 7.9% 11.4% 11.5% 10.6% 11.8% 10.9% 10.7% 11.2% -165 bp Risk weightings by category (2) Residential mortgages 30.4% 18.8% 7.8% 12.8% 7.1% 11.3% 7.5% 8.6% 9.2% 21.2% Other retail loans (3) 76.6% 66.9% 24.5% 39.3% 30.2% 38.9% 22.5% 34.4% 31.6% 45.0% Business loans (4) 99.9% 99.8% 38.2% 53.3% 37.9% 43.4% 59.7% 39.0% 45.2% 54.6% Pro forma CWB and LB assuming 20% reduction in RWA from AIRB 11.9% 9.9% 11.4% 11.5% 10.6% 11.8% 10.9% 10.7% 11.2% 76 bp Pro forma six largest banks assuming 20% increase in RWA from standardized 9.5% 7.9% 9.5% 9.6% 8.9% 9.8% 9.1% 8.9% 9.3% 21 bp (1) "Common Equity Tier 1 Ratio (Basel III)" based on Oct 31, 2017 company reports of Canada's eight publicly traded Schedule 1 banks. (2) "Risk weightings by category" based on Oct 31, 2017 company reports of Canada's eight publicly traded Schedule 1 banks. (3) Other retail includes personal loans, credit cards and small business loans treated as retail. (4) Business includes corporate, commercial, medium-sized enterprises and non-bank financial institutions. Provision for Credit Losses (measured as a % of average loans) 10 YR Average CWB 0.15% 0.15% 0.21% 0.19% 0.19% 0.19% 0.15% 0.17% 0.38% 0.23% 0.20% Canadian Bank Average (6)* 0.46% 0.86% 0.53% 0.40% 0.37% 0.31% 0.30% 0.28% 0.36% 0.28% 0.41% Variance -0.31% -0.71% -0.32% -0.21% -0.18% -0.12% -0.15% -0.11% 0.02% -0.05% -0.21% * All comparative information as referenced within this presentation is calculated based on information contained in the publicly available company reports for fiscal 2017 of Canada s six largest banks (TSX trading symbols: BMO, BNS, CM, NA, RY, TD). 18

19 Complementary Lines of Business 19

20 Lines of Business Total Revenues Strategic goal to grow non-interest income to encompass a greater proportion of total revenues through growth in banking and leasing fee income, wealth management and trust services organic growth (breadth and depth of both existing and new client relationships) complementary acquisitions 20

21 Lines of Business Equipment Leasing Industry leader in small and mid-ticket equipment leasing Proven management team and ~350 employees Long history of strong performance (43 years in business) Approximately 80,000 active leases providing diversification by geography, industry and equipment type Established presence across Canada Synergies with existing banking/lending operations (funding, growth, technology) 21

22 Lines of Business Specialized Financing Specialized financing solutions are primarily provided in the areas of health care, golf, transportation, real estate, and general corporate financing Provides loans, equipment leases and structured financing solutions to more than 35,000 clients, mainly in Ontario Proven management team Long history of strong performance Securitized assets that were originated prior to March 1, 2016 were not included in the transaction 22

23 Lines of Business Alternative Mortgages Broker-driven origination model providing alternative and higher-ratio insured residential mortgages across Western Canada, Ontario and selected regions of Atlantic Canada As at April 30, 2018, alternative mortgages represented ~94% of CWB Optimum s portfolio and carry a weighted average loan-to-value at initiation of ~66% Solid source of loan growth and profitability (blend of fee-based income and interest revenues) Considerable future growth opportunities 23

24 Lines of Business Wealth Management Specialized discretionary wealth and portfolio management Complementary business line with good potential for growth Synergies with banking and fiduciary trust operations Relatively stable source of fee-based income with low capital investment 24

25 Lines of Business Trust Services Trust Services office in Vancouver Trust assets under administration over $8 billion; lower cost deposits of more than $1 billion ($ thousands) $25,000 Total Revenues $20,000 Personal Trust Corporate Trust $15,000 $10,000 $5,000 $ Q Note: On August 16, 2017, CWB announced that Canadian Western Trust will focus its activities within business lines that are most aligned with the strategic objectives of, and will no longer offer self-directed account services to holders of certain securities, and CWT initiated a process to appoint successor trustees for these accounts. As a result of this process, CWB realized pretax gains on sale of approximately $6 million, or $0.06 of adjusted cash earnings per common share, in the fourth quarter of fiscal 2017 and approximately $3 million, or $0.03 of adjusted cash earnings per common share, in the first quarter of fiscal Annual revenue associated with the transferred accounts to date was approximately $3 million. In aggregate, approximately $93 million of CWT branchraised deposits and $3 billion of assets under administration has transferred to the successor trustees. Further transfers of deposits and assets under administration related to this process, with associated gains on sale, may occur but are not expected to be material. 25

26 Strong Financial Performance 26

27 Medium-term Performance Targets Target Ranges Second Quarter Context Adjusted cash earnings per common share growth (1) 7 12% Exceeded target at 24% Adjusted return on common shareholders' equity (2) 12 15% Met target at 12% Operating leverage (3) Positive Met target at positive 5.4% Common equity Tier 1 capital ratio under the Standardized approach (4) Strong Maintained a very strong ratio of 9.4% Common share dividend payout ratio (5) ~30% Delivered 36% (1) Adjusted cash earnings per common share is calculated as diluted earnings per common share excluding the acquisition-related amortization of intangible assets and the contingent consideration fair value changes, net of tax. Excluded items are not considered to be indicative of ongoing operating performance. (2) Adjusted return on common shareholders equity is calculated as annualized common shareholders net income excluding the acquisition-related amortization of intangible assets and the contingent consideration fair value changes, net of tax, divided by average common shareholders equity. (3) Operating leverage is calculated as the growth rate of total revenue less the growth rate of non-interest expenses, excluding the pre-tax amortization of acquisition-related intangible assets. (4) Common equity Tier 1 capital ratio is calculated in accordance with Basel III guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI). (5) Common share dividend payout ratio is calculated as common share dividends declared during the past twelve months divided by common shareholders net income earned over the same period. Performance target ranges reflect the objectives embedded within CWB s strategic direction and a time horizon consistent with the longer-term interests of our shareholders Targets are based on expectations for moderate economic growth and a relatively stable net interest margin environment in Canada over the three- to five-year forecast horizon 27

28 Financial Performance History Historical Growth (five-year increments) Year Total Assets (millions) % Assets Growth Net Income Before Taxes (thousands) % Net Income Growth Before Taxes Net Income After Taxes (thousands) 1997 $2,023 - $16,253 - $15, $3,828 89% $45, % $29, $9, % $135, % $96, $16,873 77% $254,666 87% $194, $26,447 57% $311,888 22% $229,655 Total Loans ($ millions) (before the allowance for credit losses) $30,000 24,916 $25,000 (1) 22,065 23,346 15,653 17,606 19,570 $20,000 12,365 14,035 $15,000 9,312 10,575 $10,000 $5, Q (1) As of Q1 11, financial results are reported under IFRS, as opposed to GAAP, and are not directly comparable. 28

29 Financial Performance Q ($ thousands) Q Q Change Pre-tax, pre-provision income $ 107,247 $ 90,203 19% Common shareholders net income 60,464 47,594 27% Diluted earnings per share % Adjusted cash earnings per share % 29

30 Financial Performance YTD 2018 ($ thousands) YTD 2018 YTD 2017 Change Pre-tax, pre-provision income $ 214,311 $ 184,467 16% Common shareholders net income 122,393 97,136 26% Diluted earnings per share % Adjusted cash earnings per share % Common Shareholders' Net Income ($ millions) $150 $122.4 $97.1 $100 $50 26% Net Interest Margin 3.00% 2.50% 2.57% 2.60% 2.20% 1.80% 1.40% 7 bp $0 YTD 2017 YTD % YTD 2017 YTD

31 Quarterly Loan Growth 31

32 Financial Performance Margin Net Interest Margin and Spread on Loans 3.00% 6.00% 2.75% 5.00% 4.00% 2.50% 3.00% 2.25% 2.00% 2.00% Q Q Q Q Q Q Q Q Q % Net interest margin (left-scale) Spread on loans (left-scale) Average prime (right-scale) 32

33 Financial Performance Efficiency (1) (1) * Canadian Bank Avg. (6) as referenced within this presentation is calculated based on information contained in the publicly available company reports of Canada s six largest banks (TSX trading symbols: BMO, BNS, CM, NA, RY, TD). (1) Represents Continuing Operations Strong efficiency relative to the six largest Canadian banks demonstrated ability to effectively control costs while supporting sustained growth 33

34 (1) As of Q1 11, financial results are reported under IFRS, as opposed to GAAP, and are not directly compared. 34

35 Financial Performance Dividends Dividend Payout Ratios * Fiscal 2014 (1) ~ 29% Fiscal 2015 (1) ~ 33% Fiscal 2016 ~ 43% Fiscal 2017 ~ 38% Q ~ 36% Medium-term Target range ~ 30% * Dividend payout ratios represent common share dividends (including shares issued under CWB s dividend reinvestment plan) measured as a percentage of net income available to common shareholders. (1) Represents Continuing Operations 35

36 Appendix 36

37 Provincial Economies 37

38 Additional Information Shares Outstanding (April 30, 2018) 88.8 million common shares (TSX:CWB) 5.0 million preferred shares Series 5 (TSX:CWB.PR.B) 5.6 million preferred shares Series 7 (TSX:CWB.PR.C) Employee Share Purchase Plan (ESPP) Approximately 94% employee participation Investor Inquiries Canadian Western Bank Place Suite Jasper Avenue Edmonton, Alberta T5J 3X6 Tel: Toll-free: InvestorRelations@cwbank.com cwb.com 38