Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canadian Western Bank (CBWBF, Financial) achieved 4% growth in pre-tax, pre-provision income in Q3 2024.
- Net interest margin saw significant improvement due to targeted loan growth and optimized funding.
- General commercial loan growth was 5% on an annual basis, supporting 11% average annual loan growth over the last five years.
- The bank's disciplined lending approach resulted in selective originations and strong credit performance in commercial real estate portfolios.
- Sequential CET1 ratio improved by 12 basis points to approximately 10.2%, demonstrating capital resiliency.
Negative Points
- Significant increase in provision for credit losses on impaired loans, primarily due to two specific loans.
- Gross impaired loans increased by 24 basis points from the previous quarter.
- Adjusted earnings per share decreased by $0.28 from the prior year, driven by higher provisions for credit losses.
- Non-interest income decreased by 4% sequentially, driven by reductions in the fair value of select debt securities and lower foreign exchange income.
- Operating expenses increased due to new banking centers, higher deposit insurance costs, and investments in digital capabilities.
Q & A Highlights
Q: Can you give me an idea of the proportion of impaired loans specifically related to the two loans you referred to?
A: Only about 20% of the impaired loans were specific to these two loans. The outsized impact was due to the size of the provision for losses, which was about 30 basis points of our total impaired PCL related to these two exposures. (M. Carolina Parra, Chief Risk Officer; R. Matthew Rudd, Chief Financial Officer)
Q: Can you give us a better understanding of the nature of the collateral behind those two loans or what industry sectors they were related to?
A: The change in values was specific to the borrowers and not related to the actual collateral. These were unusual operational matters. The loans were in our general commercial book, secured with general security agreements, mortgages, and personal guarantees. (M. Carolina Parra, Chief Risk Officer; Christopher Fowler, President, Chief Executive Officer, Director)
Q: Is the slowing loan growth due to a slower pace of originations or customer attrition?
A: It is due to a slower pace of originations. We are being highly selective, especially in the commercial mortgage portfolio, and we see steady momentum carrying into Q4. (R. Matthew Rudd, Chief Financial Officer; Christopher Fowler, President, Chief Executive Officer, Director)
Q: How should we think about managing expenses and ongoing investments over the next 12 months?
A: We have redirected expenses to support growth and service with clients, aiming for structural ongoing positive operating leverage. Expense growth is expected to be in the mid-single digit range, with more revenue growth. (Christopher Fowler, President, Chief Executive Officer, Director)
Q: Is the lower expected realization value related to fraud?
A: No, it has nothing to do with fraud. The resolutions on these two credits are extraordinary and do not reflect the rest of our book. (M. Carolina Parra, Chief Risk Officer; Christopher Fowler, President, Chief Executive Officer, Director)
Q: What caused the change in language regarding the timing of the acquisition closing?
A: It is a subtle tweak and does not mean anything substantially different. We continue to work through the processes and support them. (Christopher Fowler, President, Chief Executive Officer, Director)
Q: How much interaction is there between the two banks in terms of the transition?
A: We are creating the plan for what comes next. We have steps to occur, including a special meeting for shareholders and regulatory reviews. (Christopher Fowler, President, Chief Executive Officer, Director)
Q: Does National Bank have any influence on your decision-making at this point?
A: Today, we are operating as two separate banks, and we anticipate offering lots of value on closing. (Christopher Fowler, President, Chief Executive Officer, Director)
Q: Can you clarify the recovery rates that impacted the provisions this quarter?
A: The big change was a decrease in the overall recovery from the company perspective, not specific asset value. We are reflecting our latest assessment with a very prudent approach. (M. Carolina Parra, Chief Risk Officer)
Q: Are the two files related to the same borrower or industry?
A: No, they are two separate borrowers with no relation, not the same industry, and no underlying trend. (Christopher Fowler, President, Chief Executive Officer, Director; M. Carolina Parra, Chief Risk Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
