Canadian Western Bank Annual Report 2001

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FY2001 Annual Report · Canadian Western Bank

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“ Try squeezing even a bit of loyalty or compassion out of a computer. See

how much dedication, good will or good cheer you can extract

banking
[on people]

from a faceless organization. Or, try asking a standard loan application to generate
ideas or build relationships… Sound impossible? We think it is. So instead,
we bank on people… a typical western sentiment… Sure, we have
our fair share of computers and forms, but we never ask them to do the thinking,
or the talking… We don’t like to undermine the brilliance of our employees or
customers. So we let them speak for themselves…

”

Canadian Western Bank Place
Suite 2300, 10303 Jasper Avenue
Edmonton, Alberta T5J 3X6

Canadian Western Bank Annual Report 2001

[ great progress]

“

For Canadian Western Bank and its people, 2001 was a very good year.
We stuck to the program: well-managed, controlled growth, and, for the ninth
consecutive year, posted record profits. This is what happens when excellence
becomes your corporate philosophy.

”

table of contents

five year financial summary

highlights for 2001

performance targets

western people

western bank

message to shareholders

management’s analysis of
operations and financial condition

financial statements

notes to consolidated
financial statements

corporate governance

executive officers

board of directors and
shareholder information

branch offices

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Designed and produced by Vision Design Communications. www.visiondc.com
Photography by Bluefish Studios
Printed by Speedfast Color Press Inc.
Printed in Canada.

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FIVE YEAR FINANCIAL SUMMARY (see note below)
($ thousands, except per share amounts)

Results of Operations
Total interest income

Net interest income

Provision for credit losses

Other income

Net income before taxes

Net income from continuing operations
Net income from operations(1)
Net income
Return on common shareholders’ equity(1)
Return on common shareholders’ equity
Return on average total assets(1)
Return on average total assets
Per Common Share
Average common shares outstanding (thousands)

Basic earnings per share

Net income from continuing operations
Net income from operations(1)
Net income

Fully diluted earnings per share

Net income from continuing operations
Net income from operations(1)
Net income

Dividends(2)
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
Capital Adequacy
Tier 1 ratio

Total ratio
Other Information
Net interest margin(3)
Net impaired loans as a percentage of total loans
Efficiency ratio(4)
Number of full time equivalent staff

Number of branches

2001

2000

1999

1998

1997

$ 233,893

$ 210,282

$ 177,013

$ 157,966

$ 131,917

85,501

6,096

19,758

46,582

30,145

31,395

30,145

13.95 %

13.48 %

0.97 %

0.93 %

73,367

5,100

15,255

35,435

29,394

26,949

26,349

14.98 %

14.68 %

0.95 %

0.93 %

61,729

3,750

13,017

26,270

22,754

19,853

12.82 %

0.81 %

55,751

4,150

12,165

22,574

20,616

19,012

13.97 %

0.87 %

45,414

4,000

11,520

16,253

15,837

13.12 %

0.85 %

12,001

11,134

10,153

9,421

9,322

2.51

2.62

2.51

2.31

2.40

2.31

0.36

20.08

30.50

22.30

26.27

2.65

2.42

2.37

2.44

2.26

2.21

0.34

17.35

24.00

16.25

23.00

2.24

1.96

2.00

1.79

0.48

15.68

24.25

17.30

17.60

2.19

2.02

1.89

1.77

0.30

15.39

27.00

14.75

17.15

1.70

1.55

0.25

13.70

22.10

12.20

20.25

$ 3,439,568

$ 3,059,540

$2,707,595

$ 2,409,632

$ 2,050,152

501,228

2,882,636

3,042,307

67,126

252,262

873,538

446,351

2,560,092

2,727,809

67,126

194,595

741,181

375,182

2,253,598

2,371,075

78,691

159,550

559,978

320,405

1,989,656

2,059,545

87,091

145,268

453,058

271,883

1,710,007

1,817,512

37,116

128,533

395,486

9.3 %

12.5 %

2.69 %

0.3 %

50.0 %

548

8.1 %

11.6 %

2.64 %

0.2 %

54.3 %

509

7.4 %

11.8 %

2.57 %

0.5 %

59.8 %

555

7.8 %

11.9 %

2.58 %

0.7 %

60.7 %

522

8.4 %

11.0 %

2.48 %

0.5 %

64.4 %

388

NOTE: Prior year balances have been restated to reflect the retroactive implementation of the new accounting policy on income taxes.
(1) Excludes non-cash tax expense of $1,250 recorded in 2001 and $600 recorded in 2000 to reflect the write-down of future income tax assets due to income tax rate reductions. Management
evaluates the Bank’s performance on this basis (i.e. excluding unusual items) as well as on a reported basis (i.e. as reported in our financial statements). Management views unusual items as
transactions that are not part of core business operations or which are unusual in nature. Net income on a reported basis is presented on the income statement on page 54.

(2) The dividend policy was amended to be semi-annual instead of annual during the third quarter of fiscal 1999.The dividend rate for fiscal 1999 appears unusually high as it includes the last

annual dividend of $0.32 per share paid in the first quarter and the first semi-annual dividend of $0.16 paid in the third quarter.

(3) Net interest income divided by average assets.
(4) Non-interest expenses expressed as a percentage of net interest income and other income.

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[ highlights for 2001]

financial

achieved a 31% increase in net
income before taxes over last year. This
double digit earnings growth largely offset the
impact of an increase in the effective income tax
rate in fiscal 2001 to 33% from 15% last year

achieved record net income of $30.1
million for our 9th consecutive year of record profits,
and an increase of more than 14% over last year

significantly improved our efficiency
ratio (expenses to revenues) which at 50.0% is
the best in the Canadian banking industry

> maintained low credit losses (based on
annual charges to income statement) at 0.23% of
average assets with a five year average of 0.22%

total revenues (net interest income
and other income) increased 19%
over last year

operating
> rolled out our “Think Western” brand
early in the year and it has been enthusiastically
embraced by customers and staff.The accompanying
in-house specialty service training has further
enhanced the success of the brand awareness

> acquired from Laurentian Bank most
of the assets ($48 million) and deposit liabilities
($36 million) of the branches in Kelowna, British
Columbia and Regina, Saskatchewan in October.
The staff from both branches also joined our
Canadian Western Bank team

> acquired a loan portfolio totalling

approximately $48 million from Westcoast Capital
in August. This portfolio includes term loans and
leases to energy-related and general commercial
borrowers based primarily in western Canada

> opened our 5th branch in Vancouver’s Lower
Mainland (Strawberry Hill Branch in Surrey),
a 2nd branch in Kelowna (Kelowna Industrial Centre)
and announced the opening

closed a successful equity
financing April 3, 2001 and issued 1.1
million common shares, at a price of $26.75
per share, for proceeds of $29.4 million

increased assets under
administration 18% to $874 million

share price reached $30.50
during the year and closed up 14% from
prior year end

> benefited from the

elimination of capital taxes
in Alberta during 2001

> will benefit from future corporate tax
rate reductions announced federally and
in Alberta and British Columbia

of our 5th branch in Edmonton
(South Edmonton Common – opened
November 2001)

> relocated the Guildford Industrial

Centre to a new, highly visible full service
location in Coquitlam, British Columbia
and renovated and expanded our Victoria,
British Columbia branch

> announced an alliance between
Canadian Western Trust and Qtrade
Investor, a Vancouver-based company,
which provides access to on-line brokerage
service for independent financial advisors
and their clients who use our services

> enhanced our PC banking product
with an internet delivery platform
and expanded it to serve personal
banking customers

> extended sale of mutual funds to

Saskatchewan branches

[ performance targets]

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2001 target $101.9 million

2001 target $29.0 million

2001 target 0.90 %

total revenues

(net interest income and other income)

2001
Total revenues were $105.3 million,
an increase of 19% year over year which
surpassed our target of 15% growth.
Excluding gains on securities sales,
total revenues increased 16%.

2002
Our target for 2002 is for total revenue
growth of 12%, excluding the impact of gains
on securities sales.

net income

2001
Net income, excluding the impact of enacted
tax rate reductions on future income tax
assets, increased over 16% from fiscal 2000.
Reported net income at $30.1 million
increased 14% over fiscal 2000 exceeding
our target of 10%. Net income before income
taxes increased 31% over fiscal 2000.

2002
Our target for fiscal 2002 is to grow net
income by 5% which reflects that the Bank
will be fully taxable for the entire year in
2002. Net income before income taxes is
targeted to grow by 12% over fiscal 2001.

return on assets

2001
ROA at 0.93% (0.97% excluding unusual,
non-cash tax expense) exceeded our target
of maintaining an ROA above 0.90%.

2002
Our target is to maintain an ROA above 0.90%.

($ thousands)

120,000

100,000

80,000

60,000

40,000

20,000

($ thousands)

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

(%)

1.20

1.00

0.80

0.60

0.40

0.20

0.00

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efficiency ratio

(expenses to revenues)

2001
The efficiency ratio was 50.0%, which easily
beat our target of being below 55.0% and
is significantly better than the Canadian
banking industry average of 61.9%.

2002
Our targeted efficiency ratio is 50.0% or
less for fiscal 2002.

total loans

2001
Total loans increased to $2,883 million
or 12.6% year over year which was just shy
of our target of 14%. Total assets grew 12.4%

2002
Our target is for total loan growth of 14%
and total asset growth of 12%.

credit risk

2001
The provision for credit losses as a
percentage of average loans was 0.23%,
achieving our goal of being below 0.25%.

2002
Our target is to keep this ratio at 0.25% or
lower.

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[ thinking western]

People in the west have their own ideas. They march
to their own tune. They live life on their own terms. And we encourage
them. It’s great for business. CWB is a bank that understands that there is more
to wealth than money. The western ways and ideas that are at the root
of our business put us at the forefront of our industry. We offer a taste
of our inspiration in the following western viewpoints…

banking
thinking western.
[on western value]

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western community.

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“

Because of its proximity to the east, it is sometimes a challenge
to think of Winnipeg as western… Well, until
I take a late summer drive with my daughter Sarah down any Manitoba

highway. We plan our camping trips as the highway cuts a thin line

through perfectly flat and seemingly endless fields of feathery wheat

and fiery yellow canola.

And I know I’m in the west when I stand at Portage and Main.

They say it’s the windiest spot in Winnipeg. I believe it. I work about

half a block down on Main Street. It might be the windiest place in the

world. But there’s more than wind and wheat in the west. The people

here share an attitude with people right out to the west coast. Of
course we care about getting the job done, but we also care
about the people around us… I’m living proof.
Sarah is my life’s greatest passion, our family is close-knit, and we spend

a lot of time together in our community… Sarah and I do Brownies and

soccer. We love camping… the zoo and The Forks (Winnipeg’s outdoor

market and park).

western spirit.

There are so many favourite places and faces on our list…

Our circle gets wider, but it stays tight. My entire family would

be here in a heartbeat if I needed help. The feeling is mutual.
I’d do anything for them. Couldn’t imagine
it any other way. You can accomplish a lot when you have that

kind of support.

”

> HEATHER JAMES

Soccer mom, prairie girl, community volunteer
Manager, Personal Banking
Winnipeg Branch, Winnipeg
3 years with Canadian Western Bank

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“

Business is people.
Never was that made clearer to me than on September 11th.

On September 8th, before my guys flew home from New York, they

posed for a photo with a great group of NYC firefighters and a fire truck

outfitted with our suspension system. Three days later, those men

and that truck were among the first on the scene and all we have to

remember them by is that photo. It hit us all pretty hard, I realized that

the people I work with, who were already like friends, have become
that much closer. We’ve been through a lot together…

at the heart

Our flagship product, the Air Link Suspension, should have rocketed us

to success. But, finding the right market and getting into it was difficult.

The big rig builders like Mack and Peterbilt wouldn’t take the chance.

But we didn’t give up… With a viable product and people who never
quit,niche marketing will help you pinpoint
your target. So, we narrowed our focus and went places we
never thought possible. You’ll find Air Link on military trucks in

Kazakhstan and rigs hauling Disney equipment in Florida.

Eventually current Air Link users will tire of buying big rigs and

retrofitting them with Air Link and I am looking ahead to that day.

We all are. Victory will be complete if we’re still the same team

when we reach that day, when Mack comes calling, inquiring
about Air Link.Did I mention that we
hold the patent?

”

> RAY ENGLISH

Local man on global mission
Chief Executive Officer
Raydan Manufacturing, Edmonton
3 years banking at Canadian Western Bank

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of business.

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feasting

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“

I started cooking during university in a frathouse with six Aggies.

Because I was the cook, I got to eat whatever I wanted. These days,

the dinner party is very much a part of my natural habitat…invariably

involving delicious conversation, copious amounts of wine and the

chance to sample world-class fare.

on life.

Vancouver is all about food. You won’t find better cuisine or restaurants

with higher value anywhere. Sometimes Lynda, my wife, and I will be

at Vij’s or Hermitage and we’ll get inspired by a beautiful chutney or

a simple sauce… I taste ancho chilies, Lynda is sure there’s cumin

and we go home and try to recreate it.
I love to experiment. But if I take a chance on a new
dish at a dinner party, I need to minimize the risk.
I depend on past experience and nail down every possible variable

with careful planning and shopping, and taking all the time in the

kitchen that I need. The most important ingredient? The right guests.

Dinner companions with blunted palates can’t really appreciate your

true genius.

Food is literally the stuff of life. And we all want the most out of life.

So, I make sure I sample a lot and cook as much as I can. The secret

with both, is in learning how to do it. If you know how to cook, you

always get to eat what you want. If you know how to live, there’s a
good chance you’ll get what you
want out of life.

”

> BOB WIGMORE

Seasoned gourmet with adventurous palate
Senior Assistant Vice President, Real Estate Lending
Regional Office, Vancouver
7.5 years with Canadian Western Bank

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“

Until recently I really struggled for balance. But I’ve reached a new

phase…My daughters, Doleen and Karishma, have grown into

independent young women. I’m a newlywed again and I’m working

in a job I love with people who are like family. You hear that all the time.

But, with 10 brothers and sisters, I know exactly what family feels like.
I guess the reason we all get along so well is mutual respect
which is, in itself, an entirely balanced notion.

sowing seeds

In Vancouver I see another kind of balance… among ideas, values,

traditions… There is a place for everyone and you can speak your mind

in your own language… whatever it is. It’s not like we don’t notice the

differences, it’s just that we’re not afraid or angry about them. It’s about
as close as you can come to true harmony. It strengthens
my soul.

The only other element I need for good balance is a creative way to
express myself… So, I have my sewing… And, now that I
think about it, I guess the garments that I design and sew have similar

qualities to the people I sew for... I like warm colours, feminine shapes,

simple lines and rich textures. And I couldn’t think of a more fitting way

to spend a Saturday than at my kitchen table with my daughters

fussing over the cut of a new dress. Maybe it’s not the most

adventurous pastime, but it’s pretty balanced and
at this stage, that’s exactly what makes
me happy.

”

> ANEETA GOUNDAR

Newlywed with great balance
Sales & Service Representative III
Strawberry Hill Branch, Surrey
4.5 years with Canadian Western Bank

of respect.

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small league.

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“

“It’s amazing what can be accomplished when no one cares who

gets the credit.” Clare Drake, renowned coach of the University of

Alberta Golden Bears hockey team, said that years ago and I have

watched it come true again and again.
The sense of team commitment I developed
in all those years of junior and university hockey has served me well in

school, at work and at home. Part of it was that we all played for free…

for the love of the game… No haggling over salaries or picking loyalties

by bank balance. You played for your school… your team.

big game.

In the NHL they play more than 80 games a year. With the Golden Bears,

we played 28…not much room for error. Lose two or three in a row

and you’re done. Competition is so stiff … makes for great hockey…

better than the major leagues if you ask me. Sometimes there are
advantages to being small.

I’m not one to dwell in the past. I’m 31 now. That kind of hockey is a

distant memory. These days I’m just as likely to lace up skates on my

kids as put them on myself. And I like it that way. Family is my priority

now… but that sense of commitment stays constant… I need it to
reach my goals… to grow and to help my family grow.

Hockey was a great beginning, but just a beginning. I grew up working

in my Dad’s tire store. I watched it grow and prosper alongside our
family. I know the hard work involved in growth
and I’m up for it.

”

> WARD FLEMING

Team player with big goals and many assists
Senior Account Manager, Commercial Banking
103rd Street Branch, Edmonton
4 years with Canadian Western Bank

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[ “think western” banking]

17
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Now that you’ve heard stories from some of our typical western thinkers,
read ahead for the story of their bank – your bank – Canadian Western Bank.

It’s no coincidence. You’ll find the same values and the same spirit in
our business as you find in our people because it is on the
foundation of these rock-solid values and lively spirit that this successful
enterprise is built.

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CWB is people – like Heather James (page 7) –
and we’re just as interested in who she is as how she

the last year, the Edmonton employees alone

contributed over $22,000 to the United Way.

performs as a manager of personal banking.

For Heather, as for most of our 500-plus employees,
it is important to support the community
that supports them. So, we let their compassionate

actions influence many of our community investment

Other significant donations during the year included

individual branch efforts for the Cancer Society, the

Christmas Bureau and dozens of other local and national

causes. Also this year, CWB became a lead sponsor

of the Alberta Foundation for Diabetes Research for

decisions. When staff are involved in a charitable project,

fundraising endeavours, for the next five years.

the Bank usually falls in behind with a donation. Every

year CWB and its people donate hundreds of hours

and thousands of dollars to community projects

involving everything from caregiving and giving

blood to education and the arts. For example, over

CWB also made a substantial five-year financial

commitment to NAIT (the Northern Alberta Institute

of Technology). Each year, half the money is retained

in a scholarship endowment fund and the other half

becomes a scholarship for a NAIT Business Student

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caring

[with experience & goodwill]

who is experiencing both academic success and

corporate customers care for their employees through

financial need.

trust vehicles like share option plans and group RRSPs.

We never forget that staff and customers are part of
our community too. So we treat them with care
and give employees the opportunity to participate in

SPICE (Staff Participating in Creating Excellence), a CWB

program that allows employees to help chart the destiny

Our compassion is not a marketing strategy or an ad

campaign; it is a consciously-cultivated and pervasive
quality. This bank has always seen its people
as assets. Never, ever as liabilities – even during
mergers, acquisitions and amalgamations CWB has never

of the organization (and in doing so, the ability to affect

undertaken a layoff program – or even considered it.

their own) by contributing ideas and suggestions about

Bank operations and activities.

Kindness and respect are still standard
equipment these days. And, we will work hard to ensure

For customers, we offer products and services that will

that these qualities continue to play an essential role in

make a difference in their lives. For example, we help

our corporate culture.

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targeting

[with precision & sensitivity]

It’s all in the name: Canadian Western Bank. CWB is
the only Schedule I chartered bank with headquarters and
principal operations in western Canada. And it makes
all the difference.

While large eastern-based banks try to be everything to

everyone, CWB and our trust arm, Canadian Western Trust

(CWT), focus clearly and unapologetically on the west.
We are westerners ourselves, so we know how to
provide competitive, full-service commercial and consumer

banking to western Canadians in a way they appreciate.

Virtually the entire CWB loan portfolio is here, in the

market segments we know best. Given our size and recent

economic conditions, this continues to prove a sound

strategy, contributing to record profits in 2001, for the

ninth consecutive year.

Expanding rapidly outside the west could be viewed

as a desire to compete directly with the big six. But that

is not our goal, and at this stage of development, it is an

unrealistic and unproductive strategy. We have a strong

foothold in a previously unsatisfied and rapidly growing

market segment: those who want the credibility and

dependability of an established financial institution, as

well as personal attention from people who respect them.

We share a philosophy with Ray English at Raydan

Manufacturing (page 8) that says the most logical

introduction into large markets is through experience

and momentum gained from thoroughly satisfying
smaller niche markets. But we do not see our local
market as a stepping stone. As a regional bank, we would

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miss our own point if regional service suffered at the

CWT (one of few suppliers who provide trust services in

expense of expansion in other areas (see Risking, page 22).

western Canada) serves a different element of the CWB

Usually, the greatest opportunity is in our own back yard.

Fully half of all western Canada’s jobs are in small business.*

Not surprisingly, over 95% of CWB’s commercial clients are

small to medium sized western businesses. In 2001,
we worked at exceeding service expectations
for some of the most financially active segments of that

market, and as a dividend, gained further experience in

market, while offering the same individual service. And,

as with bank customers, western financial planners come

to CWT because of our extensive marketplace knowledge

and our accessibility.

In the future, we will continue to Think Western, providing
an attractive alternative to big banking,
and demonstrating that we do things differently… because

these sectors: commercial real estate, industrial and energy.

it’s good for our employees and customers, which in turn,

Our policy is simple – build long term relationships with

customers who want to grow with us. Evidence of success

is seen in the way CWB and CWT markets frequently overlap.

is great for business and provides our shareholders with a

sound return on their investment.

From A Portrait of Small Business Growth and Employment in Western Canada,
by Edward J. Chambers and Nataliya L. Rylska

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In banking, the biggest single threat is credit losses.

continually broadening our lending experience

In 2001, CWB experienced losses of 0.23%, bettering our

CWB has become a spirited and competent addition

target of being under 0.25% and making for one of the
lowest loan loss rates in the country.

Risk is also an immutable factor in growth, one that
must be used judiciously. So, CWB offers loans and other

lending facilities in specific markets that offer (and produce)

appropriate return at acceptable risk, helping grow both

to the commercial lending landscape in western Canada.

We generally offer commercial loan facilities in the

$250,000 to $20,000,000 range. And, we’ve gained a
reputation for clear, straightforward business
practices, which bolsters customer confidence as
well as our own morale.

community and economy.

targeting precisely

To ensure CWB continues to experience this kind of

success, we mitigate risk by:

Through niche marketing (see targeting, page 20) CWB

has progressively added to its client base, expanding

in existing markets and cautiously entering new ones.
As a result, we now have business partnerships
with over 7,500 business clients.

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risking

[with experience & goodwill]

using size to advantage

Most credit decisions are made by branch people who

Because we are a markedly smaller institution, and

have been hand picked for their experience with the

we are here in the west, we know the value of personal

community, as well as their abilities to make good decisions

judgement in a business transaction. The vast majority

and manage risk over the life of the loan. Senior Assistant

of our commercial customers are relatively smaller and

Vice President of Real Estate Lending, Bob Wigmore (page

often regionally concentrated in western Canada –

11), makes these decisions every day.

just as we are. We do not make decisions based strictly

on numerical formulas. We never fail to factor in the
human aspect of the equation. This is one factor
contributing to our productivity ratio, the best in Canada.

Our style of operation has enabled us to make one dollar

for every 50 cents spent.

exploring syndications
Each new stage of growth brings new opportunities.
Since 1999, we have been invited to join in shared

corporate lending opportunities with larger financial

institutions. We participate well within our comfort zone,

enabling us to hone our expertise and grow this area.

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connecting

[with clients & business partners]

If the bank is people, then it follows that relationships

where conducting business is a pleasure. And it works.

are its most important currency. That is why we put so
much emphasis on face-to-face banking
and developing mutually-beneficial relationships among

staff and with customers.

Our primary target is ‘saver-investors’… people with

accumulated capital who seek to maximize growth safely.

And we know most of them by name. Neither computers

nor mathematical formulas (used to decide if a person is

To accomplish this, we rely on the CWB service philosophy,

entitled to a service) can even come close to doing that.

which is at the root of the organization. It allows for a

culture that both accounts for and embraces the personal
variations of staff and clients. Basically, we encourage
people to connect, to get to know each other on
a personal level… to find comfort and common ground

To ensure this will always be the case, we make a point
of finding the right person for the right job
so they can be in it long enough to build meaningful

relationships with clients and colleagues. Aneeta Goundar

(page 12), Sales & Service Representative III at Strawberry

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Hill in Surrey, is a great example. After four and a half years,

So, we don’t make people stand in line and they have

the positive and dynamic atmosphere of her workplace

continues to inspire her to do her best work and make

genuine connections.

We deliberately choose employees with a strong sense
of community commitment like Aneeta because
good connections are easier to make when you’re a part

of the community (see Caring, page 18). And, we encourage

staff to engage their diverse and colourful personalities, as

well as their skills, abilities and commitment when doing

their jobs.

the choice of counter or sit-down service. We offer a basic,
but well-rounded service for retail customers –
simple account packages and sound investment options.

And, we are well known for providing some of the best

deposit rates in the industry. In addition, our smaller size

allows us to make quick and flexible decisions, so any

concerns are promptly resolved. And, we get creative when
required… We’ve even been known to make
house calls.

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growing

[profits & perspective]

It’s a relatively unique position: Big Company
(almost $3.5 billion in assets) and yet, a Small Bank
(in Canada). And, with the application of uniquely
western thinking, CWB has made this position
as enviable as it is unique.

The goal from the beginning has been to sustain balanced,
responsible growth. While most major banks go
increasingly global, we stay focused on the markets in

which we have the most experience and greatest

confidence, expanding cautiously, but deliberately, in areas

of clear opportunity for a healthy regional bank. Our strong
capital base gives us flexibility to choose how big
and how fast to grow.

So far, the success of this strategy has been excellent.
Fiscal 2001 was the ninth consecutive year of
record profits for CWB.

Today, CWB could be seen as a young Wayne Gretzky,

or an early Ward Fleming (page 15) with a successful

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and well-managed future ahead. There will be many
more goals and more milestones. Currently, we have
the core services and capabilities our customers need but

we will continue to provide a broader range as our goals

evolve and our customers’ needs expand.

refining our processes and using the competency we

have developed for seamless integration of assets.

By 2004, we plan to grow assets to more than
$5 billion – through organic growth (of about 13

to 15% annually), as well as opportune acquisitions

In 2001, we brought Internet Banking (CWB Direct) on

(as targets are located).

stream. Canadian Western Trust will continue to reach into

new markets and broaden its product offerings. And, we

will build on our reputation as ‘acquirer of choice’, further

Clear goals. Logical strategies. Healthy growth…
not rocket science, we simply call it...
thinking western.

28
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[ message to shareholders]

Your Bank has just completed its ninth
consecutive year of record earnings
(54 consecutive quarters of profitability) and has surpassed

almost all of its performance targets for 2001.

Canadian Western Bank generated net
income for the year ended October 31,
2001 of $30.1 million compared to $26.3 million
last year, an increase of over 14% which exceeded our target

of 10% earnings growth. Fully diluted earnings per share were

$2.31 compared to $2.21 in 2000. Excluding unusual items

(i.e. the tax expense related to write-down of future tax assets

due to future tax rate reductions), net income was $31.4

million for 2001 compared to $26.9 million in 2000 with fully

diluted earnings per share of $2.40 and $2.26 respectively.

Net income before the provision for
income taxes increased 31% over 2000.
This double digit growth in earnings largely offset the

significant increase in the effective income tax rate to

approximately 33% in fiscal 2001 from 15% last year.

The remaining unclaimed tax deductions were fully utilized

during fiscal 2001 and the Bank is now fully taxable.

A highlight of the year was our successful equity
financing in April. We issued 1.1 million common shares
for gross cash proceeds of $29.4 million which provided

capital for growth as well as greater flexibility to respond

to new strategic opportunities. This addition to capital also

boosted our Tier 1 and total capital ratios which remained

strong at year end at 9.3% and 12.5% respectively.

In addition to strong internal growth we
completed two portfolio acquisitions during the
year which were both consistent with our growth strategy

and complemented the Bank’s existing operations, markets

and credit quality. In August we purchased a $48 million loan

portfolio from Westcoast Capital which included both term

loans and leases to energy related and general commercial

borrowers based primarily in western Canada. In October

we acquired most of the assets ($48 million) and deposit

liabilities ($36 million) of Laurentian Bank of Canada’s

branches in Regina, Saskatchewan and Kelowna, British

Columbia. We remain active in looking for additional

opportunities that can arise from institutions which may

be refocusing their strategies.

We are particularly proud of our
continued ability to grow our business
in a cost effective manner. We achieved growth
in total revenues of 19% over fiscal 2000 while non-interest

expenses increased only 9% in the same period.This resulted

in a significant improvement in our efficiency ratio (expenses

to revenues) which was 50.0% in 2001 compared to 54.3% last

year. Our industry leading ratio means it cost us 50 cents to earn

each dollar of revenue, significantly better than the 62 cents

averaged by the other Canadian Schedule I banks this year.

Another key factor in ensuring that our asset growth translates
into improved earnings is our consistent low loan
loss experience. In 2001 our loan loss ratio was 0.23%
of average loans. Based only on net new specific provisions

(i.e. excluding the annual increase/decrease in the general

allowance for credit risk) our loss ratio was 0.21% which

compares very favourably to the other Canadian Schedule I

banks’ average of 0.64% for fiscal 2001. Indications are that

other banks will continue at or above this level for 2002.

Looking forward into 2002 we expect that some sectoral

concerns may arise in our loan portfolio but we do not

anticipate a significant deterioration in the overall credit

quality in the markets we serve. Our strong credit discipline

ensures we are well prepared to deal with changes in the

underlying economies that affect our customers.

These are two fundamental and critical success factors –

low cost operations and effective credit risk management –

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and our record and continued focus on these factors

ensures that strong asset growth continues to produce

profitable earnings.

We saw growth and upgrading in
our branch network this year. We opened
new branches in Surrey, British Columbia (Strawberry Hill),

Kelowna, British Columbia (Kelowna Industrial Centre)

and Edmonton, Alberta (South Edmonton Common).

Our Guildford Industrial branch in Surrey relocated to larger,

highly visible premises in Coquitlam and now offers the

full range of our products and services. The Victoria branch

underwent a major expansion/renovation which was very

well received by both customers and staff.

Canadian Western Trust also expanded its operations this

year. In addition to opening an office in Calgary, Alberta

the trust company introduced on-line brokerage services

to its financial planner client base through an alliance with

Qtrade Investor Inc. Corporate and group trust services were

expanded to include registered pension plan custody and

executive compensation plans in addition to the share

purchase plan and stock option plan administration products

introduced in 2000.

The long awaited legislation to reform the policy framework

for Canada’s financial services sector came into force this fall.

The legislation, which broadens ownership rules and

introduces the holding company format, will provide greater

flexibility in structuring strategic initiatives. The Canadian

financial services industry has been focused on other priorities

since the slowdown of North American economies and the

events of September 11 and as a result the implications

of the new legislation have not yet been fully manifested.

In our communications this year we have discussed our

financial performance and explained the economics of

why we continue to be successful. It is important for us
to remember that banking isn’t just numbers.

Banking is people. We succeed because our
employees bring a special brand of western friendliness

and creativity to banking relationships. We call it “Thinking

Western” and it shows in our interactions with customers,
shareholders and other employees. Our “Think
Western” attitude has been embraced by employees
and our customers frequently provide feedback as to how

much they appreciate our special brand of service. Our staff’s

dedication to the delivery of exceptional customer service,

as well as their commitment to the daily operations of the

Bank and projects such as acquisitions and efficiency task

forces, are what allows your Bank to perform so well year

after year. We congratulate our people, for their experience

and expertise allows us to achieve profitable results and

to continue to grow.

Looking forward into 2002 we are planning for “business as

usual” while being prepared for any challenges that may arise

from changes in the economies that affect our customers.

We expect that our ongoing focus on cost efficiency,

successful risk management and a targeted portfolio mix

will enable us to translate continued growth into increasing

earnings. Our 2002 performance targets will continue to

motivate us to ensure that our customers and shareholders

are provided with the services and value that they have
come to expect from your Bank. The people
of Canadian Western Bank remain
committed to our goals of strong,
steady and profitable growth.

“Jack C. Donald”

Jack C. Donald
Chairman

“Larry M. Pollock”

Larry M. Pollock
President and Chief
Executive Officer

> The Bank was deeply saddened this year by the untimely passing

of Robert J. Sharpe, C.A., partner with Deloitte & Touche LLP. Bob was
a leader of the external audit team from the inception of the Bank
and provided invaluable knowledge and counsel. We lost not only
an advisor but a friend.

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[ financials]

31 MANAGEMENT’S ANALYSIS

OF OPERATIONS AND FINANCIAL CONDITION

31
32
33
34
34
36
37
38
39
41

overview of 2001

quarterly information

net interest income

other income

non-interest expenses

taxes

loans

deposits

capital funds and adequacy

risk management
41 overview
41 credit risk management
45 liquidity risk
47 market risk
49 operational risk

off-balance sheet financial instruments
including derivatives

auditors’ report

management’s report

consolidated balance sheet

51 FINANCIAL STATEMENTS
51
52
53
54
55
56
57

notes to consolidated financial statements

consolidated statement of cash flow

consolidated statement of income

consolidated statement of changes in shareholders’ equity

introduction

audit committee

the board and board committees

70 CORPORATE GOVERNANCE
70
70
72
72
73
74
74
74

other areas of consideration

conduct review committee

loans committee

conclusion

corporate governance & human resources committee

From time to time we make written and
verbal forward-looking statements about
the objectives and strategies, operations
and financial results of Canadian Western
Bank. These may be included in the Annual
Report, filings with regulators, reports to
shareholders and other communications.
These forward-looking statements are
inherently subject to risks and uncertainties
beyond the Bank’s control, including, but
not limited to, fluctuations in interest rates
and currency values, changes in economic
and political conditions, legislative or
regulatory developments, technological
developments and competition. These and
other factors may cause the Bank’s actual
performance to differ materially from that
contemplated by forward-looking
statements and the reader is therefore
cautioned not to place undue reliance
on these statements.

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MANAGEMENT ’S ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION

Key Performance Indicators
(These results reflect net income adjusted to exclude unusual items as described below)

Net income before provision for income taxes ($ thousands)
Net income from operations(1) ($ thousands)
Earnings per share

basic

fully diluted

Efficiency ratio(2) (expenses to revenues)
Return on common shareholders' equity

Return on average total assets

(1) Fiscal 2000 included a $3.05 million loss from discontinued operations.
(2) A decrease in the ratio reflects improved efficiency.

Overview of 2001

In evaluating the Bank’s performance, management reviews
reported net income (i.e. as reported in the Consolidated
Statement of Income on page 54) as well as net income
from operations which is adjusted to exclude unusual items.
Unusual items that may include non-cash items are viewed
by management as transactions that are not part of the core
business operations or which are somehow unusual in nature.
A comparison of earnings at this level provides a more
meaningful year-over-year comparison. Net income from
operations in 2001 excludes non-cash tax expense of
$1.25 million (2000 – $600,000) related to the write-down
of future income tax assets due to future federal and
provincial tax rate reductions.

Net income from operations for the year ended
October 31, 2001 was $31.40 million, an increase
of 16% from $26.95 million in 2000. Fully diluted
earnings per share based on net income from operations
were $2.40 compared to $2.26 last year. Return on shareholders’
equity and return on assets were 13.95% and 0.97% for 2001
compared to 14.98% and 0.95% respectively for 2000. The
average number of shares outstanding increased by 867,000
during the year, primarily due to an equity issue in April
(discussed in the Capital Funds and Adequacy section).

2001
46,582

31,395

2.62

2.40

50.0 %

13.95 %

0.97 %

2000

35,435

26,949

2.42

2.26

54.3 %

14.98 %

0.95 %

2001/2000
Increase
(decrease )

% Change

31 %

16 %

8 %

6 %

11,147

4,446

0.20

0.14

(4.3 )%

(1.03 )%

0.02 %

Reported net income for fiscal 2001 was $30.15 million
compared to $26.35 million last year, an increase of
$3.80 million or over 14%. The related fully diluted earnings
per share were $2.31 in 2001 compared to $2.21 a year ago.
Return on shareholders’ equity and return on assets were
13.48% and 0.93% respectively compared to 14.68% and
0.93% last year.

Net income before provision for income taxes
for the year ended October 31, 2001 was $46.58
million, an increase of 31% from $35.44 million
reported in 2000. The provision for income taxes
(excluding unusual item) increased significantly to $15.19
million compared to $5.44 million last year as the effective
annual income tax rate more than doubled to approximately
33% from 15% last year as all remaining tax deductions were
fully utilized during 2001.

The efficiency ratio at 50.0%, improved 4.3 percentage points
in the last year and continues to be the best in the Canadian
banking industry.

Total assets increased by over 12% from one year ago to
reach $3,440 million. Loans increased by $323 million, or
almost 13%. The total capital adequacy ratio at October 31,
2001 was 12.5% (2000 – 11.6%) with a Tier 1 component
of 9.3% (2000 – 8.1%).

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Quarterly Information
($ thousands, except per share data)

Total interest income

Net interest income

Other income

Net income before taxes

2001

2000

$ 57,865

$ 58,466

$57,821

$59,741

$57,530

$ 54,812

$ 49,610

$ 48,330

22,295

5,391

12,718

21,563

5,242

12,119

8,484

250

8,234

–

20,487

4,698

10,547

7,083

–

7,083

–

21,156

4,427

11,198

7,522

1,000

6,522

–

20,141

19,069

17,426

16,731

3,949

9,927

8,224

–

8,224

–

4,086

9,659

8,150

–

8,150

–

3,735

8,324

7,115

600

6,515

–

3,485

7,525

6,505

–

6,505

3,045

Net income excluding unusual item

and loss from discontinued operations

8,306

Unusual item – income tax rate changes

–

Net income from continuing operations

8,306

Loss from discontinued operations

–

Net income

$ 8,306

$ 8,234

$ 7,083

$ 6,522

$ 8,224

$ 8,150

$ 6,515

$ 3,460

Basic earnings per common share

Continuing operations

0.66

0.61

0.58

0.74

0.73

0.59

Loss from discontinued operations

Net income

Add back unusual item –

income tax rate changes

Net income from operations

Fully diluted earnings per common share

Continuing operations

Net income

Net income from operations

–

0.66

–

0.66

0.61

–

0.66

0.02

0.68

0.60

0.62

–

0.61

–

0.61

0.56

–

0.58

0.09

0.67

0.53

0.61

–

0.74

–

0.74

0.68

–

0.73

–

0.73

0.67

–

0.59

0.05

0.64

0.54

0.59

Efficiency ratio (expenses to revenues)
Return on common shareholders’ equity(1)
Return on average total assets(1)

48.6 %

13.19 %

0.97 %

49.1 %

13.91 %

1.03 %

52.1 %

13.64 %

0.91 %

50.3 %

15.06 %

0.97 %

53.2 %

17.15 %

1.10 %

52.5 %

17.72 %

1.12 %

55.7 %

16.44 %

1.05 %

(0.28 )

0.31

–

0.31

0.55

0.31

56.1 %

8.12 %

0.51 %

(1) Excludes non-cash income tax expense relating to the write-down of future income tax assets as a result of future tax rate reductions which is considered an unusual item. Results are presented

on this basis in order to provide a more meaningful comparison between periods.

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Net Interest Income
Table 1 – Net Interest Income
($ thousands)

Assets
Securities and deposits with

2001

2000(1)

Average
Balance

Mix

Interest

Interest
Rate

Average
Balance

Mix

Interest

Interest
Rate

regulated financial institutions

$ 440,558

14 % $

23,225

5.27 % $ 332,191

12 % $

18,276

5.50 %

Loans

Securities purchased under

resale agreements

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
$ 3,175,605
Total Assets/Net Interest Income $ 3,175,605

225,613

37,781

518,713

2,127,070

2,683,564

3,124,122

51,483

1,719

36,992

171,957

210,668

233,893

–

4.55

7.13

8.08

7.85

7.49

0.00

29,647

425,376

1,940,567

2,395,590

2,727,781

48,936

1,581

30,500

159,925

192,006

210,282

–

5.33

7.17

8.24

8.01

7.71

0.00

$ 3,175,605

100 % $ 233,893

7.36 % $ 2,776,717

100 % $ 210,282

7.57 %

59,261

2 % $

–

0.00 % $

48,132

2 % $

–

0.00 %

294,030

2,455,504

2,808,795

74,071

67,126

8,722

135,682

144,404

–

3,988

–

2.97

5.53

5.14

0.00

5.94

0.00

246,364

2,175,228

2,469,724

57,763

67,126

182,104

8,437

124,514

132,951

–

3,964

–

100 % $ 148,392

4.67 % $ 2,776,717

100 % $ 136,915

85,501

2.69 % $ 2,776,717

73,367

3.42

5.72

5.38

0.00

5.91

0.00

4.93 %

2.64 %

(1) Residential mortgages and other loans as well as the related interest income for 2000 have been reclassified to conform with the current year’s balance sheet presentation.

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 2001, net interest income increased by $12.1 million,
or 17%, primarily due to:

•

an increase of $396 million (14%) in average interest
bearing assets; and
an increase in net interest spread to 2.69% from 2.64%.

The Bank achieved a relatively consistent spread despite
the average prime rate declining from 7.05% to 6.55%,
primarily due to:

•

strong growth in higher yielding commercial
loan portfolios;
a shift in the securities portfolio to investments with slightly
higher risk and return as well as longer duration; and

•

reduced cost of funds on deposits due to continued
growth in demand and notice deposits as well
as the positive impact of interest rate swaps.

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 short term market
rates increase this would have a positive impact on spreads.

In 2002 we expect net interest spread for the entire year will
be comparable to 2001 on the expectation that interest rates
will rise in the second half of the year. However, the lower
interest rate environment currently existing and expected
to continue for the first two quarters will keep downward
pressure on spread for that time period, due to the repricing
of maturing fixed income securities and the Bank’s positive
gap position in its asset and liability portfolio.

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Other Income
Table 2 – Other Income
($ thousands)

Credit related

Retail services

Trust services

Gains on security sales, net
Other (1)
Total Other Income

2001
10,262

3,397

2,252

2,328

1,519

2001/2000
Increase (decrease)

2000

9,540

2,949

1,644

1,073

722

448

608

2,279

446

8 %

19,758

15,255

4,503

30 %

(1) Other includes gains/losses on equipment disposals, foreign exchange service fees and other miscellaneous non-interest revenues.
nm not meaningful

Other income, which includes all revenues not
classified as net interest income, was $19.8 million,
an increase of $4.5 million or 30% over 2000.
As shown in Table 2, all categories of other income grew
in 2001. Notable changes include:
• gains on security sales increased $2.3 million as gains
were realized in the fixed income securities portfolio
that arose as market prices increased when interest
rates fell;
an increase of $1.2 million in credit and retail fees due
to loan and deposit growth and increased activity; and

•

increased trust services fees in Canadian Western Trust
(“CWT”) due to continued growth (12%) in the number
of self-directed RRSP (registered retirement savings plan)
and RRIF (registered retirement income fund) accounts
and an increased offering of products available.

Other income as a percentage of total revenue (net interest
income and other income) was 19% in 2001, up from 17%
in 2000. In 2002 total other income is expected to show broad
based growth with a continued focus on increasing other
income as a percentage of total revenue. The realization of
security gains on the sale of fixed income investments is
expected to occur during periods of declining interest rates.

Non-interest Expenses

Non-interest expenses increased 9% to $52.6 million
in 2001. The increase is primarily due to:

•

salaries from an increase in full time staff complement
to accommodate growth;
employee benefits due to enhanced benefit plans
and increased group plan premiums as well as the
increase in staff complement; and

• premises and equipment expenses due to new branch

initiatives; offset by
reduced provincial capital taxes (see Taxes section).

•

The efficiency ratio improved to 50.0% from 54.3%
in 2000 as revenue growth of 19% exceeded
expense growth of 9%. This efficiency ratio compares
very positively to the other Canadian Schedule I banks which
averaged 61.9%. Non-interest expenses as a percentage of
average assets was 1.63% in 2001, an improvement from
1.70% in 2000.

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2001/2000
Increase (decrease)

10 %

(16 )

(8 )

(2 )

9 %

17 %

19 %

Table 3 – Non-interest Expenses and Efficiency Ratio
($ thousands)

2001

2000

Salaries and Employee Benefits

Salaries

Employee benefits

Total
Premises
Rent

Depreciation

Other

Total
Equipment and Furniture

Depreciation

Other

Total
General

Capital and business taxes

Professional fees and services

Marketing and business development

Postage and stationery

Banking charges

Deposit insurance premiums

Travel

Communications

Other

Total
Total Non-interest Expenses
Efficiency Ratio

Net interest income

Other income

Total revenues

26,073

23,750

2,323

4,396

30,469

3,457

27,207

939

3,262

4,415

968

972

6,355

2,118

1,611

3,729

2,032

1,899

1,521

1,288

990

886

839

497

2,076

12,028

52,581

85,501

19,758

$ 105,259

3,854

822

770

5,446

1,934

1,444

3,378

2,405

2,067

1,340

1,318

934

801

791

494

1,906

12,056

48,087

73,367

15,255

88,622

561

146

202

909

184

167

351

(373 )

(168 )

181

(30 )

170

(28 )

4,494

12,134

4,503

16,637

Efficiency Ratio (expenses as a percentage of total revenues)

50.0 %

54.3 %

During 2001, the Bank adopted the new accounting standard
relating to employee future benefits. There was no material
change to the Consolidated Financial Statements as a result
of this change.

In 2002 we anticipate:

•

the full time staff complement will increase by
approximately 8% to accommodate growth in volumes
and new branch initiatives; and
increases in other non-interest expenses will be primarily
attributable to volume increases from growth.

Capital expenditures of $1.8 million are budgeted for 2002
and will be funded from general operating revenues. At year
end there were specific commitments of approximately
$207,000 for these capital expenditures.

Efficiency Ratio(1) (expenses to revenues)

%
4

4
6

%
7

0
6

%
8

9
5

%
3

4
5

%
0

0
5

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

(1) A decrease in the ratio reflects improved efficiency

1
0
0
2

b
w
c

Taxes

The provision for income taxes, including tax
expense from future income tax rate changes,
was $16.4 million in 2001, up substantially from
$6.0 million in the prior year as available unclaimed
deductions and tax loss carryforwards were
depleted during 2001 and the Bank became
fully taxable.

Income taxes otherwise payable by the Bank for the
year ended October 31, 2001 were partially eliminated by
utilizing approximately $15.7 million (2000 - $30.3 million)
of unclaimed deductions and tax loss carry forwards.
At October 31, 2001, there are no unclaimed deductions
or tax loss carry forwards available to reduce future years’
income for tax purposes. Capital losses of $11.8 million
(2000 - $11.8 million) are available to apply against future
capital gains and have no expiry date. The tax benefit of
these capital losses has not been recognized.

For the year ended October 31, 2001 the effective tax rate
was approximately 33% (excluding tax expense from future
tax rate changes). This rate is expected to increase to the
37 - 40% range in 2002 as the Bank will be fully taxable
for the complete fiscal year.

As discussed in Note 2 of the Consolidated Financial
Statements effective November 1, 2000, the new accounting
standard relating to income taxes was adopted retroactively
with restatement of prior periods. Under the new standard,
future tax assets and liabilities represent the cumulative
amount of tax applicable to temporary differences between
the carrying amount of the assets and liabilities and their values
for tax purposes.The Bank’s significant future income tax asset
relates primarily to the general allowance for credit losses.

Future tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. Changes
in future income taxes related to a change in tax rates are
recognized in income in the period of the tax rate change.
Income tax expense for 2001 includes $1.25 million (2000 -
$600,000) relating to federal and provincial (British Columbia
and Alberta) income tax rate reductions enacted during the
year. As discussed in the Overview section on page 31, this
non-cash component of tax expense has been treated as
an unusual item in the evaluation of core business operations.

Capital taxes for 2001 totalled $1.9 million compared
to $2.2 million in 2000. The decrease is attributable to:

•

elimination of capital tax in Alberta during the year;
offset by
taxes exigible on increased capital due to the share capital
issued on the equity offering and retention of earnings.

In 2002 capital taxes are expected to decrease again as
the Alberta capital tax elimination will be realized for a
complete year.

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 cost is incurred because the majority of the Bank’s
activities, except leasing 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.

Table 4 – Capital Taxes
($ thousands)

British Columbia

Alberta

Saskatchewan

Manitoba
Total Capital Taxes

2001/2000
Increase (decrease)

Capital
Tax Rate

Capital
Allocation (1)

1.00 %
0.00 %(2)
0.70 %

3.00 %

39 % $

53 %

5 %

3 %

2001
1,008

539

239

2000

888

1,078

198

120

(539 )

1,878

2,246

(368 )

14 %

(50 )

(16 )%

(1) The capital allocation percentages are for the Bank only although total capital tax includes capital taxes paid in British Columbia and Alberta by a subsidiary.
(2) Alberta’s capital tax was eliminated on April 1, 2001; prior to that date the rate was 0.70%.

Loans
Table 5 – Outstanding Loans by Type and by Provincial Location of Branch
($ millions)

1
0
0
2

b
w
c

British
Columbia

Alberta Saskatchewan

Manitoba

Total (1) Composition %

October 31,2001
Loans to Individuals

Residential mortgages(2)
Other

Total
Loans to Businesses(3)

Securities purchased under

resale agreements

Commercial
Construction and real estate(4)
Industrial

Energy

Total
Total Loans
Composition %

October 31, 2000
Loans to Individuals

Residential mortgages(2)(5)
Other

Total
Loans to Businesses(3)

Securities purchased under

resale agreements

Commercial
Construction and real estate(4)(5)
Industrial

Energy

Total
Total Loans
Composition %

1,197

132

109

41 %

51 %

4 %

303

340

–

310

363

184

–

857

280

313

–

251

384

182

–

817

184

237

392

322

295

154

1,238

1,475

326

333

220

1,024

1,242

169

218

–

556

106

662

754

759

509

154

2,251

2,913

100 %

506

603

630

774

435

1,984

2,587

100 %

19 %

100 %

20 %

100 %

1,130

116

44 %

48 %

4 %

Includes single and multi-unit residential mortgages.

(1) This table does not include an allocation of the allowance for credit losses and deferred revenue and discounts.
(2)
(3) Corporate loans (described on page 38) are included in Loans to Businesses based on the security of the specific loan and the nature of the borrower’s business.
(4)
(5) Balances at October 31, 2000 have been reclassified to conform to the current year’s presentation.

Includes commercial term mortgages and project (interim) mortgages.

Loans, as reported on the consolidated balance
sheet, totalled $2,883 million at the end of 2001
compared to $2,560 million at the end of 2000,
an increase of 13%. Highlights of the year-over-year
changes are:

Portfolio
•

commercial loans increased $124 million (20%)
and comprise 26% of the portfolio compared to 24%
one year ago;
the energy portfolio, a specialty in the Calgary market,
grew $94 million (157%);

•

•
•

•

the industrial portfolio increased $74 million (17%);
construction and real estate loans decreased $15 million
(2%) and represent 26% of the portfolio versus 30%
a year earlier; and
loans to individuals represent 23% of the total portfolio,
down from 24% in 2000.

Together with organic growth, two portfolio acquisitions
during the fourth quarter of 2001 contributed to the portfolio
increase:

•

$48 million of term loans and leases to energy and general
commercial borrowers acquired from Westcoast Capital; and
$48 million of assets (primarily residential mortgages)
acquired from Laurentian Bank.

1
0
0
2

b
w
c

Since 1999 the Bank has developed a portfolio of loans,
identified internally as corporate loans, through participation
in syndications, the majority of which have been structured
and led by the major Canadian banks. This initiative has
afforded the opportunity to participate in larger investment
grade credits as well as providing a degree of geographic
diversification. At October 31, 2001 the corporate loan
portfolio totalled $103 million (2000 - $70 million).

Location
•

•

loan growth of $259 million (18%) in the prairie provinces
(primarily in Alberta); and
loans held at Alberta branches increased from 48% of the
total portfolio at October 31, 2000 to 51% at October 31,
2001 due to strong economic growth in the province with
a corresponding decrease in the British Columbia loan
portfolio from 44% to 41%.

Deposits

Growth of 12% in deposits was achieved this year.
Of particular note, is the fact that the lower cost
business and personal deposits grew faster than
total deposits and these deposits now account for
almost 15% of total deposits compared to 13%
last year. The focus on increasing lower cost deposits
will continue to be an ongoing priority. Branch generated
deposits grew by 21% this year and now account for over
one-half of total 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

Although some market sectors are expected to slow relative
to 2001, overall loan growth of 14% is planned for 2002.

Loans by Portfolio

11%

20%

12%

18%

24%

Commercial

Energy

Industrial

Personal

Securities purchased
under resale agreements

Real estate project
mortgages
Multi-unit residential
mortgages
Real estate term
mortgages

Corporate Loans

The source of deposits is broken down as follows:

• branches – 53% (2000 – 49%)
• deposit agents – 45% (2000 – 48%)
• wholesale clients – 2% (2000 – 3%)

CWT deposits are included in the foregoing numbers.The trust’s
growth in low cost notice deposits (primarily cash balances held
in self-directed accounts and corporate trust deposits) has
contributed to the improved mix of these deposits for the Bank.
The Bank’s branch network generated $50.0 million of CWT’s
fixed term deposits (a 16% increase from last year), with the
remainder of the fixed term deposits received through deposit
agents, as CWT has no retail branches.

2001

2000

Amount

% of Total

Amount

% of Total

$ 147,770

290,542

4.8 % $ 117,215

9.6

238,579

1,592,122

470,242

518,075

3,018,751

23,556

52.3

15.5

17.0

99.2

0.8

1,481,227

364,441

514,321

2,715,783

12,026

4.3 %

8.7

54.3

13.4

18.9

99.6

0.4

$ 3,042,307

100.0 % $ 2,727,809

100.0 %

1
0
0
2

b
w
c

Branch generated deposits are generally considered to be
more stable and we continue to focus on achieving further
growth in this area. Agent deposits are slightly more expensive
because a commission is paid, but this added cost is countered
by a reduced need for a more extensive branch network.

Capital Funds and Adequacy
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, in order to be considered well
capitalized, OSFI has stated that Canadian banks
need to maintain a minimum total capital
adequacy ratio of 10% with a Tier 1 ratio of
not less than 7%.

Deposits by Source
($ millions)

3,500

3,000

2,500

2,000

1,500

1,000

500

1
3
1

9
5
8

8
2
8

7
9
9
1

5
9

7
0
0

8
5
9

8
9
9
1

2
7

1
1
3

5
4
3

0
0
0
2

7
8

6
7
1

8
0
1

9
9
9
1

8
5

7
5
3

7
2
6

1
0
0
2

Branches

Agent

Wholesale

In the Bank, Tier 1 capital is comprised entirely 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. OSFI has authorized the inclusion of the
general allowance in Tier 2A capital to a maximum of 87.5
basis points (0.875%) of risk-weighted assets. Prior to October
2001, the inclusion rate was a maximum of 75.0 basis points
(0.750%) of risk-weighted assets.

Table 7 – Capital Structure and Regulatory Ratios at Year End
($ thousands)

Tier 1 Capital

Retained earnings

Common shares

Less unamortized goodwill

Total
Tier 2 Capital

General allowance for credit losses (Tier A)(1)
Subordinated debentures (Tier B)

Total
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(2)

2001

2000

2001/2000
Increase
(decrease )

$ 108,320

83,853

24,467

143,942

111,342

–

(194 )

252,262

195,001

21,454

67,126

88,580

17,911

67,126

85,037

32,600

194

57,261

3,543

–

3,543

$ 340,842

$ 280,038

60,804

9.3 %

3.2 %

12.5 %

10.3

8.1 %

3.5 %

11.6 %

11.1

1.2 %

(0.3 )%

0.9 %

(0.8 )

(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 to a

maximum of 0.875% (previously 0.750%) of risk-weighted assets as of October 2001. At October 31, 2001, the Bank’s general allowance represents 0.79% of risk-weighted assets.

(2) Total assets plus off-balance sheet credit instruments, such as letters of credit and guarantees, less goodwill divided by total regulatory capital.

1
0
0
2

b
w
c

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 12 to the Consolidated Financial Statements for further details.
(2) Greater than one year only.
(3) See Note 16 to the Consolidated Financial Statements for further details.

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 be considered well capitalized, to protect
customer deposits and to provide capacity for internally
generated growth and strategic opportunities that do not
otherwise require accessing the public capital markets. The
capital mix is managed to improve the return on equity.

At October 31, 2001 the total capital adequacy
ratio was 12.5% (2000 – 11.6%) of which 9.3%
(2000 – 8.1%) was Tier 1 capital. Total regulatory
capital increased $60.8 million over 2000 as a result of:

•
•

•

earnings, net of dividends, of $25.9 million;
share capital of $29.4 million issued on an equity offering
and $3.2 million issued upon the exercise of stock options;
an increase in the inclusion of the general allowance for
credit losses of $3.5 million due to greater risk-weighted
assets and a higher inclusion rate; offset by
a charge to retained earnings of $805,000 for share issue
costs, net of taxes, related to the equity offering; and
a charge to retained earnings of $600,000 on adoption
of the new accounting policy regarding income taxes.

2001
Risk-
weighted
Balance

2000

Risk-
weighted
Balance

Balance

$ 232,808

46,173

$ 214,935

42,695

268,420

33,657

231,416

30,274

2,882,636

2,561,083

2,560,092

2,255,509

55,704

51,057

53,097

46,141

$ 3,439,568

2,691,970

$ 3,059,540

2,374,619

44,006

32,178

–

44,006

32,178

42,489

1,844

44,333

$ 372,000

9,005

$ 381,005

1,650

189

1,839

$ 269,000

3,535

$ 272,535

29,366

922

30,288

136

164

300

$2,725,987

$ 2,405,207

Subordinated debentures include both convertible ($54.0
million) and conventional ($13.1 million) debentures. The
conventional debentures have a ten year term and all reach
their five year anniversary date during fiscal 2002. At the
respective anniversary dates, if the debenture is not
redeemed by the Bank or renegotiated, the interest rate
will change from fixed to floating and the debenture will
commence straightline amortization for capital adequacy
purposes over the final five year term to maturity. Note 9
to the Consolidated Financial Statements details the terms
of the debentures.

In each of January and July 2001, semi-annual dividends
of $0.18 per share were paid.

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 10 to
the Consolidated Financial Statements details the number
of shares under option outstanding, the weighted average
exercise price and the amounts exercisable at year-end.

1
0
0
2

b
w
c

The Operations Committee meets regularly and is made
up of supervisory and management personnel 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 department performs inspections in all areas
of the Bank, including CWT, and reports the results directly
to senior management, the 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 an amount not exceeding 10% of regulatory capital.

Net Impaired Loans as a Percentage
of Net Loans Outstanding

0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00

%
8
6

%
3
5

%
4
5

%
5
2

%
7
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

Risk Management
OVERVIEW
The 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
within which financial institutions operate.
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, liquidity, market
and operational.

Senior management are responsible for establishing the
framework for identifying risks and developing 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 monitoring 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 an Executive Vice President with the President and
Chief Executive Officer (“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.

1
0
0
2

b
w
c

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;
annual reviews of individual credit facilities (excepting
consumer loans and single-unit residential mortgages);
• diversification of risk by client, geographic area, industry

•

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 includes reporting the results
to senior management, the 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 possible, and the establishment
of an action plan for each account.

Table 9 – Change in Gross Impaired Loans
($ thousands)

Gross impaired loans, beginning of year

Net additions (reductions)

Write-offs
Total
Gross Impaired Loans as a Percentage of Total Loans

Environmental Risk
The operations of the Bank do not have 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. Over the past several years the Bank has also
participated in larger investment grade credits (corporate
loans) through participation in syndications, which are
generally led by the major Canadian banks. In addition to
allowing us to lend to larger companies this initiative has
also provided a degree of geographic diversification.

Impaired Loans
Gross impaired loans increased $4.4 million in 2001, a 14%
increase primarily attributable to loans domiciled in British
Columbia and reflecting the current economic environment.
As shown in Table 9 gross impaired loans total $35.5 million
and represent 1.23% (2000 – 1.21%) of total outstanding loans.

Impaired loans net of the allowance for credit losses are 0.25%
of net loans outstanding, compared to 0.17% in 2000 (see graph
on page 41).

At year end there are no significant changes in the impaired
loans due to current economic uncertainties in the markets
we focus on. Going forward in 2002, the general trends within

2001
31,097

9,002

(4,619 )

2001/2000
Increase
(decrease )

2000

38,189

(7,092 )

(2,612 )

(4,480 )

11,614

(139 )

35,480

31,097

4,383

1.23 %

1.21 %

0.02 %

1
0
0
2

b
w
c

the portfolio are not expected to experience a material
adverse change. Impaired loans will continue to be monitored
closely to provide early identification of any possible adverse
trends.

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.

Allowance For Credit Losses
The allowance for credit losses consists of $6.9 million in
specific provisions and $21.5 million in the general allowance
for credit risk with the latter now representing 0.74% of gross
outstandings and 0.79% of risk-weighted assets.This compares
favourably with the Bank’s five year loan loss average of
0.22% 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
0.18%. 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 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 to specific credits.

In October 1998 OSFI began providing 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

Table 10 – Allowance for Credit Losses
($ thousands)

Specific Provisions

Consumer and personal

Real estate

Industrial

Other

General Allowance
Total

(1) Recoveries in 2001 totalled $19 (2000 - $222).

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. OSFI’s revised general allowance criteria were
effective for 1999. In accordance with the guidance provided
by OSFI, a one-time increase of $11.7 million was added
to the general allowance at April 30, 1999 through a charge
to retained earnings, net of taxes. The Bank also commenced
the development of policies and methodology governing
the management of the general allowance, as appropriate
for the nature of the loan portfolio. A final OSFI guideline has
been issued which will be effective for the 2002 fiscal year.
The development of expanded methodology will continue
for 2002. A significant change to the level of the general
allowance is not anticipated based on either the new
guideline or methodology and assuming no material
change in the portfolio’s credit quality.

Allowance for Credit Losses as a
Percentage of Gross Impaired Loans

100

%
4

6
8

%
9

9
7

%
1

8
6

%
5

7
5

%
7

8
4

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2000
Ending
Balance

Write-offs,
net of

Recoveries (1)

Provision
for Credit
Losses

310

1,764

2,278

1,595

20,915

442

822

2,478

858

–

575

1,591

2,016

1,376

538

2001
Ending
Balance

443

2,533

1,816

2,113

21,453

26,862

4,600

6,096

28,358

1
0
0
2

b
w
c

Geographical Distribution of Loans

Provision for Credit Losses
as a Percentage of Average Loans
Outstanding (5 year average 0.22%)

40%

Alberta

0.40

4%
2%

British Columbia

Manitoba

Saskatchewan

Other

49%

Provision for Credit Losses
For the year ended October 31, 2001, the provision for credit
losses represented 0.23% of average loans. As reflected in the
graph, the provision for credit losses remains consistent with
the five year average of 0.22% reflecting the strong credit
quality of the portfolio.

Diversification of Portfolio
Total Advances Based on Location of Borrower (also see Table 5)

The following table illustrates the diversification in lending
operations by industry sector.

Table 11 – Total Advances Based on Industry Sector
(%) October 31

Construction

Real estate operations
Consumer loans and residential mortgages(1)
Transportation and storage

Oil and gas (production)

Hotel/motel

Manufacturing

Logging/forestry

Finance and insurance

Other services

Wholesale trade

Government guaranteed
Other
Total

(1) Residential mortgages in this table include only single-family properties.

0.30

0.20

0.10

0.00

%
5
2

%
2
2

%
3
2

%
1
2

%
8
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

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 as stand alone operations,
while oil and gas lending is conducted by specialists in the
Calgary market. In addition to these areas, the Bank also has
real estate divisions established in the major centres in which
it operates.

2001

20.7 %

20.2

13.7

2000

22.7 %

22.2

13.8

8.0

5.7

4.7

4.0

3.5

3.3

2.8

2.5

0.8
10.1

7.1

2.7

4.4

4.0

3.3

3.2

4.2

2.6

0.9
8.9

100.0 %

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 pool of high quality 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.

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

•

Table 12 – Liquid Assets
($ thousands)

Cash

Deposits with regulated financial institutions

Cheques in transit
Total Cash Resources

Securities purchased under resale agreements

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 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

1
0
0
2

b
w
c

•

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, 2001 is provided in Note 3 to the Consolidated
Financial Statements. A conservative policy is maintained
in this area with:

•

significantly 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.

As shown in Table 12, liquid assets comprised of cash,
interbank deposits, items in transit, securities purchased under
resale agreements and marketable securities, totalled $575
million at October 31, 2001, an increase of $45 million from
October 31, 2000. Liquid assets represented 16.7%
(2000 – 17.3%) of total assets and 18.9% (2000 – 19.4%)
of total deposit liabilities at that date.

2001
1,945

190,978

39,885

232,808

75,000

25,743

58,548

151,292

31,490

342,073

2000

1,460

168,652

44,823

214,935

84,932

15,826

123,844

61,477

28,921

315,000

2001/2000
Increase
(decrease )

485

22,326

(4,938 )

17,873

(9,932 )

9,917

(65,296 )

89,815

2,569

27,073

$ 574,881

$ 529,935

44,946

$3,439,568

$ 3,059,540

$ 380,028

16.7 %

17.3 %

(0.6 )%

$3,042,307

$ 2,727,809

$ 314,498

18.9 %

19.4 %

(0.5 )%

1
0
0
2

b
w
c

Table 13 – Deposit Maturities Within One Year
($ millions)

October 31,2001

Demand deposits

Notice deposits

Deposits payable on a fixed date
Total
October 31, 2000 Total

Table 14 – Total Deposit Maturities
($ millions)

October 31,2001

Demand deposits

Notice deposits

Deposits payable on a fixed date
Total
October 31, 2000 Total

Within
1 Month

1 to 3
Months

3 Months
to 1 Year Within 1 Year

Cumulative

371

475

925

708

–

202

177

Within
1 Year

1 to 2
Years

2 to 3
Years

3 to 4
Years

371

1,509

1,959

1,797

–

402

372

–

339

261

–

156

186

–

832

912

4 to 5
Years

–

186

112

371

1,509

1,959

1,797

Total

371

2,592

3,042

2,728

Highlights of the composition of liquid assets at
October 31, 2001 follow:

• maturities within one year total 71% of liquid assets

or $407 million;

• Government of Canada and provincial debt securities

made up 41% of liquid assets; and

• deposits with regulated financial institutions including

bankers' acceptances were 33% of liquid assets.

Also included in liquid assets are securities purchased under
resale agreements. These are short term advances, typically
no more than a few days in duration, to securities dealers
and require the dealer to repurchase the securities comprised
of 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.

A breakdown of deposits by source is provided under
the heading Deposits. Target limits by source have been
established as part of the 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 raises new deposits mainly through the Bank’s branch
network and through notice accounts comprised primarily
of cash balances held in self-directed accounts and corporate
trust deposits. At October 31, 2001, $50.0 million (2000 -
$43.1 million) of CWT deposits had been raised via the Bank’s
branch network and the trust’s notice account balances
totalled $70.0 million (2000 – $53.4 million).

1
0
0
2

b
w
c

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 primarily 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.

Table 15 – Asset Liability Gap Positions
($ millions)

October 31,2001
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
Cumulative Gap as a

Percentage of Total Assets

October 31, 2000

Total assets

Total liabilities and equity
Interest Rate Sensitive Gap
Cumulative Gap
Cumulative Gap as a

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

Non-
interest
Sensitive

152 $

24 $

11 $

187 $

2 $

134

–

216

202

–

1,403

–

1,580

925

–

381

1,306

274 $

403

–

195

665

1,940

–

235

2,461

153

959

–

146

1,260

832

1,959

1,083

–

381

2,353

108 $

–

1,137

123 $

231 $

–

44 $

–

(29 )

–

252

–

331

260

(260 ) $

– $

202

14 $

288 $

845

(180 ) $

108 $

7.2 %

7.5 %

2.8 %

6.0 %

6.8 %

–

1,365 $

212 $

679 $

2,256 $

993 $

980

385 $

177

35 $

420 $

912

2,069

(233 ) $

187 $

998

(5 ) $

182 $

–

192

74 $

266

(192 ) $

– $

Total

233

268

2,883

381

3,821

3,042

252

381

3,821

–

3,333

–

Percentage of Total Assets

11.6 %

12.6 %

5.6 %

5.5 %

5.8 %

–

Notes:
1.
2.

Accrued interest is excluded in calculating interest sensitive assets and liabilities.
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. The majority of fixed rate loans, mortgages and leases are either closed or carry prepayment penalties.

1
0
0
2

b
w
c

Table 16 – Weighted Average Effective Interest Rates
(%)

October 31,2001
Assets
Cash resources

Securities

Loans

Off-Balance sheet swaps

Total
Liabilities
Deposits

Debentures

Off-Balance sheet swaps

Total
Interest Rate Sensitive Gap

October 31, 2000

Total assets

Total liabilities
Interest Rate Sensitive Gap

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

2.9 %

4.1 %

4.3 %

3.1 %

5.1 %

– %

3.2 %

5.1

5.5

6.4

5.2

2.3

–

3.0

2.5

2.7 %

8.0 %

4.7

3.3 %

5.2

6.9

5.4

6.1

4.8

–

4.8

1.3 %

6.8 %

5.6

1.2 %

5.1

7.5

4.6

6.4

4.9

6.6

–

4.9

5.2

6.0

4.8

5.6

3.7

6.6

3.0

3.6

5.4

7.8

4.8

7.1

5.6

5.5

–

5.5

8.1

–

6.6

–

5.1

6.6

4.8

6.1

4.3

5.7

3.0

4.2

1.5 %

2.0 %

1.6 %

6.6 %

1.9 %

7.2 %

5.9

1.3 %

7.6 %

5.3

2.3 %

7.7 %

5.9

1.8 %

5.6 %

–

5.6 %

7.6 %

5.5

2.1 %

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 shows the consolidated gap position at October 31,
2001 for selected time intervals. Comparative summary
figures are given at October 31, 2000. Figures in brackets
represent an excess of liabilities over assets or a negative
gap position.

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.

During the year:

•

the one year and under cumulative gap decreased from
5.6% to 2.8%; and
the one month and under gap decreased from 11.6%

to 7.2%.

Of the $1,509 million in fixed term deposit liabilities maturing
within one year from October 31, 2001, approximately $1,070
million (35% of total deposit liabilities) mature by April 30,
2002. The term in which maturing deposits are retained will
have an impact on the future asset liability structure and
hence interest rate sensitivity. Approximately $136 million
of the fixed term deposit liabilities maturing within one
month are floating rate redeemable deposits with a one year
contractual maturity redeemable without penalty at any time.

The effective interest rates for each class of financial asset and
liability, including off-balance sheet instruments, are shown in
Table 16.

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 and 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.

1
0
0
2

b
w
c

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 2001 or 2000.

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 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.

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

2001
678

2,353

2.8 %

2000

948

3,654

4.8 %

The interest sensitivity of the portfolio decreased in both
absolute dollar terms and as a percentage of estimated future
net interest income during the year. Virtually all of the
decrease in the level of interest sensitivity occurred in the first
quarter when the three month gap was reduced by nearly
50% and the one year gap reduced by 24%.

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 9 to the Consolidated Financial Statements, such
items were not material as at October 31, 2001.

Foreign Exchange Risk
In providing financial services to its customers, the Bank has
assets and liabilities denominated in U.S. dollars. At October 31,
2001, assets denominated in U.S. dollars were 0.7% (2000 –
0.4%) of total assets and U.S. dollar liabilities were 0.8% (2000 –
0.4%) of total 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.

1
0
0
2

b
w
c

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

2001

2000

44,006

42,489

556,383

442,667

$ 600,389

$ 485,156

$ 372,000

$ 269,000

9,005

3,535

$ 381,005

$ 272,535

$ 873,538

$ 741,181

(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 $239 million

(3)

(2000 - $183 million) and recently authorized but unfunded loan commitments of $317 million (2000 - $260 million).
Interest rate swaps are used as hedging devices to control interest rate risk.The outstanding swaps mature between November 2001 and September 2006.The total gross positive replacement
cost of interest rate swaps was $7,317 (2000 - $359).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 outstanding contracts mature between March 2004

and March 2006.The total gross positive replacement cost is $225 (2000 - $538).

(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, 2001 and 2000 there were no forward foreign

exchange contracts outstanding.

More detailed information on the nature of off-balance sheet
financial instruments is shown in Notes 12, 13 and 16 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.

Trust assets under administration, administered by CWT,
totalled approximately $874 million at October 31, 2001
(2000 - $741 million). These assets are primarily in self-
directed RRSPs and RRIFs. Trust assets under administration
are held in 12,814 accounts (2000 – 11,468), an increase
of 12% from one year ago. Assets under administration,
and the related fee income, are expected to increase in 2002.

15,000

12,000

9,000

6,000

3,000

Number of Self-directed Accounts

4
1
8

2
1

8
6
4

1
1

7
0
0

7
4
8

5
3
3

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

FINANCIAL STATEMENTS

Management’s Report

The consolidated financial statements of Canadian Western
Bank and related financial information presented 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 Canadian generally
accepted accounting principles including the requirements
of the Bank Act and related rules and regulations issued
by the Superintendent of Financial Institutions Canada.
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 department 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 external auditors.

1
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2

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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 external 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 external 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”

“Tracey C. Ball”

Larry M. Pollock
President and Chief Executive Officer
November 30, 2001

Tracey C. Ball, C.A.
Senior Vice President and Chief Financial Officer

1
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2

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Auditors’ Report

TO THE SHAREHOLDERS OF CANADIAN WESTERN BANK
We have audited the Consolidated Balance Sheet of
Canadian Western Bank as at October 31, 2001 and 2000
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 Canadian
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, 2001 and 2000 and the results
of its operations and its cash flow for the years then ended
in accordance with Canadian generally accepted accounting
principles, including the accounting requirements of the
Superintendent of Financial Institutions Canada.

“Deloitte & Touche LLP”

Deloitte & Touche LLP
Chartered Accountants
Edmonton, Alberta
November 30, 2001

Consolidated Balance Sheet
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

Loans (net of allowance for credit losses)

Securities purchased under resale agreements

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

Total Liabilities and Shareholders’ Equity

1
0
0
2

b
w
c

2001

2000

(restated Note 2 )

1,945

1,460

190,978

39,885

232,808

118,549

117,034

32,837

268,420

75,000

552,585
2,255,051

2,882,636

16,014

39,690

55,704

168,652

44,823

214,935

103,227

97,920

30,269

231,416

84,932

503,142
1,972,018

2,560,092

14,750

38,347

53,097

$ 3,439,568

$ 3,059,540

78,562

71,572

370,566

2,593,179

3,042,307

293,370

2,362,867

2,727,809

77,873

70,010

13,126

54,000

67,126

143,942

108,320

252,262

13,126

54,000

67,126

111,342

83,253

194,595

$ 3,439,568

$ 3,059,540

(Note 3)

(Notes 4 & 5)

(Note 6)

(Note 7)

(Note 8)

(Note 9)

(Note 10)

“Jack C. Donald”

Jack C. Donald
Chairman

“Larry M. Pollock”

Larry M. Pollock
President and Chief Executive Officer

1
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2

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c

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

Retail services

Trust services

Other

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 from Continuing Operations
Loss from discontinued operations
Net Income

Average number of common shares outstanding

Average number of fully diluted common shares
Earnings per Common Share, Continuing Operations

Basic

Fully diluted

Earnings per Common Share

Basic

Fully diluted

2001

2000

(restated Note 2 )

$ 210,668

$ 192,006

14,319

8,906

233,893

144,404

3,988

148,392

85,501

6,096

79,405

10,262

3,397

2,252

3,847

19,758

99,163

30,469

10,084

10,150

1,878

52,581

46,582

16,437

30,145

–

12,363

5,913

210,282

132,951

3,964

136,915

73,367

5,100

68,267

9,540

2,949

1,644

1,122

15,255

83,522

27,207

8,824

9,810

2,246

48,087

35,435

6,041

29,394

3,045

30,145

26,349

12,000,926

11,133,880

14,344,438

13,649,587

2.51

2.31

2.51

2.31

2.65

2.44

2.37

2.21

(Note 5)

(Note 11)

(Note 18)

(Note 1(k))

1
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0
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w
c

Consolidated Statement of Changes in Shareholders’ Equity
For the year ended October 31
($ thousands)

Capital Stock
Balance at beginning of year

Common shares issued

Balance at end of year
Retained Earnings
Balance at beginning of year, as previously stated

Restatement – income taxes

Balance at beginning of year, restated

Net income

Dividends

(Note 10)

(Note 2)

Share issue costs, net of income taxes of $534 (2000 - $175)

(Note 10)

Balance at end of year
Total Shareholders’ Equity

2001

2000

$ 111,342

98,484

32,600

143,942

12,858

111,342

83,853

(600 )

83,253

30,145

(4,273 )

(805 )

108,320

61,066

–

61,066

26,349

(3,779 )

(383 )

83,253

$ 252,262

$ 194,595

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0
0
2

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w
c

Consolidated Statement of Cash Flow
For the year ended October 31
($ thousands)

Cash Flows from Operating Activities
Net income from continuing operations

Adjustments to determine net cash flows:

Provision for credit losses

Depreciation and amortization

Future income taxes, net

Gain on sale of securities, net

Change in accrued interest receivable and payable, net
Other items, net

Cash provided from continuing operations

Cash (used in) discontinued operations

Loss from discontinued operations

Changes in non-cash net asset balances

Cash Flows from Financing Activities

Deposits, net

Dividends

Common shares issued, net of issue costs

(Note 10)

Cash Flows Used in Investing Activities

Loans, net

Interest bearing deposits with regulated financial institutions, net

Securities, net

Land, buildings and equipment, net

(Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year *
* Represented by:
Cash resources 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

2001

2000

(restated Note 2 )

30,145

29,394

6,096

3,279

8,126

(2,328 )

92
(1,353 )

44,057

–

44,057

5,100

3,006

13,716

(49 )

7,753
(7,731 )

51,189

(3,045 )

(13,780 )

34,364

314,498

356,734

(4,273 )

31,261

(3,779 )

735

341,486

353,690

(328,640 )

(311,594 )

(22,441 )

(34,676 )

(4,354 )

(44,194 )

(26,176 )

(5,339 )

(390,111 )

(387,303 )

(4,568 )

48,020

751

47,269

43,452

48,020

$ 232,808

$ 214,935

189,356

166,915

43,452

48,020

$ 146,618

$ 126,728

2,190

1,514

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1
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b
w
c

October 31, 2001
($ 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.

The preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and
expenses during the year. Actual results could differ from
those estimates.

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 inter company
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. 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. Debt securities are stated at amortized
cost and equity securities are stated at cost or, if the value
is permanently impaired, at net realizable value. Gains
and losses realized on disposal of securities and

adjustments to record any permanent impairment in
value are included in other income. 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 payments are 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

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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.

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.

d) Allowance for Credit Losses

The Bank maintains an allowance for credit losses, which
in management’s opinion, is adequate to absorb credit
related losses in its loan portfolio. The allowance for credit
losses is deducted from the loan balance on the
Consolidated Balance Sheet.

The allowance for credit losses consists of specific
provisions and the general allowance for credit risk.
Specific provisions include all the accumulated provisions
for losses on identified impaired loans required to reduce
the carrying value of those loans to their estimated
realizable amount. The general allowance for credit risk
includes provisions for future losses inherent in the
portfolio that are not presently identifiable by
management of the Bank on an account by account basis.
The general allowance for credit risk is established by
taking into consideration historical trends in the loss
experience during economic cycles, the current portfolio
profile, estimated losses for the current phase of the
economic cycle and historical experience in the industry.

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) Securities Purchased Under Resale Agreements

Securities purchased under resale agreements are secured
loans as they represent a purchase of Government of
Canada securities by the Bank effected with a simultaneous
agreement to sell them back at a specified price on a future
date, which is generally short term. Securities purchased
under resale agreements are carried at cost.The difference
between the cost of the purchase and the predetermined
proceeds to be received on a resale agreement is recorded
as loan interest income in the Consolidated Statement
of Income.

f) Land, Buildings and Equipment

Land is carried at cost. Buildings, equipment and furniture,
and leasehold 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

g) 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.

h) 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.

Income Taxes
The Bank follows the asset and liability method of
accounting for income taxes whereby current income taxes
are recognized for the estimated income taxes payable for
the current year. Future tax assets and liabilities represent
the cumulative amount of tax applicable to temporary
differences between the carrying amount of the assets and
liabilities, and their values for tax purposes. Future tax assets
and liabilities are measured using enacted or substantively
enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected
to be recovered or settled. Changes in future income taxes
related to a change in tax rates are recognized in income
in the period of the tax rate change. All future income tax
assets are expected to be realized in the normal course
of operations.

j) 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.

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2

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w
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k) 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 is
calculated based on the imputed earnings method
and includes the effect of all potential dilutive factors
on earnings per common share.

l) Stock Option Plans

The Bank has stock option plans which are described
in Note 10. No expense is recognized for these plans

2. CHANGE IN ACCOUNTING POLICY – INCOME TAXES
Effective November 1, 2000, the Bank adopted the asset and
liability method of accounting for corporate income taxes as
described in Note 1(i). Prior to November 1, 2000, the deferral
method of accounting for income taxes was used.

The provisions were applied retroactively with restatement
of the prior year’s financial statements. As a result of the
restatement, future income tax assets (included in Other
Assets) were increased and deferred revenue (included in
Other Liabilities) relating to unclaimed tax deductions was
recorded. Future income tax assets relating to temporary
differences between the tax and accounting bases of assets
and liabilities were reduced by $600 with a corresponding
increase to tax expense in 2000 to reflect the reduction in
corporate income tax rates announced in the February 2000
federal budget.

when the stock options are issued to the employees.
Any consideration paid by employees on exercise
of stock options is credited to share capital.

m) Employee Future Benefits

Effective November 1, 2000, the Bank adopted a new
accounting pronouncement which requires that all
employee future benefits be accounted for on an accrual
basis. There is no material impact on the financial
statements resulting from this change.

Comparative financial statements as at October 31, 2000
were restated as follows:

Other assets increased

Other liabilities increased

Net income and shareholders’ equity decreased

3,511

4,111

600

In addition, a net future income tax liability of $426 has been
reclassified from Other Assets to Other Liabilities to comply
with the new provisions.

3. SECURITIES
The analysis of securities at carrying value, by type and maturity is as follows:

Securities Issued or Guaranteed by:

Canada

A province

Other Debt Securities

Floating rate notes

Other debt

Equity Securities
Total(1)

(1) All securities are held in the investment account.
Includes securities with no specific maturity.
(2)

Maturities

Within
1 Year

Over
1 to 3 Years

Over
3 to 5 Years

Over
5 Years

2001
Total
Book Value

2000

Total
Book Value

67,243

40,044

6,169

17,048

39,984

51,023

5,093

8,979

$ 118,549

$ 103,227

117,034

97,920

–

14,547

98,838

–

15,701

95,729

–

57,192

1,000

–
1,589 (2)
16,661

1,000

–

31,837

1,000

19,954

9,315

$ 268,420

$ 231,416

1
0
0
2

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w
c

The analysis of unrealized gains and losses on investment securities is as follows:

2001

2000

Book Unrealized Unrealized
Losses
Gains
Value

Estimated
Market
Value

Book Unrealized
Gains
Value

Unrealized
Losses

Estimated
Market
Value

Securities Issued or
Guaranteed by:
Canada

A province

Other Debt Securities
Floating rate notes

Other debt

Equity Securities
Total

$ 118,549 $

1,169 $

1 $ 119,717 $ 103,227 $

117,034

4,554

1,000

–

31,837

–

121,588

97,920

1,000

–

1,000

19,954

9,315

148

31,744

–

69 $ 103,163

189

97,769

–

731

1,000

19,932

8,656

$ 268,420 $

5,778 $

149 $ 274,049 $ 231,416 $

120

1,016 $ 230,520

4. IMPAIRED LOANS
Impaired loans and the related allowance for credit losses are as follows:

Consumer and personal

Real estate

Industrial

Other

General allowance for credit risk(1)
Total(2)

2001
Specific
Provisions

Gross
Amount

2,369

16,483

6,120

10,508

35,480

–

443

2,533

1,816

2,113

6,905

21,453

Carrying
Amount

2000

Carrying
Amount

1,926

2,373

13,950

4,304

8,395

28,575

(21,453 )

13,454

5,217

4,106

25,150

(20,915 )

35,480

28,358

7,122

4,235

(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 $826 (2000 - $1,561) and a related specific allowance of $146 (2000 - $171).

At October 31, 2001 other past due loans totalled $nil (2000 - $1,828). 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 $1,320 (2000 - $714).

5. ALLOWANCE FOR CREDIT LOSSES
The following table shows the changes in the allowance for credit losses during the year.

Balance at beginning of year

Provision for credit losses

Write-offs

Recoveries
Balance at end of year

2001
General
Allowance
for Credit Risk

Total

Specific
Provisions

2000

General
Allowance
for Credit Risk

Total

20,915

26,862

538

–

6,096

(4,619 )

5,172

5,033

(4,480 )

222

20,848

26,020

–

5,100

(4,480 )

222

Specific
Provisions

5,947

5,558

(4,619 )

6,905

21,453

28,358

5,947

20,915

26,862

The Bank has virtually no loans booked outside of Canada and therefore has no country risk provisions.

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6. LAND, BUILDINGS AND EQUIPMENT

Land

Buildings

Equipment and furniture

Leasehold improvements
Total

2001
Accumulated
Depreciation and
Amortization

–

1,948

9,578

3,400

Cost

2,753

3,190

16,045

8,952

2000

Net Book
Value

2,753

1,375

6,651

3,971

Net Book
Value

2,753

1,242

6,467

5,552

30,940

14,926

16,014

14,750

Depreciation and amortization for the year amounted to $3,085 (2000 - $2,752).

7. OTHER ASSETS

Accrued interest receivable

Future income tax asset

Prepaid expenses
Deferred premiums and financing costs(1)
Taxes receivable

Other
Total

(Note 11)

2001

2000

(restated Note 2 )

14,938

13,256

6,777

6,254

5,051

3,697

2,973

14,433

5,839

1,211

1,535

2,073

39,690

38,347

(1) The Consolidated Statement of Income includes amortization of deferred premiums and financing costs in interest income/expense of $322 (2000 – $150) and in other expenses of $13 (2000 –

$13).

8. OTHER LIABILITIES

Accrued interest payable

Taxes payable

Accounts payable

Deferred revenue

Future income tax liability

Other
Total

2001

2000

(restated Note 2 )

59,391

57,617

11,987

5,087

708

362

338

525

4,811

4,712

426

1,919

77,873

70,010

(Note 11)

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2

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9. 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)
Crown Life Insurance Company(3)

Total

Interest
Rate

Maturity
Date

6.660 % March 31, 2007

6.590 %

6.415 %

June 30, 2007

July 31, 2007

5.500 % March 31, 2008

5.700 %

July 31, 2009

2001

5,000

3,126

5,000

13,126

50,000

4,000

54,000

2000

5,000

3,126

5,000

13,126

50,000

4,000

54,000

67,126

(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 (1,639,344 shares). At any time after March 31, 2003 the debentures are convertible by the Bank.

(3) 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 (160,000 shares).

10. 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 equity offering
Issued on conversion of debentures and exercise of options(1)

Outstanding at End of Year

2001

2000

Number

of Shares

Amount

Number

of Shares

Amount

11,216,417

$ 111,342

10,172,191

98,484

1,100,000

243,932

29,425

3,175

–

1,044,226

12,858

12,560,349

$ 143,942

11,216,417

$ 111,342

(1)

In 2001, 243,932 (2000 – 119,026) options were exercised, at a weighted average exercise price of $13.02 (2000 - $10.86). In 2000, $11,565 of the 6.75% debentures were converted into 925,200
shares.

1
0
0
2

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On April 3, 2001, the Bank completed an issue of 1,100,000
common shares. Gross cash proceeds totalled $29,425 and
$805 was charged to retained earnings for share issue
expenses, net of future income taxes.

The Bank has subordinated debentures which are convertible
to common shares of the Bank as more fully described in Note
9. On November 30, 1999 the debenture holders 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 $383 for share issue expenses, net of future income taxes.

The Bank also has authorized 1,126,873(1) common shares
(2000 – 1,107,805) for issuance under option plans. Of the
amount authorized, options exercisable into 1,077,783 shares
are issued and outstanding (2000 – 1,039,870) 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 $26.12.
Their weighted average remaining contractual life is 4.0
years and they expire on dates ranging from June 2003 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

(1) Of this amount, 170,000 options are subject to shareholder and Toronto Stock Exchange approval.

11. INCOME TAXES
Income taxes consist of the following:

Consolidated Statement of Income

Current

Future

Future federal and provincial tax rate reductions
Provision for income taxes
Income tax benefit relating to loss from discontinued operations

Shareholders’ Equity

Income tax benefit related to share issue expenses

Total income taxes

2001

Weighted
Average
Exercise
Price

14.28

25.50

13.02

17.94

17.56

14.67

Number
of Options

1,039,870

289,445 (1)
(243,932 )

(7,600 )

1,077,783

389,669

2000

Weighted
Average
Exercise
Price

13.96

19.72

10.86

17.62

14.28

13.45

Number
of Options

1,177,096

19,000

(119,026 )

(37,200 )

1,039,870

427,581

2001

2000

(restated Note 2 )

8,311

6,876

15,187

1,250

16,437

–

16,437

(7,675 )

13,116

5,441

600

6,041

(2,074 )

3,967

(534 )

(175 )

15,903

3,792

1
0
0
2

b
w
c

A reconciliation of the statutory tax rates and income tax that would be payable at these rates to the effective income tax rates
and provision for income taxes that is reported in the Consolidated Statement of Income is as follows:

Combined Canadian federal and provincial income taxes and statutory tax rate

20,341

43.7 % $

16,017

45.2 %

2001

2000

(restated Note 2)

Permanent differences

Deferred revenue from unclaimed deductions for tax

Tax-exempt income

Temporary differences

Unclaimed deductions for tax

Origination and reversal

Large corporations tax

Other

Future federal and provincial tax rate reductions(1)
Provision for income taxes and effective tax rate

(4,100 )

(281 )

(6,840 )

6,876

444

(1,253 )

15,187

1,250

(8.8 )

(0.6 )

(14.7 )

14.8

1.0

(2.7 )

32.7

2.7

(11,102 )

(254 )

(12,788 )

13,116

604

(152 )

5,441

600

(31.3 )

(0.7 )

(36.1 )

37.0

1.7

(0.5 )

15.3

1.7

16,437

35.4 % $

6,041

17.0 %

(1) Future federal and provincial tax rate reductions represent the write-down of future income tax assets to reflect corporate income tax rate reductions enacted for accounting purposes.

Future income tax balances are comprised of the following:

Net future income tax asset
Allowance for credit losses

Unclaimed deductions for tax

Other temporary differences

Net future income tax liability of subsidiary

Allowance for credit losses

Other temporary differences

2001

8,122

–

(1,345 )

6,777

(288 )

650

362

2000

8,982

6,503

(1,052 )

14,433

(331 )

757

426

At October 31, 2001, the Bank has approximately $11,796 (2000 - $11,796) of capital losses which 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.

12. 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

2001

2000

44,006

42,489

556,383

442,667

$ 600,389

$ 485,156

1
0
0
2

b
w
c

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.

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

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:

2002

2003

2004

2005

2006

2007 and thereafter
Total

4,037

4,192

3,919

3,486

3,416

10,646

29,696

13. TRUST ASSETS UNDER ADMINISTRATION
Trust assets under administration of $873,538 (2000 - $741,181) represent assets held for personal and corporate clients,
administered by a subsidiary, and are kept separate from the subsidiary’s own assets. Trust assets under administration
are not reflected in the Consolidated Balance Sheet.

14. 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 $18,086 (2000 - $17,577).

15. 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.

1
0
0
2

b
w
c

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, 2001 and 2000 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 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 3. 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 terms; and
the fair values of subordinated debentures 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.

2001

Book Value

Fair Value

Fair Value
Over (Under )
Book Value

Book Value

2000

Fair Value
Over (Under )
Fair Value (3) Book Value

(Note 3)

$ 232,808

–

$ 214,935

268,420

274,049

2,882,636

2,907,653

19,474

5,629

25,017

–

231,416

2,560,092

15,612

230,520

2,542,528

15,612

3,042,307

3,091,461

49,154

2,727,809

2,725,890

76,610

67,126

76,610

69,729

–

2,603

63,255

67,126

63,255

66,620

–

(896 )

(17,564 )

–

(1,919 )

–

(506 )

Assets

Cash resources

Securities

Loans
Other assets(1)

Liabilities
Deposits
Other liabilities(2)
Subordinated debentures

Off-Balance Sheet Derivative
Financial Instruments

Net asset

(Note 16)

6,807

455

The table does not include assets and liabilities that are not considered financial instruments, such as land, buildings and
equipment.

(1) Other assets exclude future income tax asset, prepaid expenses, deferred premiums and financing costs and other items which are not financial instruments.
(2) Other liabilities exclude future income tax liability, deferred revenue and other items which are not financial instruments.
(3) During the year, the method of calculating the interest rates used to discount the expected future cash flows for loans and deposits was changed. In order to provide meaningful year-over-year

comparison, comparative fair value amounts for 2000 have been restated. Fair value amounts for 2000 have changed as follows: loans decreased $3, 336 and deposits decreased $6,113.
(4) 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.

1
0
0
2

b
w
c

16. 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
transactions 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

2001
Future
Credit

Credit

Risk-
Risk weighted
Balance

Notional
Amount

Replace-
ment
Cost

Exposure Equivalent

2000
Future
Credit

Credit

Risk-
Risk weighted
Balance

Exposure Equivalent

Interest Rate Contracts
Interest rate swaps

Equity Contracts
Total

$ 372,000 $

7,317 $

935 $

8,252 $

1,650 $ 269,000 $

359 $

320 $

679 $

9,005

225

720

945

189

3,535

538

283

821

$ 381,005 $

7,542 $

1,655 $

9,197 $

1,839 $ 272,535 $

897 $

603 $

1,500 $

136

164

300

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).

2001

2000

Favourable Contracts
(Assets)

Unfavourable Contracts
(Liabilities)

Favourable Contracts
(Assets)

Unfavourable Contracts
(Liabilities)

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

$ 352,000 $

7,317 $

20,000 $

12 $ 170,000 $

1,610

225

7,395

723

3,410

$ 353,610 $

7,542 $

27,395 $

735 $ 173,410 $

359

538

897

99,000 $

125

99,125 $

440

442

Interest Rate Contracts
Interest rate swaps

Equity Contracts
Total

1
0
0
2

b
w
c

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)

2001
2,925

598

2000

842

748

The following table summarizes maturities of off-balance sheet financial instruments and weighted average interest rates paid
and received on interest rate contracts.

2001
Maturity

2000

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

$ 185,000

4.60 % $ 187,000

5.01 % $ 205,000

6.02 % $ 64,000

5.90 %

–

$ 185,000

9,005

$ 196,005

–

$ 205,000

3,535

$ 67,535

Interest Rate Contracts
Interest rate swaps -

receive fixed amounts(1)

Equity Contracts(1)(2)
Total

(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.

17. RISK MANAGEMENT
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 41 to 49 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 47 to 49 of Management’s
Analysis of Operations and Financial Condition.

18. DISCONTINUED OPERATIONS
On December 21, 1999 the Bank announced the sale of its brokerage subsidiary, which closed February 16, 2000. An after tax loss
of $3,045, including the operating loss and loss on disposal, was charged to discontinued operations in 2000.

19. SEGMENTED INFORMATION
The Bank operates principally in personal and commercial banking in Canada. 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 commercial business clients primarily in western Canada.

1
0
0
2

b
w
c

20. SUBSIDIARIES
Canadian Western Bank Subsidiaries

(annexed in accordance with subsection 308 (3) of the Bank Act)

October 31, 2001

Address of
Head Office

Canadian Western Trust Company

10303 Jasper Avenue

Edmonton, Alberta

CWB Canadian Western Financial Ltd.

10303 Jasper Avenue

Edmonton, Alberta

(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)

13,938

–

Percentage of Issued and
Outstanding Voting
Shares Owned by the Bank

100 %

21. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the current year presentation.

1
0
0
2

b
w
c

CORPORATE GOVERNANCE

Introduction

The Board of Directors and management of the
Bank are committed to govern and maintain the
Bank’s operations effectively and efficiently within
its regulatory environment.

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 Board is currently comprised of thirteen 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 Bank Act
(the ”Act”)) or “unrelated”, as defined in the Toronto Stock
Exchange (“TSE”) guidelines on corporate governance. As a
result of this review, the Board has determined that one of
the directors is affiliated (the CEO) and he is also the only
inside director. 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
membership, 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.

1
0
0
2

b
w
c

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, the current practices and related
standards covered all major risk areas of a bank and called for
the Board at least annually to approve the policies and review
the management programs associated with:

•
•
•
•
•
•
•
•

interest rate risk management;
securities portfolio management;
liquidity and funding management;
foreign exchange risk management;
capital management;
internal controls;
real estate appraisals; and
credit risk management.

The areas of real estate appraisals and credit risk management
have been delegated to the Loans Committee of the Board.

CDIC with consultation from the Canadian Bankers
Association has recently completed the modernization of the
Standards. The first reporting cycle under the new Standards
commences in July 2002. Similar to the previous process,
an annual attestation on adherence to the modernized
Standards (covering the broad areas of Corporate
Governance, Strategic Management, Risk Management,
Liquidity and Funding Management, Capital Management,
Control Environment, Business Conduct and Process to
Ensure Control) will be required.

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.

•

•
•

•

1
0
0
2

b
w
c

Audit Committee

This committee is comprised of five outside directors and
its mandate is summarized as follows:

•

•
•

•

review the annual statement and other required and
related annual public documents and report thereon
to the directors before approval is given;
review such returns as OSFI may specify;
require management to implement and maintain
appropriate internal control procedures. Review, evaluate
and approve those procedures;
review such investments and transactions of the Bank,
that could adversely affect the well-being of the Bank as
the shareholders’ auditor or any officer of the Bank may
bring to the attention of the committee;

• meet with the shareholders’ auditor to discuss the annual
statements and the returns and transactions referred to
within the mandate;

• meet with the chief inspector and management to

discuss reports on internal audit activities and findings
and the effectiveness of the internal control procedures
established for the Bank. Review the mandate and annual
plan of the internal audit department;
review the quarterly reports to the shareholders, including
the interim unaudited statements, and report thereon to
the directors before approval is given;

•

Conduct Review Committee

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 a quarterly report from the Loans Committee
of the Board, concerning the quality of the loan portfolio,
the adequacy of the allowance for credit losses and
accounts recommended for write-off;
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 shareholders’ auditor’s
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;
review the independence of the shareholders’ auditor;
review correspondence received from regulators
concerning the effectiveness of internal controls within
the Bank or other matters falling within the responsibility
of the Committee, including a review of the shareholders’
auditor’s management letter and OSFI’s annual review
letter and management’s responses thereto;
review the appointment of the Chief Financial Officer
and the Chief Inspector;

• meet regularly with the internal and external auditors

•

without management present; and
as the Committee sees as fit and proper, review other items
or matters that may affect the well-being of the Bank.

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.

•

1
0
0
2

b
w
c

- 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;
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.

Corporate Governance
& Human Resources Committee

This committee is comprised of six 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;

•

• hire appropriate consultants, or request management
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 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;

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Loans Committee

Other Areas of Consideration

This committee is comprised of nine directors, eight of whom
are unrelated. The CEO, who is an affiliated, inside director,
is a member of this Committee. Its mandate is summarized
as follows:

•

establish and approve a lending limit for the Bank
and the 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 regulatory
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 management’s recommendations for loan loss
provisions and loan write-offs and recommend
acceptance to the Audit Committee for their presentation
to the Board; and

• provide direction with respect to the identification criteria,

procedure and action required on loans reported by
management to be less than satisfactory.

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 of the twelve outside directors have served on the
Board for twelve 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 second year, directors may complete a formal
assessment on individual directors’ effectiveness. In the
current year a formal assessment on individual directors’
effectiveness was undertaken.

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 Board has also put in place a
policy providing for individual directors to engage outside
advisors if the circumstances are warranted.

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 Bank has engaged an independent Ombudsman to
receive complaints from banking clients who are unable
to obtain satisfaction from the internal complaint handling
process.

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.

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EXECUTIVE OFFICERS

CHAIRMAN
Jack C. Donald

TREASURY &
OPERATIONS

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

FINANCE

Tracey C. Ball, C.A.
Senior Vice President and
Chief Financial Officer

Diane M. Davies, C.A.
Senior Assistant Vice
President and Chief
Accountant

Carolyn J. Graham, C.A.
Assistant Vice President

HUMAN RESOURCES

Uve Knaak
Senior Assistant Vice
President

INTERNAL AUDIT

David R. Gillespie
Vice President and
Chief Inspector

Blair R. Himmelreich
Assistant Vice President

OFFICE OF THE
CHIEF EXECUTIVE
OFFICER

Larry M. Pollock
President and Chief
Executive Officer

Allister J. McPherson
Executive Vice President

Jack C. Wright
Vice President

CREDIT RISK
MANAGEMENT

Donald C. Kemp
Senior Vice President

Chris H. Fowler
Senior Assistant
Vice President

Wally N. Streit
Senior Assistant
Vice President

Dennis M. Crough
Assistant Vice President,
Industrial Credit

A. Wayne MacInnes
Assistant Vice President

L.W. (Les) Shore
Assistant Vice President,
Commercial Banking

Ken W. Stewart
Assistant Vice President

CORPORATE &
STRATEGIC
OPERATIONS

William J. Addington
Executive Vice President

Erwin Granson
Assistant Vice President,
Asset Management

Richard N. Hallson
Assistant Vice President,
Corporate Lending

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 Northeast

J. Richard Ferris
Assistant Vice President
Foothills Branch, Calgary

Doug A. Finnie
Assistant Vice President,
Saskatoon

Donald P. Grummett
Assistant Vice President
Lethbridge

Ken R. MacDonald
Assistant Vice President
Regina

Donald J. Odell
Assistant Vice President
Red Deer

Al Steingart
Assistant Vice President
Chinook Station, Calgary

COMMERCIAL
BANKING NORTHERN
ALBERTA REGION

William A. Book
Vice President and
Regional Manager

Ken Arndt
Assistant Vice President
South Edmonton Common

Ron S. Baker
Assistant Vice President
West Point, Edmonton

David M. Castell
Assistant Vice President
Main Branch, Edmonton

Gary L. Comber
Assistant Vice President,
Real Estate Lending
Main Branch, Edmonton

Roger J. Delveaux
Assistant Vice President
and Deputy Manager
Main Branch, Edmonton

Wayne C. Dosman
Assistant Vice President
South Edmonton Common

Robert Inkpen
Assistant Vice President,
Real Estate Lending
Main Branch, Edmonton

Heinz H. Kleist
Assistant Vice President
Southside Branch, 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

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COMMERCIAL
BANKING BRITISH
COLUMBIA REGION

Rod W. Sorbo
Vice President and
Regional Manager

Serge Biln
Senior Assistant
Vice President
Park Place, Vancouver

Robert G.P. Berzins
Assistant Vice President
Granville & 13th, Vancouver

Russ M. Burke
Assistant Vice President
Nanaimo

Bob Duffield
Assistant Vice President
Park Place, Vancouver

Ian G. Graham
Assistant Vice President
Kelowna

Mark R.C. Ireton
Assistant Vice President
Park Place, Vancouver

Gerald W. Laliberte
Assistant Vice President
Victoria

Craig Martin
Assistant Vice President
Langley

Dave McCosh
Assistant Vice President
Coquitlam

CANADIAN WESTERN
TRUST COMPANY -
VANCOUVER

Adrian M. Baker
Vice President
and General Manager

Mario V. Furlan
Assistant Vice President,
Real Estate Lending

Patrick F. Rennison
Assistant Vice President,
Real Estate Lending

OMBUDSMAN

W. Paul Lefaivre

REAL ESTATE LENDING
VANCOUVER

INDUSTRIAL LENDING
AND LEASING

Raymond L. Young
Vice President

Robert E. Wigmore
Senior Assistant
Vice President

W. Bruce Gibbard
Assistant Vice President

Jack B. Harms
Assistant Vice President

Donald C. Watson
Vice President

James O. Burke
Assistant Vice President
and District Manager
Calgary

Dean G. Cudmore
Assistant Vice President
Coquitlam

Michael J. Docherty
Assistant Vice President
Foothills Branch, Calgary

James S. Kitchin
Assistant Vice President
Kelowna Industrial Centre

Taras D. Luciw
Assistant Vice President
West Point, Edmonton

Keith C. MacLellan
Assistant Vice President
Grande Prairie

David B. Subject
Assistant Vice President
Nanaimo

John Van Boeyen
Assistant Vice President
Coquitlam

BOARD OF DIRECTORS

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CANADIAN WESTERN
BANK & TRUST

Charles R. Allard2,3
President
Rosedale Meadows
Development Inc.
Edmonton, Alberta

Albrecht W. A. Bellstedt, Q.C.3,4
Executive Vice President
Law and General Counsel
TransCanada PipeLines
Calgary, Alberta

Jack C. Donald2,4
Board Chairman
Parkland Industries Ltd.
Red Deer, Alberta

Jordan L. Golding1
Corporate Director
and Consultant
Retired Partner
KPMG
Boston, Massachusetts, USA

Allan W. Jackson2,3,4
President
ARCI Ltd.
Calgary, Alberta

Wendy A. Leaney1,2
President
Wyoming Associates Ltd.
Toronto, Ontario

Robert A. Manning1,4
President
Cathton Holdings Ltd.
Edmonton, Alberta

Gerald A.B. McGavin, F.C.A., C.M.1,2
President
McGavin Properties Inc.
Vancouver, British Columbia

Howard E. Pechet2,4
President
Mayfield Consulting Inc.
La Jolla, California, USA

Robert L. Phillips2,4
Group President & CEO
BCR Group of Companies
North Vancouver, British
Columbia

Larry M. Pollock2
President and Chief
Executive Officer
Canadian Western
Bank & Trust
Edmonton, Alberta

Alan M. Rowe, C.A.1
Senior Vice President,
Chief Financial Officer and
Corporate Secretary
Crown Life Insurance
Company
Regina, Saskatchewan

Arnold J. Shell2,3
President
Arnold J. Shell Consulting Inc.
Calgary, Alberta

Audit Committee Member

Loans Committee Member

Conduct Review Committee Member

Corporate Governance & Human

Resources Committee Member

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
Fred Sparrow

SHAREHOLDER INFORMATION

Canadian Western
Bank & Trust
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 Regional 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

Corporate Secretary
Charles R. Allard
Rosedale Meadows
Development Inc.
Edmonton, Alberta

Transfer Agent and
Registrar Mailing Address
Computershare Trust
Company of Canada
Suite 970
Canadian Western Bank Place
10303 Jasper Avenue
Edmonton, Alberta T5J 3N6
Telephone: (780) 448-7598
Fax: (780) 426-4032

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 7,
2002 at the Fairmont Hotel
MacDonald (Empire
Ballroom), 10065 – 100th
Street, Edmonton, Alberta
at 2:00 p.m. (MST).

Investor Relations
For further financial
information call Jon Kieran
at Hume, Kieran Inc.
(416) 868-1079,
or fax (416) 868-6198,
or visit our website at
www.cwbank.com/investor_info

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BRANCH OFFICES

Saskatchewan
REGINA
1881 Scarth Street

McCallum Hill Centre II

Regina, Saskatchewan S4P 4K9

Telephone: (306) 757-8888

Branch Manager – Ken MacDonald

SASKATOON
244 - 2nd Avenue S.

Saskatoon, Saskatchewan S7K 1K9

Telephone: (306) 477-8888

Branch Manager – Doug Finnie

YORKTON
#45, 277 Broadway Street E.

Yorkton, Saskatchewan S3N 3G7

Telephone: (306) 782-1002

Branch Manager – Barb Apps

Manitoba
WINNIPEG
234 Portage Avenue

Winnipeg, Manitoba R3C 0B1

Telephone: (204) 956-4669

Branch Manager – Robert Bean

Canadian
Western Trust
BRITISH COLUMBIA
22nd Floor, 666 Burrard Street

Vancouver, B.C. V6C 2X8

Telephone: (604) 669-0081

ALBERTA
2810 – 32nd Avenue N.E.

Calgary, Alberta T1Y 5J4

Telephone: (403) 250-8838

Alberta
EDMONTON
Edmonton Main
11350 Jasper Avenue

Edmonton, Alberta T5K 0L8

Telephone: (780) 424-4846

Deputy Branch Manager –

Roger Delveaux

103rd Street
Canadian Western Bank Place

10303 Jasper Avenue

Edmonton, Alberta T5J 3N6

Telephone: (780) 423-8801

Branch Manager – Jake Muntain

South Edmonton Common
2142 – 99 Street

Edmonton, Alberta T6N 1L2

Telephone: (780) 988-8607

Branch Manager – Wayne Dosman

Southside
7933 - 104 Street

Edmonton, Alberta T6E 4C9

Telephone: (780) 433-4286

Branch Manager – Heinz Kleist

West Point
17603 - 100 Avenue

Edmonton, Alberta T5S 2M1

Telephone: (780) 484-7407

Branch Manager – Ron Baker

RSP Administration/
Agent Processing Centre
Suite 2200, 10303 Jasper Avenue

Edmonton, Alberta T5J 3X6

Telephone: (780) 423-8888

Branch Manager – Lina Langford

CALGARY
Calgary Main
606 - 4th Street S.W.

Calgary, Alberta T2P 1T1

Telephone: (403) 262-8700

Branch Manager – Michael Halliwell

Calgary Northeast
2810 – 32nd Avenue N.E.

Calgary, Alberta T1Y 5J4

Telephone: (403) 250-8838

Branch Manager – Richard Brodeur

Chinook Station
6606 MacLeod Trail S.W.

Calgary, Alberta T2H 0K6

Telephone: (403) 252-2299

Branch Manager – Al Steingart

Foothills
6127 Barlow Trail S.E.

Calgary, Alberta T2C 4W8

Telephone: (403) 269-9882

COQUITLAM
Unit 310, 101 Schoolhouse Street

Coquitlam, BC V3K 4X8

Telephone: (604) 540-8829

Branch Manager – Rick Ferris

Branch Manager – David McCosh

RED DEER
5013 - 49 Avenue

Red Deer, Alberta T4N 3X1

Telephone: (403) 341-4000

COURTENAY
470 Puntledge Road

Courtenay, B.C. V9N 3R1

Telephone: (250) 334-8888

Branch Manager – Don Odell

Branch Manager – Alan Dafoe

LETHBRIDGE
744 - 4th Avenue South

Lethbridge, Alberta T1J 0N8

Telephone: (403) 328-9199

Branch Manager –

Donald Grummett

KELOWNA
Kelowna
1674 Bertram Street

Kelowna, B.C. V1Y 9G4

Telephone: (250) 862-8008

Branch Manager – Ian Graham

GRANDE PRAIRIE
INDUSTRIAL LENDING
CENTRE
5th Floor, 214 Place

Kelowna Industrial Centre
#101, 1505 Harvey Avenue

Kelowna, B.C. V1Y 6G1

Telephone: (250) 860-0088

9909 - 102 Street

Branch Manager – James Kitchin

Grande Prairie, Alberta T8V 2V4

Telephone: (780) 831-1888

Branch Manager – Keith MacLellan

British Columbia
VANCOUVER
Regional Office
22nd Floor, 666 Burrard Street

Vancouver, B.C. V6C 2X8

Telephone: (604) 669-0081

Granville & 13th
2899 Granville Street

Vancouver, B.C. V6H 3J4

Telephone: (604) 730-8818

Branch Manager – Rob Berzins

Park Place
666 Burrard Street

Vancouver, B.C. V6C 2X8

Telephone: (604) 688-8711

Branch Manager – Serge Biln

RSP Administration/
Agent Processing Centre
22nd Floor, 666 Burrard Street

Vancouver, B.C. V6C 2X8

Telephone: (604) 443-5175

Toll free: 1-800-663-1000

Branch Manager -

Huguette Holmes

Cranbrook Satellite Office
2009 – 5th Street South

Cranbrook, BC V1C 1K6

Telephone: (250) 426-1140

Account Manager – Mike Eckersley

LANGLEY
19915 – 64th Avenue

Langley, B.C. V2Y 1G9

Telephone: (604) 539-5088

Branch Manager – Craig Martin

NANAIMO
6475 Metral Drive

Nanaimo, B.C. V9T 2L9

Telephone: (250) 390-0088

Branch Manager – Russ Burke

SURREY
Strawberry Hill
7548 - 120 Street

Surrey, B.C. V3W 3N1

Telephone: (604) 591-1898

Branch Manager – Richard Howard

VICTORIA
1201 Douglas Street

Victoria, B.C. V8W 2E6

Telephone: (250) 383-1206

Branch Manager – Gerry Laliberte

[ great progress]

“

”

table of contents

five year financial summary

highlights for 2001

performance targets

western people

western bank

message to shareholders

management’s analysis of
operations and financial condition

financial statements

notes to consolidated
financial statements

corporate governance

executive officers

board of directors and
shareholder information

branch offices

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Designed and produced by Vision Design Communications. www.visiondc.com
Photography by Bluefish Studios
Printed by Speedfast Color Press Inc.
Printed in Canada.

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“ Try squeezing even a bit of loyalty or compassion out of a computer. See

how much dedication, good will or good cheer you can extract

banking
[on people]

”

Canadian Western Bank Place
Suite 2300, 10303 Jasper Avenue
Edmonton, Alberta T5J 3X6

Canadian Western Bank Annual Report 2001