NEWS RELEASE. Third Quarter 2016 Highlights 1,2 for Continuing Operations (compared to the same period in the prior year unless otherwise noted)

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1 NEWS RELEASE CWB reports third quarter financial performance Pre-tax, pre-provision earnings up 6% compared to last year Continued strong loan growth with strategic, geographic diversification CWB s solid third quarter operating performance reflects the continued successful execution of our strategy. Our strategic objectives include strong, balanced growth of both loans and funding sources, as well as progress toward a more balanced geographic footprint and broader diversification within targeted sectors of Canada s commercial banking industry, said Chris Fowler, President and CEO. In support of these goals, we delivered very strong 14% year-over-year loan growth and strong growth in branch-raised deposits, contributing to 6% growth in pre-tax, pre-provision earnings. Our two recent acquisitions, CWB Maxium Financial and CWB Franchise Finance, are integral components of our balanced growth strategy. With 80% of both portfolios based outside of Western Canada and the majority of originations focused within the general commercial sector, these businesses will contribute to the expansion of our geographic footprint and further diversification of our asset mix. I m pleased to say that we achieved positive operating leverage this quarter while continuing to invest in our ability to grow client relationships across the country, despite persistent pressure on net interest margin, continued Mr. Fowler. With respect to credit quality related to oil and gas production loans, we have taken a proactive approach to resolve positions within this portfolio, and will continue to conservatively manage exposures in view of the difficult operating environment. This quarter we launched our new core banking system and strengthened our capital position through the issuance of common shares. The banking system will improve our capabilities to manage client relationships, risk and capital. Very strong capital ratios will support continued growth at levels consistent with our strategic direction over the medium-term while temporarily constraining growth of earnings per share. Together these steps are key components of our strategy to deliver strong, balanced growth with an attractive risk profile. Third Quarter Highlights 1,2 for Continuing Operations (compared to the same period in the prior year unless otherwise noted) Very strong loan growth of 14% and strong branch-raised deposit growth of 10%. Completed the acquisition of the Canadian franchise finance platform of GE Capital, now known as CWB Franchise Finance, supporting CWB s strategic objective to achieve further geographic and business diversification within targeted segments of the commercial banking industry. Successfully launched CWB s new core banking system, which will enhance CWB s long-term capacity to broaden and deepen client relationships. Opened CWB s 42 nd full service branch through expansion of our operations in Lloydminster, Saskatchewan. Pre-tax, pre-provision earnings of $82.2 million, up 6%. Common shareholders net income of $45.6 million, down 11%. Adjusted cash earnings per common share of $0.60, down 8%. Net interest margin (teb) of 2.40%, down 17 basis points from last year and seven basis points from the prior quarter; these decreases include a one-time impact of three basis points related to a change in methodology for the recognition of certain loan fees. Provision for credit losses as a percentage of average loans of 32 basis points, compared to 17 basis points last year and 78 basis points in the prior quarter. Gross impaired loans represented 0.49% of total loans, relatively consistent with the third quarter last year and down from 0.68% last quarter. Strengthened capital position through issuance of $150 million of common shares, contributing to very strong Basel III regulatory capital ratios under the Standardized approach for calculating risk-weighted assets of 9.0% common equity Tier 1 (CET1), 10.8% Tier 1 and 12.9% total capital. (1) (2) Highlights include certain non-ifrs measures refer to definitions page 23. As a result of the sales of Canadian Direct Insurance (CDI) and the stock transfer business of Valiant Trust Company (Valiant) on May 1,, CWB has defined the contributions of these businesses as Discontinued Operations, the remaining operations as Continuing Operations, and the total Continuing Operations and Discontinued Operations as Combined Operations. CWB Third Quarter Report 1

2 Edmonton, September 1, Canadian Western Bank (TSX: CWB) (CWB) today announced third quarter financial performance which, compared to the same quarter in, included very strong and geographically diverse loan growth, strong branch-raised deposit growth and steady growth in pre-tax, pre-provision (PTPP) earnings. Common shareholders net income from Continuing Operations of $45.6 million was down 11%. Loan growth of 14%, including the addition of CWB Franchise Finance assets, was very strong and well-balanced by industry segment. Non-interest income was up 47%, primarily due to the influence of net losses on securities last year and gains on the sale of residential mortgages in the current period. These positive earnings drivers were more than offset by the combined impact of several factors, including increased energy-related provisions for credit losses, a 17 basis point decline in net interest margin, moderate growth of non-interest expenses, the addition of acquisition-related contingent consideration fair value changes reflecting performance within CWB Maxium Financial (CWB Maxium), higher preferred share dividends, and the 20% increase to CWB s income tax rate in Alberta. Diluted earnings per common share of $0.55 and adjusted cash earnings per common share of $0.60 were down 14% and 8%, respectively. The common share issuance on July 7, reduced quarterly earnings per common share by $0.01. PTPP earnings were up 6% to $82.2 million. Compared to the prior quarter, common shareholders net income from Continuing Operations increased 42%, diluted earnings per common share was 38% higher and adjusted cash earnings per common share was up 46%. These positive changes primarily relate to the impact of lower provisions for credit losses this quarter. PTPP earnings declined 3%. The benefit of 2% loan growth, two additional interest-earning days, consistent non-interest income and stable non-interest expenses was more than offset by a seven basis point decrease in net interest margin, the addition of acquisition-related contingent consideration fair value changes and higher preferred share dividends. Of note, due to timing of the issuance, the third quarter Series 7 preferred share dividend payment included a stub period dividend. Year-to-date common shareholders net income from Continuing Operations of $129.9 million was 16% lower as the benefits of very strong 12% loan growth and 7% higher non-interest income were more than offset by increased energy-related provisions for credit losses, a 13 basis point decrease in net interest margin, and the other factors cited above in the year-over-year comparison of third quarter performance. Diluted and adjusted cash earnings per common share declined 18% and 15%, respectively. Year-to-date PTPP earnings of $248.1 million increased 6%. Medium-term Performance Target Ranges for Continuing Operations Performance target ranges reflect the objectives embedded within CWB s strategic direction and a time horizon consistent with the longer-term interests of CWB shareholders. Target ranges for key financial metrics over a three- to five-year time horizon are presented in the following table: Medium-term Performance Target Ranges Current Context Adjusted cash earnings per common share (1) (2) 7-12% Earnings growth and profitability for reflect the growth credit performance of CWB s oil and gas production Adjusted return on common shareholders (3) 12-15% loans and lower net interest margin. equity Operating leverage (4) Positive Current operating leverage is positive. Common equity Tier 1 capital ratio under the (5) Standardized approach Strong Q3 ratio of 9.0% is very strong. Common share dividend payout ratio (6) ~30% Q3 ratio of 40% includes the impact of credit performance of oil and gas production loans. (1) (2) (3) (4) (5) (6) Performance for adjusted cash earnings per common share is the current year results over the same period in the prior year. 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, which represent charges that are not considered to be indicative of ongoing operating performance. Adjusted return on common shareholders equity is calculated as annualized common shareholders net income excluding the acquisitionrelated amortization of intangible assets and the contingent consideration fair value changes, net of tax, divided by average common shareholders equity. Operating leverage is calculated as total revenue (teb) growth over the past twelve months, less non-interest expense growth over the past twelve months, excluding the pre-tax amortization of acquisition-related intangible assets. 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) using the Standardized approach for credit risk. Common share dividend payout ratio is calculated as common share dividends declared during the past twelve months divided by common shareholders net income from Continuing Operations earned over the same period. CWB Third Quarter Report 2

3 These medium-term performance target ranges are based on expectations for moderate economic growth in Canada over the three- to five-year forecast horizon. We are committed to continue to deliver further business and geographic diversification; strong and profitable loan growth; a lower overall cost of funds through optimization of our funding mix; stable credit quality over a full economic cycle; effective expense management in consideration of revenue growth opportunities; and, prudent capital management. Continuing Operations Our outlook for the remainder of reflects expectations for ongoing credit stress and macroeconomic uncertainty within Alberta, primarily related to the impact of persistent low oil prices. Credit quality reflects strain within CWB s small portfolio of oil and gas production loans, and the level of provisioning remains elevated compared to our historical experience. Outside of the oil and gas portfolio, credit quality has remained stable. Compared to, we expect adjusted cash earnings per share in fiscal to be lower in view of the impact of increased provisions for credit losses on year-to-date results, as well as the likelihood of ongoing pressure on net interest margin, incremental increases in our expense base mainly related to implementation of our new core banking system, and a higher share count following the issuance of common shares on July 7,. Of note, lower net interest margin this quarter includes a one-time impact of three basis points related to a change in methodology for the recognition of certain loan fees. CWB s strategic direction and related benefits of acquisitions and core banking implementation Over the medium-term, ongoing strong, balanced growth of both loans and funding sources remain important strategic objectives. Further geographic and business sector diversification within targeted segments of Canada s commercial banking industry is the foundation of our strategic direction. We completed two important steps in support of this strategy with the acquisition of CWB Maxium on March 1,, and the acquisition of GE Capital s Canadian franchise finance platform, now known as CWB Franchise Finance, on July 1,. CWB Maxium and CWB Franchise Finance will both contribute to an expanded CWB presence outside of Western Canada as approximately 80% of their current business is based in Ontario and other eastern Canadian provinces. We expect the combination of these two meaningful strategic acquisitions to be slightly accretive to adjusted cash earnings per share this year, with accelerating contributions thereafter. We also expect CWB s earnings growth and business diversification to benefit from ongoing success in key strategic initiatives to expand our existing client relationships and attract new clients. The successful launch of our new core banking system this quarter will facilitate these initiatives over the medium term and advance our efforts to build core funding sources, enhance product and service offerings, and leverage current and future investment in technology. We look forward to realizing the significant benefits of this improved technology going forward, including the ability to leverage a client-centric view of our branch-based relationships and achieve further operational efficiencies, as well as support for CWB s eventual transition to the Advanced Internal Ratings Based (AIRB) methodology for calculating risk weighted assets. Very strong loan growth and strong growth in branch-raised deposits Fiscal now marks the 26 th time in 27 years CWB has achieved double digit loan growth. Loan growth of 14% over the past twelve months, 2% compared to the prior quarter and 12% on a year-to-date basis was driven by strong activity within targeted portfolio segments. In combination, the addition of approximately $350 million of loans within CWB Franchise Finance and third quarter net originations within CWB Maxium of approximately $100 million accounted for nearly 20% of our growth from last year and a significant proportion of the net sequential increase. Combined loan growth within BC and Ontario accounted for more than 75% of the increase from last year. Loan growth in Alberta and Saskatchewan has slowed compared to prior years due to the economic impact of low oil prices. Outstanding balances in Alberta fell 3% from the second quarter and we expect the trend of stronger relative growth in non-oil producing provinces to continue through the remainder of. Deposit growth was 12% over the past twelve months, 4% compared to the prior quarter and 9% on a year-todate basis. We remain committed to further enhance and diversify funding sources to support growth, manage the impact of competitive factors and mitigate pressure on net interest margin. Year-over-year branch-raised deposit growth was 10%. A key strategic objective, supported by our investment in the new core banking system, is to increase the level of these deposits as they strengthen relationships by providing clients with relevant tools for managing their finances. CWB Third Quarter Report 3

4 Preferred types of branch-raised deposits also have attractive liquidity characteristics, are typically lower cost, and provide associated transactional fee income. As such, we place specific emphasis on growing personal and business deposits raised within the branch network, as well as through trust services and, given suitable market conditions, Canadian Direct Financial, CWB s Internet-based division. Credit stress remains confined to oil and gas production loans Total gross impaired loans of $106.7 million compare to $92.3 million in the third quarter last year and improved from $145.0 million last quarter. Inclusive of the 78 basis point provision for credit losses last quarter and a sequentially-improved third quarter provision of 32 basis points, the year-to-date provision as a percentage of average loans was 43 basis points at,. Significantly higher provisioning within the oil and gas portfolio has resulted from the impact of persistently low and volatile energy commodity prices on producer cash flows, as well as the influence of regulatory factors on the liquidity of assets securing these exposures. Credit quality outside of our portfolio of oil and gas production loans remains stable, and we continue to expect the fiscal provision to fall in a range between 35 to 45 basis points. As we work with our clients through the challenging operating environment in Alberta and Saskatchewan, we continue to carefully monitor the entire loan portfolio across our geographic footprint for signs of weakness resulting from the first and second order impacts of lower oil prices. We are also carefully monitoring developments within the residential housing sector, with a particular focus on markets where a combination of rapid price escalation and regulatory change could impact pricing and the level of future activity. Although we expect periodic increases in the balance of impaired loans across the portfolio, we anticipate loss rates on impaired loans outside of oil and gas production lending to be consistent with our prior experience, where writeoffs have been low as a percentage of impaired loans. This assumption is based on the expected combined positive impact of our disciplined underwriting, secured lending practices and proactive account management. Based on the results of stress tests simulating severe economic conditions in Alberta and Saskatchewan, in combination with very challenging economic conditions throughout the rest of CWB s geographic footprint over a multi-year timeframe, we remain confident CWB will continue to deliver positive earnings for shareholders while maintaining financial stability and a strong capital position. Efficient Operations and Positive Operating Leverage In view of the level of investment necessary to facilitate ongoing implementation of our relationship-focused strategy, as well as the low probability of meaningful short-term improvement in net interest margin, we expect our efficiency ratio to fluctuate at levels moderately higher than the recent past. Combined amortization and sustainment costs related to the new core banking system have added to our expense base commencing this quarter. However, we expect this investment to facilitate both revenue growth and cost efficiencies over the medium-term, as well as help us achieve our strategic client relationship-related objectives. In general, expense growth at or near a double-digit annual rate in percentage terms is consistent with our medium-term objectives. Third quarter operating leverage was positive as strong year-over-year growth of total revenues outpaced moderate growth of non-interest expenses. We are committed to disciplined control of all discretionary expenses and expect to achieve positive operating leverage over the medium-term. However, in view of the above mentioned increases to our cost base and the likelihood for ongoing pressure on net interest margin to constrain revenue growth, we expect to experience occasional periods of negative operating leverage. Prudent Capital Management and Dividends With the issuance of $150 million of common shares this quarter, CWB is well-positioned to continue to execute against our balanced growth strategy while ensuring resilience and flexibility through the maintenance of strong regulatory capital ratios under the more conservative Standardized approach for calculating risk-weighted assets. The common share dividend declared yesterday of $0.23 per share is consistent with the prior quarter and 5% higher than the dividend declared one year ago. Common share dividend increases are evaluated every quarter against the dividend payout ratio target of approximately 30%. The third quarter dividend payout ratio was 40%, primarily reflecting the current impact of the credit performance of oil and gas loans on common shareholders net income, as well as net interest margin pressure. The timing of future dividend increases will be influenced by capital requirements under the Standardized approach to support ongoing strong and balanced asset growth, as well as challenges related to persistent net interest margin pressure and ongoing macroeconomic uncertainty. Yesterday CWB s Board of Directors also declared dividends on the Series 5 and Series 7 preferred shares. CWB Third Quarter Report 4

5 About CWB Group CWB Group (CWB) is a diversified financial services organization serving businesses and individuals across Canada. Operating from its headquarters in Edmonton, Alberta, CWB s key business lines include full-service business and personal banking offered through 42 branches of Canadian Western Bank and Internet banking services provided by Canadian Direct Financial (CDF). Highly responsive specialized financing is delivered under the banners of CWB Equipment Financing, National Leasing, CWB Maxium Financial, CWB Franchise Finance and CWB Optimum Mortgage. Trust Services are offered through Canadian Western Trust. Comprehensive wealth management offerings are provided through CWB Wealth Management, which includes the businesses of Adroit Investment Management, McLean & Partners Wealth Management and Canadian Western Financial. As a public company on the Toronto Stock Exchange (TSX), CWB trades under the symbols CWB (common shares), CWB.PR.B (Series 5 Preferred Shares) and CWB.PR.C (Series 7 Preferred Shares). Learn more at Fiscal Third Quarter Results Conference Call CWB s third quarter results conference call is scheduled for Thursday, September 1,, at 2:00 p.m. ET (12:00 noon 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 or toll-free The call will also be webcast live on CWB s website: A replay of the conference call will be available until September 15,, by dialing (Toronto) or (toll-free) and entering passcode FOR FURTHER INFORMATION CONTACT: Matt Evans, CFA Senior AVP, Strategy & Investor Relations Phone: (780) matt.evans@cwbank.com Contents Selected Financial Highlights 6 Management s Discussion and Analysis 7 Interim Consolidated Financial Statements 25 Shareholder Information 40 CWB Third Quarter Report 5

6 Selected Financial Highlights (1,2) For the three months ended Change from For the nine months ended Change from (unaudited) April 30 ($ thousands, except per share amounts) Results from Continuing Operations (1) Net interest income (teb) (2) $ 149,547 $ 145,106 $ 140,503 6 % $ 438,760 $ 407,956 8 % Less teb adjustment (2) ,280 (47) 2,661 4,203 (37) Net interest income per financial statements 148, , , , ,753 8 Non-interest income 19,541 19,378 13, ,545 49,999 7 Pre-tax, pre-provision earnings (teb) (2) 82,152 84,487 77, , ,384 6 Common shareholders net income 45,582 32,213 51,170 (11) 129, ,095 (16) Earnings per common share Basic (14) (18) Diluted (14) (18) Adjusted cash (2) (8) (15) Return on common shareholders equity (2) 9.4 % 7.1 % 11.7 % (230) bp (3) 9.4 % 12.6 % (320) bp (3) Adjusted return on common shareholders equity (2) (160) (300) Return on assets (2) (21) (26) Efficiency ratio (teb) (2) (230) (50) Efficiency ratio (2) (250) (60) Net interest margin (teb) (2) (17) (13) Net interest margin (2) (16) (12) Provision for credit losses as a percentage of average loans Results from Combined Operations (1) Net interest income (teb) (2) $ 149,547 $ 145,106 $ 140,503 6 % $ 438,760 $ 411,831 7 % Less teb adjustment (2) ,280 (47) 2,661 4,616 (42) Net interest income 148, , , , ,215 7 Non-interest income 19,541 19,378 13, ,545 62,353 (14) Net gain on sale of businesses ,639 (100) - 107,639 (100) Common shareholders net income 45,582 32, ,809 (71) 129, ,563 (51) Earnings per common share Basic (72) (52) Diluted (72) (52) Adjusted cash (2) (70) (50) Return on common shareholders equity (2) 9.4 % 7.1 % 36.3 % (2,690) bp (3) 9.4 % 21.6 % (1,220) bp (3) Adjusted return on common shareholders equity (2) (2,620) (1,210) Return on assets (2) (217) (95) Efficiency ratio (teb) (2) , Efficiency ratio (2) , Net interest margin (teb) (2) (17) (13) Net interest margin (2) (16) (13) Results of Discontinued Operations (1) Common shareholders net income $ - $ - $ 107,639 (100) % - $ 111,468 (100) % Earnings per common share Basic (100) (100) Diluted (100) (100) Adjusted cash (2) (100) (100) Per Common Share Cash dividends $ 0.23 $ 0.23 $ % 0.69 $ % Book value Closing market value Common shares outstanding (thousands) 88,056 81,882 80, ,056 80,479 9 Balance Sheet and Off-Balance Sheet Summary (Combined Operations) Assets $ 25,185,441 $ 24,236,901 $ 22,279, % Loans 21,744,502 21,248,005 19,066, Deposits 21,156,890 20,340,925 18,850, Debt 1,279,002 1,210,202 1,190,449 7 Shareholders equity 2,307,255 2,117,409 1,896, Assets under administration 10,305,408 10,287,891 9,448,993 9 Assets under management 1,888,828 1,834,203 1,911,656 (1) Capital Adequacy (2) Common equity Tier 1 ratio 9.0 % 8.2 % 8.5 % 50 bp (3) Tier 1 ratio Total ratio (1) (2) (3) On May 1,, CWB sold its property and casualty insurance subsidiary and CWB s stock transfer business as described in the Annual Report. The contributions of both the insurance and stock transfer businesses, including gains on sale, 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. See definitions on page 23. bp basis point change. CWB Third Quarter Report 6

7 Management s Discussion and Analysis This management s discussion and analysis (MD&A), dated August 31,, should be read in conjunction with Canadian Western Bank s (CWB) unaudited condensed interim consolidated financial statements for the period ended,, and the audited consolidated financial statements and MD&A for the year ended October 31,, available on SEDAR at and CWB s website at Continuing and Discontinued Operations On May 1,, CWB completed the divestitures of its property and casualty insurance subsidiary, Canadian Direct Insurance (CDI), and the stock transfer business of its subsidiary, Valiant Trust Company (Valiant), ( Discontinued Operations ). The remaining operations are defined as Continuing Operations and the total Discontinued Operations and Continuing Operations are defined as Combined Operations. In accordance with International Financial Reporting Standards (IFRS) 5 Non-current Assets Held for Sale and Discontinued Operations, revenue, expenses and gains on sale associated with the businesses sold have been classified as Discontinued Operations in CWB s interim consolidated statements of income for all periods presented. Associated assets and liabilities were classified as held for sale in CWB s interim consolidated balance sheets prospectively from January 31, until their sale on May 1,. Return on common shareholders equity reflects equity from Combined Operations. All other measures reflect either Continuing or Combined Operations as indicated. Forward-looking Statements From time to time, CWB makes written and verbal forward-looking statements. Statements of this type are included in the Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as press releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about CWB s objectives and strategies, targeted and expected financial results and the outlook for CWB s businesses or for the Canadian 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 expectations for economic growth, CWB primarily considers 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 within the Outlook sections of this MD&A. CWB Third Quarter Report 7

8 Management s Discussion and Analysis Acquisitions of CWB Maxium Financial and CWB Franchise Finance On March 1,, CWB acquired the non-securitized lending assets and other net business assets, including key employees, of Maxium Financial Services Inc. and Desante Financial Services Inc., now referred to as CWB Maxium Financial (CWB Maxium). CWB Maxium provides loans, equipment leases and structured financing solutions to more than 35,000 clients, mainly in Ontario. Specialized financing solutions are primarily provided in the areas of health care, golf, transportation, real estate, and general corporate financing. Securitized assets that were originated prior to March 1, were not included in the transaction. The purchase agreement is structured over three years with maximum total consideration of up to $120 million. The acquisition was funded at closing with 1,250,312 common shares valued at $25.6 million and $19.5 million in cash. Remaining consideration consists of contingent payments to the vendors that could total up to $70.5 million, with an estimated fair value at the acquisition date of $16.4 million. Contingent payment installments will be made annually with determination of the total amount payable based on CWB Maxium s cumulative business performance over a 36-month purchase price adjustment period. Up to 50% of the total contingent consideration may be settled with CWB shares at the vendors option, provided the average share price over the 20 days preceding issuance exceeds $30.00, with the remainder to be paid in cash. Full disclosure of the accounting treatment of the transaction is provided in Note 3 of the unaudited interim financial statements. Other than the contingent consideration payable to the vendors, there were no other contingent liabilities or commitments arising from the acquisition. On July 1,, CWB acquired GE Capital s Canadian Franchise Finance platform, now referred to as CWB Franchise Finance. The business provides financing across Canada to a diverse group of established companies in the franchised hospitality and restaurant industries. The acquisition included key employees to support CWB s continued strategic commercial banking growth and geographic expansion. The balance of loans acquired was approximately $350 million. Financial consideration was comprised of cash and no goodwill or intangible assets are included in the purchase structure. In combination, these two strategic acquisitions are expected to be slightly accretive to adjusted cash earnings per share this year, with accelerating contributions thereafter. Overview of Continuing Operations Q3 vs. Q3 Common shareholders net income of $45.6 million was down 11%. A 10% increase in total revenue was more than offset by the impact of a $9.4 million increase in provisions for credit losses, mainly attributed to the credit performance of oil and gas production loans, moderate growth of non-interest expenses, the addition of acquisition-related changes in fair value of contingent consideration this quarter, higher preferred share dividends and income taxes. Net interest income (teb) of $149.5 million was up 6% as the benefit of very strong 14% loan growth was partially offset by a 17 basis point decrease in net interest margin (teb). Non-interest income increased 47% to $19.5 million, primarily due to nil net gains on securities compared to net losses of $5.0 million in the third quarter last year. Diluted earnings per common share of $0.55 and adjusted cash earnings per common share, which excludes the acquisition-related amortization of intangible assets and contingent consideration fair value changes, net of tax, of $0.60 were down 14% and 8%, respectively. Excluding provisions for credit losses and income taxes in all periods, pre-tax, pre-provision (PTPP) earnings reflected strong core operating performance and were up 6% to $82.2 million. Q3 vs. Q2 Common shareholders net income was up 42%, mainly reflecting the larger impact of energy-related provisions for credit losses last quarter. Net interest income (teb) increased 3%, as the positive impacts of 2% loan growth and two additional interest earning days was partially offset by a decline of seven basis points in net interest margin. Non-interest income of $19.5 million was relatively consistent with the prior quarter. PTPP earnings were 3% lower, primarily due to increased preferred share dividends this quarter and acquisitionrelated changes in fair value of contingent consideration. YTD vs. YTD Common shareholders net income of $129.9 million was down 16% as provisions for credit losses of $66.0 million compared to $22.4 million last year. Net interest income (teb) increased 8% to $438.8 million, as the positive impact of very strong 12% loan growth offset a 13 basis point decline in net interest margin (teb) to 2.45%. CWB Third Quarter Report 8

9 Management s Discussion and Analysis Non-interest income of $53.5 million was 7% higher reflecting gains in most categories, including a decrease of $1.5 million in net losses on securities. Diluted earnings per common share of $1.59 and adjusted cash earnings per common share of $1.66 were down 18% and 15%, respectively. Year-to-date PTPP earnings of $248.1 million increased 6%. ROE and ROA To adjust for the impact of acquisition-related accounting items which represent charges not considered indicative of ongoing operating performance, CWB calculates an adjusted return on common shareholders equity which excludes the acquisition-related amortization of intangible assets and contingent consideration fair value changes, net of tax, from common shareholders net income. Third quarter adjusted return on common shareholders equity (adjusted ROE) was 10.3%, compared to 11.9% last year and 7.4% in the previous quarter. Year-to-date adjusted ROE was 9.8%, compared to 12.8% last year. Return on assets (ROA) of 0.73% was down from 0.94% a year earlier and up from 0.55% last quarter. Lower profitability ratios compared to last year primarily resulted from higher provisions for credit losses this year. Improvement in adjusted ROE compared to the prior quarter was partially constrained by the issuance of common shares on July 7,. Outlook for Profitability Ratios Compared to fiscal, we expect earnings in fiscal to be lower in view of the impact of elevated provisions for credit losses on year-to-date performance, as well as ongoing pressure on net interest margin. Common shares issued on July 7, strengthened CWB s capital position and will support CWB s ongoing profitable and balanced growth; however, this issuance will result in higher levels of common shareholders equity this year and have a moderate negative impact on adjusted ROE compared to prior expectations. Total Revenue (teb) from Continuing Operations Third quarter total revenue of $169.1 million, comprised of both net interest income (teb) and non-interest income, grew 10% compared to the same quarter in and 3% from the prior quarter, reflecting strong core operating performance. Year-to-date total revenues of $492.3 million were up 8% from last year. Net Interest Income (teb) Q3 vs. Q3 Net interest income (teb) of $149.5 million was up 6% primarily reflecting the benefit of very strong 14% loan growth, partially offset by a 17 basis point decrease in net interest margin (teb) to 2.40%. Of note, the decrease includes a one-time impact of three basis points related to a change in methodology for the recognition of certain loan fees. The Bank of Canada s July interest rate cut had a negative impact on loan and securities yields compared to last year, with a further impact of competitive factors on loan pricing. Corresponding reductions in the cost of various deposits and favourable changes in deposit mix, partly resulting from strong growth in preferred types of branch-raised demand and notice deposits, did not fully offset the impact of these negative factors on net interest margin. Q3 vs. Q2 Net interest income was up 3% reflecting the benefit of 2% loan growth and two additional interest earning days, partially offset by a seven basis point reduction in net interest margin (teb). Three basis points of the sequential decline in net interest margin related to the change in methodology for the recognition of certain loan fees discussed above. Other factors included lower asset yields, higher overall deposit costs, partially due to increased reliance on broker-sourced funding in support of very strong asset growth, and incremental changes in loan mix. YTD vs. YTD Net interest income (teb) of $438.8 million increased 8% due to the combined benefits of very strong 12% loan growth, partially offset by a 13 basis point reduction in net interest margin (teb) to 2.45%. One basis point of the decline related to the change in methodology for the recognition of certain loan fees discussed above. The remaining change in net interest margin (teb) reflects factors similar to those discussed above in the comparison of quarterly performance to the third quarter last year. CWB Third Quarter Report 9

10 Management s Discussion and Analysis Interest rate sensitivity Note 13 to the unaudited interim consolidated financial statements summarizes CWB s exposure to interest rate risk as at,. 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 12 months from a one-percentage point change in interest rates. The estimates are based on a number of assumptions and factors, which include: a constant structure in the interest sensitive asset and liability portfolios; interest rate changes affecting interest sensitive assets and liabilities by proportionally the same amount, except floor levels for various deposit liabilities and certain floating rate loans, and applied at the appropriate repricing dates; and, no early redemptions. ($ thousands) April 30 Estimated impact on net interest income of a 1% increase in interest rates 1 year $ 12,180 $ 8,032 $ 1,024 1 year percentage change 2.09 % 1.39 % 0.2 % Estimated impact on net interest income of a 1% decrease in interest rates 1 year $ (6,416) $ (6,981) $ 2,049 1 year percentage change (1.10)% (1.21) % 0.4% 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, would increase unrealized losses related to available-for-sale securities and the fair value of interest rate swaps designated as hedges, and result in a reduction in other comprehensive income of approximately $51.4 million, net of tax (, $73.0 million). It is estimated that a one-percentage point decrease in all interest rates at, would have the opposite effect, increasing other comprehensive income by approximately $50.3 million, net of tax (, $67.5 million). Management maintains the asset liability structure and interest rate sensitivity within CWB s established policies through pricing and product initiatives, as well as the use of interest rate swaps. Outlook for net interest margin (teb) Continued pressure on net interest margin may result from the combined impact of the current low interest rate environment, competitive factors and the persistently flat yield curve. The negative impact of the change in methodology for the recognition of certain loan fees is expected to be a one-time item. CWB will maintain its strategic focus on mitigating the earnings impact of ongoing margin pressure through continued implementation of its balanced growth strategy. This strategy includes efforts to optimize the overall cost of funds through targeted growth of lower-cost funding sources, as well as selective, geographically diversified growth in higher yielding loan portfolios with an acceptable risk profile. Provision for Credit Losses The third quarter provision for credit losses measured against average loans was 32 basis points, compared to 17 basis points last year and 78 basis points in the prior quarter. Of the provision this quarter, 12 basis points related to direct oil and gas exposures, 11 basis points to other, non-energy related exposures, and nine basis points comprised an increase in the collective allowance. As at October 31,, CWB s five year average of annual net new specific allowances, excluding increases to the collective allowance, was approximately 12 basis points. The year-to-date provision for credit losses was 43 basis points, compared to 16 basis points last year. This compares to our original expectation for the provision to fall between 18 and 23 basis points, with the increase primarily attributed to specific allowances recorded against energy loans. Significantly higher provisioning within this portion of the oil and gas portfolio has resulted from the impact of persistently low and volatile energy commodity prices on producer cash flows, borrowing base redeterminations and the influence of regulatory factors on the liquidity of assets securing these exposures. Credit quality outside of our portfolio of oil and gas production loans remains stable, and management continues to expect the fiscal provision to fall in a range between 35 to 45 basis points as a percentage of average loans. Acquisition-related Fair Value Changes The estimated fair value of contingent consideration related to the acquisition of CWB Maxium increased by $3.9 million during the third quarter, reflecting the operating performance of this newly acquired business. Quarterly contingent consideration similar in magnitude through the remainder of the three-year earn out period would represent the maximum amount available through the purchase agreement. CWB Third Quarter Report 10

11 Management s Discussion and Analysis Non-interest Income from Continuing Operations Q3 vs. Q3 Non-interest income increased 47% to $19.5 million, primarily reflecting nil net gains/losses on securities compared to net losses of $5.0 million last year. The $1.6 million increase in other non-interest income mainly related to gains on the sales of residential mortgages this quarter. Q3 vs. Q2 Non-interest income was relatively consistent reflecting stability across most categories. Higher other noninterest income offset a decrease in retail fees. YTD vs. YTD Non-interest income of $53.5 million was 7% higher, reflecting gains in most categories including a $1.5 decrease in net losses on securities and a $1.0 million increase in other non-interest income. Higher other non-interest income relates to gains on the sales of residential mortgages discussed above. Outlook for non-interest income from Continuing Operations The outlook for growth in banking-related fee income is relatively consistent with anticipated loan and deposit growth. Trust services and CWB Wealth Management are also expected to continue to provide consistent contributions. CWB has liquidated its holdings of common equities and has no plans to re-establish this portfolio. In view of this change, and based on the current composition of the securities portfolio, net gains/losses on securities in the fourth quarter are not expected to have a material impact on non-interest income although financial market conditions are inherently unpredictable in the short-term. Management will realize gains on the sale of residential mortgage portfolios as opportunities become available. Such gains are anticipated to be a recurring, although sporadic, source of other non-interest income. Non-interest Expenses from Continuing Operations Q3 vs. Q3 Quarterly non-interest expenses of $78.5 million were up 5% ($4.0 million) due to 5% ($2.2 million) higher salaries and benefits and a 12% ($1.5 million) increase in premises and equipment expenses. General expenses of $14.1 million were relatively unchanged from last year. The change in salaries and benefits mainly resulted from annual salary increments and modest increases in staff complement to support ongoing growth across all businesses, partially offset by lower estimated performance-based executive compensation. Costs related to the amortization and sustainment of the core banking system following implementation on May 2,, contributed approximately $1.2 million to premises and equipment expenses. Q3 vs. Q2 Non-interest expenses were relatively unchanged as slightly lower salaries and benefits, along with stable general expenses, offset a slight increase in premises and equipment expenses which mainly resulted from the banking system implementation. The decrease in salaries and benefits relates to a change in estimated performance-based executive compensation discussed above, as well as the elimination of certain temporary positions related to the core banking system project. YTD vs. YTD Non-interest expenses of $232.5 million increased 7% ($14.8 million) due to 7% ($9.8 million) higher salaries and benefits, a 7% ($2.6 million) increase in premises and equipment expense, and a 6% ($2.4 million) increase in general expenses. Changes in salaries and benefits, and premises and equipment expenses reflect the factors discussed above. Outlook for non-interest expenses from Continuing Operations A key priority for CWB is to deliver strong long-term growth in adjusted cash earnings per share through strategic investment while maintaining effective control of costs. CWB s current investments in people, technology and infrastructure are expected to contribute to long-term shareholder value through improved financial performance in future periods. CWB Third Quarter Report 11

12 Management s Discussion and Analysis Combined amortization and sustainment costs related to the new core banking system are expected to add approximately $2.0 million to non-interest expenses on a quarterly basis commencing next quarter. Upgrades and expansion of branch infrastructure continue, including the addition this quarter of a new full-service branch in Lloydminster, Saskatchewan. 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 noninterest expenses. In view of the level of investment currently underway, non-interest expense growth is expected to increase moderately over the near term compared to the recent past. In general, annual expense growth at or near a double-digit annual rate in percentage terms is consistent with CWB s strategic direction and medium-term performance objectives. Core banking system implementation CWB s new core banking system was successfully launched on May 2,, and a planned four-month stabilization period is nearly complete. Total investment was consistent with estimated total costs of up to $71 million. The implementation of this important new technology reflects several years of focused effort on the part of CWB s dedicated project team as well as a tremendous team effort within CWB s branches and corporate office during and after implementation. Management expects CWB to realize significant benefits related to this improved technology in due course, including the ability to leverage a client-centric view of CWB s branchbased client relationships, and support for CWB s eventual transition to the Advanced Internal Ratings Based (AIRB) methodology for calculating risk weighted assets. Efficiency ratio and operating leverage To adjust for the impact of acquisition-related accounting items which represent charges not considered indicative of ongoing operating performance, CWB calculates its efficiency ratio excluding the amortization of acquisition-related intangible assets and contingent consideration fair value changes. The third quarter efficiency ratio (teb) was 45.4%, improved from 47.7% last year. The positive impact on total revenues of very strong loan growth and higher non-interest income more than offset the impact of lower net interest margin (teb) and higher expenses. The efficiency ratio improved from 46.7% in the previous quarter as the combined benefits of 2% loan growth, stable non-interest income and the temporary reduction in salaries and benefits offset the impact of lower net interest margin (teb). The year-to-date efficiency ratio (teb) of 46.3% improved from 46.8%, as the benefit of very strong 12% loan growth and increased non-interest income offset the impact of lower net interest margin (teb) and higher noninterest expenses. Third quarter operating leverage was positive 5% as strong year-over-year growth in total revenues outpaced moderate growth in non-interest expenses. Outlook for the efficiency ratio and operating leverage Ongoing pressure on net interest margin has constrained revenue growth compared to expectations. In view of the level of necessary strategic investment, as discussed above, as well as the low probability of meaningful short-term improvement in net interest margin, management expects CWB s efficiency ratio to fluctuate at levels moderately higher than the recent past and occasional periods of negative operating leverage to be apparent. Income Taxes The third quarter effective income tax rate (teb) for Continuing Operations was 27.7%, compared to 25.8% last year. The year-to-date effective income tax rate (teb) for Continuing Operations was 27.5% compared to 26.2% last year. The 20% increase in Alberta s provincial corporate income tax rate, from 10% to 12%, effective July 1,, had a negative impact on year-to-date adjusted cash earnings per share of approximately $0.03 compared to the same period last year. Outlook for income taxes CWB s expected income tax rate (teb) for is approximately 27.5%. CWB Third Quarter Report 12