C a n a d i a n We s t e r n B a n k
{
A N N UA L R E P O RT 1 9 9 9
e m e r g i n g
TA B L E O F C O N T E N T S
P a g e
P a g e
P a g e
2
5
9
P a g e 2 1
P a g e 4 3
P a g e 4 7
P a g e 5 3
P a g e 6 5
P a g e 6 6
P a g e 6 7
{
{
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{
Highlights
Message to Shareholders
Corporate Overview
Management’s Analysis
of Operations and Financial Condition
Corporate Governance
Financial Statements
Notes to Consolidated
Financial Statements
Executive Officers
Board of Directors
and Shareholder Information
Banking Offices
t h e e m e r g i n g
a c c e p t a n c e ...
of Canadian Western Bank as a strong, regional provider of financial services
is a testament to our strategy. We balance the traditional banking relationships that
our customers enjoy with a widening complement of services designed to meet
the full scope of their financial needs.
FINANCIAL
• total assets increased by 13% to $2.7 billion
• achieved record net earnings of $19.9 million, up 5% over last year
• assets under administration and management increased 13% to $959 million
• in accordance with industry-wide guidance provided by OSFI, the Bank
increased its general allowance for credit risk by $11.7 million to
$21.5 million via a one-time charge to retained earnings on April 30, 1999;
our general allowance now represents over $2.00 per share
• loan growth was very strong, particularly in the fourth quarter when
the annualized growth rate exceeded 20%
• changed to a semi-annual dividend policy in the third quarter; last annual
dividend of $0.32 paid in January 1999 and first semi-annual dividend of
$0.16 paid in July 1999
• Alberta and Saskatchewan announced reductions in capital tax rates effective
fiscal 2000
• on November 30, 1999 the remaining $11.7 million of 6.75% convertible
debentures converted to 925,200 shares, which strengthened our Tier 1
capital ratio and reduced the dilution of earnings per share going forward
• the number of shares outstanding increased by almost 8% in the year
h i g h l i g h t s f o r t h e y e a r
OPERATIONAL
• launched sales of mutual funds in 8 branches
• relocated and expanded our branches in downtown Vancouver
(to Park Place) and in Kelowna, British Columbia
• opened a new branch in Langley, British Columbia
• expanded our RSP product line with an equity-linked GIC
• enhanced service to merchant accounts by adding an automated flow
process for credit card receipts
• Canadian Western Trust launched CWeb – a direct internet-based link
to customer accounts for financial planners
• completed all Y2K preparations on schedule
P a g e 2 C W B ’9 9
{
Five Year Financial Summary
($ thousands, except per share amounts)
Results of Operations
Total interest income
Net interest income
Provision for credit losses
Other income
Net income
Return on common shareholders’ equity
Return on average total assets
Per Common Share
Average common shares outstanding (thousands)
Earnings per share
basic
fully diluted
Dividends*
Book value
Market Price
High
Low
Closing market value
Balance Sheet and Off-balance Sheet Summary
Assets
Cash resources and securities
Loans
Deposits
Debentures
Shareholders’ equity
Assets under administration and management
Capital Adequacy Ratios
Tier 1
Total
Other Information
Net interest margin**
Net impaired loans as a percentage of total loans
Productivity ratio***
Number of full time equivalent staff
Number of branches
FINANCIAL SUMMARY
1999
1998
1997
1996
1995
$
$
$
177,504
62,436
3,750
19,795
19,853
12.82%
0.81%
10,153
1.96
1.79
0.48
15.68
24.25
17.30
17.60
$
$
$
158,338
56,266
4,150
17,491
19,012
13.97%
0.87%
9,421
2.02
1.77
0.30
15.39
27.00
14.75
17.15
$
$
$
131,917
45,414
4,000
11,520
15,837
13.12%
0.85%
9,322
1.70
1.55
0.25
13.70
22.10
12.20
20.25
$
$
$
133,399
40,731
4,073
10,466
12,822
13.27%
0.81%
8,116
1.58
1.45
0.15
12.61
13.00
9.25
12.80
$
$
$
113,413
33,973
3,403
6,876
10,808
13.36%
0.88%
7,420
1.46
1.33
0.10
11.37
11.38
9.13
10.13
$ 2,692,382
375,182
2,253,598
2,371,075
78,691
159,550
959,262
$ 2,386,478
320,405
1,989,656
2,059,545
87,091
145,268
845,614
$ 2,022,951
271,883
1,710,007
1,817,512
37,116
128,533
395,486
$ 1,754,072
247,614
1,478,392
1,585,855
26,000
102,554
371,798
$ 1,330,596
174,670
1,135,173
1,192,663
8,000
92,299
–
7.4%
11.8%
2.58%
0.5%
68.1%
555
24
7.8%
11.9%
2.60%
0.7%
66.7%
522
23
8.4%
11.0%
2.48%
0.5%
64.4%
388
22
8.1%
10.2%
2.59%
1.0%
64.8%
359
20
10.3%
11.1%
2.78%
1.8%
64.4%
314
20
*
During the third quarter of 1999 the dividend policy was amended to be semi-annual instead of annual. Hence, the dividend rate for fiscal 1999 will appear unusually high as it includes a dividend of $0.32 paid
annually in the first quarter (as in past years) and the first semi-annual dividend of $0.16 paid in the third quarter.
** Net interest income divided by average assets.
*** Non-interest expenses expressed as a percentage of net interest income and other income.
Total Assets ($millions)
2,692}
2,386}
2,023}
1,754}
1,331}
Fully Diluted Earnings Per Common Share
$1.79}
$1.77}
$1.55}
$1.45}
$1.33}
1995
1996
1997
1998
1999
1995
1996
1997
1998
1999
C W B ’9 9}
P a g e 3
o u r
MESSAGE TO SHAREHOLDERS
Your Bank earned record net profit for the year ended
October 31, 1999 in the amount of $19.9 million compared
to $19.0 million last year.
This is our 8th consecutive year of record earnings. Fully diluted
earnings per share for the year stand at $1.79 compared to $1.77 last year.
During the year, debenture conversions by holders increased the number
of shares outstanding by almost 8% which gave rise to the decline in basic
earnings per share to $1.96 compared to $2.02 last year.Total assets grew to
approximately $2.7 billion, up 12.8% from the prior year end. Return on
equity was 12.82% compared to 13.97% last year.
In 1998, we further extended our financial services product line into the
wealth management area by becoming the majority shareholder in Canadian
Western Capital Limited. It has gone through a substantial restructuring but
has not achieved the financial results we had expected. On December 21,
1999, subsequent to our year end, we announced an intended sale of this
operation which we expect will have closed by publication date of this
report. Removing the negative impact of this subsidiary’s operations (which
amounted to $0.28 per share; $0.22 fully diluted compared to $0.17 per
share; $0.12 fully diluted in 1998), income from our core banking operations
(bank and trust) totalled $22.7 million, up 10% compared to $20.6 million
last year.This is confirmation of the steady progress being made in our
established operations. Further illustration comes in the fact that total assets
grew 5% in the last quarter alone and our actual loan losses incurred have
averaged .16% over the last 5 years – an enviably low ratio.
m e s s a g e
It is also in our core banking operation that we continue to see our longer
term strategy affirmed by customer acceptance.We concentrate on a well
defined geographic market and we provide professional and friendly personal
service. It is our conviction that the competitive edge this strategy gives us
will become more and more obvious as larger banks turn their attention to
foreign markets and strive to improve earnings through cost cutting – and
inevitably reductions in the levels of personal service.The opportunities for
us include new customers, well-trained and qualified banking personnel
seeking rewarding careers, and greater choice in prospective branch locations.
Canadian Western Bank’s branch business model and product mix have a
different focus than the “big bank” retail branch and we expect our
differences will benefit us even more going forward.
C W B ’9 9}
P a g e 5
The regulatory environment for banks is also evolving and we are impacted
by these changes. During the year, we responded to the industry-wide guidance
provided by the Office of the Superintendent of Financial Institutions (“OSFI”)
to materially increase the levels of the general allowances for credit risk in the
industry. As a result, our general allowance now stands at almost 1% of risk-
weighted assets; the equivalent of over $2.00 per share.This year’s operating
results were not affected by this increase as it was taken as a one-time charge to
retained earnings, the treatment OSFI specified when the change was significant
(see Note 19 to the consolidated financial statements).
In June, the federal Finance Minister announced policy reforms to the financial
services sector. Included in these proposals was the stated intention to change
ownership rules and open the door to single ownership of smaller banks such
as Canadian Western Bank.The status quo – calling for a maximum 10%
ownership by any one entity – would remain in place unless your Board of
Directors determined it would be in the best interests of the Bank and its
stakeholders to consider a change.The good news is that this proposal would
broaden our options for forming beneficial alliances in the future.
Another proposal in the Minister’s package with possible implications for your
Bank is the introduction of a holding company concept.While it is premature
to predict how this might be brought into effect, it could provide more
alternatives for effective structuring of future strategic initiatives.
Whether or not these proposals ultimately result in adjustments to your Bank’s
structure, it is important that we continue to expand and build on our proven
model.This year we added a branch in Langley and we moved our main
Vancouver business to the ground floor of one of that city’s premiere downtown
office towers – Park Place.We also took larger premises in Kelowna.These highly
visible locations are expected to attract increased activity from both individuals
and businesses.We augmented our service to retail merchants by putting into
place arrangements for them to accept credit card receipts – and have the funds
flow directly to their accounts with us. And our trust arm implemented an
internet-based connection allowing financial planners to view their clients’
accounts with us.
We have invested a considerable amount of time and effort in this fiscal year on
computer-related issues.The most obvious of these is the Y2K project, but we
have also been very involved in the selection of a more efficient platform on
which to run our banking software. Both of these projects will be completed
within the coming year making available more resources for further enhancement
and development of products and services.
P a g e 6 C W B ’9 9
{
Our objective going forward is to concentrate on our business plan while
striving for improvements to operating ratios through scale. Our expectation
is for another record year ahead.We have well-trained people who are focused
on success, the economic outlook is positive, and the environment is favorable
for much greater acceptance of our brand of retail and commercial banking
in western Canada.
We entered this past decade with approximately $300 million in assets and
we will exit with $2.7 billion, a nine-fold increase. Our earnings have grown
some fourteen times, staff positions are up 400% and market capitalization has
increased twelve times from what it was.Through the nineties we accessed
the public markets three times and in so doing contributed to the growth
in our regulatory capital base from $40 million to over $250 million today.
We have emerged from this decade well equipped and motivated to meet
the challenges of the next century.
q u e s t i o n a n s w e r
Q
A
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Q
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Q
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Q
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How do you manage to achieve competitive rate spreads when your
deposit rates are normally higher than others?
First of all, our loan losses are lower and have been for 10 years.
We also target commercial loans as a heavier weighting in the portfolio
and they have better yields overall. It is also noteworthy that we achieve
comparable spreads while maintaining a very attractive productivity
ratio – our costs of operating are low.
What ever happened to the small American bank you invested in?
It is alive and well, growing in its market in Washington.
The experience we have gained there is excellent.
Do you plan to move further east with your branch network?
We have no plans to move east with bricks and mortar. We do accept
deposits from many eastern Canadians through our deposit agent network.
Can you explain the large drop in share price?
When you look at all of the banks in Canada, the drop in our share price
has followed roughly the same pattern as theirs. For unknown reasons,
the industry generally is less popular with investors right now.
Is internet banking coming soon?
We provide CWBDirect® today – business customers can get information
directly on their accounts, and we plan to extend that. But we want to
make sure our systems efficiencies augment and not replace our high
quality personal service.
C W B ’9 9}
P a g e 7
e x p a n d i n g
Mission
{
To provide competitive full service
commercial and consumer banking
to western Canadians.
In doing so we aim to provide our
shareholders with a sound and
profitable return on their investment.
There are two principal lines of business
within the Canadian Western organization.
Canadian Western Bank is the parent entity and the traditional banking
operation.The only Schedule I bank headquartered in western Canada,
it offers its services through 24 branches in all major centres across the four
western provinces.The Bank is predominantly a commercial lender with
specific expertise in commercial financing, energy lending, construction
and real estate project financing, and industrial equipment financing. As well,
a fully competitive range of deposit and retail services, residential mortgages
and personal loans are offered.
Canadian Western Trust Company specializes in the provision of trust and
administrative services to financial planners in western Canada. It is also a
mortgage lender and is broadening its trust service capabilities.
o u r s c o p e
A chronological summary of our growth follows:
{
{
{
{
{
1982 Western & Pacific Bank of Canada chartered
1983
1988
Bank of Alberta chartered
The two aforementioned banks are amalgamated
as Canadian Western Bank
1993 Western Canadian branches of Metropolitan Trust acquired
1994
Canadian Western Bank and North West Trust Company
amalgamated as Canadian Western Bank
1996
{
Aetna Trust Company purchased and renamed
Canadian Western Trust Company
C W B ’9 9}
P a g e 9
e x t e n d i n g
CANADIAN WESTERN BANK
The steady growth at Canadian Western Bank (”CWB“)
is often attributed to its style of service.
Whether personal or business customers, each one is served the way they
want to be served.The most common desire we find people have is to deal
face to face, which is being lost in the increasingly impersonal banking
service delivery promoted by our larger competitors.
There are exciting developments in banking technology and CWB provides
automated services when requested to do so.The difference, though, is that
innovative delivery methods and products are developed to react to customer
needs. Even as these are brought on stream, our friendly people will continue
to be in branches to tend to customers’ needs face to face.
o u r r e a c h
Western Canada continues to provide a positive and growing environment
in which to grow our business along with our customers.And the Bank continues
to present a positive image to its customers and prospective customers.
As our customer base has continued to evolve in both size
and sophistication, we have added capability to meet their
requirements. An example is Canadian Western Trust…
Jack Wright Vice President & Regional Manager
“Customers repeatedly comment on how refreshing
it is to talk to a real person, and not to have to
leave a voice mail.”
C W B ’9 9}
P a g e 1 1
b u i l d i n g
CANADIAN WESTERN TRUST COMPANY
Canadian Western Trust (”CWT”) serves a different element of
our market while offering the same individualized service.
Since it joined the CWB family in 1996 it has emerged as one of only a few
suppliers who provide trust products regionally to financial planners and
companies in western Canada.
This year CWT launched its interactive internet-based connection system
under the name CWeb.This enables financial planners to connect directly
into our database and gain online access to the detailed records of their
clients at any time. Financial planners often don’t work regular hours; now
they can still meet with their customers knowing they can answer any
detailed question which may arise relating to their portfolio.
o n s t r e n g t h s
We recognize that some of the Bank’s customer base will be prospective
users of the RSP and RIF trustee and administrative services provided by
CWT and find this can complement the Bank’s overall financial service
package nicely.
An increased emphasis will begin in the upcoming year on corporate trust
services.This will enable companies in western Canada to arrange for such
services as escrow agent and bond trusteeship services through local people
who are committed to the Specialty Service – Western Hospitality style of service.
Adrian Baker General Manager, Canadian Western Trust
“Consolidation in financial services has resulted
in western Canada being underserved on the
trust side. We’re filling that gap.”
C W B ’9 9}
P a g e 1 3
c o m b i n i n g
The specific markets served by the Bank and the Trust,
while different, frequently overlap.
The thread that holds them together is the commitment to professional
service delivered in a typical friendly western style.
A team which includes representatives from each has been brought together
to ensure we are in fact taking advantage of the opportunities presented by
the combination of our individual strengths.
o u r a b i l i t i e s
This initiative is not limited to the marketing opportunities each may find
in the others’ business spheres, but also the efficiencies that may be realized
in consolidating resources in communications, computer technology,
and marketing capability, to cite just a few examples.
A team of professionals whose style of business appeals to western Canadians
is here now. More and more westerners are recognizing the benefits
of our team’s expanding capacity and focused approach to our chosen
markets. As a result we are emerging as a credible alternative to larger
institutions in the financial services industry.
Doug Dalgetty Executive Vice President
“Keeping up with technology advances doesn’t
have to mean abandoning good customer
service practices”
C W B ’9 9}
P a g e 1 5
p l a y i n g
ENCOURAGING GROWTH
Your Bank continues to be an integral part of the community
through its support of care-giving, educational and artistic entities
across western Canada.
An example of this is the creation this year, in partnership with the
University of Alberta, of a 10 year, $100,000 scholarship aimed at
encouraging and supporting aboriginal students who want to enter
U of A’s commerce faculty.
We don’t see it as enough, though, to direct dollars alone to these various
community needs. Our employees are consistently involved in such things
as competing with other banks in a blood donor drive, organizing United Way
participation by staff members, or volunteering their time to serve other
various organizations. It is a further reinforcement that getting involved
personally is an enriching and rewarding experience.
important roles
Our staff are also encouraged to put their personal knowledge and experience
to work in improving the way the Bank operates. Our staff can make
suggestions through our SPICE (Staff Participating In Creative Excellence)
program. On an ongoing and regular basis suggestions are reviewed and
implemented where appropriate.
Two examples of this program in action were adopted this year.
Adele Carson of our Systems department developed a way to improve daily
audit routines by isolating exceptions in reporting. And Yasmin Kassamali of
our Finance department identified an area where our fee income could be
significantly improved while remaining fully competitive.
Uve Knaak Senior AVP, Human Resources
“We’re in a people business. Our people care about
their customers and their communities.”
C W B ’9 9}
P a g e 1 7
INVITING INNOVATION
Some staff members go beyond our expectations in the way they approach
their responsibilities. For many years now we have recognized these people
through President’s and Chairman’s awards. Nominations for recognition
are made by their peers.This year’s award recipients are as follows:
Chairman’s Awards
Marie Barwick, Edmonton Southside Branch
Esther Edwards, Corporate Office
Christine Spence, Canadian Western Trust
President’s Awards
Gillian Bell, Chinook Branch, Calgary
Clara Ho, CAP Department,Vancouver
Marilyn Kruger, Main Branch, Calgary
Shirley Maglalang, Finance Department
Bret Pollard, Systems Department
Anita Smith, Nanaimo Branch
P a g e 1 8 C W B ’9 9
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{
Management’s Analysis of Operations
and Financial Condition
Overview of 1999
Net Interest Income
Other Income
Non-interest Expenses
Taxes
Loans
Deposits
Capital Funds and Adequacy
Risk Management
Off-balance Sheet Financial
Instruments Including Derivatives
Corporate Governance
Introduction
The Board and Board Committees
Audit Committee
Conduct Review Committee
Corporate Governance &
Human Resources Committee
Loans Committee
Other Areas of Consideration
Conclusion
Financial Statements
Management’s Report
Auditors’ Report
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Changes
in Shareholders’ Equity
Consolidated Statement
of Cash Flow
Notes to Consolidated
Financial Statements
P a g e 5 C W B ’9 9
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C W B ’9 9}
P a g e 5
MANAGEMENT’S ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
Key Performance Indicators
Net income ($ thousands)
Net income per common share
basic
fully diluted
Productivity ratio(1) (expenses as a percentage of total revenue)
Return on common shareholders’ equity
Return on average total assets
1999
$ 19,853
$
$
1.96
1.79
59.84%
12.82%
0.81%
1998
$ 19,012
$
$
2.02
1.77
60.65%
13.97%
0.87%
1999/1998
Increase
(decrease)
$ 841
$ (0.06)
$ 0.02
(0.81)%
(1.15)%
(0.06)%
(1) Excluding the operations of Canadian Western Capital due to its intended sale described below. The consolidated ratio was 68.09% (1998 – 66.72%). A decrease in the ratio reflects improved productivity.
OVERVIEW OF 1999
Consolidated net income for the year ended October 31, 1999
was $19.9 million, an increase of 5% from $19.0 million
reported in 1998. Fully diluted earnings per share were
$1.79 compared to $1.77.The average number of shares
outstanding increased by 732,000 during the year, primarily
as a result of debenture conversions by holders, which gave
rise to the decline in basic earnings per share to $1.96 from
$2.02 last year. Subsequent to year end, the remaining 6.75%
debentures were converted to common shares (as discussed
in the Capital Funds and Adequacy section).This will impact
basic earnings per share in fiscal 2000, due to the increased
number of shares, and further narrow the difference between
basic and fully diluted earnings per share. Return on
common shareholders’ equity and return on assets for the
year ended October 31, 1999 were 12.82% and 0.81%
respectively, compared to 13.97% and 0.87% last year.
Total assets increased by 13% from one year ago to reach
$2.69 billion. Loans increased by $264 million, providing
86% of the total asset growth.The total capital adequacy
ratio at October 31, 1999 was 11.8% (1998 – 11.9%) with
a Tier 1 component of 7.4% (1998 – 7.8%).
Net income for 1999 includes a loss (net of non-controlling
interest) of $2.9 million (1998 – $1.6 million) related to
Canadian Western Capital Limited (“CWC”), the Bank’s
investment dealer subsidiary, which has undergone major
restructuring. Excluding the impact of CWC’s results,
growth in net income would have been 10% year over
year and earnings per share would have been $0.28 greater
($0.22 fully diluted) in fiscal 1999 (1998 – $0.17 and $0.12
respectively). Return on equity and return on assets would
have been 14.42% and 0.93% respectively compared to
15.09% and 0.95% last year.While CWC has contributed
positively to expansion of non-interest revenues, the
improvement in the net operating results anticipated
subsequent to the restructuring completed earlier in the
year has not materialized.
On December 21, 1999, subsequent to the 1999 fiscal year
end, the Bank announced that, subject to due diligence,
regulatory approvals, execution of a definitive agreement
and minority shareholders’ acceptance, it will sell CWC to
Goepel McDermid Inc. of Vancouver.The Bank estimates
a loss from discontinued operations of between $1.8 million
and $3.8 million will be recorded in the first quarter ending
January 31, 2000.A continuing relationship within the
brokerage industry will be maintained by pursuing mutually
advantageous business relationships and strategic alliances
where appropriate.
Management’s Analysis of Operations and Financial Condition}
P a g e 2 1
Table 1 – Net Interest Income
($ thousands)
Assets
Securities and deposits with
NET INTEREST INCOME
1999
1998
Average
Balance
Mix
Interest
Interest
Rate
Average
Balance
Mix
Interest
Interest
Rate
regulated financial institutions
$
262,432
11%
$ 13,069
4.98%
$
240,009
11%
$ 11,213
4.67%
Loans
Securities purchased under resale
agreements and call loans
Residential mortgages
Other loans
Total loans
Total interest bearing assets
Other assets
Total Assets
Liabilities
Deposits
Demand
Notice
Fixed term
Total deposits
Other liabilities
Debentures
Shareholders’ equity
Total Liabilities
28,645
272,868
1,795,917
2,097,430
2,359,862
63,246
1
11
74
86
97
3
1,377
18,618
144,440
164,435
177,504
–
4.81
6.82
8.04
7.84
7.52
0.00
24,895
265,857
1,569,589
1,860,341
2,100,350
60,225
1
12
73
86
97
3
1,177
17,997
127,951
147,125
158,338
–
4.73
6.77
8.15
7.91
7.54
0.00
$ 2,423,108
100%
$ 177,504
7.33%
$ 2,160,575
100%
$ 158,338
7.33%
$
35,447
2%
$
–
0.00%
$
33,066
2%
$
–
0.00%
192,634
1,878,601
2,106,682
81,867
79,332
155,227
8
77
87
3
3
7
4,676
105,504
110,180
–
4,888
–
$ 2,423,108
100%
$ 115,068
2.43
5.62
5.23
0.00
6.16
0.00
4.75%
2.58%
186,386
1,662,809
1,882,261
76,697
66,406
135,211
9
76
87
4
3
6
4,393
93,343
97,736
–
4,336
–
$ 2,160,575
100%
$ 102,072
$ 2,160,575
$ 56,266
2.36
5.61
5.19
0.00
6.53
0.00
4.72%
2.60%
Total Assets/Net Interest Income
$ 2,423,108
$ 62,436
Net interest income is the difference between interest and
dividends earned on assets and interest expensed on deposits
and other liabilities, including debentures. Net interest
spread, or margin, is net interest income as a percentage
of average total assets.
In 1999, net interest income increased by $6.2 million
or 11%, primarily due to:
•
increased average interest bearing assets of $260 million
(12%).
Net interest spread was 2.58%, down slightly from 2.60%
in 1998.The portfolio mix remained relatively constant year
over year and the average prime rate also remained stable
at 6.49% in fiscal 1999 compared to 6.44% last year.
In 2000 we expect:
•
•
interest rates will remain relatively stable; and
the yields on securities and net interest spread will be
comparable to 1999.
As discussed in the Interest Rate Risk section, the portfolio
has a positive gap with maturing assets exceeding maturing
liabilities during the one year time frame. If market rates
increase this would have a positive impact on spreads.
P a g e 2 2 Management’s Analysis of Operations and Financial Condition
{
Table 2 – Other Income
($ thousands)
OTHER INCOME
Credit related
Underwriting fees and commissions on securities transactions
Retail services
Trust services
Loan administration and other(1)
Net gains on securities sales
Total Other Income
1999/1998
Increase (decrease)
1999
$ 7,805
1998
$ 6,729
$
$ 1,076
6,778
2,476
1,485
990
261
5,326
1,964
1,165
2,241
66
1,452
512
320
(1,251)
195
$ 19,795
$ 17,491
$ 2,304
%
16%
27
26
27
(56)
295
13%
(1) Other includes gains and losses on capital asset disposals, foreign exchange service fees and other miscellaneous non-interest revenues.
Other income, which includes all revenues not classified
as net interest income, was $19.8 million, an increase of
$2.3 million or 13% over 1998.As shown in table 2, almost
all categories of other income showed solid growth in 1999.
Notable changes include:
•
increased credit and retail fees of $1.6 million due to loan
and deposit growth and increased activity in the retail
branches;
an increase of $1.5 million in underwriting fees and
commissions on securities transactions reflecting a full
year of CWC’s operations and growth in their branch
network;
increased trust services fees in Canadian Western Trust
(“CWT”) due to substantial growth (32%) in the number
of self-directed RRSP accounts; and
•
•
• decreased loan administration fees because 1998 included
a $750,000 one-time contingency fee earned on the
collection of an administered loan and also the
administered portfolio and related contract fees have
declined over the past year.
Other income as a percentage of total revenue (net interest
income and other income) was 24% in 1999, the same
as in 1998. In 2000 total other income is expected to
show continued broad based growth (with the exception
of underwriting fees and commissions due to the intended
sale of CWC) with a focus on increasing other income as
a percentage of total revenue.
Management’s Analysis of Operations and Financial Condition}
P a g e 2 3
Table 3 – Non-interest Expenses and Productivity Ratio
($ thousands)
NON-INTEREST EXPENSES
1999/1998
Increase (decrease)
1999
1998
$
$ 26,717
$ 23,295
3,565
30,282
3,057
26,352
4,443
950
918
6,311
1,713
2,088
3,801
2,976
1,695
3,446
1,579
1,239
826
842
932
3,471
818
744
5,033
1,524
1,969
3,493
2,485
2,452
3,016
1,389
1,092
755
737
783
2,062
15,597
1,627
14,336
$ 55,991
$ 49,214
$ 62,436
19,795
$ 82,231
68.1%
59.8%
$ 56,266
17,491
$ 73,757
66.7%
60.7%
$ 3,422
508
3,930
972
132
174
1,278
189
119
308
491
(757)
430
190
147
71
105
149
435
1,261
$ 6,777
$ 6,170
2,304
$ 8,474
%
14.7%
16.6
14.9
28.0
16.1
23.4
25.4
12.4
6.0
8.8
19.8
(30.9)
14.3
13.7
13.5
9.4
14.2
19.0
26.7
8.8
13.8%
11.0%
13.2
11.5%
The productivity ratio increased to 68.1% from 66.7% in
1998 as revenue growth of 11.5% was more than offset by
expense growth of 13.8%. CWC’s wealth management
operations have an inherently higher productivity ratio
which together with the effect of restructuring and building
its operations has resulted in the deterioration of the
consolidated ratio year over year. Excluding the wealth
management segment the productivity ratio improved to
59.8% from 60.7% in 1998. Non-interest expenses as a
percentage of average assets was 2.27% in 1999, basically
unchanged from 2.28% in 1998.
Salaries and Employee Benefits
Salaries
Employee benefits
Total
Premises
Rent
Depreciation
Other
Total
Equipment and Furniture
Depreciation
Other
Total
General
Capital and business taxes
Deposit insurance premiums
Professional fees and services
Postage and stationery
Marketing and business development
Travel
Banking charges
Communications
Other
Total
Total Non-interest Expenses
Productivity Ratio
Net interest income
Other income
Total revenue
Productivity Ratio (expenses as a percentage of total revenue)
Productivity Ratio, excluding the wealth management segment
Non-interest expenses increased $6.8 million to
$56.0 million in 1999.The increase in non-interest expenses
was limited to 4.2% if the following are excluded:
•
increased expenses in CWC ($3.2 million) due to
inclusion of a full year of expenses as well as costs related
to restructuring and growth in its branch network; and
incremental costs for new branch initiatives
($1.5 million).
•
These increases were partially offset by a significant
reduction in deposit insurance premiums as a result of
the new premium rates which took effect May 1, 1999.
P a g e 2 4 Management’s Analysis of Operations and Financial Condition
{
In 2000 we expect:
•
the full time staff complement will increase by
approximately 8% to accommodate growth in volumes
and increased activity in branches; and
• other increases in non-interest expenses will be primarily
attributable to volume increases from growth.
Capital expenditures of $4.9 million are budgeted for
2000 and will be funded from general operating revenues.
Approximately 80% of this total relates to proposed
expenditures on computer hardware and software with the
majority allocated to the move of the banking software to a
new operating environment.At year end there were specific
commitments for approximately $500,000 of these capital
expenditures. In November 1999 additional commitments
totalling approximately $2.1 million were made regarding
the banking software project.
Productivity Ratio*
1999
1998
1997
1996
1995
{
59.8%
{
60.7%
{
64.4%
{
64.8%
{
64.4%
*excluding the wealth management segment (see Table 3)
TAXES
As a result of the amalgamation with B.C. Bancorp
(“BCB”), in fiscal 1997, the Bank assumed approximately
$15.0 million in tax loss carryforwards, and $83.0 million in
unclaimed tax deductions which are available for deduction
in computing net income for tax purposes without time
limitation. Of the consideration received by the BCB
shareholders, $10.3 million was allocated to a deferred
income tax asset which is being amortized to current
income tax expense over the same period as the losses
and unclaimed deductions are utilized.
The current income tax provision represents amortization
of acquired unclaimed deductions and tax loss carryforwards
of $2.7 million (1998 – $2.5 million) and large corporations
tax of $552, 000 (1998 – $533,000).
Deferred income taxes arise from current year timing
differences related to claiming deductions for income tax
purposes on a basis different from accounting and relate
primarily to the provision for credit losses.The Bank has
reasonable assurance that its net deferred income tax asset
will be realized through future reversals of timing differences.
Income taxes otherwise payable by the Bank for the year
ended October 31, 1999 were eliminated by utilizing
approximately $24.8 million (1998 – $23.7 million) of
acquired unclaimed deductions and tax loss carryforwards.
At October 31, 1999, the Bank has approximately $44.7
million of unclaimed deductions which are available to
reduce future years’ income for tax purposes.The Bank’s
subsidiaries have $9.0 million of tax loss carryforwards,
which expire up to 2006.The tax benefit of these losses
has not been recognized in income.
Table 4 – Capital Taxes
($ thousands)
British Columbia
Alberta
Saskatchewan
Manitoba
Total Capital Taxes
Capital
Tax Rate
1.00%
2.00%(1)
3.25%
3.00%
Capital
Allocation(2)
41%
51%
5%
3%
1999
$
787
1,558
305
172
1998
$
700
1,192
296
143
$ 2,822
$ 2,331
1999/1998
Increase (decrease)
$
%
$ 87
366
9
29
$ 491
12.4%
30.7
3.0
20.3
21.1%
(1) Capital tax for financial institutions headquartered in Alberta is limited to 10% of pre-tax net income allocated to Alberta provided that value is less than Alberta capital taxes otherwise payable. This reduction
decreases on a relative basis when a financial institution’s capital base totals more than $100 million and is eliminated when its capital base reaches $200 million. The Bank’s taxable capital base was approximately
$166 million at October 31, 1999 (1998 – $140 million).
(2) These capital allocation percentages are for the Bank only although total capital tax includes capital taxes paid in British Columbia by subsidiaries.
Management’s Analysis of Operations and Financial Condition}
P a g e 2 5
Capital tax for 1999 totalled $2.8 million compared to
$2.3 million in 1998.The increase is primarily attributable to:
•
•
increased capital due to the retention of earnings;
increased profitability, which increased the Alberta capital
tax; and
a reduction of $196,000 (1998 – $108,000) in the
remission amount respecting Alberta capital tax.
•
In 2000 capital taxes will decrease due to changes
introduced to the capital tax structure for financial
institutions in the provinces of Alberta and Saskatchewan
that take effect in fiscal 2000. In Alberta the capital tax base
will now be harmonized with the federal capital base
and the tax rate drops from 2.0% to 0.7% on the first
$400 million of capital.The lower rate replaces the relief
previously provided in the form of a remission calculation
for financial institutions headquartered in Alberta.
In Saskatchewan the rate was lowered from 3.25% to 0.7%
for financial institutions with capital of $400 million or less.
The goods and services tax (GST) carries with it a significant
cost to the Bank as it does to all financial institutions to the
extent that GST paid is not recoverable through increased
service charges, increased loan costs or reduced deposit rates.
This is because the majority of the Bank’s activities, except
leasing, loan administration and trust services, are exempt
under GST legislation and thus GST cannot be charged
and collected from customers as occurs in the majority of
Canadian businesses.As a result, the ability to recover the
GST paid on most purchased goods and services is lost.
The estimated cost of unrecoverable GST during 1999
was $1.1 million compared to $872,000 in 1998.
Table 5 – Outstanding Loans by Portfolio Type and by Provincial Location of Branch
LOANS
Alberta
Saskatchewan
Manitoba
Total(1)
Composition %
($ millions)
October 31, 1999
Loans to Individuals
Residential mortgages
Other
Total
Loans to Businesses
Securities purchased under resale
agreements and call loans
Commercial
Construction and real estate
Industrial
Energy
Total
Total Loans
Composition %
October 31, 1998
Loans to Individuals
Residential mortgages
Other
Total
Loans to Businesses
Securities purchased under resale
agreements and call loans
Commercial
Construction and real estate
Industrial
Energy
Total
Total Loans
Composition %
British
Columbia
$
162
39
201
–
295
469
162
–
926
$ 1,127
$ 91
49
140
41
243
279
201
48
812
$ 952
$ 16
11
27
–
13
44
17
–
74
$ 101
$
3
4
7
–
13
65
15
–
93
$ 100
$
272
103
375
41
564
857
395
48
1,905
$ 2,280
50%
42%
4%
4%
100%
$
161
35
196
–
257
408
151
–
816
$ 1,012
$ 89
53
142
29
191
219
175
61
675
$ 817
$ 24
10
34
–
8
26
22
–
56
$ 90
$
3
4
7
–
15
49
16
–
80
$ 87
$
277
102
379
29
471
702
364
61
1,627
$ 2,006
51%
41%
4%
4%
100%
12%
4
16
2
25
38
17
2
84
100%
14%
5
19
1
24
35
18
3
81
100%
(1) This table does not include an allocation of the allowance for credit losses and deferred revenue and discounts.
P a g e 2 6 Management’s Analysis of Operations and Financial Condition
{
Loans, as reported on the consolidated balance sheet, totalled
$2.25 billion at the end of 1999 compared to $1.99 billion
at the end of 1998, an increase of 13%. Highlights of the
year over year changes are:
Portfolio
• growth in commercial loans of $93 million (20%) which
represents 25% of the portfolio versus 24% one year ago;
•
•
• growth in construction and real estate loans of $155
million (22%) which represents 38% of the portfolio
versus 35% a year earlier;
an increase in the industrial portfolio of $31 million (9%);
a reduction in the energy portfolio, a specialty in our
Calgary market, of $13 million (21%); and
a marginal decrease in loans to individuals of $4 million
(1%) which represents 16% of the portfolio versus 19%
a year ago.
•
Location
•
loan growth of $115 million (11%) in British Columbia
and $159 million (16%) in the prairie provinces; and
a relatively constant overall percentage distribution by
province.
•
Loans by Portfolio
Construction and
real estate
Commerical
Energy
38%{
{
{
25%
2%
Industrial
17%
Personal
16%
Securities purchased
under resale agreements
and call loans
2%
{
{
{
In 2000 the Bank’s business plan focuses on continued
growth in all portfolios.Although the market remains
competitive, significant overall loan growth is planned
for 2000 as the Bank expands its activities.
DEPOSITS
Table 6 – Deposits
($ thousands)
Canadian Currency
Personal chequing and savings
Business demand and savings
Fixed term:
Under $100,000
$100,000 and over
Registered retirement products
Total
Foreign Currency (Canadian equivalent)
Total Deposits
Deposits grew to $2.37 billion, an increase of 15%.
The analysis of these deposits is presented in Table 6.
Highlights of the year include:
•
a stable mix of deposit type for this year and anticipated
going forward; and
increased total deposits raised in our retail branches of
almost 16%.
•
The mix of deposits by source remained relatively consistent
with last year:
• branches – 47% (1998 – 45%)
• deposit agents – 49% (1998 – 50%)
• wholesale clients – 4% (1998 – 5%)
1999
1998
Amount
% of Total
Amount
% of Total
$
86,933
172,734
1,289,839
312,203
498,384
2,360,093
10,982
3.7%
7.3
$
82,740
168,270
54.4
13.1
21.0
99.5
0.5
1,120,740
260,499
417,792
2,050,041
9,504
4.0%
8.2
54.4
12.6
20.3
99.5
0.5
$ 2,371,075
100.0%
$ 2,059,545
100.0%
CWT, whose portfolio mix is included in the above
numbers, does not have retail branches and so gathers
most of its deposits through deposit agents, although
$30.9 million (1998 – $20.7 million) of CWT’s portfolio
was generated through the Bank’s retail branches. Retail
branch deposits are generally considered to be more stable
and our ongoing objective is to focus growth strategies on
this source.Agent deposits are slightly more expensive
because a commission is paid, but this added cost is
countered by a reduced need for establishment of an
extensive branch network.
Management’s Analysis of Operations and Financial Condition}
P a g e 2 7
Deposits by Source ($ millions)
1999
1998
1997
1996
1995
{
{
{
{
{
1108
1176
87
958
1007
95
828
859
131
703
786
97
627
475
91
Branches
Agent
Wholesale
Table 7 – Capital Structure and Regulatory Ratios at Year End
($ thousands)
CAPITAL FUNDS AND ADEQUACY
Tier 1 Capital
Retained earnings
Common shares
Non-controlling interest in subsidiary
Less unamortized goodwill
Total
Tier 2 Capital (gross)
General allowance for credit losses (Tier A)(1)
Subordinated debentures (Tier B)
Total
Total
Less regulatory limitation on inclusion of debentures(2)
Total Regulatory Capital
Regulatory Capital to Risk-weighted Assets
Tier 1 capital
Tier 2 capital
Total Regulatory Capital Adequacy Ratio
Assets to Regulatory Capital Multiple(3)
1999
1998
$ 61,066
$ 55,673
98,484
234
(448)
159,336
15,996
78,691
94,687
254,023
–
89,595
331
(520)
145,079
2,767
87,091
89,858
234,937
(14,716)
1999/1998
Increase
(decrease)
$ 5,393
8,889
(97)
72
14,257
13,229
(8,400)
4,829
19,086
14,716
$ 254,023
$ 220,221
$ 33,802
7.4%
4.4%
11.8%
10.8
7.8%
4.1%
11.9%
11.0
(0.4)%
0.3 %
(0.1)%
(0.2)
(1) Banks are allowed to include their general allowance for credit losses up to a prescribed percentage of risk-weighted assets in Tier 2A capital. The Bank has been granted an inclusion rate of 0.75% (1998 – 0.15%)
of risk-weighted assets.
(2) The maximum amount of subordinated debentures that can be included in Tier 2B capital for regulatory purposes is 50% of Tier 1 capital. In 1999, there is no excess Tier 2B capital but in 1998 Tier 2B capital was
reduced by $14,716 resulting in regulatory Tier 2 capital of $75,142.
(3) Total assets plus off-balance sheet credit instruments, such as letters of credit and guarantees, less goodwill divided by total regulatory capital.
P a g e 2 8 Management’s Analysis of Operations and Financial Condition
{
Table 8 – Risk-weighted Assets
($ thousands)
Balance Sheet Assets
Cash resources
Securities
Loans
Other assets
Total
Credit Instruments(1) (contract amounts)
Guarantees and standby letters of credit
Commitments to extend credit(2)
Total
Derivative Financial Instruments(3) (notional amounts)
Interest rate contracts
Equity contracts
Total
Total Risk-weighted Assets
(1) See Note 11 to the Consolidated Financial Statements for further details.
(2) Greater than one year only.
(3) See Note 15 to the Consolidated Financial Statements for further details.
The Office of the Superintendent of Financial Institutions
(“OSFI”) requires banks to measure capital adequacy in
accordance with instructions for determining risk-adjusted
capital and risk-weighted assets including off-balance sheet
commitments. Based on the deemed credit risk of each type
of asset a weighting of 0% to 100% is assigned. Published
regulatory guidelines require banks to maintain a minimum
ratio of capital to risk-weighted assets and off-balance sheet
items of 8%, of which 4% must be core capital (Tier 1) and
the remainder supplementary capital (Tier 2). However,
OSFI strongly encourages Canadian banks to maintain a
minimum total capital adequacy ratio of 10% with a Tier 1
ratio of not less than 7%. In the Bank,Tier 1 capital is
comprised of common shareholders’ equity and Tier 2 capital
includes subordinated debentures (to the regulatory
maximum amount of 50% of Tier 1 capital) and an inclusion
of the general allowance for credit losses at a prescribed
inclusion rate based on risk-weighted assets. In tandem with
the one-time increase in the general allowance for credit risk
(see Note 1(d) to the Consolidated Financial Statements),
OSFI authorized the inclusion of the general allowance in
Tier 2A capital at up to 75 basis points (0.75%) of risk-
weighted assets. Previously the inclusion rate was 15 basis
points (0.15%).The net effect of the one-time increase in the
general was a decrease in the Tier 1 capital ratio (from the
charge to retained earnings) but an increase in the total
capital ratio (from the higher Tier 2A inclusion rate).
1999
Risk-
weighted
Balance
33,685
40,287
2,001,990
54,709
Balance
$
169,990
$
205,192
2,253,598
63,602
1998
Risk-
weighted
Balance
31,459
28,208
1,713,087
56,063
Balance
$
159,538
$
160,867
1,989,656
76,417
$ 2,692,382
$ 2,130,671
$ 2,386,478
$ 1,828,817
$
$
$
$
27,479
843
28,322
269,000
2,200
271,200
$
$
$
$
17,659
422
18,081
49
35
84
$
$
$
$
21,457
638
22,095
130,000
–
130,000
$
$
$
$
18,231
319
18,550
112
–
112
$ 2,148,836
$ 1,847,479
Capital funds are managed in accordance with policies and
plans that are regularly reviewed and approved by the Board
of Directors and which take into account forecasted capital
needs and markets.The goal is to maintain adequate
regulatory capital to provide enough support for internally
generated growth and strategic opportunities that do not
otherwise require accessing the public capital markets, while
still improving the return on equity through the most
efficient capital mix.
At October 31, 1999 the total regulatory capital ratio
coverage was 11.8% (1998 – 11.9%) of which 7.4%
(1998 – 7.8%) was Tier 1 capital.Total regulatory capital
increased $33.8 million over 1998 as a result of:
• earnings net of dividends, of $15.0 million;
•
the increased inclusion rate of the general allowance
for credit risk;
share capital of $489,000 issued upon the exercise of
68,977 stock options, net of 10,300 shares purchased for
cancellation under the normal course issuer bid; offset by
charges to retained earnings of:
•
• $6.5 million which represents the increase in the general
allowance for credit risk of $11.7 million, net of deferred
income taxes of $5.2 million; and
• $3.1 million which represents the consideration paid
by the Bank for the conversion option on a debenture
redemption.
Management’s Analysis of Operations and Financial Condition}
P a g e 2 9
Subordinated debentures include both convertible
($65.6 million) and conventional ($13.1 million) debentures.
Note 8 to the Consolidated Financial Statements details the
terms of the debentures. During the year $8.4 million of
the 6.75% convertible debentures were converted by
debentureholders into 672,000 shares at a $12.50 per share
conversion price which resulted in a transfer from Tier 2 to
Tier 1 capital. On October 29, 1999 the Bank provided
notice of its intention to convert all of the outstanding
6.75% convertible debentures to common shares on
December 1, 1999.As a result of the notice the
remaining $11.6 million debentures were converted by
debentureholders on November 30, 1999 at a conversion
price of $12.50 per share. Had the conversions occurred on
October 31, 1999 the total capital ratio would not have been
affected but the Tier 1 capital ratio would have strengthened
to 8.0%.
In July, a $4.0 million 9% convertible debenture with a
conversion price of $11.00 was redeemed for $7.1 million
with the excess of total consideration paid over the face
value of the debenture attributed to the conversion option
and charged to retained earnings.A new $4.0 million ten
year debenture, convertible at $25.00 was issued at a fixed
interest rate of 5.70% for the first five years.
During the third quarter of 1999 the Bank’s dividend
policy was amended to be semi-annual instead of annual.
In January 1999 the annual dividend of $0.32 per share
was paid and in July the first semi-annual dividend of $0.16
was paid. Hence the dividend rate for fiscal 1999 appears
unusually high.
The Bank has share option plans that are provided as an
incentive to officers and employees who are in a position
to materially impact the longer term financial success of
the Bank as measured by shareholder wealth. Note 9 to the
Consolidated Financial Statements details the number of
shares under option outstanding, the weighted average
exercise prices and the amounts exercisable.
On November 4, 1998 the Bank implemented a normal
course issuer bid for a twelve-month period which allowed
the Bank to purchase for cancellation up to 472,036
common shares, or 5% of its outstanding common shares.
The bid was implemented because management considered
the shares to be undervalued and viewed a repurchase
program as an appropriate use of the Bank’s funds.
In October 1999 the Bank purchased 10,300 shares for
cancellation, at $17.50 per share.The normal course issuer
bid expired November 3, 1999.
P a g e 3 0 Management’s Analysis of Operations and Financial Condition
{
Overview
RISK MANAGEMENT
The Bank’s risk management policies continue to evolve
and improve in order to accommodate the new challenges
that come with growth, expansion and changes in the
regulatory and public domain.
Effective risk management is central to the ability to remain
strong and profitable and includes identifying, assessing,
managing and monitoring all forms of risk.The Bank is
primarily exposed to four basic types of risk:
• credit risk;
•
liquidity risk;
• market risk; and
• operational risk.
The most senior executives are responsible for identifying
risks and establishing appropriate risk management policies
and frameworks.The Board of Directors, either directly
or through its committees, reviews and approves the key
policies, and implements specific reporting procedures
to enable them to monitor ongoing compliance over
significant risk areas.At least annually a report on significant
internal controls is presented to the Board and the Audit
Committee.
The Loans Committee of the Board, which maintains a
close working relationship with the credit risk management
group, is responsible for:
•
the review and approval of credit risk management
policies;
loans in excess of delegated limits;
the review and monitor of impaired and other less than
satisfactory loans; and
the recommendation of the adequacy of the allowance
for credit losses to the Audit Committee.
•
•
•
At the operational level, the Asset Liability Committee
(“ALCO”) plays a key role in the management of liquidity
and market risk.ALCO is a management committee chaired
by the Senior Vice President, Corporate & Strategic
Operations with the President and CEO and other senior
executives as members and is responsible for:
•
the establishment and maintenance of policies and
programs for liquidity management and control, funding
sources, investments, foreign exchange risk, interest rate
risk and derivatives; and
regular meetings to review compliance and discuss
strategy in this area.
•
Asset liability management policies are approved and
reviewed at least annually by the Board with quarterly status
reporting provided to the Board.
•
annual reviews of individual credit facilities (excepting
consumer loans and residential mortgages);
• diversification of risk by client, geographic area, industry
The Operations Committee meets regularly and is made
up of experienced bank officers from all areas of operations
and is chaired by a member of senior management.This
committee is responsible for developing appropriate policies
and procedures, including internal controls, respecting
day-to-day, routine operations.
The internal audit group performs inspections in all areas of
the Bank, including CWT and CWC, and reports the results
directly to senior management, the President and CEO and
the Audit Committee.
Credit Risk Management
Credit risk is the risk that a financial loss will be incurred
due to the failure of a counterparty to discharge its
contractual commitment or obligation to the Bank.This risk
can relate to balance sheet assets, such as loans, as well as off-
balance sheet assets such as guarantees and letters of credit.
To diversify the risk, the exposure to a single borrower or
associated borrowers is limited to $15 million. In special
circumstances, exposure can be increased to an amount not
exceeding 10% of capital funds.
The Bank employs and is committed to a number of
important principles to manage credit exposures which
include:
•
a Loans Committee of the Board whose duties include
approval of lending policies, establishment of lending
limits for the Bank, the delegation of lending limits and
the review of larger credits as well as quarterly reports
prepared by management on watch list loans, impaired
loans, the adequacy of the allowance for credit losses,
environmental risk and diversification of the portfolio;
• delegated lending authorities which are clearly
communicated to personnel engaged in the credit
granting process, a defined approval process for loans
in excess of limits and the review of larger credits by
a senior management group prior to recommendation
to the Loans Committee of the Board;
• credit policies, guidelines and directives which are
communicated to all branches and officers whose
activities and responsibilities include credit granting
and risk assessment;
appointment of personnel engaged in credit granting
who are qualified, experienced bankers;
a standardized credit risk rating classification established
for all credits and reviewed not less than annually;
•
•
sectors and products;
• pricing of credits commensurate with risk to ensure
appropriate compensation;
• management of growth within quality objectives;
• early recognition of problem accounts and immediate
implementation of steps to protect the safety of Bank
funds;
independent annual reviews of credit valuation, risk
classification and credit management procedures by the
internal audit group which include reporting the results
to senior management, the President and CEO and the
Audit Committee; and
•
• detailed quarterly reviews of accounts rated less than
satisfactory including a watch list report recording
accounts with evidence of weakness, an impaired loan
report covering loans which show impairment to the
point where a loss is probable, and the establishment
of an action plan for each account.
Environmental Risk
The operations conducted by the Bank do not impose a
material effect on the environment. However, losses can
be incurred if a borrower is unable to repay loans due to
environmental clean up costs, or if the Bank becomes
directly liable for clean up costs if it is deemed to have
taken control or ownership of a contaminated property.
Risk assessment criteria and procedures are in place to
manage environmental risks and these are communicated
to lending personnel. Reports on environmental inspections
and findings are reviewed by senior management and
reported upon quarterly to the Board.
Portfolio Quality
The Bank’s strategy is to continually improve and maintain
a quality portfolio. Efforts are directed towards achieving a
wide diversification, engaging experienced personnel who
provide a hands on approach in credit granting, account
management and quick action when problems develop.
The lending focus is primarily directed to small and
medium-sized businesses and individuals with operations
conducted in the four western provinces. Relationship
banking and “know your customers” are important tenets
of account management.An appropriate financial return
on the level of risk is fundamental.
Management’s Analysis of Operations and Financial Condition}
P a g e 3 1
Table 9 – Change in Gross Impaired Loans
($ thousands)
Gross impaired loans, beginning of year
Net additions
Write-offs
Total
Gross Impaired Loans as a Percentage of Total Loans
Impaired Loans
Gross impaired loans increased $11.8 million in 1999
reflecting a general softening in the British Columbia
economy.As shown in Table 9, gross impaired loans total
$38.2 million representing 1.69% (1998 – 1.32%) of total
outstanding loans.
Impaired loans net of the allowance for credit losses have
decreased over the past year and represent 0.54% (1998 –
0.68%) of net loans outstanding.The impaired loan outlook
going forward into 2000 is expected to be favourable as
economic conditions are trending positively.
Table 10 shows the year over year change to the allocation
of the allowance for credit losses to specific provisions by
category of impaired loans and to the general allowance for
credit risk.
1999
$ 26,345
14,158
(2,314)
1998
$ 21,534
8,841
(4,030)
1999/1998
Increase
(decrease)
$ 4,811
5,317
1,716
$ 38,189
$ 26,345
$ 11,844
1.69%
1.32%
0.37%
Net Impaired Loans as a Percentage of Net Loans Outstanding
1999
1998
1997
1996
1995
{
0.54%
{
0.68%
{
0.53%
{
0.99%
{
1.83%
Table 10 – Allowance for Credit Losses
($ thousands)
Specific Provisions
Consumer and personal
Real estate
Industrial
Other
General Allowance
Total
1998
Adjustment to
Ending General Allowance
Balance
for Credit Risk(1)
Write-offs,
net of
Recoveries(2)
Provision
for Credit
Losses
1999
Ending
Balance
$
320
$
$
475
$
348
1,587
165
1,445
9,325
$ 12,842
–
–
–
–
11,694
$ 11,694
$
447
279
151
1,389
–
1,218
1,224
1,004
(171)
2,526
1,238
1,060
20,848
$ 26,020
$ 2,266
$ 3,750
(1) In accordance with the guidance provided by OSFI, as described further below and in Note 1(d) to the Consolidated Financial Statements, the Bank increased its general allowance for credit risk by $11.7 million.
Accordingly, retained earnings was reduced by $6.5 million, representing the increase in the general allowance, net of deferred income taxes of $5.2 million.
(2) Recoveries in 1999 totalled $48 (1998 – $334).
P a g e 3 2 Management’s Analysis of Operations and Financial Condition
{
OSFI’s revised general allowance criteria were effective for
1999. In accordance with the guidance provided by OSFI,
$11.7 million was added to the general allowance in the
second quarter, bringing it to $21.5 million at April 30,
1999. Because the increase was significant, OSFI specified
that the adjustment be charged to retained earnings with no
restatement of prior periods. Consequently, an amount of
$6.5 million, representing the $11.7 million adjustment less
deferred income taxes of $5.2 million, was charged to
retained earnings.At October 31, 1999 the general
allowance for credit risk totalled $20.8 million. Considering
the amount required to conform to the guidance as well as
the accounting treatment specified by OSFI the accounting
for the general allowance represents a departure from
generally accepted accounting principles in Canada.
However, the accounting policies for all other financial
statement items do conform, in all material respects, to
generally accepted accounting principles as specified in the
Auditors’ Report.The level of the general allowance was
established by taking into consideration historical trends in
the loss experience during a complete economic cycle, the
current portfolio profile, estimated credit losses for the
current phase of the economic cycle and historical
experience in the industry.The impact of the departure from
generally accepted accounting principles to conform to the
guidance provided by OSFI is as follows.
Impact of the Adjustment on Specific Balance Sheet Items
the increase in the general allowance for credit risk
•
changed the following items on the balance sheet at
April 30, 1999:
($ thousands)
Assets
Loans (net of allowances)
Other assets – Deferred income taxes
Shareholders’ equity
Retained earnings
Increase
(decrease)
$ (11,694)
$
5,185
$ (6,509)
Allowance for Credit Losses as a Percentage of Gross Impaired Loans
1999
1998
1997
1996
1995
{
68.1%
{
48.7%
{
57.5%
{
47.0%
{
32.8%
Allowance For Credit Losses
The allowance for credit losses consists of $5.2 million in
specific provisions and $20.8 million in the general allowance
for credit risk with the latter now representing 0.93% of gross
outstandings and 1.03% of risk-weighted credit assets.
This compares favorably with the Bank’s five year loan loss
average of 0.25% which is based on the annual charges to the
income statement.The five year loan loss average based only
on net new specific provisions (i.e. excluding the annual
increase or decrease in the general allowance for credit risk )
is 0.16%.The general allowance is available to cover credit
losses inherent in the portfolio which are not currently
identifiable on an account by account basis.An assessment of
the adequacy of the general allowance is conducted quarterly
and measured against the Bank’s five year loan loss average. In
addition, a method of applying a progressive (increasing with
higher risk) loss ratio range against groups of loans of a
common risk rating is utilized to test the general allowance
adequacy.The general allowance would be expected to
increase in strong economic times and decrease in weaker
economic times as provisions are allocated on specific credits.
In October 1998 OSFI provided guidance to all deposit-
taking institutions on establishing general allowances for
credit risk (unallocated loan loss provisions) in their ongoing
program to strengthen general allowances and related
methodologies.While OSFI did not believe that there was
a systemic problem of asset quality in the Canadian system,
they felt the need for higher general allowances was
supported by, amongst other things, the current position
in the economic cycle, growing potential off-balance sheet
activity and associated credit risk, and the current levels of
allowances of a number of Canadian institutions in relation
to historical levels and compared to institutions in other
jurisdictions.
Management’s Analysis of Operations and Financial Condition}
P a g e 3 3
Impact of the Adjustment on Book Value
•
the adjustment of $6.5 million (i.e. $11.7 million
less deferred income taxes) reduced book value by
$0.64 per share.
Impact of the Adjustment on Return on Common
Shareholders’ Equity
•
the adjustment to the general allowance decreased
average shareholders’ equity for the fiscal year ended
October 31, 1999, since the adjustment was made in
April, thereby increasing the return on common
shareholder’s equity by 0.28%; and
•
in subsequent fiscal years, the impact on common
shareholders’ equity will be negligible.
Impact of the Adjustment on Capital Ratios
•
the total capital adequacy ratio increased (Tier 1
decreased) as a result of the adjustment to the general
allowance and taking into account the granting of
Tier 2A capital treatment for general allowances up
to a maximum of 0.75% of risk-weighted assets.
The table below shows the impact of this adjustment:
($ thousands)
Tier 1 capital
Tier 2 capital
Total Capital
Risk-weighted assets
Ratios
Tier 1 capital
Tier 2 capital
Total
Before adjustment
After adjustment
$
$
165,845
81,891
247,736
$ 2,142,185
7.7%
3.8%
11.5%
$
$
159,336
94,687
254,023
$ 2,148,836
7.4%
4.4%
11.8%
Impact of the Adjustment on the Consolidated
Statement of Income
•
the adjustment to the general allowance had no impact
on the Consolidated Statement of Income.
Impact of the Adjustment on the Consolidated Statement
of Cash Flow
•
the adjustment to the general allowance had no impact
on the cash flow presented in the Consolidated
Statement of Cash Flow.
Provision for Credit Losses as a Percentage of Average
Loans Outstanding
Provision for Credit Losses
For the year ended October 31, 1999, the provision for
credit losses represented 0.18% of average loans.As reflected in
the graph below the provision for credit losses is trending
downward reflecting the strong credit quality of the portfolio.
Diversification of Portfolio
Total Advances Based on Location of Borrower
(also see Table 5)
Geographical Distribution of Loans
1999
1998
1997
1996
1995
British Columbia
45%
Saskatchewan
6%
Manitoba
4%
Other
3%
Alberta
42%
{
{
{
{
{
{
0.18%
{
0.22%
{
0.25%
{
0.30%
{
0.32%
P a g e 3 4 Management’s Analysis of Operations and Financial Condition
{
The following table illustrates the diversification in our lending operations by industry sector.
Table 11 – Total Advances Based on Industry Sector
(%) October 31
Real estate operations
Construction
Consumer loans and residential mortgages
Transportation and storage
Manufacturing
Hotel/motel
Oil and gas (production)
Logging/forestry
Other services
Wholesale trade
Finance and insurance
Government guaranteed
Other
Total
Management of the loan portfolio includes the strategy
of avoiding high concentrations in one geographic area or
industry sector.The Bank’s portfolio is well diversified with
a mix of corporate and personal business. Industrial lending
units are set up within branches or stand alone operations,
while oil and gas lending is conducted by specialists in our
Calgary market. In addition to these areas, we also have real
estate divisions established in the major centres in which we
operate.
Liquidity Risk
Liquidity risk is the risk that the Bank will not have sufficient
cash to meet its obligations as they become due.This risk
arises from fluctuations in cash flows from lending, deposit
taking, investing, and other activities. Effective liquidity
management ensures that adequate cash is available to
honour all cash outflow obligations. Maintenance of a
prudent liquidity base also provides flexibility to fund loan
growth and to react to other market opportunities.
The Bank’s liquidity policy includes:
• measurement and forecast of cash flows;
• maintenance of a high quality pool of liquid assets;
•
a stable base of core deposits from retail and commercial
customers;
limits on single deposits and sources of deposits;
•
• diversification of funding sources; and
•
an approved contingency plan.
1999
24.5%
20.4
16.5
6.9
4.1
4.0
2.5
3.0
2.7
2.5
3.0
1.1
8.8
1998
22.6%
20.0
18.4
5.7
4.3
3.8
3.6
3.2
3.0
2.9
2.8
2.3
7.4
100.0%
100.0%
Key features of liquidity management are:
• daily monitoring of expected cash inflows and outflows
and tracking and forecasting the liquidity position,
including the flows from off-balance sheet items,
on a weekly and forward three month rolling basis;
• consideration of the term structure of assets and
liabilities, with emphasis on deposit maturities, as well
as expected loan fundings and other commitments to
provide funds when determining required levels of
liquidity; and
separate management of the liquidity position of the
Bank and CWT to ensure compliance with related
party and other regulatory tests.
•
A schedule outlining the consolidated securities portfolio at
October 31, 1999 is provided in Note 2 to the Consolidated
Financial Statements.A conservative policy is maintained in
this area with:
• virtually all investments limited to high quality debt
securities and short term money market instruments to
meet objectives of liquidity management and to provide
an appropriate return;
specific investment criteria and procedures for purposes
of management of the securities portfolio;
regular review, monitoring and approval by ALCO of
policies regarding these investments and annual review
and approval by the Board of Directors; and
•
•
• quarterly reporting to the Board of Directors on the
securities portfolio.
Management’s Analysis of Operations and Financial Condition}
P a g e 3 5
$
1999
1,562
136,456
31,972
169,990
41,017
63,928
$
1998
2,246
133,888
23,404
159,538
28,493
58,896
1999/1998
Increase
(decrease)
$
(684)
2,568
8,568
10,452
12,524
5,032
52,248
32,574
19,674
48,729
38,938
244,860
41,189
27,937
189,089
$
414,850
$
348,627
$ 2,692,382
$ 2,386,478
7,540
11,001
55,771
$ 66,223
$ 305,904
15.4%
14.6%
0.8%
$ 2,371,075
$ 2,059,545
$ 311,530
17.5%
16.9%
0.6%
Also included in liquid assets are securities purchased under
resale agreements and call loans.These are short term
advances, typically no more than several days in duration,
to securities dealers and either require the dealer to
repurchase the securities or are secured by treasury bills
or other high quality liquid securities.
Short term credit facilities have been arranged with a
number of financial institutions.The expansion of such
facilities will continue to be pursued as an additional
liquidity safeguard.The government insured/guaranteed
mortgage and loan portfolios also represent a potential
source of liquidity.
The primary source of new funding is the issuance of
deposit instruments.A summary of the deposits by maturity
is presented in Tables 13 and 14.
Table 12 – Liquid Assets
($ thousands)
Cash
Deposits with regulated financial institutions
Cheques in transit
Total Cash Resources
Securities purchased under resale agreements and call loans
Government of Canada treasury bills
Government of Canada and provincial bonds
term to maturity 1 year or less
Government of Canada and provincial bonds
term to maturity over 1 year
Other marketable securities
Total Securities Purchased Under Resale Agreements/Call Loans and Marketable Securities
Total Liquid Assets
Total Assets
Liquid assets as a percentage of total assets
Total Deposit Liabilities
Liquid assets as a percentage of total deposit liabilities
As shown in Table 12, liquid assets comprised of cash,
interbank deposits, items in transit, securities purchased
under resale agreements/call loans and marketable securities,
totalled $415 million at October 31, 1999, an increase of
$66 million from October 31, 1998. Liquid assets
represented 15.4% (1998 – 14.6%) of total assets and 17.5%
(1998 – 16.9%) of total deposit liabilities at that date.
Highlights of the composition of liquid assets at October 31,
1999 follow:
• maturities within one year total 86% or $357 million;
• Government of Canada treasury bills made up 15% of
the book value with other Government of Canada and
provincial debt securities accounting for 24% of liquid
assets;
• highly rated short term commercial paper totalling
$30 million is included in other marketable securities; and
• deposits with regulated financial institutions including
bankers acceptances were 33% of liquid assets.
P a g e 3 6 Management’s Analysis of Operations and Financial Condition
{
Table 13 – Deposit Maturities Within One Year
($ millions)
At October 31, 1999
Demand deposits
Notice deposits
Deposits payable on a fixed date
Total
At October 31, 1998
Total
Table 14 – Total Deposit Maturities
($ millions)
At October 31, 1999
Demand deposits
Notice deposits
Deposits payable on a fixed date
Total
At October 31, 1998
Total
Within
1 Month
$ 45
221
255
$ 521
1 to 3
Months
$
–
–
152
$ 152
3 Months
to 1 Year
Cumulative
Within 1 Year
$
–
–
806
$ 806
$
45
221
1,213
$ 1,479
$ 543
$ 179
$ 563
$ 1,285
Within
1 Year
$
45
221
1,213
$ 1,479
$ 1,285
1 to 2
Years
$
–
–
353
$ 353
$ 256
2 to 3
Years
$
–
–
229
$ 229
3 to 4
Years
$
–
–
158
$ 158
4 to 5
Years
$
–
–
152
$ 152
Total
$
45
221
2,105
$ 2,371
$ 257
$ 125
$ 137
$ 2,060
A breakdown of deposits by source is provided under
the heading Deposits.Target limits by source have been
established as part of the Bank’s overall liquidity policy and
are monitored to ensure an acceptable level of diversification
in sources of funding is maintained.The Bank continues to
aggressively pursue retail deposits generated through its
branch network as a core funding source. However, the total
dollar value of agent generated deposits will likely continue
to increase even though the goal is to decrease funding
from this source as a percentage of total deposit liabilities.
CWT continues to raise essentially all of its deposits through
agents.The Bank distributes CWT’s deposit products
through the Bank’s branch network and at October 31,
1999, $30.9 million (1998 – $20.7 million) of CWT
deposits had been raised in this manner.
Market Risk
Market risk is the impact on earnings resulting from changes
in financial market variables such as interest rates and foreign
exchange rates. Market risk arises when making loans, taking
deposits and making investments.The Bank itself does not
undertake trading activities and, therefore, does not have risks
related to such activities as market making, arbitrage or
proprietary trading.Therefore, the Bank’s material market
risks are confined to interest rates and foreign exchange as
discussed below.
Interest Rate Risk
Interest rate risk or sensitivity can be defined as the impact
on net interest income, both current and future, resulting
from a change in market interest rates.This risk and
potential variability in earnings arises when cash flows
associated with interest sensitive assets and liabilities have
different repricing dates.The differentials, or interest rate
gaps, arise as a result of the financial intermediation process
and reflect differences in term preferences on the part of
borrowers and depositors.
A positive interest rate gap exists when interest sensitive assets
exceed interest sensitive liabilities for a specific maturity or
repricing period.A positive gap will tend to lead to an
increase in net interest income when market interest rates
rise since assets are repricing earlier than liabilities.
The opposite impact will occur when market interest rates
fall.A negative gap is the opposite of a positive gap.
To manage interest rate risk arising as a result of the financial
intermediation process,ALCO establishes policy guidelines
for interest rate gap positions and meets regularly to monitor
the Bank’s position and decide future strategy.The objective
is to manage the interest rate risk within prudent guidelines.
Interest rate risk policies are approved and reviewed at least
annually by the Board of Directors with quarterly reporting
provided to the Board as to the gap position.
Management’s Analysis of Operations and Financial Condition}
P a g e 3 7
Exposure to interest rate risk is controlled by managing the
size of the static gap positions between interest sensitive
assets and interest sensitive liabilities for future periods.
Gap analysis is supplemented by computer simulation of the
asset liability portfolio structure and dollar estimates of net
interest income sensitivity for periods of up to one year.
The interest rate gap is measured at least monthly.
Table 15 – Asset Liability Gap Positions
($ millions)
Table 15 shows the consolidated gap position at October 31,
1999 for selected time intervals. Comparative summary
figures are given at October 31, 1998. Figures in brackets
represent an excess of liabilities over assets or a negative gap
position.
At October 31, 1999
Assets
Cash resources
Securities
Loans
Other assets
Off-balance sheet swaps
Total
Liabilities and Equity
Deposits
Other liabilities
Debentures
Shareholders’ equity
Off-balance sheet swaps
Total
Interest Rate Sensitive Gap
Cumulative Gap
Floating Rate
and Within
1 Month
1 to 3
Months
3 Months
to 1 Year
$
71
39
972
–
–
1,082
521
10
12
–
271
814
268
268
$
$
$ 41
31
$
72
–
20
164
152
–
–
–
–
9
77
327
–
210
623
806
–
–
–
–
152
$ 12
$ 280
806
$ (183)
$
97
$
Total
Within
1 Year
121
147
1,371
–
230
1,869
1,479
10
12
–
271
1,772
97
97
$
$
1 Year to
5 Years
Over
5 Years
Non-
interest
Sensitive
$
–
49
905
–
41
995
892
–
67
–
–
959
$ 36
$ 133
$
$
–
9
–
–
–
9
–
–
–
–
–
–
9
$ 142
$
$
49
–
(23)
64
–
90
–
73
–
159
–
232
$ (142)
$
–
$
$
Total
170
205
2,253
64
271
2,963
2,371
83
79
159
271
2,963
–
–
–
Cumulative Gap as a Percentage of Total Assets
9.0%
9.4%
3.3%
3.3%
4.5%
4.8%
(4.8)%
At October 31, 1998
Total assets
Total liabilities and equity
Interest Rate Sensitive Gap
Cumulative Gap
$
$
$
941
678
263
263
$ 161
179
$ (18)
$ 245
$ 424
$ 1,526
587
$ (163)
$
82
1,444
82
82
$
$
$ 899
838
$ 61
$ 143
$
$
2
–
2
$ 145
$
89
234
$ (145)
$
–
Cumulative Gap as a Percentage of Total Assets
10.5%
9.7%
3.3%
3.3%
5.7%
5.8%
(5.8)%
$ 2,516
2,516
$
$
–
–
–
Notes:
1. Accrued interest is excluded in calculating interest sensitive assets and liabilities.
2. Potential prepayments of fixed rate loans and early redemption of redeemable fixed term deposits have not been estimated. Redemptions of fixed term deposits where depositors have this option are not expected to be
material. Deposits with a redemption option totalled approximately $34 million as at October 31, 1999. The majority of fixed rate loans, mortgages and leases are either closed or carry prepayment penalties.
P a g e 3 8 Management’s Analysis of Operations and Financial Condition
{
The gap analysis in Table 15 is a static measurement of
interest rate sensitive gaps at a specific time.These gaps can
change significantly in a short period of time.The impact of
changes in market interest rates on earnings will depend
upon the magnitude and rate of change in interest rates as
well as the size and maturity structure of the cumulative
interest rate gap position and management of those positions
over time.
Of the $1.21 billion in fixed term deposit liabilities
maturing within one year from October 31, 1999,
approximately $178 million (7.5% of total deposit liabilities)
are fixed term registered retirement product deposits
maturing between December 1, 1999 and April 30, 2000.
The term in which these deposits and other maturing
deposits are retained will have an impact on the future asset
liability structure and hence interest rate sensitivity.
During the year:
•
the one year and under cumulative gap remained
unchanged at 3.3%;
the one month and under gap decreased from 10.5%
to 9.0%; and
the five year and under cumulative gap decreased from
5.7% to 4.5%.
•
•
The effective interest rates for each class of financial asset
and liability, including off-balance sheet instruments, are
shown in Table 16.
Table 16 – Weighted Average Effective Interest Rates
(%)
Floating Rate
and Within
1 Month
1 to 3
Months
3 Months
to 1 Year
Total
Within
1 Year
1 Year to
5 Years
Over
5 Years
Total
At October 31, 1999
Assets
Cash resources
Securities
Loans
Off-balance sheet swaps
Total
Liabilities
Deposits
Debentures
Off-balance sheet swaps
Total
4.8
7.2
–
6.9
3.3
6.8
4.7
3.8
Interest Rate Sensitive Gap
3.1%
At October 31, 1998
Total assets
Total liabilities
Interest Rate Sensitive Gap
7.6%
4.1
3.5%
4.4%
5.0%
4.9%
4.7%
–%
–%
4.7%
4.8
7.8
5.1
6.2
5.1
–
–
5.1
1.1%
6.4%
5.0
1.4%
5.2
7.9
5.3
6.6
5.5
–
–
5.5
1.1%
7.0%
5.5
1.5%
5.0
7.4
5.3
6.8
4.7
6.8
4.7
4.7
2.0%
7.3%
4.8
2.5%
5.5
7.7
5.6
7.5
5.7
5.7
–
5.7
1.9%
7.7%
6.0
1.7%
5.5
–
–
5.5
–
–
–
–
5.5%
7.0%
–
7.0%
5.1
7.5
5.3
7.0
5.1
5.9
4.7
5.0
2.0%
7.4%
5.2
2.2%
The interest sensitivity of the portfolio increased in both
absolute dollar terms and as a percentage of estimated future
net interest income during the year, but remained well
within policy guidelines.
The estimated sensitivity of net interest income to a change
in interest rates is presented in Table 17.The amounts
represent the estimated change in net interest income over
the time period shown resulting from a one percentage
point change in interest rates. If rates increase, the effect
would be an increase in net interest income while the
opposite would occur if rates decrease.The estimates are
based on a number of assumptions/factors, which include:
•
•
a constant structure in the asset liability portfolio;
interest rate changes affect interest sensitive assets and
liabilities by the same amount and are applied at the
appropriate repricing dates; and
• no early redemptions.
Management’s Analysis of Operations and Financial Condition}
P a g e 3 9
Table 17 – Estimated Sensitivity of Net Interest Income
As a Result of a One Percentage Point Change in Interest Rates
($ thousands)
Period
90 days
1 year
1 year percentage change
It is management’s intention to continue to manage the asset
liability structure and interest rate sensitivity through pricing
and product policies to attract appropriate assets and
liabilities as well as through the use of interest rate swaps or
other appropriate hedging techniques (see discussion under
Off-balance Sheet Financial Instruments Including
Derivatives).Assets and liabilities having a term to maturity
in excess of five years are subject to specific review and
control and with the exception of debentures, as outlined in
Note 8 to the Consolidated Financial Statements, such items
were not material as at October 31, 1999.
Foreign Exchange Risk
In providing financial services to its customers, the Bank has
assets and liabilities denominated in United States (U.S.)
dollars.At October 31, 1999, assets denominated in U.S.
dollars were 0.4% of total assets and U.S. dollar liabilities
were 0.4% of total liabilities.The comparable percentages
at October 31, 1998 were 0.4% and 0.4% for assets and
liabilities. Currencies other than U.S. dollars are not bought
or sold other than to meet specific customer needs and
therefore, the Bank has virtually no exposure to currencies
other than U.S. dollars.
Foreign exchange risk arises when there is a difference
between assets and liabilities denominated in U.S. dollars.
Policy is established setting a limit on the difference between
U.S. dollar assets and liabilities.The difference is measured
daily and managed by use of U.S. dollar contracts or other
means. Policy respecting foreign exchange exposure is
reviewed and approved at least annually by the Board of
Directors, and deviations from policy are reported to the
Board and ALCO.
P a g e 4 0 Management’s Analysis of Operations and Financial Condition
{
1999
$
601
1,938
1998
$
585
2,152
3.3%
3.5%
Operational Risk
Operational risk is the potential for loss as a result of
a failure in communication, information or transaction
processing due to system or procedural failures, errors,
natural disasters or fraudulent activities.The financial
measure of operational risk is actual losses incurred.
No material losses occurred in 1999 or 1998.
•
These risks can never be completely eliminated but the
Bank’s strategy to minimize operational risk includes:
•
a knowledgeable and experienced management team that
is committed to the Bank’s risk management policies;
regular meetings of the Operations Committee, a
management committee made up of supervisory and
management personnel from all operational areas and
chaired by a member of senior management, which is
responsible for the development and recommendation
of policies and procedures regarding day to day,
routine operations;
• communication of the importance of effective risk
•
management to all levels of staff through training and
policy implementation;
regular inspections for compliance and the effectiveness
of procedural controls by a strong, independent internal
audit team;
implementation of policies and procedural controls
appropriate to address identified risks and which include
segregation of duties and built-in checks and balances;
• use of technology via automated systems with built-in
•
controls;
• continual review and upgrade of systems and procedures;
and
• updated and tested procedures and contingency plans for
disaster recovery and business continuity.
In addition, the external auditors report annually on the
efficiency and effectiveness of internal controls over
significant risk areas and provide their report to the Audit
Committee.The Bank also maintains appropriate insurance
coverage through a financial institution bond policy.
Year 2000 Update
The “Year 2000 issue” is a general term used to refer to
certain business implications of the arrival of the new
millenium.These implications arise primarily because it has
been normal practice for computer hardware and software
to use only two digits rather than four to record the year in
date fields. Date sensitive computer and electronic systems
may not interpret dates in the next century accurately,
possibly resulting in calculation errors and/or system
failures.Without appropriate modifications, the Bank’s
ability to carry out normal activities could be compromised.
The Bank adopted the Office of the Superintendent of
Financial Institutions Canada Year 2000 Project – Best
Practices guideline as the basis for managing the Year 2000
issue.A Year 2000 project team was established in 1997 to
manage the overall process and includes representatives from
CWT and CWC.A standard methodology was adopted
by all companies within the Bank’s corporate family.
Participation in the Canadian Bankers Association Year 2000
Interbank Working Group was also undertaken.
Awareness of the Year 2000 issue is high within the Bank.
Quarterly reporting has been provided by management to
the Board, and Internal Audit has presented an independent
quarterly report to the Audit Committee on the status of the
project. In late 1998, an independent party was engaged to
review progress toward becoming Year 2000 ready. Items
identified by management for follow up have been completed.
Modifications, implementation and testing of all internal
systems as well as testing wih critical external parties has
been completed. Internal testing has included a roll-over
from 1999 to 2000 and running in a Year 2000 timeframe
where appropriate.A freeze on system modifications is in
effect to ensure that systems remain Year 2000 compliant.
Third parties are relied on for important services such
as telecommunications, payment system clearing services and
switching access to Interac® and other electronic networks.
Year 2000 readiness of these service providers is actively
monitored, and it is believed the third party service
providers are ready to continue to provide services to
the Bank and its customers.
Certain steps have also been taken to review the Year 2000
readiness of major borrowers. Based on this review,
no material credit risk concerns have been identified.
However, due to the general uncertainty inherent in the
Year 2000 issue, it is not possible at this time to estimate
any provisions for credit losses that may be required in
the future.
The business continuity plan has been reinforced with
specific contingency plans for Year 2000 transition issues.
These contingency plans cover operational capability in
the event of systems failures, failures by third party service
providers and potentially higher than usual customer activity
toward the end of 1999 and into early 2000. However, while
the Bank believes that it is taking all required and prudent
actions, there can be no assurance that the contingency
planning will fully mitigate the risks and uncertainties
associated with the transition to the Year 2000.
The Bank has guaranteed that customers’ money will be safe
in their Canadian Western Bank and Canadian Western Trust
accounts, and financial records will be fully protected before,
on and after January 1, 2000.
Incremental Year 2000 related costs for the Year 2000
project to date have totalled approximately $584,000.
Of this amount, approximately $382,000 has been expensed
as incurred.The balance of the costs have been capitalized
according to existing policies and would have been incurred
over the next two years in any event as part of the Bank’s
normal ongoing systems maintenance and replacement
program.
The effects of the Year 2000 issue may be experienced
before, on, or after January 1, 2000, and, if not addressed,
the impact on operations and financial reporting may range
from minor errors to significant systems failures which
could affect an entity’s ability to conduct normal business
operations. It is not possible to be certain that all aspects
of the Year 2000 issue affecting the entity, including those
related to the efforts of customers, suppliers, or other third
parties will be fully resolved.
Management’s Analysis of Operations and Financial Condition}
P a g e 4 1
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS INCLUDING DERIVATIVES
Table 18 – Off-balance Sheet Financial Instruments
($ thousands)
Credit Instruments
Guarantees and standby letters of credit(1)
Commitments to extend credit(2)
Total
Derivative Financial Instruments (notional amounts)
Interest rate contracts(3)
Equity contracts(4)
Total
Assets Under Administration and Management
Assets under administration
Assets under management
Total
1999
1998
$ 27,479
366,229
$ 393,708
$ 21,457
282,150
$ 303,607
$ 269,000
$ 130,000
2,200
–
$ 271,200
$ 130,000
$ 559,978
399,284
$ 959,262
$ 453,058
392,556
$ 845,614
(1) Letters of credit and guarantees are issued on behalf of clients to third party beneficiaries as part of normal business operations.
(2) Commitments to extend credit to customers arise in the normal course of business. Includes undrawn availability authorized under lines of credit and commercial operating loans of $150 million (1998 – $122 million)
and recently authorized but unfunded loan commitments of $216 million (1998 – $122 million).
(3) Interest rate swaps are used as hedging devices to control interest rate risk. The outstanding swaps mature between January 2000 and July 2004. The total gross positive replacement cost of interest rate swaps was a
positive $227 (1998 – $437). This market value represents an unrealized gain, or the payment the Bank would receive if these contracts were unwound and settled at that date.
(4) Equity contracts are used to offset the return paid to depositors on certain deposit products where the return is linked to a stock index. The two outstanding contracts mature in March and June 2004. The total gross
positive replacement cost is $17.
(5) U.S. dollar foreign exchange contracts are used from time to time to manage the difference between U.S. dollar assets and liabilities. At October 31, 1999 and 1998 there were no forward foreign exchange contracts
outstanding.
Trust assets under administration, administered by CWT,
totalled approximately $560 million at October 31, 1999
(1998 – $453 million).These assets are primarily in self-
directed RRSPs and RRIFs (registered retirement income
fund).Assets under administration, and the related fee
income, are expected to increase in 2000.Assets under
management totalled approximately $399 million (1998 –
$393 million) and are managed by CWC. Subsequent to
year end, the Bank announced its intended sale of CWC.
More detailed information on the nature of the Bank’s
off-balance sheet financial instruments is shown in
Notes 11, 12 and 15 to the Consolidated Financial Statements.
Continued use of interest rate swaps or other off-balance
sheet hedging instruments is expected in the future for
the purpose of asset liability structuring and management
of interest rate risk.The Bank only enters into these
off-balance sheet derivative financial instruments for its own
account and does not act as an intermediary in this market.
Transactions are entered into on the basis of industry
standard contracts with approved counterparties subject
to periodic and at least annual review. Policies regarding the
use of off-balance sheet financial instruments are approved,
reviewed, and monitored on a regular basis by ALCO and
reviewed and approved by the Board of Directors at least
annually.
P a g e 4 2 Management’s Analysis of Operations and Financial Condition
{
CORPORATE GOVERNANCE
INTRODUCTION
The Board of Directors and management of the Bank are
committed to maintaining an effective corporate governance
framework which is critical to the effective and efficient
management of the Bank’s operations.
The Corporate Governance & Human Resources
Committee provides direction, monitors compliance and
makes recommendations to the Board on the optimum
approach to governance issues to enhance corporate
performance.
THE BOARD AND BOARD COMMITTEES
The Bank is a federally regulated Schedule I bank.
Pursuant to the Bank Act (the “Act”), no one shareholder,
or shareholders acting in concert, can own more than
ten percent of any class of shares of a Schedule I bank.
Therefore, the Bank has no significant shareholders.
The Board is comprised of twelve members.The number of
directors reflects the desire to have the members represent
the geographical jurisdictions in which the Bank operates
and the need to fill the memberships of the two required
committees, the Audit and Conduct Review Committees,
and the other board committees which are the Loans
Committee and the Corporate Governance & Human
Resources Committee.The Board has reviewed the status
of each of its directors and determined if they are “affiliated”
(as defined by the affiliation rules set forth in the Act) or
“unrelated”, as defined in the TSE guidelines on corporate
governance.As a result of this review, the Board has
determined that two of the directors are affiliated
(the President and CEO and Executive Vice President);
they are also the only inside directors.All other directors
are “unrelated”.
At the time of appointment to the Board, at least 75 percent
of the board members must be resident Canadians and no
more than four members may be employees of the Bank.
The Chairman is an independent director and is appointed
annually by the members of the Board. Responsibilities not
delegated to senior management or to a committee of the
Board remain those of the full Board.The Board expects
all significant risks and internal controls to be identified
and reported upon by senior management to the Board
and/or its committees.
The Board holds four regular meetings each year, as well as
additional meetings as required. Most committees meet
quarterly and all meet annually at a minimum.A meeting
agenda matrix is issued to ensure meetings of the Board and
its committees are efficient and complete.
The Board of Directors as a whole has expressly assumed
responsibility for developing the Bank’s approach to
governance issues although the Corporate Governance &
Human Resources Committee plays a key role by
recommending and reporting on governance issues to the
Board. In addition, certain governance issues have been
delegated to other committees of the Board.
The Act contains several sections dealing with the
governance of a bank through its board of directors.
These sections prescribe matters such as limitations on the
number of directors who can be affiliated or non-resident,
certain powers that must be transacted by the full Board,
and requirements to establish both an audit committee and
a conduct review committee.The Act also prescribes certain
minimum benchmarks for board and committee member-
ship, quorums and the transaction of business by the Board.
The three encompassing duties in the Act that form the basis
for the Board’s mandate are:
•
to manage or supervise the management of the business
and affairs of the Bank;
to act honestly and in good faith with a view to the best
interests of the Bank and exercise the care, diligence and
skill that a reasonably prudent person would exercise in
similar circumstances; and
to comply with the Act, the regulations, the Bank’s
incorporating instrument and its by-laws.
•
•
The mandate of the Board also includes references to
compliance with the Canada Deposit Insurance
Corporation’s (“CDIC”) Standards of Sound Business and
Financial Practices. Generally speaking, these practices and
related standards cover all major risk areas of a bank and call
for the Board at least annually to approve the policies and
review the management programs associated with:
•
•
•
•
• capital management;
internal organizational and procedural controls;
•
•
real estate appraisals; and
• credit risk management.
interest rate risk management;
securities portfolio management;
liquidity and funding management;
foreign exchange risk management;
The areas of real estate appraisals and credit risk
management have been delegated to the Loans Committee
of the Board.
Corporate Governance}
P a g e 4 3
AUDIT COMMITTEE
This committee is comprised of four outside directors and
its mandate is summarized as follows:
•
review the annual statement and report thereon to the
directors before approval is given;
review such returns as required by OSFI and report
thereon to the directors before approval is given;
require management to implement and maintain
appropriate internal control procedures and review,
evaluate and approve those procedures;
review such investments and transactions of the Bank,
that could adversely affect its well-being, as are brought
to the committee’s attention by the auditors, or an officer
of the Bank or other committee of the Board;
review the annual statement and any specified return or
other transactions with the Bank’s auditors, ensuring any
items of concern are duly considered;
•
•
•
•
•
•
• discuss the adequacy/effectiveness of the internal control
procedures with the Vice President and Chief Inspector
and review any significant findings with senior management;
review the interim unaudited statements, as well as other
related public information, before public disclosure;
review a report from the Loans Committee of the Board,
including recommendations on the adequacy of loan loss
provisions and write-offs;
review the CDIC Standards Assessment and Reporting
Program (SARP) annually and report thereon to the
directors before approval is given;
review the terms of the auditors’ engagement, their level
of compensation, the audit plan, any proposed changes
in accounting policies, their presentation and input
concerning significant risks and key estimates and
judgements of management; and
•
•
• meet regularly with the internal and external auditors
without management present.
The mandate of the Board also specifically includes other
matters which are not necessarily stated in the Act or in
the CDIC standards and they are summarized as follows:
approve the annual statement and specified returns,
•
prior to release to the public or submission to OSFI;
review and approve the annual strategic business plan
and accompanying capital plan and financial operating
budget, including capital expenditures;
•
• declare dividends;
• outline the content and frequency of management
•
•
•
reports on financial operations;
review and ratify the employment, appointment, grade
levels and compensation of the top five executive
employees and approve all senior officer appointments;
review succession plans;
review any recommendations from regulators or external
auditors respecting their assessment of the effectiveness of
the internal controls that come to their attention in the
conduct of their work;
• ensure an independent audit/inspection function is in
place to monitor the effectiveness of organizational and
procedural controls;
review and accept reports from the Audit, Conduct
Review and Corporate Governance & Human
Resources Committees; and
approve loan write-offs.
•
•
P a g e 4 4
{
Corporate Governance
CONDUCT REVIEW COMMITTEE
• hire appropriate consultants, or request management
This committee is comprised of four outside directors and
its mandate is summarized as follows:
• establish procedures to ensure disclosure of transactions
with specified related parties of the Bank and, further,
to review any such transactions to ensure compliance
with the Act, either approving or declining the
transactions, as required;
review and approve internal policies for credit
arrangements and financial services available to employees
of the Bank under the regulations concerning officers
and associated parties;
•
• monitor aggregate transactions of the Bank with directors
as well as officers and their interests to ensure continued
compliance with the Act with excesses brought to the
Board for consideration;
review the conduct policy on an annual basis to ensure
relevance and completeness in regard to legislative
requirements;
•
• monitor procedures for conflicts of interest, confidential
information, disclosure of information and handling of
customer complaints, and be satisfied that the procedures
are being adhered to;
• ensure every employee, officer and Board member agrees
to comply, in writing, with annual acknowledgement,
with the Bank’s conduct policy; and
after each meeting provide a report to the directors
on all transactions and other matters reviewed by the
committee.
•
CORPORATE GOVERNANCE & HUMAN RESOURCES COMMITTEE
This committee is comprised of five outside directors and its
mandate is summarized as follows:
•
recommend to the Board appropriate structure and
process required to address governance issues and
maintain compliance with all corporate governance
guidelines;
review and monitor compliance with corporate
governance guidelines and follow any issues noted by
the members or as reported to them by management or
other directors from time to time;
•
• no less than annually, report to the Board on corporate
governance issues and any instances of non-compliance,
together with appropriate recommendations;
•
•
to perform studies and to furnish other information as
required; to review such information and take such
actions based thereon as appropriate;
review and recommend to the Board the employment
and appointment of the top five executive employees,
to establish their grade levels and compensation, as well
as to determine promotions and to make changes in the
level of compensation and grade of incumbent executive
employees and officers;
review the position descriptions for the top five executive
employees, ensuring they remain current and accurate
and further, to also ensure position descriptions are in
place for all other executive officers;
• establish an executive compensation structure to
compensate all levels of executive employees and,
within such compensation structure as may at that time
be in effect, to make adjustments and annual revisions
as necessary;
• ensure an annual performance appraisal is completed for
the President and CEO and that it is reviewed with him
by the Chairman of the Board;
• establish, amend and, where appropriate, terminate:
– programs and other personal benefits granted to
executive employees;
– incentive compensation plans and other bonus
arrangements, to administer such plans and to make
appropriate interpretations and determinations as
required;
– share incentive plans and similar arrangements
involving the grant of share options, or other benefits
to employees attendant upon the issuance of securities,
and, in addition, to make grants of options under any
share incentive plan and generally to administer such
plans, subject to necessary regulatory and shareholder
approval; and
– annuity, pension, and retirement programs for
executive employees;
•
•
review the human resource succession plan as prepared
by senior management for all officers and any other
senior position considered critical to operations;
seek and recommend individuals to be considered for
Board membership, as required by the Board, and forward
their recommendations with written rationale, compared
against published terms of reference, to the Board for
their consideration;
Corporate Governance}
P a g e 4 5
•
review, monitor, and make recommendations regarding
new director orientation and the ongoing development
of existing Board members;
• evaluate, at least bi-annually, Board membership
(including composition and size) and the
involvement/performance of the membership with
concerns recorded, and brought to the attention of the
committee chair, who, in conjunction with the
committee, determines if further action is required;
review and recommend to the Board the fees and other
benefits to be paid to directors; and
•
• make recommendations to the Board regarding revisions
or additions to the Board of Directors Manual.
LOANS COMMITTEE
This committee is comprised of eight directors, six of whom
are unrelated.The President and CEO and the Executive
Vice President, who are affiliated, inside directors, are also
members. Its mandate is summarized as follows:
•
review and approve a lending limit for the Bank and the
President and CEO within the limits established by the
Board and review such limits at least annually;
review, approve and/or decline all credit applications
for amounts in excess of delegated limits up to the limit
established, not to exceed ten percent of capital;
recommend for approval of the full Board, any loan
proposals in excess of the Bank’s limit;
recommend for approval of the full Board loan proposals
to directors, related entities and Bank subsidiaries;
annually review and approve the credit risk management
program and policies, including management’s real estate
appraisal policies and procedures, to ensure they are
sound, prudent and in accordance with CDIC standards;
review and recommend acceptance of management’s
recommendations for loan loss provisions and loan
write-offs to the Audit Committee for their presentation
to the Board; and
review and approve action plans, as required, on loans
reported by management to be less than satisfactory.
•
•
•
•
•
•
OTHER AREAS OF CONSIDERATION
The Bank has not adopted a formalized process of
orientation for new Board members although all directors
are provided with a Directors’ Manual, outlining key
governance information and reference material. It is worthy
of note that seven out of the ten outside directors have
served on the Board for ten years or more.There is also a
Board and member review and assessment program whereby
every second year directors complete a formal assessment
of the operations and effectiveness of the Board and its
committees. Every other year, directors may complete a
formal assessment on individual directors’ effectiveness.
In order to carry out its responsibilities the Board must
have timely access to information which is available via
discussions with the Bank’s senior management and through
a comprehensive information package sent out prior to each
board meeting which includes the agenda, minutes of
previous meetings and supporting documentation for
specific agenda items.
The Bank is also committed to ensuring quality and timely
information is available to all shareholders. Inquiries and
requests for information from shareholders and potential
investors receive prompt attention from an appropriate
officer.The President and CEO and other members of
senior management also meet periodically with financial
analysts and institutional investors.
Also, the Board has put in place a policy providing for
individual directors to engage outside advisors if the
circumstances are warranted.
The Bank has engaged an independent Ombudsman to
receive complaints from banking clients who are unable
to obtain satisfaction from the Bank’s internal complaint
handling mechanism.
CONCLUSION
The Bank’s corporate governance approach is in compliance
with the TSE guidelines. It will continue to develop over
time with the Corporate Governance & Human Resources
Committee playing a key role in monitoring, developing
and recommending to the Board on governance issues as
warranted.
P a g e 4 6
{
Corporate Governance
FINANCIAL STATEMENTS
MANAGEMENT’S REPORT
The consolidated financial statements of Canadian Western
Bank and related financial information presented elsewhere
in this annual report have been prepared by management,
who are responsible for the integrity, objectivity and
reliability of the data presented.The consolidated financial
statements were prepared in accordance with generally
accepted accounting principles other than the accounting
for the general allowance for credit risk which is in
accordance with the accounting requirements of the
Superintendent of Financial Institutions Canada under the
Bank Act, as described in Note 1.The consolidated financial
statements and related financial information reflect amounts
which must, of necessity, be based on informed estimates
and judgements of management with appropriate
consideration to materiality.The financial information
presented elsewhere in this annual report is consistent
with that in the consolidated financial statements.
The Bank’s accounting system and related internal controls
are designed, and supporting procedures are maintained,
to provide reasonable assurance that financial records are
complete and accurate, that assets are safeguarded and that
the Bank is in compliance with all regulatory requirements.
These supporting procedures include the careful selection
and training of qualified staff, defined division of
responsibilities and accountability for performance,
and the written communication of policies and guidelines
of business conduct and risk management throughout
the Bank.
The system of internal controls is also supported by
the internal audit division which carries out periodic
inspections of all aspects of the Bank’s operations.The Chief
Inspector has full and free access to the Audit Committee
and to the shareholders’ auditors.
The Audit Committee, appointed by the Board of Directors,
is composed of directors who are not officers or employees
of the Bank.The committee is responsible for reviewing
the financial statements and annual report and
recommending them to the Board of Directors for
approval.Their responsibilities also include meeting with
management, the Chief Inspector and the shareholders’
auditors to discuss the effectiveness of internal controls over
the financial reporting process, and the planning and results
of the external audit.
The Conduct Review Committee, appointed by the Board
of Directors, is composed of directors who are not officers
or employees of the Bank.Their responsibilities include
reviewing related party transactions, and reporting to the
Board of Directors, those transactions which may have
a material impact on the Bank.
The Superintendent of Financial Institutions Canada, at least
once a year, makes such examination and enquiry into the
affairs of the Bank as he may deem necessary or expedient
to satisfy himself that the provisions of the Bank Act, having
reference to the safety of the creditors and shareholders of
the Bank, are being duly observed and that the Bank is in
a sound financial condition.
Deloitte & Touche LLP, the shareholders’ auditors,
are appointed by the shareholders of the Bank.They have
full and free access to, and meet periodically with, the Audit
Committee to discuss their audit and matters arising
therefrom.
“Larry M. Pollock”
Larry M. Pollock
President and Chief Executive Officer
“Tracey C. Ball”
Tracey C. Ball, C.A.
Vice President and Chief Financial Officer
December 3, 1999
Financial Statements}
P a g e 4 7
AUDITORS’ REPORT
To The Shareholders of Canadian Western Bank
We have audited the Consolidated Balance Sheet of
Canadian Western Bank as at October 31, 1999 and 1998
and the Consolidated Statements of Income, Changes in
Shareholders’ Equity and Cash Flow for the years then
ended.These financial statements are the responsibility of
the Bank’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards.Those standards require that
we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material
misstatement.An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements.An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial position
of the Bank as at October 31, 1999 and 1998 and the results
of its operations and its cash flow for the years then ended in
accordance with generally accepted accounting principles,
other than the accounting for the general allowance for
credit risk which is in accordance with the accounting
requirements of the Superintendent of Financial Institutions
Canada under the Bank Act, as described in Note 1.
“Deloitte & Touche LLP”
Deloitte & Touche LLP
Chartered Accountants
Edmonton,Alberta
December 3, 1999
P a g e 4 8
{
Financial Statements
As at October 31
($ thousands)
Assets
Cash Resources
Cash
Deposits with regulated financial institutions
Cheques and other items in transit, net
Securities
Issued or guaranteed by Canada
Issued or guaranteed by a province
Other securities
CONSOLIDATED BALANCE SHEET
(Note 2)
Loans (net of allowance for credit losses)
(Notes 3 & 4)
Securities purchased under resale agreements and call loans
Residential mortgages
Other
Other
Land, buildings and equipment
Other assets
Total Assets
Liabilities and Shareholders’ Equity
Deposits
Payable on demand
Payable after notice
Payable on a fixed date
Other
Other liabilities
Subordinated Debentures
Conventional
Convertible
Shareholders’ Equity
Capital stock
Retained earnings
(Note 5)
(Note 6)
(Note 7)
(Note 8)
(Note 9)
1999
1998
$
1,562
$
2,246
136,456
31,972
169,990
112,826
52,079
40,287
205,192
41,017
272,428
1,940,153
2,253,598
13,218
50,384
63,602
133,888
23,404
159,538
98,481
34,178
28,208
160,867
28,493
277,415
1,683,748
1,989,656
12,760
63,657
76,417
$ 2,692,382
$ 2,386,478
$
45,043
$
49,325
221,456
2,104,576
2,371,075
83,066
13,126
65,565
78,691
98,484
61,066
159,550
208,551
1,801,669
2,059,545
94,574
13,126
73,965
87,091
89,595
55,673
145,268
Total Liabilities and Shareholders’ Equity
$ 2,692,382
$ 2,386,478
”Jack C. Donald“
Jack C. Donald
Chairman
”Larry M. Pollock“
Larry M. Pollock
President and Chief Executive Officer
Financial Statements}
P a g e 4 9
1999
1998
$
164,435
$
147,125
9,543
3,526
177,504
110,180
4,888
115,068
62,436
3,750
58,686
7,805
6,778
2,476
1,485
990
261
19,795
78,481
30,282
10,112
12,775
2,822
55,991
22,490
3,516
18,974
879
19,853
10,153,378
1.96
1.79
$
$
$
7,718
3,495
158,338
97,736
4,336
102,072
56,266
4,150
52,116
6,729
5,326
1,964
1,165
2,241
66
17,491
69,607
26,352
8,526
11,989
2,347
49,214
20,393
1,958
18,435
577
19,012
9,421,196
2.02
1.77
$
$
$
(Note 4)
(Note 10)
(Note 1(j))
CONSOLIDATED STATEMENT OF INCOME
For the year ended October 31
($ thousands, except per share amounts)
Interest Income
Loans
Securities
Deposits with regulated financial institutions
Interest Expense
Deposits
Debentures
Net Interest Income
Provision for credit losses
Net Interest Income after Provision for Credit Losses
Other Income
Credit related
Underwriting fees and commissions on securities transactions
Retail services
Trust services
Loan administration and other
Net gains on securities sales
Net Interest and Other Income
Non-interest Expenses
Salaries and employee benefits
Premises and equipment
Other expenses
Provincial capital taxes
Net Income before Provision for Income Taxes
Provision for income taxes
Net Income before Non-controlling Interest in Subsidiary
Non-controlling interest in net loss of subsidiary
Net Income
Average number of common shares outstanding
Earnings per common share
basic
fully diluted
P a g e 5 0
{
Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the year ended October 31
($ thousands)
Capital Stock
Balance at beginning of year
Common shares issued
Common shares purchased for cancellation
Balance at end of year
Retained Earnings
Balance at beginning of year
Net income
Dividends
Adjustment to general allowance for credit risk, net of income taxes of $5,185
Redemption of debenture
Balance at end of year
Total Shareholders’ Equity
$
(Note 9)
(Note 9)
(Note 4)
(Note 8)
1999
89,595
9,069
(180)
98,484
55,673
19,853
(4,860)
(6,509)
(3,091)
61,066
1998
$
89,057
538
–
89,595
39,476
19,012
(2,815)
–
–
55,673
$
159,550
$
145,268
Financial Statements}
P a g e 5 1
CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended October 31
($ thousands)
Cash Flows from Operating Activities
Net income
Adjustments to determine net cash flows:
Provision for credit losses
Depreciation and amortization
Deferred income taxes, net
Gain on sale of securities, net
Change in accrued interest receivable and payable, net
Other items, net
Cash Flows from Financing Activities
Deposits, net
Dividends
Redemption of subordinated debentures
Issue of subordinated debentures
Common shares issued, net of issue costs
Common shares purchased for cancellation
Cash Flows Used in Investing Activities
Loans, net
Securities, net
(Note 8)
(Note 8)
(Note 9)
(Note 9)
Interest bearing deposits with regulated financial institutions, net
Land, buildings and equipment, net
Acquisition of controlling interest in Canadian Western Capital Limited
(Note 17)
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year*
* Represented by:
Cash and cash equivalents per Consolidated Balance Sheet
Less non-operating, interest bearing deposits with regulated financial institutions
Cash and Cash Equivalents at End of Year
Supplemental Disclosure of Cash Flow Information
Amount of interest paid in the year
Amount of income taxes paid in the year
1999
1998
$
19,853
$
19,012
3,750
2,753
2,964
(261)
5,714
(1,940)
32,833
311,530
(4,860)
(7,091)
4,000
669
(180)
304,068
(279,386)
(43,954)
9,521
(3,109)
–
(316,928)
19,973
27,296
47,269
169,990
122,721
47,269
$
$
$
4,150
2,613
1,425
(66)
6,135
2,990
36,259
242,033
(2,815)
–
50,000
513
–
289,731
(283,799)
(14,044)
(22,740)
(3,995)
(5,600)
(330,178)
(4,188)
31,484
27,296
159,538
132,242
27,296
$
$
$
$ 108, 703
$
751
$
94,994
$ 409
P a g e 5 2
{
Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1999
($ thousands, unless otherwise stated)
1.
Significant Accounting Policies
These consolidated financial statements have been prepared in
accordance with subsection 308 (4) of the Bank Act which states that,
except as otherwise specified by the Office of the Superintendent of
Financial Institutions Canada (“OSFI”), the financial statements are to be
prepared in accordance with generally accepted accounting principles.
The significant accounting policies used in the preparation of these
financial statements, including the accounting requirements of OSFI,
are summarized below.
Of necessity, management must make estimates and assumptions
that affect the reported amount of assets and liabilities at the date of
the financial statements and income and expenses during the year.
Actual results could differ from those estimates.
OSFI has specified an accounting treatment for the general allowance
for credit risk which does not conform to generally accepted accounting
principles. The accounting for all other financial statement items
conform, in all material respects, to generally accepted accounting
principles.
a) Basis of Consolidation
The consolidated financial statements include the assets, liabilities
and results of operations of the Bank and all of its subsidiaries,
after the elimination of intercompany transactions and balances.
Subsidiaries are defined as corporations whose operations are
controlled by the Bank and are corporations in which the Bank owns
more than 50 percent of the voting shares. One of the subsidiaries,
Canadian Western Capital Limited, has a September 30 year end.
See Note 20 for details of the subsidiaries.
Business acquisitions are accounted for using the purchase method.
The difference between the acquisition cost of an investment and the
fair value of the net identifiable assets acquired represents goodwill
or other identifiable intangibles. This excess amount is deferred and
amortized to income over the anticipated period of benefit, not to
exceed 20 years. The unamortized balance is recorded in other assets.
The carrying value of goodwill and other identifiable intangibles is
evaluated regularly by reviewing the expected cash flows generated
by the acquired subsidiary or asset. Any permanent impairment in
value is written off to the Consolidated Statement of Income.
b) Securities
Securities are held in either the investment account or the trading
account.
Investment account securities are purchased with the original
intention to hold the securities to maturity or until market conditions
render alternative investments more attractive. Equity securities are
stated at cost or, if the value is permanently impaired, at net
realizable value and debt securities at amortized cost. Gains and
losses on disposal of securities and adjustments to record any
permanent impairment in value are included in other income in the
period of realization. Amortization of premiums and discounts are
reported in interest income from securities in the Consolidated
Statement of Income.
Trading account securities, which are purchased for resale over a
short period of time, are carried at estimated current market value.
Gains and losses realized on disposal and adjustments to market
value are reported in other income in the Consolidated Statement
of Income in the period during which they occur.
c) Loans
Loans are stated net of unearned income and an allowance for credit
losses (Note 1(d)).
Interest income is recorded on the accrual basis except for loans
classified as impaired. Loans are determined to be impaired when
interest is contractually past due 90 days, or where the Bank has
taken realization proceedings, or where the Bank’s management is
of the opinion that the loan should be regarded as impaired.
An exception may be made where management determines that
the loan is well secured and in the process of collection and the
collection efforts are reasonably expected to result in either
repayment of the loan or restoring it to a current status within
180 days from the date the payment went in arrears. All loans are
classified as impaired when a payment is 180 days in arrears other
than loans guaranteed or insured for both principal and interest by
the Canadian government, the provinces or a Canadian government
agency. These loans are classified as impaired when payment is
365 days in arrears.
Impairment is measured as the difference between the carrying value
of the loan at the time it is classified as impaired and the present
value of the expected cash flows (estimated realizable amount),
using the interest rate inherent in the loan at the date the loan is
classified as impaired. When the amounts and timing of future cash
flows cannot be reliably estimated, either the fair value of the
security underlying the loan, net of any expected realization costs,
or the current market price for the loan may be used to measure the
estimated realizable amount. At the time a loan is classified as
impaired, interest income will cease to be recognized in accordance
with the loan agreement, and any uncollected but accrued interest
will be added to the carrying value of the loan together with any
unamortized premiums, discounts or loan fees. Subsequent payments
received on an impaired loan are recorded as a reduction of the
recorded investment in the loan. Impaired loans are returned to
performing status when the timely collection of both principal and
interest is reasonably assured and all delinquent principal and
interest payments are brought current and all charges for loan
impairment have been reversed.
d) Allowance for Credit Losses
The Bank maintains an allowance for credit losses, the purpose of
which is to keep an adequate balance sufficient to absorb credit
related losses in its loan portfolio. The allowance for credit losses
is deducted from the related asset category.
The balance in the account consists of specific provisions and the
general allowance for credit risk. Specific provisions include all the
accumulated provisions for losses on particular impaired loans
required to reduce the carrying value of those loans to their
estimated realizable amount. In October 1998 OSFI provided
guidance to all deposit-taking institutions on establishing general
allowances for credit risk. The general allowance for credit risk
should include provisions for losses relating to individual loans or
groups of loans in the existing portfolio which are not yet specifically
identified as impaired. The general allowance for credit risk was
established by taking into consideration historical trends in the loss
experience during an economic cycle, the current portfolio profile,
estimated losses for the current phase of the economic cycle and
historical experience in the industry. In compliance with the guidance
provided by OSFI, any significant adjustment to the general
allowance for credit risk, net of income taxes, was treated as a
one-time charge to retained earnings, with no adjustment to
opening retained earnings. (See Note 19)
Notes to Consolidated Financial Statements}
P a g e 5 3
Actual write-offs, net of recoveries, are deducted from the allowance
for credit losses. The provision for credit losses in the Consolidated
Statement of Income is charged with an amount sufficient to keep
the balance in the allowance for credit losses adequate to absorb
all credit related losses.
e) Land, Buildings and Equipment
Land is carried at cost. Buildings, equipment and furniture, and lease-
hold improvements are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated
primarily using the straight-line method over the estimated useful
life of the asset as follows: buildings – 20 years, equipment and
furniture – 3 to 5 years, and leasehold improvements – term of lease.
Gains and losses on disposal are recorded in other income in the
Consolidated Statement of Income in the year of disposal.
f) Translation of Foreign Currencies
Assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at rates prevailing at the balance
sheet date. Revenues and expenses in foreign currencies are
translated at the average exchange rates prevailing during the year.
Realized and unrealized gains and losses on foreign currency
positions are included in other income in the Consolidated Statement
of Income.
g) Loan Fees
Loan fees, net of directly related costs, are amortized to interest
income over the expected term of the loan when such fees are
considered to be an integral part of the return earned on the
particular loan. Loans are stated net of unamortized fees.
h)
Income Taxes
The Bank follows the tax allocation method of accounting for income
taxes whereby income taxes are based on transactions recognized
for accounting purposes regardless of when they are recognized for
tax purposes. The cumulative timing differences between tax
calculated on this basis and taxes currently payable result in deferred
income taxes which are recorded in other assets. Total income taxes
include the provision for income taxes in the Consolidated Statement
of Income and income taxes applicable to items charged or credited
directly to retained earnings.
i) Derivative Financial Instruments
Interest rate, foreign exchange and equity contracts such as futures,
options and swaps are entered into for asset/liability management
purposes. These contracts are designated and function as hedges
and are accounted for on the accrual basis. Net accrued interest
receivable/payable and deferred gains/losses are recorded in other
assets or other liabilities, as appropriate. Interest income/expense
and gains/losses are recognized as interest income or interest
expense, as appropriate, over the hedged period.
j) Earnings per Common Share
Basic earnings per common share is calculated based on the average
number of common shares outstanding during the year. Fully diluted
earnings per share includes the effect of all potential dilutive factors
on earnings per common share.
k) Stock Option Plans
The Bank has stock option plans which are described in Note 9.
No expense is recognized for these plans when the stock options
are issued to the employees. Any consideration paid by employees
on exercise of stock options is credited to share capital.
2.
Securities
The analysis of securities at carrying value, by type and maturity is as follows:
Within
1 Year
$
88,720
27,455
–
29,969
–
Maturities
Over 1
to 3 Years
$ 24,106
14,903
–
–
–
Over 3
to 5 Years
$
–
9,721
–
–
–
Over 5
Years
1999 Total
Book Value
1998 Total
Book Value
$
–
–
$ 112,826
$ 98,481
52,079
34,178
1,000
–
9,318(2)
1,000
29,969
9,318
1,000
25,905
1,303
$ 146,144
$ 39,009
$ 9,721
$ 10,318
$ 205,192
$ 160,867
Securities Issued or Guaranteed by:
Canada
A province
Other Debt Securities
Floating rate notes
Corporate debt
Equity Securities
Total(1)
(1) All securities are held in the investment account.
(2) These securities have no specific maturity.
P a g e 5 4
{
Notes to Consolidated Financial Statements
The analysis of unrealized gains and losses on investment securities is as follows:
1999
1998
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
Book
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Market
Value
Book
Value
Securities Issued or Guaranteed by:
Canada
A province
Other Debt Securities
Floating rate notes
Corporate debt
Equity Securities
Total
3.
Impaired Loans
$ 112,826
$
52,079
1,000
29,969
9,318
$ 205,192
1
8
–
–
106
$ 115
$
207
399
–
1
410
$ 112,620
$
98,481
51,688
34,178
$ 290
315
1,000
29,968
9,014
1,000
25,905
1,303
–
1
39
$ 3
$ 98,768
3
–
1
–
34,490
1,000
25,905
1,342
$ 1,017
$ 204,290
$ 160,867
$ 645
$ 7
$ 161,505
Impaired loans and the related allowance for credit losses are as follows:
Consumer and personal
Real estate
Industrial
Other
Gross
Amount
$ 3,209
22,862
7,973
4,145
38,189
Specific
Provisions
$
348
2,526
1,238
1,060
5,172
1999
Carrying
Amount
$ 2,861
20,336
6,735
3,085
33,017
General allowance for credit risk(1)
Total(2)
(1) The general allowance for credit risk is available for the total loan portfolio.
(2) Impaired loans include foreclosed real estate assets held for sale with a gross carrying value of $6,866 (1998 – $5,257) and a related specific allowance of $1,606 (1998 – $1,577).
$ 38,189
$ 26,020
$ 12,169
(20,848)
20,848
–
1998
Carrying
Amount
$ 2,391
12,392
2,039
6,006
22,828
(9,325)
$ 13,503
At October 31, 1999 other past due loans totalled $249 (1998 – $nil).
Other past due loans are loans where payment of interest or principal is
contractually 90-180 days in arrears but are not classified as impaired
because they are well secured and considered fully collectible.
During the year interest recognized as income on impaired loans totalled
$579 (1998 – $341).
4.
Allowance for Credit Losses
The following table shows the changes in the allowance for credit losses during the year.
1999
General
Allowance
for Credit Risk
$ 9,325
11,694
(171)
–
–
Specific
Provisions
$ 3,517
–
3,921
(2,314)
48
1998
General
Allowance
for Credit Risk
$ 7,476
–
1,849
–
–
Specific
Provisions
$ 4,911
–
2,301
(4,029)
334
Total
$ 12,842
11,694
3,750
(2,314)
48
Total
$ 12,387
–
4,150
(4,029)
334
Balance at beginning of year
Adjustment to general allowance
for credit risk(1)
Provision for credit losses
Write-offs
Recoveries
Balance at end of year
$ 5,172
$ 20,848
$ 26,020
$ 3,517
$ 9,325
$ 12,842
(1) In accordance with the guidance provided by OSFI as described in Note 1(d), the Bank increased its general allowance for credit risk by $11,694. Accordingly, retained earnings was reduced by $6,509,
representing the increase in the general allowance, net of deferred income taxes of $5,185.
The Bank has virtually no loans booked outside of Canada and therefore has no country risk provisions.
Notes to Consolidated Financial Statements}
P a g e 5 5
5.
Land, Buildings and Equipment
Land
Buildings
Equipment and furniture
Leasehold improvements
Total
Accumulated
Depreciation and
Amortization
$
–
1,571
8,291
2,468
Cost
$ 2,753
3,099
13,474
6,222
1999
Net Book
Value
$ 2,753
1,528
5,183
3,754
1998
Net Book
Value
$ 2,753
1,689
4,934
3,384
$ 25,548
$ 12,330
$ 13,218
$ 12,760
Depreciation and amortization for the year, in respect of the above buildings, equipment and furniture, and leasehold improvements amounted to $2,680
(1998 – $2,358).
6.
Other Assets
Due from clients and brokers
Deferred income tax asset
Accrued interest receivable
Prepaid expenses
Goodwill and other identifiable intangibles(1)
Deferred financing costs(2)
Other
Total
(Note 10)
(1) Amortization of goodwill and other identifiable intangibles included in other expenses in the Consolidated Statement of Income is $493 (1998 – $397).
(2) Amortization of deferred financing costs included in other expenses in the Consolidated Statement of Income is $250 (1998 – $182).
7.
Other Liabilities
Accrued interest payable
Due to clients and brokers
Accounts payable
Deferred revenue
Non-controlling interest in subsidiary
Other
Total
1999
$ 14,670
12,335
10,822
5,817
2,031
1,861
2,848
1998
$ 31,943
9,827
10,170
5,199
2,584
2,111
1,823
$ 50,384
$ 63,657
1999
$ 47,430
29,070
4,961
628
234
743
1998
$ 41,064
44,656
6,034
1,119
331
1,370
$ 83,066
$ 94,574
P a g e 5 6
{
Notes to Consolidated Financial Statements
8.
Subordinated Debentures
Each of the following qualifies as a bank debenture under the Bank Act and is subordinate in right of payment to all deposit liabilities. All redemptions are
subject to the approval of OSFI. The convertible debentures are financial instruments which have both debt and equity components. The recommendation issued
by the Canadian Institute of Chartered Accountants to account for these components separately was considered but the value assignable to the conversion
option at the date of issue was deemed to be immaterial in each case.
Conventional(1)
The Province of Alberta
CIC Industrial Interests Inc. (an agency of the Province of Saskatchewan)
CLIC Investments (Canada) Inc.
Convertible
5.50% convertible debentures(2)
6.75% convertible debentures(3)
Crown Life Insurance Company(4)
Crown Life Insurance Company(5)
Total
Interest
Rate
Maturity
Date
1999
1998
6.660%
6.590%
6.415%
March 31, 2007
June 30, 2007
July 31, 2007
5.500%
6.750%
5.700%
9.000%
March 31, 2008
April 15, 2006
July 31, 2009
July 31, 2004
$ 5,000
$ 5,000
3,126
5,000
13,126
50,000
11,565
4,000
–
65,565
3,126
5,000
13,126
50,000
19,965
–
4,000
73,965
$ 78,691
$ 87,091
(1) Each of the conventional debentures has a ten year term with a fixed interest rate for the first five years. Thereafter, if not redeemed by the Bank, interest will be payable at a rate equal to the Canadian
Dollar CDOR 90 day Bankers Acceptance Rate plus 1%.
(2) These debentures are convertible into common shares at the option of the holder at any time prior to maturity, or the date specified for conversion by the Bank, whichever is earlier, at a conversion price of
$30.50 per share. At any time after March 31, 2003 the debentures are convertible by the Bank.
(3) These debentures are convertible into common shares at the option of the holder at any time prior to maturity, or the date specified for conversion by the Bank, whichever is earlier, at a conversion price of
$12.50 per share. The debentures were not convertible by the Bank prior to April 15, 1999. From April 15, 1999 to April 14, 2001, provided certain market conditions exist, the debentures are convertible by
the Bank. In 1999, $8,400 (1998 – $25) of the debentures were converted by holders.
On October 29, 1999 the Bank provided notice of its intention to convert all of the outstanding 6.75% convertible debentures to common shares on December 1, 1999. As a result of the notice the remaining
$11,565 of the original $20,000 issued were converted by debentureholders on November 30, 1999 at a conversion price of $12.50 per share.
(4) On July 28, 1999 the Bank issued a subordinated debenture to Crown Life Insurance Company for $4,000. This debenture is convertible into common shares, at the option of the holder, at any time prior to
maturity. The Bank may redeem the debenture after July 31, 2004. The number of shares issued at conversion will be determined based on a $25.00 per share conversion price.
(5) On July 6, 1994 the Bank issued a $4,000 subordinated debenture to Crown Life Insurance Company. The debenture was convertible into common shares of the Bank, at the option of the holder, at a conversion
price of $11.00 per share. On July 28, 1999, the Bank completed negotiations with the holder for the redemption of the debenture and the related conversion option for aggregate consideration of $7,091 based
upon the current market value of the underlying common shares. The excess of the total consideration paid over the face value of the debenture has been attributed to the conversion option and charged to
retained earnings. There was no income tax effect.
9.
Capital Stock
Authorized:
An unlimited number of common shares without nominal or par value
33,964,324 Class A shares without nominal or par value
25,000,000 First Preferred shares without nominal or par value, issuable in series
Issued and fully paid:
Common shares
Outstanding at beginning of year
Issued on exercise of options and conversion of debentures(1)
Shares purchased for cancellation
Outstanding at End of Year
1999
1998
Number
of Shares
9,441,520
740,977
(10,300)
10,172,197
Amount
$ 89,595
9,069
(180)
Number
of Shares
9,380,778
60,742
–
Amount
$ 89,057
538
–
$ 98,484
9,441,520
$ 89,595
(1) In 1999, 68,977 (1998 – 58,742) options were exercised, at a weighted average exercise price of $9.70 (1998 – $8.73) and $8,400 (1998 – $25) of the 6.75% debentures were converted into 672,000
(1998 – 2,000) shares.
Notes to Consolidated Financial Statements}
P a g e 5 7
On November 4, 1998 the Bank implemented a normal course issuer bid
for a twelve month period which allowed the Bank to purchase for
cancellation up to 472,036 common shares, or 5% of its outstanding
common shares. The amounts and timing of repurchases were at the
Bank’s discretion and could be made up to November 3, 1999 at
prevailing market prices. In October 1999 10,300 common shares were
purchased for cancellation at $17.50 per share.
The Bank has subordinated debentures which are convertible to common
shares of the Bank as more fully described in Note 8. Subsequent to year
end the debentureholders converted all of the outstanding 6.75%
convertible debentures, which totalled $11,565, to common shares
resulting in the issuance of 925,200 common shares and a charge to
retained earnings of $384 for share issue expenses, net of deferred
income taxes.
The Bank also has authorized 1,226,831(1) common shares (1998 –
1,145,808) for issuance under option plans. Of the amount authorized,
options exercisable into 1,177,096 shares are issued and outstanding
(1998 – 1,101,723) and all expire within ten years of date of grant.
The options are exercisable at a fixed price equal to the average of the
market price on the day of and the four days preceding the grant.
Outstanding options have exercise prices ranging from $8.73 to $20.31.
Their weighted average remaining contractual life is 4.8 years and they
expire on dates ranging from June 2000 to December 2007. The details
of and changes in the issued and outstanding options follow:
Options
Balance at beginning of year
Granted
Exercised
Forfeited
Balance at end of year
Exercisable at end of year
1999
1998
Number
of Options
1,101,723
158,050(1)
(68,977)
(13,700)
1,177,096
363,305
Weighted
Average
Exercise
Price
$ 13.02
18.83
9.70
16.29
$ 13.96
$ 14.13
Number
of Options
894,965
268,200
(58,742)
(2,700)
1,101,723
157,312
Weighted
Average
Exercise
Price
$ 10.93
19.11
8.73
19.11
$ 13.02
$ 9.08
(1) Of this amount, 137,650 options granted (150,000 authorized) are subject to shareholder and Toronto Stock Exchange approval.
10.
Income Taxes
The provision for income taxes consists of the following:
Current
Deferred
Total
The effective income tax rate of the Bank is 45.2%. However, income
taxes otherwise payable for the year have been eliminated by utilizing
approximately $24, 801 (1998 – $23,660) of acquired unclaimed
deductions and tax loss carryforwards.
The current income tax provision represents amortization of acquired
unclaimed deductions and tax loss carryforwards of $2,708 (1998 –
$2,494) and large corporations tax of $552 (1998 – $533).
The deferred income tax asset, included in other assets, primarily
represents the net unamortized balance of the acquired unclaimed
deductions plus accumulated timing differences relating to claiming
deductions for income tax purposes on a basis different from accounting
and relate mainly to the provision for credit losses. The Bank has
reasonable assurance that its net deferred income tax asset will be
realized through future operations and reversals of timing differences.
1999
$ 3,260
256
$ 3,516
1998
$ 3,027
(1,069)
$ 1,958
At October 31, 1999, the Bank has approximately $44,733 of unclaimed
deductions which are available to reduce future years’ income for tax
purposes. The Bank’s subsidiaries have approximately $8,990 in tax loss
carryforwards which are available to reduce future years’ income for tax
purposes and expire up to 2006.
In addition, $6,966 (1998 – $6,315) of capital losses are available to
apply against future capital gains and have no expiry date.
The tax benefit of these losses has not been recognized in income.
P a g e 5 8
{
Notes to Consolidated Financial Statements
11. Contingent Liabilities and Commitments
a) Off-balance Sheet Instruments
In the normal course of business, the Bank enters into various commitments
and has contingent liabilities which are not reflected in the Consolidated
Balance Sheet. These items are reported below and are expressed in terms
of the contractual amount of the related commitment.
Credit Instruments
Guarantees and standby letters of credit
Commitments to extend credit
Total
Guarantees and standby letters of credit are issued on behalf of
clients to third party beneficiaries as part of normal business
operations. In the event of a call on any of these instruments, the
Bank has recourse against its client. Issuance of guarantees and
standby letters of credit is subject to the same credit assessment,
approval, monitoring and control procedures as the extension of
direct loans. Losses, if any, resulting from these transactions are not
expected to be material.
Commitments to extend credit to customers also arise in the normal
course of business and include recently authorized credit facilities
not yet drawn down or credit facilities available on a revolving basis.
In the majority of instances, availability of undrawn commercial
commitments is subject to the borrower meeting specified financial
tests or other covenants regarding completion or satisfaction of
certain conditions precedent. It is also usual practice to include the
right to review and withhold funding in the event of a material
adverse change in the financial condition of the borrower. Given that
undrawn credit authorizations arise out of approvals granted
through the normal credit assessment process, such commitments
bear virtually the same credit risk as fully advanced loan assets. From
a liquidity perspective, undrawn credit authorizations will be funded
over time with draws in many cases extending over a period of
months. In some instances authorizations are never advanced or may
be reduced because of changing requirements. The balance of
commitments to extend credit shown in the table above does not
account for principal drawdowns or paybacks that occur in the
normal course of operations. Revolving credit authorizations are
subject to repayment which on a pooled basis also decreases
liquidity risk.
1999
1998
$ 27,479
366,229
$ 393,708
$ 21,457
282,150
$ 303,607
b) Lease Commitments
The Bank has obligations under long-term non-cancellable leases
for the rental of premises and office equipment. Minimum future
lease commitments for each of the five succeeding years and
thereafter are as follows:
2000
2001
2002
2003
2004
2005 and thereafter
Total
$ 3,377
3,415
3,358
3,237
2,915
10,884
$ 27,186
c) Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive systems
may recognize the year 2000 as 1900 or some other date, resulting
in errors when information using year 2000 dates is processed.
In addition, similar problems may arise in some systems which use
certain dates in 1999 to represent something other than a date.
The effects of the Year 2000 Issue may be experienced before, on,
or after January 1, 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant systems failure which could affect an entity’s ability to
conduct normal business operations. It is not possible to be certain
that all aspects of the Year 2000 Issue affecting the entity, including
those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
12. Assets Under Administration and Management
These are assets administered and/or managed by subsidiaries of the Bank.
The assets are beneficially owned by clients and are kept separate from the
subsidiaries’ own assets. Therefore they are not reported on the Consolidated
Balance Sheet.
Assets under administration
Assets under management
Total
1999
$ 559,978
399,284
$ 959,262
1998
$ 453,058
392,556
$ 845,614
Notes to Consolidated Financial Statements}
P a g e 5 9
13. Related Party Transactions
The Bank makes loans, primarily residential mortgages, to its officers
and employees at various preferred rates and terms. The total amounts
outstanding for these type of loans are $17,429 (1998 – $15,401).
14.
Fair Value of Financial Instruments
Fair value represents the estimated consideration that would be agreed
upon in a current transaction between knowledgeable, willing parties
who are under no compulsion to act. The best evidence of fair value is a
quoted market price. However, most of the Bank’s financial instruments
lack an available trading market as they are not typically exchanged.
Therefore, these instruments have been valued assuming they will not
be sold, using present value or other suitable techniques and are not
necessarily representative of the amounts realizable in an immediate
settlement of the instrument.
Changes in interest rates are the main cause of changes in the fair value
of the Bank’s financial instruments. The carrying value of the majority of
the financial instruments is not adjusted to reflect increases or decreases
in fair value due to interest rate changes as the Bank’s intention is to
realize their value over time by holding them to maturity. The carrying
value of financial instruments held for trading purposes would be
continually adjusted to reflect fair value. At October 31, 1999 and 1998
there were no financial instruments held for trading purposes.
The table below sets out the fair values of on-balance sheet financial
instruments and derivative instruments using the valuation methods
and assumptions referred to below the table.
Assets
Cash resources
Securities
(Note 2)
Loans
Other assets(1)
Liabilities
Deposits
Other liabilities
Subordinated debentures
Off-balance Sheet Derivative
Financial Instruments
Net asset
(Note 15)
1999
1998
Book Value
Fair Value
Fair Value
Over(Under)
Book Value
Book Value
Fair Value
Fair Value
Over(Under)
Book Value
$
169,990
$
169,990
$
205,192
2,253,598
37,601
204,290
2,232,876
37,601
2,371,075
2,353,937
83,066
78,691
83,066
77,548
–
(902)
(20,722)
–
(17,138)
–
(1,143)
$
159,538
$
159,538
$
160,867
1,989,656
52,677
161,505
1,992,486
52,677
2,059,545
2,087,722
94,574
87,091
94,574
88,737
–
638
2,830
–
28,177
–
1,646
$
(569)
$
333
The table does not include assets and liabilities that are not considered financial instruments, such as land, buildings and equipment.
(1) Other assets exclude goodwill and deferred income tax assets which are not financial instruments.
(2) For further commentary on interest rates associated with financial assets and liabilities, including off-balance sheet instruments, refer to the Market Risk section of Management’s Analysis of Operations and
Financial Condition which includes the asset liability gap position and effective interest rates.
The methods and assumptions used to estimate the fair values of
on-balance sheet financial instruments are as follows:
•
•
•
cash resources, other assets and other liabilities are assumed to
approximate their carrying values, due to their short-term nature;
securities are assumed to be equal to the estimated market value
of securities provided in Note 2. These values are based on quoted
market prices, if available. Where a quoted market price is not readily
available, other valuation techniques are used to estimate fair value;
loans reflect changes in the general level of interest rates which have
occurred since the loans were originated and are net of the
allowance for credit losses. For floating rate loans, fair value is
assumed to be equal to book value as the interest rates on these
loans automatically reprice to market. For all other loans, fair value
is estimated by discounting the expected future cash flows of these
loans at current market rates for loans with similar terms and risks;
•
•
deposits with no stated maturity are assumed to be equal to their
carrying values. The estimated fair values of fixed rate deposits are
determined by discounting the contractual cash flows at current
market rates for deposits of similar original terms; and
the fair values of subordinated debentures and liabilities of
subsidiaries, other than deposits included in other liabilities are
determined by reference to current market prices for debt with
similar terms and risks.
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
judgement and as such may not be reflective of future fair values.
P a g e 6 0
{
Notes to Consolidated Financial Statements
15. Derivative Financial Instruments
The Bank enters into derivative financial instruments for risk
management purposes.
Interest rate swaps and interest rate floors (or caps) are used as hedging
devices to control interest rate risk. The Bank only enters into these
interest rate derivative instruments for its own account and does not act
as an intermediary in this market. The credit risk is limited to the amount
of any adverse change in interest rates applied on the notional contract
amount should the counterparty default. Equity contracts are used to
offset the return paid to depositors on certain deposit products where
the return is linked to a stock index. The credit risk is limited to the
average return on an equity index applied on the notional contract
amount should the counterparty default. The principal amounts are not
exchanged and hence are not at risk. Approved counterparties and
maximum notional limits are established and monitored by the Asset
Liability Committee of the Bank.
At the present time it is policy to undertake foreign exchange trans-
actions only for the purposes of meeting needs of clients and of day to
day business. Foreign exchange markets are not speculated in by taking
a trading position in currencies. Maximum exposure limits are established
and monitored by the Asset Liability Committee and are defined by
allowable unhedged amounts. The position is managed within the
allowable target range by spot and forward transactions or other
hedging techniques. Exposure to foreign exchange risk is not material
to the Bank’s overall position.
The following table summarizes the off-balance sheet financial
instrument portfolio and the related credit risk. Notional amounts
represent the amount to which a rate or price is applied in order to
calculate the exchange of cash flows. The notional amounts are not
recorded on the Consolidated Balance Sheet. They represent the volume
of outstanding transactions and do not represent the potential gain or
loss associated with the market risk or credit risk of such instruments.
The replacement cost represents the cost of replacing, at current market
rates, all contracts with a positive fair value. The future credit exposure
represents the potential for future changes in value and is based on a
formula prescribed by OSFI. The credit risk equivalent is the sum of the
future credit exposure and the replacement cost. The risk-weighted
balance represents the credit risk equivalent weighted according to the
credit worthiness of the counterparty as prescribed by OSFI.
Notional
Amount
Replace-
ment
Cost
1999
Future
Credit
Credit
Risk-
Risk weighted
Balance
Notional
Amount
Replace-
ment
Cost
Exposure Equivalent
1998
Future
Credit
Credit
Risk-
Risk weighted
Balance
Exposure Equivalent
Interest Rate Contracts
Interest rate swaps
Equity Contracts
Total
$ 269,000
$ 227
$ 170
$ 397
2,200
17
176
193
$ 271,200
$ 244
$ 346
$ 590
$ 49
35
$ 84
$ 130,000
$ 437
$ 125
$ 562
$ 112
–
–
–
–
–
$ 130,000
$ 437
$ 125
$ 562
$ 112
The following table shows the off-balance sheet financial instruments split between those contracts that have a positive fair value (favourable contracts) and
those that have a negative fair value (unfavourable contracts).
1999
1998
Favourable Contracts
(Assets)
Unfavourable Contracts
(Liabilities)
Favourable Contracts
(Assets)
Unfavourable Contracts
(Liabilities)
Notional
Amount
Fair
Value
Notional
Amount
$ 155,000
$ 227
$ 114,000
1,200
17
1,000
$ 156,200
$ 244
$ 115,000
Fair
Value
$ 735
78
$ 813
Notional
Amount
Fair
Value
Notional
Amount
$ 85,000
$ 437
$ 45,000
–
–
–
$ 85,000
$ 437
$ 45,000
Fair
Value
$ 104
–
$ 104
Interest Rate Contracts
Interest rate swaps
Equity Contracts
Total
The aggregate contractual or notional amount of the off-balance sheet financial instruments on hand, the extent to which instruments are favourable or
unfavourable and, thus, the aggregate fair values of these financial assets and liabilities can fluctuate significantly from time to time. The average fair values
of the off-balance sheet financial instruments on hand during the year are set out in the following table.
Favourable off-balance sheet financial instruments (assets)
Unfavourable off-balance sheet financial instruments (liabilities)
1999
$ 299
$ 338
1998
$ 131
$ 267
Notes to Consolidated Financial Statements}
P a g e 6 1
The following table summarizes maturities of off-balance sheet financial instruments and weighted average interest rates paid and received on interest
rate contracts.
1999
Maturity
1998
Maturity
1 year or less
Over 1 to 5 years
1 year or less
Over 1 to 5 years
Notional
Amount
Contractual
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Interest Rate Contracts
Interest rate (fixed/floating) swaps
Receive fixed amounts(1)
Equity Contracts(1) (2)
Total
$ 230,000
5.27% $ 39,000
5.67% $ 105,000
5.18% $ 25,000
5.50%
–
$ 230,000
2,200
$ 41,200
–
$ 105,000
–
$ 25,000
(1) The Bank pays (floating) interest amounts based on the one month (30 day) Canadian bankers’ acceptance rate.
(2) The contractual interest rate is not meaningful for equity contracts. The Bank receives amounts based on the increase in an equity index.
16. Risk Management
17. Acquisition of Canadian Western Capital Limited
As part of the Bank’s risk management practices, the risks that are
significant to our business are identified, monitored and controlled. These
risks include credit risk, liquidity risk, market risk, and operational risk.
Descriptions of the nature of these risks and how they are managed is
provided in the commentary on pages 30 to 41 of Management’s
Analysis of Operations and Financial Condition.
Information on specific measures of risk included in the consolidated
financial statements is included in these notes for the allowance for
credit losses, derivative financial instruments and fair value of financial
instruments. Additional information on interest rate sensitivity and the
effective interest rates on financial instruments is provided on pages
37 to 40 of Management’s Analysis of Operations and Financial Condition.
On January 16, 1998 the Bank invested an additional $3,000 to acquire a
73% interest in the common shares of Canadian Western Capital Limited
for a total cash investment of $3,724. The acquisition was accounted for
using the purchase method.
At the effective date of acquisition there were assets and liabilities of:
Assets Acquired
Cash and securities
Other assets
Liabilities Assumed
Other liabilities
Net Assets
Less non-controlling interest
Net Assets Acquired
$ 13,985
25,022
39,007
34,375
4,632
908
$ 3,724
Included in other assets is an allocation of $1,301 of the total cash
investment which represents values assigned to regulatory licenses and
tax loss carryforwards at the time of acquisition.
On October 31, 1998 the Bank invested an additional $2,600 as a result
of a further recapitalization of the company which increased the Bank’s
interest to 80%. During the year ended October 31, 1999 the Bank’s
interest was reduced to 72% due to additional capital investment by
subsidiary employees.
P a g e 6 2
{
Notes to Consolidated Financial Statements
18. Segmented Information
The Bank operates principally in two industry segments – personal and commercial banking and wealth management. Previously the Bank’s financial results
were reported on the basis of one industry segment – the financial services industry. These two segments differ in products and services but are both within the
same geographic region. Personal and commercial banking includes the operations of the Bank and its trust subsidiary which provides a wide range of banking
and trust services to retail and personal clients and small to medium-size commercial business clients primarily in western Canada. The wealth management
segment provides retail brokerage, wealth management and corporate finance services in western Canada through a subsidiary company.
Net income for each industry segment is detailed in the following table:
Net interest income
Provision for credit losses
Other income
Non-interest expenses
Provision for income taxes
Non-controlling interest
in net loss of subsidiary
Net Income (Loss)
Average Total Assets
Wealth
Management
Personal and
Commercial Banking
1999
1998
$
61,729
$
55,751
$
(3,750)
13,017
(44,726)
(3,516)
(4,150)
12,165
(41,192)
(1,958)
–
–
1999
707
–
6,778
(11,265)
–
879
$
22,754
$
20,616
$ 2,435,217
$ 2,159,044
$ (2,901)
$ 34,459
$
1998
515
–
5,326
(8,022)
–
Total
1999
1998
$
62,436
$
56,266
(3,750)
19,795
(55,991)
(3,516)
(4,150)
17,491
(49,214)
(1,958)
577
879
577
$ (1,604)
$
19,853
$
19,012
$ 38,881
$ 2,469,676
$ 2,197,925
19. Difference from Generally Accepted Accounting Principles
The consolidated financial statements of the Bank are prepared in
accordance with generally accepted accounting principles (“GAAP”),
other than the accounting for the general allowance for credit risk which
is in accordance with the accounting requirements of OSFI. The impact of
the departure from GAAP to conform to the guidance provided by OSFI is
described below.
Consolidated Balance Sheet
As described in Note 4, the Bank increased its general allowance for
credit risk. In accordance with the guidance provided by OSFI, this one-
time adjustment was applied to retained earnings. The adjustment does
not comply with GAAP.
However, had the Bank not departed from GAAP to conform to the
guidance provided by OSFI, loans would have increased by $11,694,
deferred income taxes included in “Other assets” would have declined
by $5,185 and retained earnings would have increased by $6,509. The
comparative balances for 1998 were not affected.
Consolidated Statement of Income
There was no impact on the Consolidated Statement of Income as
reported, compared with GAAP.
Consolidated Statement of Changes in Shareholders’ Equity
Except for the decrease in shareholders’ equity of $6,509, there was
no impact on the Consolidated Statement of Changes in Shareholders’
Equity as reported, compared with GAAP.
Consolidated Statement of Cash Flow
There was no impact on the Consolidated Statement of Cash Flow as
reported, compared with GAAP.
Notes to Consolidated Financial Statements}
P a g e 6 3
20. Subsidiaries
Canadian Western Bank Subsidiaries
(annexed in accordance with subsection 308 (3) of the Bank Act)
October 31, 1999
Canadian Western Trust Company
Canadian Western Capital Limited
CWB Canadian Western Financial Ltd.
CWC Life Insurance Services Ltd.
Address of
Head Office
666 Burrard Street
Vancouver, British Columbia
666 Burrard Street
Vancouver, British Columbia
10303 Jasper Avenue
Edmonton, Alberta
666 Burrard Street
Vancouver, British Columbia
(1) The carrying value of voting shares is stated at the Bank’s equity in the investments.
Carrying Value of
Voting Shares Owned
by the Bank(1)
$ 18,633
$ 1,808
$
$
–
26
Percentage of Issued and
Outstanding Voting
Shares Owned by the Bank
100%
72%
100%
72%
21. Comparative Figures
Certain comparative figures have been reclassified to conform with the current year presentation.
P a g e 6 4
{
Notes to Consolidated Financial Statements
CHAIRMAN
Jack C. Donald
OFFICE OF THE
CHIEF EXECUTIVE OFFICER
Larry M. Pollock
President and
Chief Executive Officer
Douglas R. Dalgetty
Executive Vice President
CREDIT RISK MANAGEMENT
Donald C. Kemp
Vice President
Chris H. Fowler
Senior Assistant Vice President
Wally N. Streit
Senior Assistant Vice President
Dennis M. Crough
Assistant Vice President,
Retail Credit
A. Wayne MacInnes
Assistant Vice President
Ken W. Stewart
Assistant Vice President
CORPORATE &
STRATEGIC OPERATIONS
William J. Addington
Senior Vice President
Erwin Granson
Assistant Vice President,
Asset Management
Ed E. Rudzitis
Assistant Vice President
TREASURY & OPERATIONS
Allister J. McPherson
Senior Vice President
Ricki L. Moffat
Senior Assistant Vice President,
Treasury and Agent Administration
Michael Vos
Senior Assistant Vice President,
Systems
M. Wayne Bond
Assistant Vice President,
Corporate Administration
Roger J. Pogue
Assistant Vice President,
Operations
EXECUTIVE OFFICERS
FINANCE
Tracey C. Ball, C.A.
Vice President and
Chief Financial Officer
COMMERCIAL BANKING
NORTHERN ALBERTA REGION
REAL ESTATE LENDING
VANCOUVER
Jack C. Wright
Vice President and Regional Manager
Raymond L. Young
Vice President
Diane M. Davies, C.A.
Senior Assistant Vice President
and Chief Accountant
William A. Book
Senior Assistant Vice President
Main Branch, Edmonton
Diane L. Kerley, C.M.A.
Assistant Vice President
HUMAN RESOURCES
Uve Knaak
Senior Assistant Vice President
INTERNAL AUDIT
David R. Gillespie
Vice President and Chief Inspector
Lars K. Christensen
Assistant Vice President
MARKETING AND PRODUCT
DEVELOPMENT
R. Graham J. Gilbert
Vice President
COMMERCIAL BANKING
PRAIRIE REGION
S. Wayne Bamford
Vice President and Regional Manager
Michael N. Halliwell
Senior Assistant Vice President
Main Branch, Calgary
Gus W. Itzek
Senior Assistant Vice President,
Energy Lending
Main Branch, Calgary
Robert H. Bean
Assistant Vice President
Winnipeg
Richard Brodeur
Assistant Vice President
Calgary N.E.
Ken R. MacDonald
Assistant Vice President
Regina
Donald J. Odell
Assistant Vice President
Red Deer
Dean F. Rhoden
Assistant Vice President
Saskatoon
Al Steingart
Assistant Vice President
Chinook Station, Calgary
Ron S. Baker
Assistant Vice President
West Point, Edmonton
David M. Castell
Assistant Vice President
Main Branch, Edmonton
Wayne C. Dosman
Assistant Vice President,
Personal Banking
Main Branch, Edmonton
Keith F. Garbutt
Assistant Vice President
Southside, Edmonton
Gary R. Mitchell
Assistant Vice President
103rd Street, Edmonton
Jake G. Muntain
Assistant Vice President
103rd Street, Edmonton
Garnett J. Way
Assistant Vice President,
Real Estate Lending
Main Branch, Edmonton
COMMERCIAL BANKING
BRITISH COLUMBIA REGION
Rod W. Sorbo
Vice President and Regional Manager
Richard C. Ward
Senior Assistant Vice President
Park Place, Vancouver
Robert G.P. Berzins
Assistant Vice President
Granville & 13th, Vancouver
Russ M. Burke
Assistant Vice President
Nanaimo
Ian G. Graham
Assistant Vice President
Kelowna
Gerald W. Laliberte
Assistant Vice President
Victoria
Craig Martin
Assistant Vice President
Langley
Robert E. Wigmore
Senior Assistant Vice President
W. Bruce Gibbard
Assistant Vice President
Jack B. Harms
Assistant Vice President
INDUSTRIAL LENDING
AND LEASING
Donald C. Watson
Vice President
James O. Burke
Assistant Vice President
Chinook Station, Calgary
Dean G. Cudmore
Assistant Vice President
Guildford, Surrey
James S. Kitchin
Assistant Vice President
Kelowna
David B. Subject
Assistant Vice President
Nanaimo
CANADIAN WESTERN TRUST
COMPANY – VANCOUVER
Adrian M. Baker
General Manager
Paul W. Trapp
Vice President,
Marketing
Kenneth C. Tabor
Vice President,
Mortgage Lending
Mario V. Furlan
Assistant Vice President,
Real Estate Lending
Patrick F. Rennison
Assistant Vice President,
Real Estate Lending
OMBUDSMAN
W. Paul Lefaivre
C W B ’9 9}
P a g e 6 5
BOARD OF DIRECTORS
CANADIAN WESTERN
BANK & TRUST
Charles R. Allard2,3
Chairman & Chief Executive Officer
WIC Premium Television Ltd.
Edmonton, Alberta
Albrecht W. A. Bellstedt3,4
Senior Vice President
Law & Chief Compliance Officer
TransCanada PipeLines
Calgary, Alberta
Douglas R. Dalgetty2
Executive Vice President
Canadian Western Bank
Vancouver, British Columbia
Jack C. Donald2,4
President
Parkland Industries Ltd.
Red Deer, Alberta
Jordan L. Golding1
Corporate Director and Consultant
Retired Partner
KPMG Peat Marwick
Boston, Massachusetts, USA
Allan W. Jackson2,3,4
President
ARCI Ltd.
Calgary, Alberta
Robert A. Manning1,2,4
President
Cathton Holdings Ltd.
Edmonton, Alberta
Gerald A.B. McGavin1,2
President
McGavin Properties Ltd.
Vancouver, British Columbia
Howard E. Pechet2,4
President
Mayfield Consulting Inc.
La Jolla, California, USA
DIRECTORS EMERITUS
John Goldberg
Arthur G. Hiller
Peter M.S. Longcroft
Dr. Maurice W. Nicholson
Alma M. McConnell
Eugene I. Pechet
Dr. Maurice M. Pechet
Gordon V. Rasmussen
Fred Sparrow
Robert J. Turnbull
Larry M. Pollock2
President and Chief Executive Officer
Canadian Western Bank
Edmonton, Alberta
Alan M. Rowe, C.A.1
Senior Vice President and
Chief Financial Officer
Crown Life Insurance Company
Regina, Saskatchewan
Arnold J. Shell2,3
President
Arnold J. Shell Consulting Inc.
Calgary, Alberta
1 Audit Committee Member
2 Loans Committee Member
3 Conduct Review Committee Member
4 Corporate Governance & Human Resources
Committee Member
SHAREHOLDER INFORMATION
Head Office
Suite 2300,
Canadian Western Bank Place
10303 Jasper Avenue
Edmonton, Alberta T5J 3X6
Telephone: (780) 423-8888
Fax: (780) 423-8897
Website: www.cwbank.com
Subsidiary Head Office
Canadian Western Trust Company
22nd Floor, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 669-0081
Fax: (604) 685-9997
Website: www.cwt.ca
Stock Exchange Listing
The Toronto Stock Exchange
Share Symbol: CWB
Convertible Debenture Symbol:
CWB.DB.A
Transfer Agent and Registrar
Mailing Address
Montreal Trust
Concourse Level
10050 Jasper Avenue
Edmonton, Alberta T5J 1V7
Telephone: (780) 448-7598
Fax: (780) 426-4032
Corporate Secretary
Charles R. Allard
WIC Premium Television Ltd.
Edmonton, Alberta
Inquiries from Shareholders
Any notification regarding change
of address or change in registration
of shares should be directed to the
Transfer Agent. Any inquiries other
than change of address or change in
registration may be directed to the
President and Chief Executive Officer.
Annual Meeting
The annual meeting of the common
shareholders of Canadian Western
Bank will be held on March 9, 2000
at The Westin (Manitoba Room),
10135 - 100th Street, Edmonton,
Alberta at 2:00 p.m. (MST).
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ALBERTA
Edmonton
Edmonton Main Branch
11350 Jasper Avenue
Edmonton, Alberta T5K 0L8
(780) 424-4846
Branch Manager – Bill Book
103rd Street Branch
Canadian Western Bank Place
10303 Jasper Avenue
Edmonton, Alberta T5J 3N6
(780) 423-8801
Branch Manager – Jake Muntain
Southside Branch
7933 - 104 Street
Edmonton, Alberta T6E 4C9
(780) 433-4286
Branch Manager – Heinz Kleist
West Point Branch
17603 - 100 Avenue
Edmonton, Alberta T5S 2M1
(780) 484-7407
Branch Manager – Ron Baker
RSP Administration/
Agent Processing Centre
Suite 2200, 10303 Jasper Avenue
Edmonton, Alberta T5J 3X6
(780) 423-8888
Branch Manager – Lina Langford
Victoria
1201 Douglas Street
Victoria, B.C. V8W 2E6
(250) 383-1206
Branch Manager – Gerry Laliberte
Guildford Industrial Lending
Centre, Surrey
401, 15127 - 100 Avenue
Surrey, B.C. V3R 0N9
(604) 583-7500
Branch Manager – Dean Cudmore
SASKATCHEWAN
Regina
1881 Scarth Street
McCallum Hill Centre II
Regina, Saskatchewan S4P 4K9
(306) 757-8888
Branch Manager – Ken MacDonald
Saskatoon
244 - 2nd Avenue S.
Saskatoon, Saskatchewan S7K 1K9
(306) 477-8888
Branch Manager – Dean Rhoden
Yorkton
#45, 277 Broadway Street E.
Yorkton, Saskatchewan S3N 3G7
(306) 782-1002
Branch Manager – Barb Apps
MANITOBA
Winnipeg
234 Portage Avenue
Winnipeg, Manitoba R3C 0B1
(204) 956-4669
Branch Manager – Robert Bean
BANKING OFFICES
Calgary
Calgary Main Branch
606 - 4th Street S.W.
Calgary, Alberta T2P 1T1
(403) 262-8700
Branch Manager – Michael Halliwell
Calgary Northeast Branch
2810 - 32nd Avenue N.E.
Calgary, Alberta T1Y 5J4
(403) 250-8838
Branch Manager – Richard Brodeur
Chinook Station
6606 MacLeod Trail S.W.
Calgary, Alberta T2H 0K6
(403) 252-2299
Branch Manager – Al Steingart
Camrose
4895 - 50th Street
Camrose, Alberta T4V 1P6
(780) 672-7769
Branch Manager – Kevin MacMillen
Red Deer
5013 - 49 Avenue
Red Deer, Alberta T4N 3X1
(403) 341-4000
Branch Manager – Don Odell
Lethbridge
744 - 4th Avenue South
Lethbridge, Alberta T1J 0N8
(403) 328-9199
Branch Manager – Donald Grummett
Grande Prairie Industrial
Lending Centre
5th Floor, 214 Place
9909 - 102 Street
Grande Prairie, Alberta T8V 2V4
(780) 831-1888
Branch Manager – Keith MacLellan
BRITISH COLUMBIA
Vancouver
Regional Office
22nd Floor, 666 Burrard Street
Vancouver, B.C. V6C 2X8
(604) 669-0081
Granville & 13th Branch
2899 Granville Street
Vancouver, B.C. V6H 3J4
(604) 730-8818
Branch Manager – Rob Berzins
Park Place Branch
Suite 100, 666 Burrard Street
Vancouver, B.C. V6C 2X8
(604) 688-8711
Branch Manager – Richard Ward
RSP Administration/
Agent Processing Centre
22nd Floor, 666 Burrard Street
Vancouver, B.C. V6C 2X8
(604) 443-5175
1-800-663-1000
Branch Manager – Huguette Holmes
Courtenay
470 Puntledge Road
Courtenay, B.C. V9N 3R1
(250) 334-8888
Branch Manager – Alan Dafoe
Kamloops Industrial
Lending Centre
2155 Westsyde Road
Kamloops, B.C. V2B 7C3
(250) 554-8030
Account Manager – Harold Lavack
Kelowna
1674 Bertram Street
Kelowna, B.C. V1Y 9G4
(250) 862-8008
Branch Manager – Ian Graham
Langley
100, 19915 – 64th Avenue
Langley, B.C. V2Y 1G9
(604) 539-5088
Branch Manager – Craig Martin
Nanaimo
#101, 6475 Metral Drive
Nanaimo, B.C. V9T 2L9
(250) 390-0088
Branch Manager – Russ Burke
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Designed and produced by Vision Design Communications. Illustrations by David Moore.
Canadian Western Bank Place
Suite 2300
10303 Jasper Avenue
Edmonton, Alberta
T5J 3X6