I
C
A
N
A
D
A
N
W
E
S
T
E
R
N
B
A
N
K
2
0
0
4
A
N
N
U
A
L
R
E
P
O
R
T
A
G
R
O
W
T
H
S
T
O
R
Y
2004ANNUALREPORTPERSONALBANKINGCOMMERCIA
LBANKINGCOMMUNITYINSURANCETHINKWESTERNCO
MMUNITYPERSONALBANKINGTRUSTCOMMUNITYCOM
MERCIALBANKINGINSURANCETHINKWESTERNPERSON
ALBANKINGTRUSTCOMMUNITYTHINKWESTERNPERSO
NALBANKINGTRUSTCOMMUNITYCOMMERCIALBANKIN
GINSURANCEPERSONALBANKINGTRUSTCOMMUNITYC
OMMERCIALBANKINGINSURANCETHINKWESTERNPERS
ONALBANKINGTRUSTCOMMERCIALBANKINGCOMMUN
ITYTHINKWESTERNINSURANCEPERSONALBANKINGTR
USTCOMMUNITYCOMMERCIALBANKINGINSURANCEPE
RSONALBANKINGTRUSTCOMMUNITYINSURANCEPERSO
NALBANKINGTRUSTCOMMUNITYTHINKWESTERNTHINKW
ESTERNPERSONALBANKINGCOMMERCIALBANKINGINS
URANCETHINKWESTERNTRUSTPERSONALBANKINGTHINK
WESTERNPERSONALBANKINGTRUSTCOMMUNITYTHINKW
ESTERNCOMMUNITYCOMMERCIALBANKINGINSURANCET
HINKWESTERNPERSONALBANKINGTHINKWESTERNCOM
MERCIALBANKINGINSURANCETHINKWESTERNPERSON
ALBANKINGTRUSTCOMMUNITYCOMMERCIALBANKING
COMMUNITYINSURANCETHINKWESTERNPERSONALBA
NKINGTRUSTCOMMUNITYCOMMERCIALBANKINGINSU
RANCETHINKWESTERNCOMMERCIALBANKINGINSURA
NCEPERSONALBANKINGTHINKWESTERNTRUSTCOMMU
NITYCOMMERCIALBANKINGINSURANCETHINKWESTER
NTRUSTPERSONALBANKINGCOMMERCIALBANKINGCO
MMUNITYTHINKWESTERNPERSONALBANKINGTRUSTC
OMMUNITYCOMMERCIALBANKINGINSURANCETHINK
WESTERNPERSONALBANKINGCOMMERCIALBANK
INGCOMMUNITYTHINKWESTERNTRUSTPERSONAL
BANKINGTRUSTCOMMERCIALBANKINGCOMMUNITY
FIVE YEAR FINANCIAL SUMMARY
($ thousands, except per share amounts)
Results of Operations
Net interest income (teb)(1)
Less teb adjustment
Net interest income
Other income
Total revenues (teb)
Total revenues
Net income from continuing operations(2)
Net income
Return on common shareholders' equity
Return on average total assets
Per Common Share
Average common shares outstanding (thousands)
Basic earnings per share
Net income from continuing operations
Net income
Diluted earnings per share
Net income from continuing operations
Net income
Dividends(3)
Book value
Market price
High
Low
Close
Balance Sheet and Off-Balance Sheet Summary
Assets
Cash resources and securities
Loans
Deposits
Subordinated debentures
Shareholders' equity
Assets under administration
Capital Adequacy
Tangible common equity to
risk-weighted assets
Tier 1 ratio
Total ratio
Other Information
Efficiency ratio (teb)
Efficiency ratio
Net interest margin (teb)
Net interest margin
Provision for credit losses
as a percentage of average loans
Net impaired loans as a percentage
of total loans
Number of full time equivalent staff(4)
Number of bank branches
$
$
$
$
2004
2003
2002
2001
$
117,236
3,898
113,338
36,099
153,335
149,437
44,161
44,161
12.9%
0.97%
$
107,655
2,992
104,663
25,326
132,981
129,989
38,193
38,193
12.9%
0.95%
$
91,284
2,449
88,835
22,136
113,420
110,971
29,612
29,612
11.2%
0.84%
$
85,501
0
85,501
19,758
105,259
105,259
30,145
30,145
13.5%
0.95%
2000
73,367
0
73,367
15,255
88,622
88,622
29,394
26,349
14.7%
0.95%
13,391
12,808
12,629
12,001
11,134
3.30
3.30
3.00
3.00
0.75
26.90
48.25
38.25
47.65
4,918,895
773,214
4,005,080
4,267,788
110,600
367,589
1,759,473
$
$
$
2.98
2.98
2.69
2.69
0.46
24.32
40.00
23.25
39.95
4,343,972
694,699
3,601,003
3,819,750
121,951
316,231
1,474,964
$
$
$
2.34
2.34
2.14
2.14
0.40
21.97
29.35
23.26
25.75
3,828,162
533,496
3,248,747
3,429,071
57,126
278,087
1,166,489
$
$
$
2.51
2.51
2.26
2.26
0.36
20.08
30.50
22.30
26.27
3,439,568
501,228
2,886,640
3,042,307
67,126
252,262
873,538
$
$
$
2.65
2.37
2.41
2.18
0.34
17.35
24.00
16.25
23.00
3,059,540
446,351
2,560,092
2,727,809
67,126
194,595
741,181
9.0%
9.0%
11.8%
49.8%
51.1%
2.57%
2.48%
0.25%
(0.36)%
936
29
8.9%
8.9%
13.1%
46.3%
47.4%
2.68%
2.60%
0.25%
0.13%
632
27
8.8%
8.8%
11.4%
50.7%
51.8%
2.60%
2.53%
0.26%
0.25%
583
27
9.3%
9.3%
12.5%
50.0%
50.0%
2.69%
2.69%
0.23%
0.17%
548
27
8.1%
8.1%
11.6%
54.3%
54.3%
2.64%
2.64%
0.21%
509
25
(1) Most banks analyze revenue on a taxable equivalent basis (teb) to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the
consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividend received is significantly lower
than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they
would have been had the tax-exempt securities been taxed at the statutory rate. Prior to fiscal 2002, tax-exempt security income was insignificant and no taxable equivalent
adjustments were made. The taxable equivalent basis does not have a standardized meaning prescribed by generally accepted accounting principles and therefore may not be
comparable to similar measures presented by other banks.
(2) The sale of our brokerage subsidiary closed February 16, 2000. The results of operations and the loss on disposal have been disclosed separately from continuing operations.
(3) The dividend policy was amended to be quarterly instead of semi-annual during the first quarter of fiscal 2004. The dividend rate for fiscal 2004 appears unusually high
as it includes the last semi-annual dividend of $0.30 per share paid in the first quarter and quarterly dividends of $0.15 paid in subsequent quarters.
(4) The increase in employees in 2004 is due to the acquisitions of Canadian Direct Insurance Incorporated and Valiant Trust Company.
I
C
A
N
A
D
A
N
W
E
S
T
E
R
N
B
A
N
K
2
0
0
4
A
N
N
U
A
L
R
E
P
O
R
T
A
G
R
O
W
T
H
S
T
O
R
Y
2004ANNUALREPORTPERSONALBANKINGCOMMERCIA
LBANKINGCOMMUNITYINSURANCETHINKWESTERNCO
MMUNITYPERSONALBANKINGTRUSTCOMMUNITYCOM
MERCIALBANKINGINSURANCETHINKWESTERNPERSON
ALBANKINGTRUSTCOMMUNITYTHINKWESTERNPERSO
NALBANKINGTRUSTCOMMUNITYCOMMERCIALBANKIN
GINSURANCEPERSONALBANKINGTRUSTCOMMUNITYC
OMMERCIALBANKINGINSURANCETHINKWESTERNPERS
ONALBANKINGTRUSTCOMMERCIALBANKINGCOMMUN
ITYTHINKWESTERNINSURANCEPERSONALBANKINGTR
USTCOMMUNITYCOMMERCIALBANKINGINSURANCEPE
RSONALBANKINGTRUSTCOMMUNITYINSURANCEPERSO
NALBANKINGTRUSTCOMMUNITYTHINKWESTERNTHINKW
ESTERNPERSONALBANKINGCOMMERCIALBANKINGINS
URANCETHINKWESTERNTRUSTPERSONALBANKINGTHINK
WESTERNPERSONALBANKINGTRUSTCOMMUNITYTHINKW
ESTERNCOMMUNITYCOMMERCIALBANKINGINSURANCET
HINKWESTERNPERSONALBANKINGTHINKWESTERNCOM
MERCIALBANKINGINSURANCETHINKWESTERNPERSON
ALBANKINGTRUSTCOMMUNITYCOMMERCIALBANKING
COMMUNITYINSURANCETHINKWESTERNPERSONALBA
NKINGTRUSTCOMMUNITYCOMMERCIALBANKINGINSU
RANCETHINKWESTERNCOMMERCIALBANKINGINSURA
NCEPERSONALBANKINGTHINKWESTERNTRUSTCOMMU
NITYCOMMERCIALBANKINGINSURANCETHINKWESTER
NTRUSTPERSONALBANKINGCOMMERCIALBANKINGCO
MMUNITYTHINKWESTERNPERSONALBANKINGTRUSTC
OMMUNITYCOMMERCIALBANKINGINSURANCETHINK
WESTERNPERSONALBANKINGCOMMERCIALBANK
INGCOMMUNITYTHINKWESTERNTRUSTPERSONAL
BANKINGTRUSTCOMMERCIALBANKINGCOMMUNITY
FIVE YEAR FINANCIAL SUMMARY
($ thousands, except per share amounts)
Results of Operations
Net interest income (teb)(1)
Less teb adjustment
Net interest income
Other income
Total revenues (teb)
Total revenues
Net income from continuing operations(2)
Net income
Return on common shareholders' equity
Return on average total assets
Per Common Share
Average common shares outstanding (thousands)
Basic earnings per share
Net income from continuing operations
Net income
Diluted earnings per share
Net income from continuing operations
Net income
Dividends(3)
Book value
Market price
High
Low
Close
Balance Sheet and Off-Balance Sheet Summary
Assets
Cash resources and securities
Loans
Deposits
Subordinated debentures
Shareholders' equity
Assets under administration
Capital Adequacy
Tangible common equity to
risk-weighted assets
Tier 1 ratio
Total ratio
Other Information
Efficiency ratio (teb)
Efficiency ratio
Net interest margin (teb)
Net interest margin
Provision for credit losses
as a percentage of average loans
Net impaired loans as a percentage
of total loans
Number of full time equivalent staff(4)
Number of bank branches
$
$
$
$
2004
2003
2002
2001
$
117,236
3,898
113,338
36,099
153,335
149,437
44,161
44,161
12.9%
0.97%
$
107,655
2,992
104,663
25,326
132,981
129,989
38,193
38,193
12.9%
0.95%
$
91,284
2,449
88,835
22,136
113,420
110,971
29,612
29,612
11.2%
0.84%
$
85,501
0
85,501
19,758
105,259
105,259
30,145
30,145
13.5%
0.95%
2000
73,367
0
73,367
15,255
88,622
88,622
29,394
26,349
14.7%
0.95%
13,391
12,808
12,629
12,001
11,134
3.30
3.30
3.00
3.00
0.75
26.90
48.25
38.25
47.65
4,918,895
773,214
4,005,080
4,267,788
110,600
367,589
1,759,473
$
$
$
2.98
2.98
2.69
2.69
0.46
24.32
40.00
23.25
39.95
4,343,972
694,699
3,601,003
3,819,750
121,951
316,231
1,474,964
$
$
$
2.34
2.34
2.14
2.14
0.40
21.97
29.35
23.26
25.75
3,828,162
533,496
3,248,747
3,429,071
57,126
278,087
1,166,489
$
$
$
2.51
2.51
2.26
2.26
0.36
20.08
30.50
22.30
26.27
3,439,568
501,228
2,886,640
3,042,307
67,126
252,262
873,538
$
$
$
2.65
2.37
2.41
2.18
0.34
17.35
24.00
16.25
23.00
3,059,540
446,351
2,560,092
2,727,809
67,126
194,595
741,181
9.0%
9.0%
11.8%
49.8%
51.1%
2.57%
2.48%
0.25%
(0.36)%
936
29
8.9%
8.9%
13.1%
46.3%
47.4%
2.68%
2.60%
0.25%
(0.36)%
632
27
8.8%
8.8%
11.4%
50.7%
51.8%
2.60%
2.53%
0.26%
0.13%
583
27
9.3%
9.3%
12.5%
50.0%
50.0%
2.69%
2.69%
0.23%
0.25%
548
27
8.1%
8.1%
11.6%
54.3%
54.3%
2.64%
2.64%
0.21%
0.17%
509
25
(1) Most banks analyze revenue on a taxable equivalent basis (teb) to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the
consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividend received is significantly lower
than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they
would have been had the tax-exempt securities been taxed at the statutory rate. Prior to fiscal 2002, tax-exempt security income was insignificant and no taxable equivalent
adjustments were made. The taxable equivalent basis does not have a standardized meaning prescribed by generally accepted accounting principles and therefore may not be
comparable to similar measures presented by other banks.
(2) The sale of our brokerage subsidiary closed February 16, 2000. The results of operations and the loss on disposal have been disclosed separately from continuing operations.
(3) The dividend policy was amended to be quarterly instead of semi-annual during the first quarter of fiscal 2004. The dividend rate for fiscal 2004 appears unusually high
as it includes the last semi-annual dividend of $0.30 per share paid in the first quarter and quarterly dividends of $0.15 paid in subsequent quarters.
(4) The increase in employees in 2004 is due to the acquisitions of Canadian Direct Insurance Incorporated and Valiant Trust Company.
2004 HIGHLIGHTS
• Record net income of $44.2 million, an increase of 16% over
the previous high in 2003
• Achieved our 66th quarter of profitability, a period spanning
more than 16 years
• Grew total revenues by 15%, with non-interest revenues up
a very strong 43%
• Grew loans by 11% - marking our fifteenth consecutive year
of double digit loan growth
• Demonstrated continued strong credit quality, with an
annual provision for credit losses of 0.25% of average loans
• Grew lower cost demand and notice deposit balances by
30%, a key factor in leveraging our core profitability
• Continued to lead the Canadian banking industry in
productivity as measured by our 49.8% efficiency ratio
(expenses to total revenues)
• Completed a major branch development program that
included two new and four significantly upgraded and
relocated branches, as well as one expanded branch
• Entered a third pillar of the financial services industry with
the acquisition of Canadian Direct Insurance Incorporated, a
direct provider of home and automobile insurance to over
130,000 policyholders in British Columbia and Alberta
• Enhanced our trust services with the acquisition of Valiant
Trust Company, a specialty trust company that provides
stock transfer and corporate trustee services to public
companies and income trusts
• Realized strong revenue and earnings contributions from
Canadian Direct and Valiant since their acquisition in
April 2004
PERFORMANCE TARGETS
We are pleased with our achievement against
2004 performance targets. The key target of 15%
net income growth was exceeded with actual
growth of 16%. Total revenue growth of 15% for
the year came in at the high end of our target
range of 12-15%. While loan growth of 11% was
slightly below the target of 12%, we achieved our
fifteenth consecutive year of double-digit loan
growth. We also continued a long trend of strong
and stable credit quality during the year and
achieved our target for loan loss provisions of
0.25% of average loans. Our efficiency ratio
reflects lower than expected revenue growth
from banking and trust operations as well as the
impact of the expense structure of Canadian
Direct Insurance.
Key financial targets for 2005 include earnings
growth of 15%, total revenue growth of 15-18%,
loan growth of 12% and continued strong credit quality with a provision for
credit losses of 0.25% of average loans. We expect continued growth across all
business lines and with our strong capital base, we are well positioned to address
new growth opportunities.
Net Income Growth
2004
Target
15%
Total Revenue Growth
12-15%
Loan Growth
12%
2004
Performance
16%
15%
11%
2005
Target
15%
15-18%
12%
Provision for Credit Losses as 0.25% or less
a Percentage of Average Loans
0.25%
0.25% or less
Efficiency Ratio
46.0% or less
49.8%
50.0% or less
Return on Equity
13-15%
12.9%
12% or greater
Return on Assets
0.98% or greater
0.97% 0.98% or greater
OUR HISTORY OF FINANCIAL GROWTH
Total Assets (millions)
Loans (millions)
Total Revenues (teb) (millions)
Net Income (millions)
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
0
$4,919
$2,692
$706
$341
1989
1994
1999
2004
$50
1984
$5,000
$4,000
$3,000
$2,000
$1,000
0
$4,005
$2,254
$601
$253
1989
1994
1999
2004
$15
1984
$200
$150
$100
$50
0
$153
$82
$12
$2
$23
1984
1989
1994
1999
2004
$50
$40
$30
$20
$10
0
$44
$20
$1
$2
$5
1984
1989
1994
1999
2004
Kelowna
Kelowna
1674 Bertram Street
Kelowna, B.C. V1Y 9G4
Telephone: (250) 862-8008
Branch Manager – Ron Baker
Kelowna Industrial Centre
#101 – 1505 Harvey Avenue
Kelowna, B.C. V1Y 6G1
Telephone: (250) 860-0088
Branch Manager – Jim Kitchin
Cranbrook Satellite Office
2009 – 5th Street South
Cranbrook, B.C. V1C 1K6
Telephone: (250) 426-1140
Account Manager – Mike Eckersley
Kamloops
Unit 112, 300 Columbia Street
Kamloops, B.C. V2C 6L1
Telephone: (250) 828-1070
Manager – Hugh Sutherland
Langley
100, 19915 – 64th Avenue
Langley, B.C. V2Y 1G9
Telephone: (604) 539-5088
Branch Manager – Craig Martin
Nanaimo
101, 6475 Metral Drive
Nanaimo, B.C. V9T 2L9
Telephone: (250) 390-0088
Branch Manager – Russ Burke
Prince George
300 Victoria Street
Prince George, BC V2L 4X4
Telephone: (250) 612-0123
Manager – David Duck
Surrey Strawberry Hill
1, 7548 – 120 Street
Surrey, B.C. V3W 3N1
Telephone: (604) 591-1898
Branch Manager – Rick Howard
Victoria
1201 Douglas Street
Victoria, B.C. V8W 2E6
Telephone: (250) 383-1206
Branch Manager – Gerry Laliberte
Saskatchewan
Regina
#100, 1881 Scarth Street
McCallum Hill Centre II
Regina, Saskatchewan S4P 4K9
Telephone: (306) 757-8888
Branch Manager – Trent Bobinski
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
230 Portage Avenue
Winnipeg, Manitoba R3C 0B1
Telephone: (204) 956-4669
Branch Manager – Robert Bean
Canadian Western Trust
British Columbia
Suite 2200, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 685-2081
Toll free: 1-800-663-1124
Alberta
200 – 606 4th St. S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 717-3145
Manitoba
230 Portage Avenue
Winnipeg, Manitoba R3C 0B1
Telephone: (204) 956-4669
Valiant Trust Company
310, 606 4th Street S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 233-2801
Canadian Direct Insurance
Incorporated
British Columbia
Suite 217 - 610 6th Street
NewWestminster, British Columbia V3L 3C2
Telephone: (604) 525-2115
Alberta
11th Floor - 10250 101 Street
Edmonton, Alberta T5J 3P4
Telephone: (780) 413-5933
2004 HIGHLIGHTS
• Record net income of $44.2 million, an increase of 16% over
the previous high in 2003
• Achieved our 66th quarter of profitability, a period spanning
more than 16 years
• Grew total revenues by 15%, with non-interest revenues up
a very strong 43%
• Grew loans by 11% - marking our fifteenth consecutive year
of double digit loan growth
• Demonstrated continued strong credit quality, with an
annual provision for credit losses of 0.25% of average loans
• Grew lower cost demand and notice deposit balances by
30%, a key factor in leveraging our core profitability
• Continued to lead the Canadian banking industry in
productivity as measured by our 49.8% efficiency ratio
(expenses to total revenues)
• Completed a major branch development program that
included two new and four significantly upgraded and
relocated branches, as well as one expanded branch
• Entered a third pillar of the financial services industry with
the acquisition of Canadian Direct Insurance Incorporated, a
direct provider of home and automobile insurance to over
130,000 policyholders in British Columbia and Alberta
• Enhanced our trust services with the acquisition of Valiant
Trust Company, a specialty trust company that provides
stock transfer and corporate trustee services to public
companies and income trusts
• Realized strong revenue and earnings contributions from
Canadian Direct and Valiant since their acquisition in
April 2004
PERFORMANCE TARGETS
We are pleased with our achievement against
2004 performance targets. The key target of 15%
net income growth was exceeded with actual
growth of 16%. Total revenue growth of 15% for
the year came in at the high end of our target
range of 12-15%. While loan growth of 11% was
slightly below the target of 12%, we achieved our
fifteenth consecutive year of double-digit loan
growth. We also continued a long trend of strong
and stable credit quality during the year and
achieved our target for loan loss provisions of
0.25% of average loans. Our efficiency ratio
reflects lower than expected revenue growth
from banking and trust operations as well as the
impact of the expense structure of Canadian
Direct Insurance.
Key financial targets for 2005 include earnings
growth of 15%, total revenue growth of 15-18%,
loan growth of 12% and continued strong credit quality with a provision for
credit losses of 0.25% of average loans. We expect continued growth across all
business lines and with our strong capital base, we are well positioned to address
new growth opportunities.
Net Income Growth
2004
Target
15%
Total Revenue Growth
12-15%
Loan Growth
12%
2004
Performance
16%
15%
11%
2005
Target
15%
15-18%
12%
Provision for Credit Losses as 0.25% or less
a Percentage of Average Loans
0.25%
0.25% or less
Efficiency Ratio
46.0% or less
49.8%
50.0% or less
Return on Equity
13-15%
12.9%
12% or greater
Return on Assets
0.98% or greater
0.97% 0.98% or greater
OUR HISTORY OF FINANCIAL GROWTH
Total Assets (millions)
Loans (millions)
Total Revenues (teb) (millions)
Net Income (millions)
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
0
$4,919
$2,692
$706
$341
1989
1994
1999
2004
$50
1984
$5,000
$4,000
$3,000
$2,000
$1,000
0
$4,005
$2,254
$601
$253
1989
1994
1999
2004
$15
1984
$200
$150
$100
$50
0
$153
$82
$12
$2
$23
1984
1989
1994
1999
2004
$50
$40
$30
$20
$10
0
$44
$20
$1
$2
$5
1984
1989
1994
1999
2004
Kelowna
Kelowna
1674 Bertram Street
Kelowna, B.C. V1Y 9G4
Telephone: (250) 862-8008
Branch Manager – Ron Baker
Kelowna Industrial Centre
#101 – 1505 Harvey Avenue
Kelowna, B.C. V1Y 6G1
Telephone: (250) 860-0088
Branch Manager – Jim Kitchin
Cranbrook Satellite Office
2009 – 5th Street South
Cranbrook, B.C. V1C 1K6
Telephone: (250) 426-1140
Account Manager – Mike Eckersley
Kamloops
Unit 112, 300 Columbia Street
Kamloops, B.C. V2C 6L1
Telephone: (250) 828-1070
Manager – Hugh Sutherland
Langley
100, 19915 – 64th Avenue
Langley, B.C. V2Y 1G9
Telephone: (604) 539-5088
Branch Manager – Craig Martin
Nanaimo
101, 6475 Metral Drive
Nanaimo, B.C. V9T 2L9
Telephone: (250) 390-0088
Branch Manager – Russ Burke
Prince George
300 Victoria Street
Prince George, BC V2L 4X4
Telephone: (250) 612-0123
Manager – David Duck
Surrey Strawberry Hill
1, 7548 – 120 Street
Surrey, B.C. V3W 3N1
Telephone: (604) 591-1898
Branch Manager – Rick Howard
Victoria
1201 Douglas Street
Victoria, B.C. V8W 2E6
Telephone: (250) 383-1206
Branch Manager – Gerry Laliberte
Saskatchewan
Regina
#100, 1881 Scarth Street
McCallum Hill Centre II
Regina, Saskatchewan S4P 4K9
Telephone: (306) 757-8888
Branch Manager – Trent Bobinski
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
230 Portage Avenue
Winnipeg, Manitoba R3C 0B1
Telephone: (204) 956-4669
Branch Manager – Robert Bean
Canadian Western Trust
British Columbia
Suite 2200, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 685-2081
Toll free: 1-800-663-1124
Alberta
200 – 606 4th St. S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 717-3145
Manitoba
230 Portage Avenue
Winnipeg, Manitoba R3C 0B1
Telephone: (204) 956-4669
Valiant Trust Company
310, 606 4th Street S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 233-2801
Canadian Direct Insurance
Incorporated
British Columbia
Suite 217 - 610 6th Street
NewWestminster, British Columbia V3L 3C2
Telephone: (604) 525-2115
Alberta
11th Floor - 10250 101 Street
Edmonton, Alberta T5J 3P4
Telephone: (780) 413-5933
OUR HISTORY OF GROWTH IS
THE RESULT OF DOING BUSINESS
THE THINK WESTERN® WAY.
Welcome to Our Story
The Canadian Western Bank story. It’s
a real story of growth. And of hard
work and dedication by 1,000 passion-
ate people who look at the world of
financial services in a different way –
from a Think Western® perspective.
It’s a philosophy that gives our
customers a level of service and respect
that they truly appreciate. It’s a way of
doing business that’s all about
building relationships for the long
term. And while we could tell you
more, you really need to read the
chapters that follow to get the full story.
2 Message to Shareholders
4
6
8
10
12
14
Commercial Banking
Personal Banking
Trust Services
Insurance
Culture and Community
Corporate Governance
18 Management’s
Discussion and Analysis
46 Financial Statements
69 Senior Officers
70 Board of Directors
71
72
Shareholder Information
Branch Offices
CWB 2004 ANNUAL REPORT 1
MESSAGE TO SHAREHOLDERS
We are pleased to report that Canadian Western Bank has
once again achieved a year of significant growth and record
financial performance.
The last year saw Canadian Western Bank (CWB or the Bank)
reach new milestones of financial achievement including
record revenues and earnings, double-digit loan growth for
the fifteenth consecutive year, and our sixty-sixth consecutive
quarter of profitability. Annual net income of more than $44
million increased by 16 percent over the previous record set in
2003 and total revenues grew by 15 percent to surpass $150
million. With total loans of $4 billion and total assets of
almost $5 billion, we have grown at a remarkable pace, more
than doubling our size in the last six years.
In April of 2004 we completed the acquisitions of Canadian
Direct Insurance Incorporated and Valiant Trust Company,
two companies which further diversify our operations and
fit exceptionally well with our Think Western® philosophy
of western hospitality and specialty service. Both companies
generated a return on investment that exceeded our
expectations in 2004. They also provided a significant
contribution to the very strong growth in non-interest
revenues, a key strategy that remains a focus. Most
importantly, both Canadian Direct and Valiant possess
excellent growth potential that we expect to capitalize on
in 2005 and beyond.
The market price of the Bank’s shares finished the year at
$47.65 compared to $39.95 one year ago. With reinvested
dividends this produced a shareholder return of 21
percent. Our shareholder return over the last five years has
outpaced both the S&P/TSX Composite Index and the
S&P/TSX Financials Index.
Commercial and Personal Banking
The solid performance of our commercial banking business
remains fundamental to the Bank’s success. Execution of our
proven business plan and exploiting demonstrated strengths
in this area added another year to the Bank’s impressive
history of growth. In addition to sustained loan growth, we
have had well over a decade of strong credit quality and
low loan losses. This trend continued in 2004 with a
provision for credit losses of 25 basis points of average
loans. In contrast to recent industry fluctuations, our
provision for credit losses has been stable at between 18
and 27 basis points in each quarter for the last five years.
During the year we made excellent progress against our
key strategy of lowering funding costs through growth in
deposits generated by our branch network and Canadian
Western Trust. Branch deposits increased 15 percent in
2004, with very strong growth in lower cost demand and
notice deposits of 30 percent. The resulting lower funding
costs have had a significant positive impact on earnings
and continuing to build on this momentum remains a key
strategic objective.
Supporting both the commercial and personal banking
growth were investments in branch infrastructure including
the opening of a new full service branch in St. Albert,
Alberta as well as a new industrial lending office in Prince
George, British Columbia. We also completed the relocation
and expansion of a number of other facilities in key markets
where our customers are now served by larger, more
accessible branches in convenient, highly visible locations.
Subsequent to year end, we opened a new industrial
lending office in Kamloops, British Columbia bringing the
Bank’s total branch network to 30 locations across the four
western provinces.
Trust Services
With the purchase of Valiant Trust this year, we added
stock transfer, registrar and corporate trustee services to
the personal and group custody trust products already
offered through Canadian Western Trust. These new
services not only contributed to a doubling of trust
revenues, they also position us well to be the trust company
of choice for independent financial advisors, corporations
and individuals in Western Canada. With expanded
product and service offerings and strategic partnerships
2 CWB 2004 ANNUAL REPORT
with AGF Trust Company, Qtrade Investor Inc. and others,
we have the tools necessary to support ongoing expansion
of our trust business at a healthy pace.
management and enhance shareholder value. The Board
continually adapts the governance framework to adopt
best practices and meet changing needs.
Insurance
Outlook
Through the acquisition of Canadian Direct Insurance
Incorporated we entered a third pillar of the financial services
industry and became a large provider of private automobile
insurance in British Columbia and a growing player in the
Alberta market. Canadian Direct provides home and
automobile insurance directly to over 130,000 policyholders
in British Columbia and Alberta, which doubles the number
of retail customers under the CWB umbrella. In 2004,
Canadian Direct exceeded our expectations with a strong
contribution to earnings of $2.6 million. Going forward, we
are excited about Canadian Direct’s growth potential and
we anticipate that current and new co-branding initiatives
will noticeably increase awareness of both Canadian Direct
and Canadian Western Bank.
Think Western® Culture
This year Canadian Western Bank proudly celebrated its
20th anniversary. Many successes and milestones have
been achieved throughout our history, none of which
would have been possible without our incredible team of
people and their commitment to the Think Western®
philosophy. It is this philosophy that differentiates us from
competitors and has created the platform for the last
twenty years of growth and prosperity. We would like to
recognize and thank all of our employees for their ongoing
dedication and contributions to our success.
Governance
There continues to be a significant focus on corporate
governance issues across all public companies. Through-
out our history, we have always made strong and effective
corporate governance a priority as we view it as essential
to long term success. Our governance policies are designed
to strengthen the ability of the Board to effectively oversee
This annual report is titled “A Growth Story” which is an
appropriate description of not only the last year, but also
the twenty-year history of Canadian Western Bank. Even
with the outstanding performance in 2004, which sets the
bar even higher for the coming year, we are very optimistic
that we can generate continued strong growth in our
business and in the return for our shareholders.
Growth in 2005 is expected to come from sustained focus
on our core commercial banking business, the prospects for
which are positive given the current economic outlook for
Western Canada, and for Alberta and British Columbia, in
particular. We also expect strong growth in the trust and
insurance business lines as we explore opportunities to
cross-market products and services. In the coming year we
also look to further expand on our new initiative in the
residential mortgage business.
With a strong capital position, supported by the conversion
of convertible debentures and the issue of new non-
dilutive subordinated debentures subsequent to year end,
we will seek new growth opportunities to enhance
operations across all business lines and increase share-
holder value.
Key financial targets for 2005 include net income growth
of 15 percent, revenue growth of 15 to 18 percent and loan
growth of 12 percent. We expect 2005 to be a year in which
our core fundamental strengths and new initiatives take
Canadian Western Bank to even higher levels of performance.
Jack C. Donald
Chairman
Larry M. Pollock
President and CEO
CWB 2004 ANNUAL REPORT 3
CWB 2004 ANNUAL REPORT 3
This is Bob Pratt, Vice President of
Finance, Yanke Group of Companies.
As Bob explains,“CWB provides a long-
term partnership that Yanke can rely
upon. We depend on them for their
top quality service and competitive
rates.”Bob says Yanke likes dealing with
CWB because “they have a western
presence and are easy to do business
with.”We can’t argue with that, Bob.
4 CWB 2004 ANNUAL REPORT
BOB
Vice President of Finance
Yanke Group of Companies
Saskatoon, Saskatchewan
COMMERCIAL BANKING
Helping businesses exceed their goals
is a truly satisfying experience.We fully
understand that business owners have
dreams, and that’s why we take pride
in knowing that as commercial banking
specialists, we are a catalyst for growth
to a variety of businesses across Western
Canada.
We are proud to report our 15th consec-
utive year of double-digit loan growth.
So what’s the secret? Well, there is no
magic formula, but our Think Western®
philosophy of providing prompt, local
decisions, building long-term relation-
ships, offering full-service commercial
banking, and serving up an abundance
of genuine personal service really
resonates with our business clients.
Commercial banking is our key engine
of growth. As we continue to strengthen
existing relationships, new ones are
constantly being created as more and
more people become exposed to our
refreshing, respected way of doing
business.
Another key has been to focus our
lending efforts on mid-market busin-
esses in the Western Canadian markets
we know and understand.We specialize
in Commercial Operating & Term Loans,
Industrial Equipment Financing &
Leasing, Commercial Real Estate Lending
and Oil & Gas Financing. By concen-
trating on these areas and gaining a
thorough understanding of each, we
have been able to achieve growth and
success on a consistent basis.
Ted Sherritt is the Chairman and CEO
of Flo-Form Countertops. He says
that CWB “understands our business
well, and with that knowledge can
react quicker, so things get done in
an expedited manner.” He goes on to
add that “the personal nature of the
business relationship is something
we value.” We definitely value Ted as
a customer as well. Thanks Ted.
TED
Chairman and CEO
Flo-Form Countertops
Winnipeg, Manitoba
COMMERCIAL BANKING
IS OUR KEY ENGINE OF
GROWTH.
CWB 2004 ANNUAL REPORT 5
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Meet Bob, Personal Banking Manager
at our new full-service branch in
St. Albert. Bob says the Think Western®
philosophy is a perfect fit for him
and his staff. “Our way of doing
business – friendly, open, laid-back –
puts customers at ease, which makes all
aspects of banking more comfortable
for both parties.”Bob mentioned he gets
great satisfaction from helping people
and being part of a dedicated team.
Next time you’re in St. Albert, drop in
and say hi to Bob and his team.
BOB
CWB Personal Banking Manager
St. Albert, Alberta
THE CUSTOMER
RELATIONSHIPS WE BUILD
ARE GENUINE. IT’S THE
WESTERN WAY.
6 CWB 2004 ANNUAL REPORT
PERSONAL BANKING
As the banking needs of our customers
continue to grow, so do our personal
banking services. We believe it’s
important to exceed the needs of
customers, that’s why we continue to
add more products, more services, and
more branches! There are currently 30
branches across Western Canada.
No matter which branch you deal
with, the Think Western® approach to
customer service is abundantly evident.
Good old fashioned face-to-face and
sit down banking service in a relaxed
atmosphere. There are no line-ups, no
call centres, and of course, friendly
and approachable staff are always
there to help. This goes over very well
with customers, and is one of the core
reasons why we’ve been able to
consistently grow.
For us, the term “personal banking” is
all about relationships. It enables us to
better understand and meet the needs
of our customers. You can’t build a
genuine relationship through voice
mail, that’s why we don’t have it. By
always answering our phones when
they ring, we are accessible and we
communicate far more effectively with
our customers. As a complement to our
great in-person services, we also have
telephone banking and internet banking
for people on the go.
We offer full-service banking through
a competitive range of deposit accounts,
investment products, mutual funds,
mortgages, personal loans, and other
services including our Think Western®
MasterCard®. All delivered with our sig-
nature Think Western® style of service.
ANNE
CWB Sales and Service Representative
Saskatoon, Saskatchewan
CWB 2004 ANNUAL REPORT 7
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Say Hello to Anne. She’s a Sales and
Service Representative in Saskatoon.
Anne plays a very important role, as
she is the customer’s initial contact
in the branch. Anne says she loves the
team of people she works with. “Our
staff are excellent at what they do,
and that makes my job easier. I like
what CWB represents, and am proud
to be associated with the company.”
According to Anne, the most rewarding
aspect of her job is seeing customers
walk out the door with smiles on
their faces.
Jacob Roorda is President of Harvest
Energy Trust. Harvest has a strong
relationship with Valiant Trust, a CWB
subsidiary. “When we contact Valiant,”
says Jake, “they are there to answer
our questions and help us accomplish
our business objectives, whether it’s
dealing with an individual unit
holder’s concern, or a regulatory com-
pliance issue or something as com-
plicated as a capital market financing.”
Jake also likes the support that
Valiant provides: “On a recent private
placement, we were dealing with
some of the most notable financial
institutions in the world, and our
partner Valiant was there with us
shoulder-to-shoulder, helping us
make it happen.”
JAKE
President
Harvest Energy Trust
Calgary, Alberta
A UNI UE AND DIVERSE
TRUST SERVICES ALTERNATIVE.
8 CWB 2004 ANNUAL REPORT
TRUST SERVICES
CWB’s wholly owned subsidiary,Canadian
Western Trust (CWT), has achieved
strong growth through the continued
enhancement of product and service
offerings and the development of
strategic partnerships. Product offerings
include corporate and group trust
services, self-directed RRSPs and RRIFs,
as well as other complementary services
such as investment lending and on-line
discount brokerage.
A new chapter of our growth story
started this year when we acquired
Valiant Trust, a Calgary based company
that provides stock transfer and
trustee services to public companies
and income trusts.
The Valiant fit is a natural one, in that
Valiant has the same commitment
to customer service excellence as
we do. Customers can always expect
the highest level of flexibility and
personal service, delivered by friendly,
knowledgeable staff.
Together, CWT and Valiant offer a
unique and diverse range of personal
and corporate trust services. Western-
based companies, independent financial
advisors and
individuals have an
attractive alternative, backed by the
time-honoured belief that providing
excellent service at a reasonable cost
is key to attracting and retaining
customers.
DONALD
Chairman, Board of Trustees
The Pension Plan For Employees
of Canadian Ford Dealers
Vancouver, British Columbia
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Donald Carson is the Chairman, Board
of Trustees, for The Pension Plan For
Employees of Canadian Ford Dealers.
“A couple of years ago we changed
our trust services provider and selected
CWT because of their reputation for
quick, efficient service at a competitive
price,” says Donald. “As overseers of
the plan, we were very concerned that
the plan be secure and professionally
managed in all respects, so we made
our choice very carefully – and CWT
fit that bill.”
CWB 2004 ANNUAL REPORT 9
Customers like Rick from Surrey have
built a strong relationship with
Canadian Direct Insurance. In fact,
Rick has five auto policies plus home
insurance too. “I have a real interest
in cars,” says Rick. “My wife and I
have vehicles that we drive to work
and insure all year round. Then I also
have a few that are unique and
mainly used in the summer,” he added.
“Canadian Direct is really flexible
and they’re just great to deal with.”
This is Gloria, a Canadian Direct
Insurance Advisor in New Westminster.
She is a big believer in Canadian Direct’s
superior coverage. As Gloria tells it,
“Our coverage exceeds those of other
insurance companies for a similar
premium. Our high level of customer
satisfaction in claims, service and sales
shows that our clients are treated
well.” Gloria really enjoys helping
people save money. “I never tire of
hearing a client’s reaction when I tell
them that I’ve saved them money on
their auto insurance,” she says.
10 CWB 2004 ANNUAL REPORT
RICK
Canadian Direct Insurance Customer
Surrey, British Columbia
GLORIA
Canadian Direct Insurance Advisor
New Westminster, British Columbia
INSURANCE
Canadian Western Bank started a new
chapter of growth this year when we
acquired Canadian Direct Insurance.
The addition of Canadian Direct was a
major achievement, further diversifying
our operations as we enter another
pillar of the financial services industry.
This important acquisition doubles
the size of our retail customer base,
and creates exciting new marketing
opportunities.
As a fast-growing, western-based insur-
ance company, Canadian Direct is all
about customer service. Canadian Direct
consistently achieves excellent customer
satisfaction ratings making our Think
Western® culture a natural fit.
Through Canadian Direct, we provide
personal home and auto insurance to
over 130,000 policyholders in British
Columbia and Alberta. While other
insurance companies deal through
brokers, Canadian Direct deals directly
with all customers and is thereby able
to eliminate broker commissions. An
advanced quoting system is used and all
sales are completed with the consumer
over the phone or via the internet.
All of this results in better insurance,
for less money.
BETTER INSURANCE,
FOR LESS MONEY.
CWB 2004 ANNUAL REPORT 11
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OUR SUCCESS IS ALL
ABOUT OUR PEOPLE
AND CULTURE.
This is Franco Savoia, President and
CEO of
the Edmonton YMCA.
Canadian Western Bank has proudly
provided support to the YMCA for
more than a decade. According to
Franco, “The people have been terrific
to deal with, and have provided very
helpful advice.” CWB contributes
financially as well, including a recent
leadership donation given to help with
the construction of a new downtown
facility. “I can honestly say we would
not be in the position we are in
today in terms of the 50,000+
people we are serving without the
help we have
from
Canadian Western Bank,”says Franco.
received
FRANCO
President and CEO
Edmonton YMCA
Edmonton, Alberta
12 CWB 2004 ANNUAL REPORT
CULTURE AND COMMUNITY
Consistent growth requires a strong
culture. At Canadian Western Bank,
our culture is fuelled by a commit-
ment to the team approach, and a
dedication to the nurturing of customer
relationships. Our employees are great
at what they do, but more importantly,
they are great people too. We truly do
enjoy each other’s company, and we
love working with our customers to
help them achieve success.
Our unique culture is made up of 1,000
extraordinary people across the four
western provinces in our banking,
trust and insurance lines of business.
No matter which area you deal with,
all are committed to offering the
Think Western® brand of customer
service that quite frankly, is unmatched
in the industry.
At CWB, we really do go that extra
mile when it comes to customer satis-
faction, ensuring you always feel at
home and get the service you deserve.
So it’s not surprising that we want to
excel when helping out in our local
communities as well.
While we grow as a company, our
various community endeavors also help
us grow as individuals. We are active
in supporting a variety of charities,
including the United Way and the
YMCA. And our employees donate
countless hours of their own time in
supporting numerous organizations
across Western Canada. We’re proud
to be giving back to the community.
ANNA
CWB Manager, Deposit Processing Centre
United Way Employee Campaign Chair
Edmonton, Alberta
CWB 2004 ANNUAL REPORT 13
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Anna is Manager of CWB’s Deposit
Processing Centre in Edmonton. She is
also our Employee Campaign Chair (ECC)
for the United Way. Whether holding
a silent auction, or holing a putt in a
mini-golf fundraiser, Anna is dedicated
to raising funds for this worthy cause.
Anna says that “making a difference
in the community”is the most rewarding
part of her role as ECC. She also has an
interesting perspective on our growth.
“As Canadian Western Bank grows, so
does our community involvement,”
says Anna.
CORPORATE GOVERNANCE
INTRODUCTION
Sound and effective corporate governance has always been a priority
for Canadian Western Bank. The Board of Directors and management
of the Bank are committed to govern and maintain the Bank’s
its regulatory
operations effectively and efficiently within
environment. Corporate governance policies are reviewed regularly
for improvement and are designed to strengthen the ability of the
Board to effectively supervise management and enhance long-term
shareholder value.
The Board’s Corporate Governance & Human Resources
Committee provides direction, monitors compliance and makes
recommendations to the Board to enhance corporate performance
and promote ongoing improvement in Board effectiveness.
In addition to the information presented below, a tabular
presentation of the Bank’s compliance with the corporate
governance guidelines of the Toronto Stock Exchange (TSX) is
provided in the management information circular available on
SEDAR at www.sedar.com.
THE BOARD AND BOARD COMMITTEES
The Board is currently comprised of twelve members. The number of
directors reflects the desire to have the geographical jurisdictions in
which the Bank operates represented and the need to fill, with
the
desired and appropriate experience and knowledge,
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 TSX 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” – i.e. independent.
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. Currently the composition
is well within these requirements as only one board member is non-
resident and the CEO is the only employee on the Board. 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 identified, assessed and
the internal controls to deal with them, to be identified and reported
upon by senior management to the Board and/or its committees.
Members of the Board, except for the CEO, are required to own
common shares of the Bank equivalent to two times their annual
retainers. The CEO is required to own common shares equivalent to
two times base salary.
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, with the exception of the Loans
Committee which meets several times per year as required by
customer demand. A meeting agenda matrix is issued to ensure
14 CWB 2004 ANNUAL REPORT
meetings of the Board and its committees are efficient and
complete. At the end of every regularly scheduled Board meeting a
session is held without any management, including the CEO, present.
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 including ethical conduct 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
similar
circumstances; and
person would exercise
in
• to comply with the Act, the regulations, the Bank’s incorporating
instrument and its by-laws.
The mandate of the Board also includes references to compliance
with the Canada Deposit Insurance Corporation's (CDIC) Standards of
Sound Business and Financial Practices. An annual attestation on
adherence to the CDIC 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 is
completed.
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 and quarterly financial statements and
specified returns, prior to release to the public or submission to
OSFI;
• review and approve the strategic plan, the annual business plan
and accompanying capital plan and financial operating budget,
including capital expenditures;
• review and approve the issuance of securities, redemption of
securities and declaration of 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 shareholders’
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 the
Board of Canadian Direct Insurance; and
• approve loan write-offs.
AUDIT COMMITTEE
Members:
Robert Manning (Chair)
Wendy Leaney
Gerald McGavin
Robert Phillips
Alan Rowe
This committee is comprised of five financially literate, independent
directors. Its mandate is summarized as follows:
• review the annual financial statements 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’
auditors or any officer of the Bank may bring to the attention of the
committee;
• meet with the shareholders’ auditors to discuss the annual
statements and the returns and transactions referred to within the
mandate and receive the auditors’ reports thereon;
• 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 earnings reports to the shareholders, including
the interim unaudited statements, and report thereon to the directors
before approval is given and information is disclosed publicly;
• review a quarterly report from the Audit Committee of Canadian
Direct Insurance;
• 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 a report on adherence to the CDIC Standards of Sound
Business and Financial Practices annually and report thereon to the
directors before approval is given;
• recommend to the Board the appointment of the shareholders’
auditors;
• review the terms of the shareholders’ auditors’ engagement, their
level of compensation, the audit plan, any proposed changes in
accounting policies, their presentation and input concerning
significant
judgements of
management. The Committee is responsible for resolution of
the shareholders’ auditors and
disagreements between
management regarding financial reporting and the shareholders’
auditors shall report directly to the Committee;
risks and key estimates and
• review the independence of the shareholders’ auditors;
• review correspondence received from regulators and shareholders’
auditors together with management’s responses thereto,
concerning the effectiveness of internal controls and other matters
that fall within the responsibility of the Committee;
• review the appointment of the Chief Financial Officer (CFO) and the
Chief Inspector;
• meet regularly with the Chief Inspector and shareholders’ auditors
without management present;
• review and approve the policy for non-audit services that can be
carried out by the shareholders’ auditors including pre-approval for
all but de minimis engagements;
• as the Committee sees as fit and proper, review other items or
matters that may affect the well-being of the Bank;
• establish procedures for the receipt and handling of complaints
received by the Bank regarding accounting, internal accounting
controls, or auditing matters, and establish procedures for the
confidential, anonymous submission by employees of the Bank of
concerns regarding questionable accounting or auditing matters;
• review and approve the Bank’s hiring policies regarding employees
and former employees of the present and former external auditors
of the Bank;
• engage independent counsel or advisors and fix their remuneration
as the Committee deems appropriate; and
• review periodically the Code of Conduct for senior financial officers.
CONDUCT REVIEW COMMITTEE
Members:
Albrecht Bellstedt (Chair)
Charles Allard
Allan Jackson
Arnold Shell
This committee is comprised of four independent 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 over permitted limits brought to the Board
for consideration;
CWB 2004 ANNUAL REPORT 15
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• review the conduct policy and any other specialized standards 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; and
• ensure every employee, officer and Board member agrees to
comply, in writing with annual acknowledgement, with the Bank’s
conduct policies.
CORPORATE GOVERNANCE AND HUMAN RESOURCES COMMITTEE
Members:
Jack Donald (Chair)
Albrecht Bellstedt
Allan Jackson
Robert Manning
Howard Pechet
Robert Phillips
This committee is comprised of six independent directors and its
mandate is summarized as follows:
Corporate Governance
• 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; and
• 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.
Executive Employees: Recruitment and Compensation
• 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 consider changes where warranted in the level of
compensation and grade of incumbent executive employees and
officers upon review of their performance;
• review the position descriptions for the top five executive
employees, ensuring such descriptions remain current and
appropriate and, further, to also ensure position descriptions are in
place for all other executive officers;
• establish in conjunction with the CEO, 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:
- all programs and other personal benefits granted to executive
employees;
- incentive compensation plans and other bonus arrangements, to
administer such plans and to make appropriate interpretations
and determinations as required;
- share incentive plans and similar arrangements involving the
grant of share options, or other benefits to employees attendant
upon the issuance of securities, and, in addition, to make grants
of options under any share incentive plan and generally to
administer such plans, subject to necessary regulatory and
shareholder approval; and
- annuity, pension, and retirement programs for executive
employees;
• review the human resource succession plan as prepared by senior
management for all officers and any other senior position
considered critical to operations; and
• review and report to the Board on compensation plans for senior
management and other personnel in order to confirm they are
consistent with the Bank’s sustainable long-term objectives.
Board Composition and Development
• seek and recommend individuals to be considered for Board
membership, as required by the Board, and forward their
recommendations to the Board for its consideration;
• review, monitor, and make recommendations regarding new
director orientation and the ongoing development and education
of existing Board members;
• evaluate bi-annually, Board effectiveness including membership
criteria, composition structure and size and, on alternate years, the
involvement and contribution of the individual members with
concerns recorded, and brought to the attention of the committee
chair, who, in conjunction with the committee, determines if
further action is required;
• review and recommend to the Board the fees and other benefits to
be paid to directors; and
• make recommendations to the Board regarding revisions or
additions to the Board of Directors’ Manual.
LOANS COMMITTEE
Members:
Allan Jackson (Chair)
Charles Allard
Jack Donald
Wendy Leaney
Gerald McGavin
Howard Pechet
Larry Pollock
Alan Rowe
16 CWB 2004 ANNUAL REPORT
This committee is comprised of eight directors, seven of whom are
independent. 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 loans to a
foreign country and for amounts in excess of delegated limits up to
the limit established, not to exceed ten percent of common equity
plus retained earnings or eleven percent for sovereign, provincial or
major municipality risk;
• recommend for approval of the full Board, any loan proposals in
excess of the Committee’s limit;
• review the policy on Director Related Loans and make
recommendations to the Board;
• 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/amend 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 concentration risk and the
identification criteria, procedure and action required on loans
reported by management to be less than satisfactory.
BOARD AND MEMBER REVIEW AND ASSESSMENT
In response to the Board’s commitment to effective corporate
governance, a two pronged evaluation process has been initiated. On
“even” years, the Board members assess their effectiveness as a
Board. In “odd” years, a peer evaluation of each member is scheduled.
During the Board assessment, members are asked to rate items such
as structure and size of the Board, the knowledge and diversity of the
membership as well as the timeliness and completeness of
information received for discussion and the overall effectiveness of
the decision making process. The peer evaluation involves questions
such as effectiveness
in discussions and decision-making,
attendance and whether the director’s non-Bank activities enhance
or detract from shareholder value.
Both evaluation processes are conducted in-house and require all
members to complete questionnaires that are forwarded to the
Board Chair. The Chair then compiles the results and prepares a
single document that includes any comments that may have been
forwarded. Anonymity of the particular submitter is maintained with
the aggregate results presented to the Corporate Governance and
Human Resources Committee for discussion and action if required.
The results are then communicated on an aggregate basis, to the full
Board for discussion and recommendations as required.
OTHER AREAS OF CONSIDERATION
The Bank has not adopted a formalized process of orientation for new
Board members although all directors are provided with a Directors’
Manual, outlining key governance information and reference
material. New directors are also given the opportunity to meet with
senior management and other directors. Also, when circumstances
warrant, specific meetings are held for all directors to cover new areas
of significance that could or will impact the directors in fulfilling their
responsibilities. For example, during fiscal 2004, a seminar on
corporate governance was held with an outside presenter and after
acquiring Canadian Direct Insurance, an orientation session was held
by the senior management of Canadian Direct at its head office in
New Westminster, B.C.
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 committed to ensuring quality and timely information is
available to all shareholders. The Bank has adopted a corporate
disclosure (communication) policy which is reviewed annually as well
as a policy to handle complaints or concerns regarding accounting,
internal accounting controls or auditing matters. Quarterly and
annual financial packages are reviewed by an internal Disclosure
Committee prior to being recommended for Board approval and
CEO/CFO bare certification of financial statements. Inquiries and
requests for information from shareholders and potential investors
receive prompt attention from an appropriate officer. The Bank’s
quarterly earnings conference calls with analysts and institutional
investors are broadcast live, via the Internet, and archived on the
Bank’s web site for sixty days. The calls are also accessible on a live
and recorded basis via telephone to interested retail investors, the
media and members of the public. The Bank also includes all
significant disclosure documents on the investor relations page of its
web site at: www.cwbank.com/investor_relations/default.asp. The
CEO, CFO and other members of senior management also meet
periodically with financial analysts and institutional investors.
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
TSX 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.
As noted above, a table detailing the Bank’s compliance with the TSX
guidelines is also provided in the management information circular
available on SEDAR at www.sedar.com.
CWB 2004 ANNUAL REPORT 17
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MANAGEMENT’S
DISCUSSION AND
ANALYSIS
Forward-looking Statements
Taxable Equivalent Basis (teb)
Canadian Banking Industry
Comparative performance indicators of the
Canadian banking industry referred to in this
document are obtained from the published
results of the other publicly-traded Schedule I
banks (Bank of Montreal, Canadian Imperial
Bank of Commerce, Laurentian Bank of
Canada, National Bank of Canada, Royal Bank
Financial Group, Scotiabank and TD Bank
Financial Group). Readers are cautioned that
the banks in this industry group have
operations and asset size that may not be
directly comparable to each other or to
Canadian Western Bank.
From time to time we make written and
verbal forward-looking statements about
our objectives and strategies, operations and
targeted financial results. These may be
included in our Annual Reports, regulatory
filings, reports to shareholders, press releases,
corporate presentations and other commun-
ications. 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. We do not
undertake to update any forward-looking
statement, whether written or verbal, that
may be made from time to time by us or on
our behalf.
Most banks analyze revenue on a taxable
equivalent basis to permit uniform measure-
ment and comparison of net
interest
income. Net interest income (as presented in
the consolidated statement of income)
includes tax-exempt income on certain
securities. Since this income is not taxable,
the rate of interest or dividend received is
significantly lower than would apply to a
loan or security of the same amount. The
adjustment to taxable equivalent basis of
$3.9 million (2003 – $3.0 million) increases
interest income and the provision for income
taxes to what they would have been had the
tax-exempt securities been taxed at the
statutory rate. The taxable equivalent basis
does not have a standardized meaning
prescribed by generally accepted accounting
principles and therefore may not be
comparable to similar measures presented
by other banks. Total revenues, net interest
income and income taxes are discussed on a
teb basis throughout this Management’s
Discussion and Analysis.
18 CWB 2004 ANNUAL REPORT
20 Business Profile and Strategy
20 Group Financial Performance
20 Overview
22 Net Interest Income
23 Other Income
24 Non-interest Expenses
and Efficiency
25
Income and Capital Taxes
26 Loans
27
Credit Quality
31 Deposits
31 Other Assets
and Other Liabilities
32
Liquidity Management
34 Capital Management
36 Financial Instruments
and Other Instruments
36 Acquisitions
37 Off-balance Sheet Arrangements
37 Operating Segment Review
37
Banking and Trust
39 Insurance
40 Summary of Quarterly Results
and Fourth Quarter
40 Quarterly Results
40 Fourth Quarter of 2004
41
Accounting Policies
and Estimates
41
Critical Accounting Estimates
42 Changes in Accounting Policies
Including Initial Adoption
42 Risk Management
42 Overview
42 Credit Risk
43
Liquidity Risk
43 Market Risk
44 Insurance Risk
45 Operational Risk
45 Updated Share Information
CWB 2004 ANNUAL REPORT 19
CWB 2004 ANNUAL REPORT 19
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS PROFILE AND STRATEGY
Canadian Western Bank (CWB or the Bank) celebrated its 20th
anniversary during the year, marking a long history of financial
growth and excellence in customer service. This history includes
many milestone accomplishments including 66 consecutive quarters
of profitability, strong earnings growth and well over a decade of
double-digit loan growth and low loan losses. CWB is the largest
publicly-traded Schedule I chartered bank headquartered in and
regionally focused on western Canada and today serves many
thousands of small to medium sized businesses and individuals
across the four western provinces in its signature Think Western®
style. CWB’s primary focus continues to be its core retail and
mid-market commercial banking business in Western Canada. Trust
services, including self-directed RRSPs and RRIFs, as well as corporate
and group trust services, are provided to independent financial
advisors, corporations and individuals through CWB’s wholly owned
Canadian Western Trust Company (CWT). Stock transfer and trustee
services are provided to public companies and income trusts through
recently acquired Valiant Trust Company.
CWB significantly expanded its financial services at the end of the
second quarter of 2004 through the acquisition of Canadian Direct
Insurance Incorporated (CDI). The acquisition of CDI further diversifies
the Bank’s operations and adds a third pillar of the financial services
industry. CDI provides personal home, auto and travel insurance
products directly to consumers in British Columbia and Alberta.
CWB’s mission is to be known and respected as Canada’s western
bank, providing western Canadians and other selected markets with
a preferred source of individual and commercial financial services,
delivered in its signature Think Western® style. The fundamental
objectives are to provide shareholders with a sound and profitable
return, clients with value, service and stability, employees with a
positive and rewarding work environment while contributing to the
communities in which CWB operates. CWB plans to achieve its
mission through the following strategic priorities:
GROUP FINANCIAL PERFORMANCE
OVERVIEW
Highlights of 2004
• Build upon the Think Western® brand of service by ensuring CWB
employees continue to manage customer relationships in the
responsive and friendly CWB manner.
CWB believes that
experienced, knowledgeable and dedicated employees with a Think
Western® attitude are critical to building customer loyalty.
• Ensure growth is focused, strategic and ultimately enhances
shareholder value.
• Reinforce industry leadership in cost efficiency, return on assets and
credit losses by maintaining low cost delivery capabilities, mitigating
risks and ensuring continued rigorous credit risk management.
• Leverage core profitability by the generation of lower cost deposits
through the branch network and CWT.
• Grow non-interest revenues from a continued emphasis on retail
banking, trust and insurance products and services, as well as
through strategic acquisitions.
• Maximize potential opportunities from recent acquisitions through
co-branding, cross selling and expansion into new markets (e.g.
expand stock transfer and corporate trustee services to Vancouver
and Edmonton).
• Increase ROE through the expansion of CWB’s key business
strategies and by improving the mix of regulatory capital between
dilutive and non-dilutive capital required to support growth.
• Maintain and reinforce CWB’s reputation and public confidence
through enhanced communication, diligence in corporate governance
practices and high standards in corporate reporting and accountability.
CWB’s consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
and are presented in Canadian dollars.
The following pages contain management’s discussion of the
financial performance of the CWB Group as well as a discussion of
the performance of each operating segment and a summary of
quarterly and fourth quarter results.
• Net income was a record $44.2 million, up 16% over the prior year.
• Total revenues (teb) increased 15%, with net interest income (teb) up 9% and other income up 43%.
• Loans increased 11%, reflecting fifteen consecutive years of double-digit loan growth.
• Credit quality continued to be strong and consistent.
• Branch and trust deposits increased 15%, with the lower cost demand and notice component up 30%.
20 CWB 2004 ANNUAL REPORT
Table 1 - Selected Annual Financial Information
($ thousands, except per share amounts)
Key Performance Indicators
Net income
Earnings per share
Basic
Diluted
Provision for credit losses as a
percentage of average loans
2004
2003
2002
$
%
Change from 2003
$
$
$
44,161 $
38,193 $
29,612 $
5,968
3.30 $
3.00 $
2.98 $
2.69 $
2.34 $
2.14 $
0.32
0.31
16)%
11)%
12)%
0 bp(3)
0.25%
49.8%
51.1%
12.9%
0.97%
0.25%
46.3%
47.4%
12.9%
0.95%
0.26%
50.7%
51.8%
11.2%
0.84%
Efficiency ratio(2) (expenses to revenues) (teb)(1)
Efficiency ratio
Return on common shareholders' equity
Return on average total assets
Other Financial Information
Total revenues (teb)(1)
Total revenues
Total assets
Subordinated debentures
Dividends(4)
(1) See page 18 for a discussion of teb.
(2) A decrease in the ratio reflects improved efficiency.
(3) Basis points.
(4) The dividend policy was amended to be quarterly instead of semi-annual during the first quarter of fiscal 2004. The dividend rate for fiscal 2004 appears unusually high as
20,354
$
$
19,448
$ 4,918,895 $ 4,343,972 $ 3,828,162 $ 574,923
(11,351)
$
0.29
$
153,335 $ 132,981 $ 113,420 $
149,437 $ 129,989 $ 110,971 $
110,600 $ 121,951 $
0.46 $
350 bp
370 bp
0 bp
2 bp
15)%
15)%
13)%
(9)%
63)%
57,126 $
0.40 $
0.75 $
it includes the last semi-annual dividend of $0.30 per share paid in the first quarter and quarterly dividends of $0.15 per share paid in subsequent quarters.
Net income for 2004 was a record $44.2 million, an increase of 16% over
2003. The increase reflects 15% growth in total revenues (teb) driven by
solid loan growth and strong growth in lower cost branch deposits as
well as the contribution of Canadian Direct Insurance Incorporated (CDI)
and Valiant Trust Company, both of which were acquired in April 2004.
The 2004 results also reflect a tax benefit of $1.6 million resulting from
the redemption of tax advantaged preferred shares in which CWB had
an investment. Credit quality remained strong and the provision for
credit losses as a percentage of average loans was 25 basis points in
2004 and has averaged 24 basis points over the last five years. The
efficiency ratio (teb) at 49.8% continued to lead the Canadian banking
industry. Diluted earnings per share were $3.00 in 2004 compared to
$2.69 last year, an increase of 12%. Return on shareholders’ equity and
return on assets were 12.9% and 0.97% respectively compared to 12.9%
and 0.95% last year.
Total assets increased 13% from one year ago to reach $4,919 million.
Loans increased by $404 million, or 11% as the Bank’s long history of
double-digit annual loan growth continued. Branch generated deposits
increased 15%, with the lower cost demand and notice component up
30%. At October 31, 2004, branch deposits represented 57% of total
deposits compared to 54% one year ago.
Outlook for Overall Financial Performance
The overall outlook for fiscal 2005 is continued strong financial performance, with positive economic conditions in Western Canada and
modestly higher interest rate levels. The strength of the Canadian dollar will affect some borrowing customers positively and others
negatively, but overall it is not expected to have a significant impact on the Bank’s credit quality or growth strategy. A continued
emphasis on retail initiatives, together with the significant branch development projects completed in fiscal 2004 and the contribution
of CDI are expected to further strengthen the Bank’s ability to drive growth and increase market recognition. Targets established for
2005 include net income growth of 15%, total revenue growth of 15-18% and loan growth of 12%.
CWB 2004 ANNUAL REPORT 21
C
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M
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C
I
A
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P
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B
A
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G
O
V
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R
N
A
N
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&
A
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F
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N
A
N
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A
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S
T
A
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E
M
E
N
T
S
NET INTEREST INCOME
Highlights of 2004
• Net interest income (teb) was $117 million, an increase of 9% over the prior year.
• Net interest margin (teb) was 2.57%, compared to 2.68% in 2003.
Net interest income is the difference between interest and dividends
earned on assets and interest expensed on deposits and other
liabilities, including debentures. Net interest margin is net interest
income as a percentage of average total assets.
Table 2 - Net Interest Income (teb)(1)
($ thousands)
2004
2003
Average
Balance
Mix
Interest
Interest
Rate
Average
Balance
Mix
Interest
Interest
Rate
$
716,759
16%$
21,982
3.07%$
526,489
13%$
19,319
3.67%
65,503
1
1,504
2.30
61,468
1
1,807
2.94
655,980
3,039,208
3,695,188
4,477,450
90,062
$ 4,567,512
$
162,704
599,144
3,214,867
3,976,715
134,789
114,688
341,320
$ 4,567,512
$ 4,567,512
14
67
82
98
2
100%$
36,007
182,590
218,597
242,083
–
242,083
631,511
5.49
2,756,634
6.01
3,388,145
5.92
3,976,102
5.41
45,810
0.00
5.30%$ 4,021,912
16
69
85
99
1
100%$
37,435
180,801
218,236
239,362
–
239,362
4%$
13
70
87
3
3
7
100%$
$
–
6,841
111,246
118,087
–
6,760
–
124,847
117,236
115,392
0.00%$
444,778
1.14
3,014,956
3.46
3,575,126
2.97
83,700
0.00
67,372
5.89
0.00
295,714
2.73%$ 4,021,912
2.57%$ 4,021,912
3%$
11
75
89
2
2
7
100%$
$
–
6,245
121,521
127,766
–
3,941
–
131,707
107,655
5.93
6.56
6.44
6.02
0.00
5.95%
0.00%
1.40
4.03
3.57
0.00
5.85
0.00
3.27%
2.68%
Assets
Cash, securities and deposits with
regulated financial institutions
Securities purchased under
resale agreements
Loans
Residential mortgages
Other loans
Total interest bearing assets
Other assets
Total Assets
Liabilities
Deposits
Demand
Notice
Fixed term
Other liabilities
Subordinated debentures
Shareholders' equity
Total Liabilities and Equity
Total Assets/Net Interest Income
(1) See page 18 for a discussion of teb.
In 2004, net interest income (teb) increased by $9.6 million (9%),
primarily due to an increase of $501 million (13%) in average interest
bearing assets, partially offset by a decrease in the net interest
margin (teb) to 2.57% from 2.68%. The decrease in margin was
primarily due to an increase in the mix of cash and securities
(securities, deposits with regulated financial institutions and
securities purchased under resale agreements) to 17% of total
average assets this year compared to 14% in 2003. Cash and
securities, which are primarily held for liquidity purposes, generate a
lower yield than the other interest-bearing asset, loans. Liquidity was
increased early in the year to accommodate heavier deposit
maturities in January through April and again later in the year to
accommodate heavier maturities in October. Also, negatively
impacting margin was an increase in non-interest earning assets
with the acquisition of CDI and a decline in short-term interest rates.
The prime rate averaged 4.05% compared to 4.69% last year.
Partially offsetting these negative factors impacting margin was
strong growth in lower cost demand and notice deposits, which are
generated by the Bank’s branch network and Canadian Western
Trust. The average balance of these deposits increased $202 million
(36%) in 2004 and represented 17% of total funding sources
(liabilities and equity) compared to 14% in 2003. The margin was also
positively impacted by proactive management of interest risk, as the
Bank’s sensitivity to a change in interest rates was reduced early in
2004 in anticipation of declining interest rates. While the margin
decreased, net interest spread on loans (yield earned on loans less
the cost of deposits and subordinated debentures) improved to
2.80% from 2.75% in the prior year.
22 CWB 2004 ANNUAL REPORT
Outlook for Net Interest Income
In 2005, net interest income is expected to increase in response to the targeted loan growth of 12%. The net interest margin is also
expected to increase slightly over 2004 based on modestly higher interest rate levels and a continued emphasis on generating lower
cost deposits which will allow the Bank to gain leverage from core profitability.
OTHER INCOME
Highlights of 2004
• Other income increased 43% ($10.8 million) over the prior year.
• CDI and Valiant Trust, both acquired at the end of April 2004, contributed $9.7 million of the increase.
• Other income represented 24% of total revenues (teb) compared to 19% in 2003.
Table 3 - Other Income
($ thousands)
Insurance
Net earned premiums and other
Net claims, adjustment and policy acquisition expenses
$
Credit related
Trust services
Retail services
Gains on sales of securities
Foreign exchange
Other(1)
Total Other Income
(1) Includes gains/losses on land, buildings and equipment disposals and other miscellaneous non-interest revenues.
$
$
2004
2003
Change from 2003
$
%
$
30,761
(22,865)
7,896
13,641
6,208
5,066
1,685
1,332
271
36,099
–
–
–
13,099
4,017
4,679
2,095
1,279
157
25,326
$
$
30,761
(22,865)
7,896
542
2,191
387
(410)
53
114
10,773
100%
100
100
4
55
8
(20)
4
73
43%
Other income was $36.1 million, an increase of 43% ($10.8 million)
over 2003. A significant portion of the increase was due to the
contributions of CDI and Valiant Trust which were acquired at the
end of April 2004. CDI generated revenues (net of claims, adjustment
and policy acquisition costs) of $7.9 million and Valiant had revenues
of $1.8 million which are included in trust services fees. Credit, retail,
trust (excluding Valiant) and foreign exchange fees had modest
growth of between 4% and 9%.
Gains on the sale of securities decreased 20% over the prior year. At
October 31, 2004, there were unrealized gains in the securities
portfolio of $533,000 compared to $2.7 million at the end of the prior
year. The change in unrealized value from the prior year reflects the
Outlook for Other Income
sale of certain investments and changes in longer term interest rates.
Approximately $900,000 of the 2004 gain was a non-cash gain that
resulted from the acquisition of Bank Northwest (a U.S. regional bank
in which CWB had an investment) by another regional U.S. bank in
exchange for its shares.
Other income as a percentage of total revenue (net interest income
and other income) increased to 24% in 2004 from 19% in the prior
year. The improved diversification of revenues was primarily due
to the impact of CDI and Valiant. These acquisitions are expected
to contribute to further growth and diversification of CWB’s
non-interest revenues.
Other income is expected to again show strong growth in 2005, reflecting the full year impact of CDI and Valiant Trust as well as the
strong growth potential for these companies. Strong growth is also expected in all other areas except securities gains. The enhancement
of banking related retail services will continue to be a focus in 2005, with the objective of increasing fee income through expanded
product offerings, additional transactional deposit accounts and the generation of new business, all supported by the development of
the branch network.
CWB 2004 ANNUAL REPORT 23
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NON-INTEREST EXPENSES AND EFFICIENCY
Highlights of 2004
• Continued to lead the Canadian banking industry with an efficiency ratio (teb) of 49.8%.
• Non-interest expenses increased $14.8 million over the prior year, with CDI and Valiant accounting for 42% of the increase.
Excluding the impact of CDI and Valiant, expenses increased 13%
Table 4 - Non-interest Expenses and Efficiency Ratio
($ thousands)
Salaries and Employee Benefits
Salaries
Employee benefits
Premises
Rent
Depreciation
Other
Equipment and Furniture
Depreciation
Other
General
Marketing and business development
Capital and business taxes
Professional fees and services
Postage and stationery
Banking charges
Travel
Regulatory costs
Communications
Other
Total Non-interest Expenses
2004
38,649
7,349
45,998
6,450
1,391
1,160
9,001
2,565
2,357
4,921
2,054
2,205
3,024
2,072
1,132
1,245
807
663
3,278
16,480
76,400
$
$
$
$
2003
31,916
5,764
37,680
4,985
1,084
1,212
7,281
2,004
1,749
3,753
1,935
1,885
1,796
1,435
1,074
899
758
552
2,518
12,852
61,566
$
$
Change from 2003
$
%
6,733
1,585
8,318
1,465
307
(52)
1,720
561
607
1,168
119
320
1,228
637
58
346
49
111
760
3,628
14,833
21%
27
22
29
28
(4)
24
28
35
31
6
17
68
44
5
39
6
20
30
28
24%
Efficiency Ratio (1) (teb)
(1) Non-interest expenses as a percentage of total revenues (net interest income (teb) plus other income).
49.8%
46.3%
Non-interest expenses increased $14.8 million (24%) to $76.4 million
in 2004. The increase reflects the additional operating expenses ($6.3
million) and amortization of intangible assets ($271,000) associated
with CDI and Valiant Trust, additional expenses from the Bank’s
seven significantly upgraded, relocated and new branch locations
($2.5 million), and an increase in certain human resource related costs
($1.1 million), including relocation expenses and non-cash stock-
based compensation. In 2004, non-cash stock-based compensation
totalled $907,000, an increase of $655,000 over the prior year.
Excluding the impact of these items, non-interest expenses were up
$4.7 million (8%) over the prior year. The remaining increase reflects
increased salary levels as a result of business growth, annual salary
adjustments and various other initiatives.
The efficiency ratio (teb) was 49.8% in 2004 compared to 46.3% in
the prior year. The operations of CDI and Valiant added
approximately 80 basis points to the ratio. Despite the increase, CWB
24 CWB 2004 ANNUAL REPORT
continues to lead the Canadian banking industry in this measure.
Non-interest expenses as a percentage of average assets were 1.67%,
up from 1.53% in 2003.
(1) A decrease in the ratio reflects improved efficiency.
Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts Outlook for Non-interest Expenses and Efficiency
The significant branch development program completed in 2004, as well as significant additional stock-based compensation charges
and various other initiatives are expected to result in an increase in non-interest expenses of approximately 10%. The full year impact
of CDI and Valiant Trust in 2005 are expected to result in an additional increase in non-interest expenses of approximately 9%.
The revenue and expense structure of CDI, which is reflective of insurance operations, will negatively impact the efficiency ratio by an
estimated 200 basis points in fiscal 2005. Despite the impact of CDI and the other items noted above, CWB expects to continue to lead
the Canadian banking industry with an efficiency ratio (teb) of 50.0% or less.
INCOME AND CAPITAL TAXES
The provision for income taxes (teb) was 34.6% in 2004, a decrease
from 39.2% in the prior year as a result of reductions in the Federal and
Alberta tax rates and the previously noted $1.6 million tax benefit
from the redemption of preferred shares. The provision before the teb
adjustment was 30.6% this year compared to 36.2% in 2003.
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 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. There were reductions
in the Federal and Alberta tax rates which resulted in a revaluation of
net future income tax assets and a corresponding charge to income
tax expense of $108,000 in 2004.
Capital losses of $11.8 million (2003 - $11.9 million) are available
to apply against future capital gains and have no expiry date. The
tax benefit of these capital losses has not been recognized.
Table 5 - Capital Taxes
($ thousands)
British Columbia
Alberta
Saskatchewan
Manitoba
Total Capital Taxes
Tax Rate
Allocation
1.00%
n/a
0.70%
3.00%
40% $
54%
4%
2%
$
2004
1,472
–
122
399
1,993
$
$
2003
1,289
–
131
288
1,708
$
$
Change from 2003
$
183
–
(9)
111
285
%
14%
–
(7)
39
17%
Capital taxes for 2004 totalled $2.0 million, an increase of 17% over
2003. The increase was primarily attributable to increased capital
associated with the retention of earnings and also reflects the
expansion of the Province of Manitoba’s capital tax base to include
subordinated debentures.
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.
The goods and services tax (GST) carries with it a significant cost to
the Bank, as it does to all financial institutions, because the majority
Outlook for Taxes
The effective tax rate (teb) is expected to be in the range of 34 – 36% in 2005, reflecting the full year impact of the Federal and Alberta
income tax rate reductions and a further reduction in the large corporation tax rate. Provincial capital tax is expected to increase
modestly due to the retention of earnings and the additional subordinated debentures issued in November 2004.
CWB 2004 ANNUAL REPORT 25
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LOANS
Highlights of 2004
• Loans increased 11%, marking CWB’s fifteenth consecutive year of double-digit loan growth.
• Growth in commercial and industrial loans of 18% and 19%, respectively.
• Energy loans decreased $45 million.
• Launched a new residential mortgage initiative.
Table 6 - Outstanding Loans by Type and by Provincial Location of Security
($ millions)
October 31, 2004
Loans to Individuals
Residential mortgages(2)
Other
Loans to Businesses(3)
Commercial
Construction and real estate(4)
Industrial
Energy
Total Loans
Composition Percentage
October 31, 2003
Loans to Individuals
Residential mortgages(2)
Other
Loans to Businesses(3)
Commercial
Construction and real estate(4)
Industrial
Energy
British
Columbia
Alberta Saskatchewan
Manitoba
Other
Provinces
Composition
Total(1) Percentage
$
$
$
337 $
48
385
393
442
257
–
1,092
1,477 $
37%
277 $
71
348
596
603
405
124
1,728
2,076 $
52%
60 $
13
73
18
42
22
–
82
155 $
4%
15 $
3
18
59
65
9
–
133
151 $
4%
12 $
–
12
65
3
32
–
100
112 $
3%
701
135
836
1,131
1,155
725
124
3,135
3,971
100%
326 $
42
368
246 $
61
307
62 $
13
75
17 $
3
20
14 $
0
14
665
119
784
351
355
234
–
940
1,308 $
37%
471
585
325
165
1,546
1,853 $
52%
13
41
19
4
77
152 $
4%
63
63
8
–
134
154 $
4%
56
5
21
–
82
96 $
3%
954
1,049
607
169
2,779
3,563
18%
3
21
29
29
18
3
79
100%
19%
3
22
27
29
17
5
78
100%
Total Loans
Composition Percentage
(1) This table does not include securities purchased under resale agreements or an allocation of the allowance for credit losses and deferred revenue and premiums.
(2) Includes single and multi-unit residential mortgages.
(3) Corporate loans (described below) are included in Loans to Businesses based on the security of the specific loan and the nature of the borrower’s business.
(4) Includes commercial term mortgages and project (interim) mortgages.
100%
$
Loans, excluding securities purchased under resale agreements and the
allowance for credit losses, increased $407 million (11%) to total $3,971
million at the end of 2004. The growth was entirely organic. There was
strong growth in most areas with the notable exception being energy
loans which decreased $45 million (27%) in 2004. Continued positive
cash flows
in the energy sector, along with acquisitions,
amalgamations and capital market financings have resulted in some
loans being repaid or reduced as well as making it more challenging to
generate new growth.
In 2004, a new residential mortgage initiative was launched. The
experience to date has been encouraging and it appears that an
ongoing profitable niche has been identified for CWB in this niche.
The mix of loan type has remained relatively consistent year-over-year
with the notable changes being commercial loans increasing to 29%
of the portfolio from 27% one year ago, offset by energy loans
decreasing to 3% from 5%. The location of loan security has also
remained consistent year-over-year with 52% and 37% of the security
based in Alberta and British Columbia, respectively.
Since 1999 the Bank has developed a portfolio of loans, identified
internally as corporate loans, through participation in selected
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, 2004 the
corporate loan portfolio totalled $140 million (2003 - $116 million).
26 CWB 2004 ANNUAL REPORT
Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts C
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Outlook for Loans
Consistent and strong loan growth of 12% is targeted for 2005, supported by a positive economic outlook for Western Canada, the Bank’s
residential mortgage initiative and the branch development initiatives completed in 2004.
CREDIT QUALITY
Highlights of 2004
• Credit quality remained strong.
• Provision for credit losses was stable at 25 basis points of average loans.
• Gross impaired loans were 62 basis points of average loans, unchanged from 2003 and at the low end of the expected range.
• Total allowance for credit losses represented 158% of gross impaired loans at year end.
Impaired Loans
As shown in Table 7 gross impaired loans totalled $24.9 million and
represented 62 basis points of outstanding loans, consistent with
2003. The gross impaired loan portfolio was maintained at the
historically low level achieved in 2003.
Table 7 - Change in Gross Impaired Loans
($ thousands)
Gross impaired loans, beginning of year
Net new formations (reductions)
Write-offs, net of recoveries
Total
Gross Impaired Loans as a Percentage of Total Loans
$
$
2004
22,241
8,084
(5,435)
24,890
0.62%
$
$
2003
35,077
(8,596)
(4,240)
22,241
0.62%
Change from
2003
(12,836)
16,680
(1,195)
2,649
$
$
–
CWB 2004 ANNUAL REPORT 27
Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed AccountsNumber of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts
A stable provision for credit losses at 25 basis points of average loans
and securities purchased under resale agreements together with
lower impaired loans has resulted in the allowance for credit losses
exceeding gross
two years.
At October 31, 2004, the allowance for credit losses exceeded gross
impaired loans by $14.4 million (2003 - $13.1 million), which
represented negative 36 basis points (2003 – negative 36 basis
points) of net loans outstanding (see graph).
loans over the past
impaired
The portfolio is reviewed regularly with credit decisions undertaken
on a case by case basis to provide early identification of possible
adverse trends. Loans that have become impaired are monitored
closely with regular quarterly, or more frequent, review of each loan
and the realization plan.
Outlook for Impaired Loans
The dollar level of gross impaired loans is expected to fluctuate over time within the Bank’s range of acceptable levels as loans become
impaired and are subsequently resolved. The overall outlook for 2005 remains consistent with the 2004 experience with no expectation
of adverse change in the general trend of the portfolio.
Allowance for Credit Losses
Table 8 shows the year over year change in the allocation of the allowance for credit losses to specific provisions by category of impaired loans
and to the general allowance for credit risk.
Table 8 - Allowance for Credit Losses
($ thousands)
Specific Provisions
Consumer and personal
Real estate
Industrial
Other
General Allowance
Total
(1) Recoveries in 2004 totalled $310 (2003 - $87).
risk. Specific allowances
The allowance for credit losses is maintained to absorb both
identified and unidentified losses in the loan portfolio and consists
of $10.5 million in specific allowances and $28.8 million in the general
allowance for credit
include the
accumulated allowances 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 allowances for future losses inherent in the portfolio that
are not presently identifiable on an account by account basis. The
general allowance represents 72 basis points of gross outstanding
2004
Opening
Balance
Write-offs,
net of
Recoveries(1)
Provision
for Credit
Losses
$
$
503
841
2,849
3,614
7,807
27,558
35,365
$
$
359
(2)
2,486
2,592
5,435
–
5,435
$
$
242
651
972
6,267
8,132
1,258
9,390
$
$
2004
Ending
Balance
386
1,494
1,335
7,289
10,504
28,816
39,320
loans (77 basis points in 2003) and 72 basis points of risk-weighted
assets (78 basis points in 2003). This compares favourably with the
Bank’s five year loan loss average of 24 basis points (ten year average
– 25 basis points) 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) was 19 basis points (ten year
average – 17 basis points).
28 CWB 2004 ANNUAL REPORT
Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts The allowance as a percentage of gross impaired loans (coverage
ratio) remained consistent at 158% (2003 – 159%). An assessment of
the adequacy of the general allowance is conducted quarterly and
measured against the five and ten year loan loss averages. 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 is expected to increase in strong economic times and
decrease in weaker economic times as allowances are allocated to
specific credits.
Policies and methodology governing the management of the general
allowance are in place. The loan portfolio is delineated through the
assignment of internal risk ratings to each borrower. The rating is
based on assessments of key evaluation factors for the nature of the
exposure applied on a consistent basis across the portfolio. The
rating system has twelve levels of risk and ratings are updated at
least annually for all loans, with the exception of consumer loans and
single-unit residential mortgages.
Outlook for Allowance for Credit Losses
Specific allowances will continue to be determined on an account-by-account basis and reviewed quarterly. Further development of
methodology to support the testing of the adequacy of the general allowance will continue during fiscal 2005. Significant change to
the level of the general allowance is not anticipated based on expanded methodology, assuming no material change in the portfolio’s
credit quality.
Provision for Credit Losses
The provision for credit losses represented 25 basis points of average
loans in 2004, consistent with the five year average of 24 basis points
and reflecting the strong credit quality of the portfolio. The Bank has
a long history of strong credit quality and low loan losses both of
which compare favourably to the Canadian banking industry.
External factors that may impact Western Canada and the
environments in which the Bank’s customers operate are continually
analyzed. The outlook for the Western Canadian economy is positive
and the quality of the loan portfolio is expected to remain strong.
Outlook for Provision for Credit Losses
The provision for credit losses is expected to be consistent at approximately 25 basis points of average loans in 2005.
CWB 2004 ANNUAL REPORT 29
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Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed AccountsNumber of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts
Diversification of Portfolio
The following table illustrates the diversification in lending
operations by industry sector.
Total Advances Based on Location of Security (also see Table 6)
Table 9 - Total Advances Based on Industry Sector(1)
% at October 31
2004
26%
18
2003
25%
19
Real estate operations
Construction
Consumer loans and residential
mortgages(2)
Transportation and storage
Hotel/motel
Oil and gas (production)
Finance and insurance
Manufacturing
Logging/forestry
Oil and gas (service)
Other services
Retail trade
Wholesale trade
Other
Total
(1) Table is based on Standard Industrial Classification (SIC) codes.
(2) Residential mortgages in this table include only single-family properties.
(3) The Bank does not engage in direct lending to the agricultural sector.
10
8
6
4
4
3
3
3
3
3
3
6
100%
10
8
6
5
4
4
3
3
3
3
2
5
100%
(1) Includes undrawn lines of credit and excludes securities purchased under
resale agreements.
Management of the loan portfolio includes the strategy of focusing
on areas of demonstrated lending expertise and avoiding high
concentrations in one geographic area or industry sector. The
portfolio is well diversified with a mix of commercial and personal
business. Industrial lending units are set up within branches or as
stand alone operations, while oil and gas production lending is
conducted by specialists in the Calgary market. In addition to these
areas, real estate divisions are established in the major centres in
which the Bank operates.
Outlook for Diversification of Portfolio
The portfolio is expected to remain well diversified by both industry sector and geographical location.
30 CWB 2004 ANNUAL REPORT
Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed AccountsNumber of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts DEPOSITS
Highlights of 2004
• Lower cost personal and business deposits increased a very strong 30%.
• Branch generated deposits improved to 57% of total deposits from 54% one year ago.
Table 10 - Deposits
($ thousands)
Canadian Currency
Personal chequing and savings
Business demand and savings
Fixed term:
Under $100
$100 and over
Registered retirement products
Foreign Currency (Canadian equivalent)
Total Deposits
2004
2003
Amount
% of Total
Amount
% of Total
$
$
255,042
572,880
2,012,221
705,298
686,823
4,232,264
35,524
4,267,788
6% $
13
47
17
16
99
1
100% $
206,710
431,218
2,020,207
601,215
533,647
3,792,997
26,753
3,819,750
5%
11
53
16
14
99
1
100%
Deposits totalled $4,268 million at October 31, 2004, an increase of $448
million (12%) over the prior year. All sources of deposits increased in real
dollar terms in 2004 with very strong growth of 33% in lower cost business
demand and savings deposits and 23% growth in personal chequing and
savings deposits. The lower cost personal and business deposits
accounted for 19% of total deposits compared to 16% one year ago.
Table 11 - Deposits by Source
(as a percentage of total deposits at October 31)
Branches
Deposit agents
Wholesale
Total
2004
57%
42%
1%
100%
2003
54%
44%
2%
100%
2002
53%
45%
2%
100%
2001
53%
45%
2%
100%
2000
49%
48%
3%
100%
Deposits are primarily generated from the branch network (including
Canadian Western Trust) and an agent network. Increasing deposits
generated by the branch network, and in particular the lower cost
component, is a key objective due to the positive impact on earnings
as well as the underlying relationship that is developed with the
customer. Agent deposits, which are primarily rate driven, are more
expensive because a commission is paid, but this added cost is
countered by a reduced need for a more extensive branch network. In
2004, branch and trust generated deposits increased 15% and
improved to 57% of total deposits from 54% one year ago.
Outlook for Deposits
Increasing branch raised deposits (including through CWT) will continue to be a focus of ongoing retail initiatives in 2005, with
particular emphasis on the lower cost notice and demand component which has associated transactional fee income and provides
significant leverage to core profitability through lower funding costs.
OTHER ASSETS AND OTHER LIABILITIES
The expansion into insurance operations through the acquisition of CDI
in April 2004 resulted in a marked increase in other assets and other
liabilities. At year end, other assets totalled $141 million (2003 – $48
million). CDI’s insurance related other assets were $56 million and
consisted primarily of instalment premiums receivable as well as
reinsurers’ share of unpaid claims and unearned premiums. Other
assets at October 31, 2004 also included goodwill and intangible assets
of $6.9 million and $4.3 million, respectively, which were recognized
with the acquisitions of CDI and Valiant Trust.
In 2004 the Bank completed a significant branch development program
that included two new branches, four relocated and significantly
upgraded branches and one expanded branch. This program
contributed to a $5.5 million increase in land, buildings and equipment
which totalled $18.5 million at October 31, 2004. Also contributing to the
increase was further investments in computer equipment ($1.2 million)
including enhancements to the banking and trust systems.
Other liabilities totalled $173 million at October 31, 2004 (2003 – $86
million). CDI’s insurance related other liabilities were $90 million and
consisted primarily of unearned premiums and provisions for unpaid
claims and adjustment expenses.
CWB 2004 ANNUAL REPORT 31
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LIQUIDITY MANAGEMENT
A schedule outlining the consolidated securities portfolio at October 31,
2004 is provided in Note 4 to the consolidated financial statements. A
conservative policy is maintained in this area with:
• all investments, other than those securities categorized as
“preferred shares” and “other marketable securities”, limited to
high quality debt securities and short-term money market
instruments to meet objectives of liquidity management and to
provide an appropriate return;
Table 12 - Liquid Assets
($ thousands)
• specific investment criteria and procedures for purposes of
management of the securities portfolio;
• regular review, monitoring and approval by the Asset Liability
Committee (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.
Cash
Deposits with regulated financial institutions
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
Preferred shares
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
As shown in Table 12, liquid assets comprised of cash, interbank deposits,
securities purchased under resale agreements and marketable securities,
totalled $845 million at October 31, 2004, an increase of $79 million from
October 31, 2003. Liquid assets represented 17.2% (2003 – 17.6%) of total
assets and 19.8% (2003 – 20.1%) of total deposit liabilities at that date.
Highlights of the composition of liquid assets at October 31, 2004 were
as follows:
• maturities within one year decreased to 74% (2003 – 88%) of liquid
assets or $629 million (2003 - $671 million) for yield enhancement and
matching purposes;
• Government of Canada and provincial debt securities remained
relatively consistent at 46% (2003 – 44%) of liquid assets;
• deposits with regulated financial institutions including Bankers'
Acceptances decreased to 27% (2003 – 37%) of liquid assets;
Table 13 - Deposit Maturities Within One Year
($ millions)
October 31, 2004
Demand deposits
Notice deposits
Deposits payable on a fixed date
Total
October 31, 2003 Total
32 CWB 2004 ANNUAL REPORT
$
$
$
$
2004
2,831
229,895
232,726
74,966
182,487
105,350
98,871
107,104
43,786
612,564
845,290
4,918,895
17.2%
4,267,788
19.8%
$
$
$
$
2003
1,951
279,921
281,872
72,000
119,982
167,607
49,589
71,897
3,236
484,311
766,183
4,343,972
17.6%
3,819,750
20.1%
$
$
$
Change from
2003
880
$
(50,026)
(49,146)
2,966
62,505
(62,257)
49,282
35,207
40,550
128,253
79,107
574,923
(0.4)%
448,038
(0.3)%
• preferred shares increased to 13% (2003 – 9%) of liquid assets as
additional investments were made for yield enhancement
purposes; and
• other marketable securities increased to 6% of liquid assets.
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 uncommitted facilities have been arranged with a number
of financial institutions.The government insured/guaranteed mortgage
portfolios held by the Bank 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.
Within
1 Month
190
663
547
1,400
1,114
$
$
$
$
$
$
1 to 3
Months
–
–
217
217
386
3 Months
to 1 Year
–
–
904
904
Cumulative
Within 1 Year
190
$
663
1,668
2,521
$
1,042
$
2,542
$
$
$
Table 14 - Total Deposit Maturities
($ millions)
October 31, 2004
Demand deposits
Notice deposits
Deposits payable
on a fixed date
Total
October 31, 2003 Total
Within
1 Year
190
663
1,668
2,521
2,542
$
$
$
$
$
$
1 to 2
Years
–
–
762
762
453
$
$
$
2 to 3
Years
–
–
536
536
469
$
$
$
3 to 4
Year
–
–
287
287
224
$
$
$
4 to 5
Years
–
–
162
162
132
$
$
$
Total
190
663
3,415
4,268
3,820
A breakdown of deposits by source is provided under the heading
Deposits in table 11 on page 31. 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 deposits
through its branch network as the core funding source. However, the
total dollar value of agent-generated deposits will likely increase
even though the goal is to decrease funding from this source as a
percentage of total deposit liabilities. CWT raises deposits through
Table 15 - Subordinated Debentures Outstanding
($ thousands)
notice accounts comprised primarily of cash balances held in self-
directed accounts and corporate trust deposits and through the
Bank’s branch network. At October 31, 2004, trust notice account
balances totalled $147 million (2003 - $122 million), and $74 million
(2003 - $72 million) of CWT fixed term deposits had been raised
through the Bank’s branch network.
In addition to deposit liabilities, CWB has subordinated debentures
outstanding which are presented in the table below.
Interest Rate
Conventional
6.85%(1)
5.66%(2)
5.96%(2)
Convertible
5.50%(3)
5.70%(4)
Maturity
Date
June 30, 2012
July 7, 2013
October 24, 2013
Earliest Date
Redeemable or
Convertible by CWB
June 30, 2007
July 7, 2008
October 24, 2008
March 31, 2008
July 31, 2009
March 31, 2003
July 31, 2004
$
2004
3,126
30,000
35,000
68,126
$
2003
3,126
30,000
35,000
68,126
42,474
–
42,474
110,600
49,825
4,000
53,825
121,951
Total
(1) This conventional debenture has a ten-year term with a fixed interest rate for the first five years. Thereafter, unless the terms are amended or the debenture is
$
$
redeemed by the Bank, interest will be payable at a rate equal to the Canadian Dollar CDOR 90 day Bankers’ Acceptance rate plus 100 basis points.
(2) These conventional debentures have a ten-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly to the Canadian
Dollar CDOR 90 day Bankers’ Acceptance rate plus 175 basis points.
(3) These debentures are convertible into common shares at the option of the holder at any time prior to maturity, or the date specified for redemption by the Bank,
whichever is earlier, at a conversion price of $30.50 per share (1,392,596 shares, 2003 - 1,633,603 shares). During the year, convertible debentures of $7,351 (2003 - $175)
were converted by the holders into 241,007 (2003 - 5,736) common shares. Interest expense accrued on the debentures prior to conversion and forfeited by the
debenture holders of $81 (2003 – $nil) was credited to retained earnings.
(4) The Bank redeemed this debenture on August 1, 2004 for 160,000 common shares.
On November 5, 2004 the Bank announced its intention to redeem
all of the outstanding 5.5% convertible debentures for common
shares on December 14, 2004. Under the terms of the trust
indenture, the trustee will convert all outstanding debentures into
common shares on the last day before the redemption date.
Subsequent to October 31, 2004, the Bank issued $60 million of
additional conventional debentures. The new debentures have a fixed
rate of 5.55% until November 19, 2009. Thereafter the rate will be reset
quarterly at the Canadian dollar CDOR 90-day Bankers’ Acceptance
rate plus 160 basis points until maturity on November 19, 2014. The
Bank may redeem the debentures on or after November 20, 2009.
CWB 2004 ANNUAL REPORT 33
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CAPITAL MANAGEMENT
Highlights of 2004
• Total capital ratio of 11.8%, and a Tier 1 ratio of 9.0% comprised entirely of common shareholders’ equity.
• Increased semi-annual dividends 30% in December 2003.
• Moved from semi-annual to quarterly dividends.
Subsequent Highlights
• Issued $60 million of conventional subordinated debentures, which on a pro-forma basis would increase the total capital ratio to 13.3%
at October 31, 2004.
• Announced intention to redeem outstanding convertible debentures totalling $42.5 million, forcing their conversion into 1.4 million
shares. On a pro-forma basis this would increase the Tier 1 ratio to 10.1% at October 31, 2004.
• Announced 20% increase to quarterly dividend payable in early January 2005.
• Announced stock dividend which will effectively achieve a two for one stock split in mid-January 2005.
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. As an example, a loan that is fully insured by the
Canadian Mortgage & Housing Corporation is applied a risk
weighting of 0% as the Bank’s risk of loss is nil, while uninsured
commercial loans are assigned a risk weighting of 100% to reflect the
higher level of risk associated with this type of asset. The ratio of
regulatory capital to risk-weighted assets is calculated and compared
to OSFI’s standards for well-capitalized financial institutions. Off-
balance sheet assets, such as derivatives, are included in the
calculation of risk-weighted assets and both the credit risk
equivalent and the risk weight calculations are prescribed by OSFI.
The Bank’s investment in CDI is deducted from total capital and CDI’s
assets are excluded from the calculation of risk-weighted assets.
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%. CWB’s Tier 1 capital is comprised
entirely of shareholders’ equity net of goodwill 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 Bank’s
general allowance in Tier 2A capital to a maximum of 87.5 basis
points of risk-weighted assets.
The revised international framework for capital measurement
and standards, known as Basel II, was published in June 2004.
Basel II introduces some significant changes to the risk-weighting
of assets and calculation of regulatory capital. OSFI expects the
Canadian banking industry to adopt Basel II at the end of fiscal 2007.
Basel II is not expected to have a significant impact on the Bank’s
overall required level of regulatory capital although new procedures
will need to be adopted to conform with the new framework.
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, while
providing a satisfactory return on equity for shareholders.
The Bank has a stock option plan that is 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 share
price appreciation and dividend yield. Note 17 to the consolidated
financial statements details the number of shares under options
outstanding, the weighted average exercise price and the amounts
exercisable at year end.
34 CWB 2004 ANNUAL REPORT
Table 16 - Capital Structure and Regulatory Ratios at Year End
($ thousands)
Tier 1 Capital
Common shares
Contributed surplus
Retained earnings
Less goodwill of trust subsidiary
Total
Tier 2 Capital
General allowance for credit losses (Tier A)(1)
Subordinated debentures (Tier B)
Total
Less investment in insurance subsidiary
Total Regulatory Capital
Regulatory Capital to Risk-weighted Assets
2004
2003
Change from
2003
$
$
167,125
1,159
199,305
(3,679)
363,910
28,816
110,600
139,416
(28,205)
475,121
$
$
150,782
252
165,197
–
316,231
27,558
121,951
149,509
–
465,740
$
$
16,343
907
34,108
(3,679)
47,679
1,258
(11,351)
(10,093)
(28,205)
9,387
Tier 1 capital
Tier 2 capital
Less investment in insurance subsidiary
Total Regulatory Capital Adequacy Ratio
Assets to Regulatory Capital Multiple (2)
(1) Banks are allowed to include their general allowance for credit losses up to a prescribed percentage of risk-weighted assets in Tier 2A capital. The Bank has been granted
9.0)%
3.5)%
(0.7)%
11.8 %
10.3)
0.1)%
(0.7)%
(0.7)%
(1.3)%
0.8)
8.9%
4.2%
0.0%
13.1%
9.5
an inclusion rate to a maximum of 0.875% of risk-weighted assets. At October 31, 2004, the Bank’s general allowance represents 0.72% (2003 - 0.78%) 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.
Table 17 - Risk-weighted Assets
($ thousands)
Balance Sheet Assets
Cash resources
Securities
Loans
Other assets
Credit Instruments(1) (contract amounts)
Guarantees and standby letters of credit
Commitments to extend credit(2)
Derivative Financial Instruments(3) (notional amounts)
Interest rate contracts
Foreign exchange contracts
Equity contracts
Total Risk-weighted Assets
(1) See Note 20 to the consolidated financial statements for further details.
(2) Greater than one year only.
(3) See Note 25 to the consolidated financial statements for further details.
Balance
232,726
540,487
4,005,080
140,602
4,918,895
94,270
157,027
251,297
882,500
996
17,765
901,261
$
$
$
$
$
$
2004
Risk-
weighted
43,647
134,346
3,637,520
71,103
3,886,616
56,953
78,514
135,467
1,526
–
299
1,825
4,023,908
$
$
$
Balance
281,872
412,827
3,601,003
48,270
4,343,972
64,413
93,868
158,281
819,500
86
15,825
835,411
$
$
$
$
$
$
$
2003
Risk-
weighted
55,984
75,648
3,274,694
46,100
3,452,426
48,312
46,934
95,246
1,415
–
258
1,673
3,549,345
$
CWB 2004 ANNUAL REPORT 35
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At October 31, 2004 the total capital adequacy ratio was 11.8% (2003
– 13.1%) of which 9.0% (2003 – 8.9%) was Tier 1 capital. Total
regulatory capital increased $9.4 million over 2003 primarily as a
result of a combination of:
• the issue of $5.0 million in share capital upon the exercise of
employee stock options;
• an increase in contributed surplus of $907,000 related to the
expensing of stock-based compensation;
• earnings, net of dividends, of $34.1 million;
• an increase in the general allowance for credit losses of $1.2 million;
• a $3.7 million deduction for goodwill arising on the acquisition of
Valiant Trust; and
• a $28.2 million deduction for CWB’s insurance subsidiary
investment, calculated on the equity basis.
Also, impacting regulatory capital was the conversion of $11.4 million
of convertible debentures, which resulted in an increase in Tier 1
capital and a corresponding decrease in Tier 2 capital.
In December 2003, a semi-annual dividend of $0.30 per share was
declared, reflecting an increase of 30%. Thereafter, CWB moved to
quarterly dividends with three additional payments of $0.15 per
share in fiscal 2004.
Subsequent Events – Capital Management
On November 19, 2004, $60 million of conventional subordinated
debentures were issued to institutional investors. These debentures
have a fixed interest rate of 5.55% until November 19, 2009 and a
floating interest rate of 160 basis points above the Canadian dollar
CDOR 90-day Bankers’ Acceptance rate thereafter until maturity on
November 19, 2014. The Bank may redeem all, but not less than all, of
the debentures on or after November 20, 2009 at par plus accrued
Outlook for Capital Management
and unpaid interest subject to approval of the Superintendent of
Financial Institutions. The main purpose of the issue was to increase
total regulatory capital to support current and future asset growth
without diluting the existing common shareholder base. The
issuance of these debentures would result in a pro-forma total
capital ratio of 13.3% at October 31, 2004.
Also subsequent to year end, CWB provided notice of its intention to
redeem all of the outstanding 5.50% convertible subordinated
debentures, which will cause the debentures to convert to common
shares at the conversion rate of $30.50 on or before December 13,
2004. At October 31, 2004, there were $42.5 million debentures
outstanding which when converted will result in the issuance of
approximately 1.4 million common shares. Conversion of the
debentures will increase the number of CWB shares available in the
market. The conversion also results in cash savings, builds CWB’s
common equity, has a positive incremental effect on net income and
increases book value by approximately $0.33 per share. The
conversion would not impact the pro-forma total capital ratio at
October 31, 2004, but would result in a pro-forma Tier 1 ratio of 10.1%.
On December 2, 2004, a quarterly cash dividend of $0.18 per share
was declared, an increase of 20%. Also on this date, the Board of
Directors declared a stock dividend which when paid will effectively
achieve a two for one stock split. This stock dividend will be paid
subsequent to the above noted quarterly cash dividend, with each
outstanding common share being entitled to one additional
common share. By doubling the number of shares it is anticipated
that there will be a corresponding reduction in the market price per
share. The increase in shares outstanding makes CWB’s common
shares more affordable for investors, which should promote interest
in the shares and broaden share ownership, events that can prove
beneficial to all shareholders.
CWB expects to remain well capitalized in 2005. An ongoing objective is to increase return on equity through the expansion of CWB’s key
business strategies and by improving the mix of regulatory capital between dilutive and non-dilutive capital required to support growth.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
ACQUISITIONS
On-balance sheet financial assets and liabilities are classified as
securities, loans, deposits and subordinated debentures and are
reported at amortized cost. The risks associated with these
instruments are described under the credit quality, liquidity and risk
management sections of this management’s discussion and
analysis. Market values for the securities held for liquidity purposes
are reported in Note 4 to the consolidated financial statements for
fiscal 2004. Fair values for all on- and off-balance sheet financial
assets and liabilities are provided in Notes 24 and 25, respectively, to
the financial statements. Income and expenses are classified as to
source, either securities or loans for income, and deposits or
borrowed funds for expense. Trading gains or losses, which result
from the disposition of financial instruments prior to their maturity
date, are shown separately in other income.
At the end of April 2004, CDI and Valiant Trust were acquired for total
cash consideration of $33.7 million. The results of operations of these
companies have been included in the Bank’s consolidated financial
statements since their dates of acquisition. CDI operates in the
property and casualty insurance industry offering personal home
and auto insurance directly to consumers in British Columbia and
Alberta. Valiant Trust is a non-deposit taking, specialty trust
company based in Calgary, Alberta that provides stock transfer and
corporate trustee services to public companies and income trusts. For
more information on these acquisitions, refer to Note 3 of the
consolidated financial statements for fiscal 2004.
36 CWB 2004 ANNUAL REPORT
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, CWB is involved in off-balance
sheet arrangements, which are in two main categories: derivative
financial instruments and guarantees.
Derivative Financial Instruments
More detailed information on the nature of off-balance sheet
derivative financial instruments is shown in Note 25 to the
consolidated financial statements for 2004.
The active use of interest rate contracts continues to be an integral
part of the management of the Bank’s short-term positive gap
position. Off-balance sheet derivative financial instruments are only
entered into for the Bank’s own account and it 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 the Asset Liability Committee and
reviewed and approved by the Board of Directors at least annually.
Guarantees
Significant guarantees provided by CWB in the ordinary course of
business include guarantees and standby letters of credit provided
to third parties and commitments to extend credit to customers.
CWB also issues business credit cards through an agreement with a
third party card issuer and indemnifies the card issuer from loss if
there is a default on the issuer’s collection of the business credit card
balances. More detailed information on guarantees is available in
Note 20 to the consolidated financial statements for 2004.
OPERATING SEGMENT REVIEW
With the acquisition of CDI the Bank now operates in two business
segments: 1) banking and trust, and 2) insurance.
BANKING AND TRUST
Highlights of 2004
Table 18 - Derivative Financial Instruments
($ thousands)
Notional Amounts
Interest rate contracts(1)
Equity contracts(2)
Foreign exchange
contracts(3)
Total
$
$
2004
2003
882,500
17,765
996
901,261
$
$
819,500
15,825
86
835,411
(1) Interest rate contracts are used as hedging devices to manage interest rate
risk. The outstanding contracts mature between November 2004 and
September 2008. The total gross positive replacement cost of interest rate
contracts was $3,915 (2003 - $4,581). This market value represents an
unrealized gain, or the payment the Bank would receive if these contracts
were unwound and settled at that date.
(2) 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 February 2005 and March 2009. The total gross
positive replacement cost was $73 (2003 - $24).
(3) 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, 2004
there were US$783 (2003 – US$60) forward foreign exchange contracts
outstanding which mature between November 2004 and February 2005.
• Net income increased 9% over the prior year.
• Fifteenth consecutive year of double-digit loan growth, with loans up 11%.
• Branch and trust deposits increased 15%, with the lower cost demand and notice component up 30%.
• Trust fee income increased 55%.
The operations of the banking and trust segment include
commercial and retail banking services as well as personal and
corporate group trust services provided through the Bank’s wholly
owned subsidiaries, Canadian Western Trust Company and Valiant
Trust Company. With a focus on mid-market commercial lending, real
estate financing, industrial equipment financing and energy lending,
CWB has built strong customer relationships and provides value-
added services to businesses in key sectors across the west. The Bank
also delivers a wide variety of financial products and services
including deposit accounts, investment products, credit and debit
cards, personal loans and mortgages. Customer accessibility is
provided through a network of twenty-nine customer focused
branches as well as via the Internet and telephone banking. CWT
provides a varied range of products and services, including self-
directed RRSPs and RRIFs, corporate and group trust services, to
independent financial advisors, corporations and individuals.
Through Valiant Trust, a non-deposit taking specialty trust company,
trust services now include stock transfer and corporate trustee
services provided to public companies and income trusts.
CWB 2004 ANNUAL REPORT 37
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2004
116,280
28,134
144,414
9,390
71,510
21,924
41,590
49.5%
2.58%
3,761
4,510
$
$
$
$
2003
107,655
25,326
132,981
8,600
61,566
24,622
38,193
46.3%
2.68%
3,450
4,022
$
$
$
$
Change from
2003
8)%
11)%
9)%
9)%
16)%
(11)%
10)%
320)bp(2)
(10)bp
9)%
12)%
Non-interest revenues generated from trust operations totalled $6.2
million in 2004, an increase of $2.2 million (55%) over the prior year with
a significant portion of the increase reflecting the addition of Valiant
Trust. Trust operations, through CWT, also continue to provide a growing
contribution to lower cost notice deposits. Trust generated notice
deposits totalled $147 million at the end of fiscal 2004, an increase of $26
million (21%) over the prior year.Trust assets under administration, which
are not reflected in the consolidated balance sheet (see also Note 21 to
the consolidated financial statements), totalled approximately $1,759
million at October 31, 2004, an increase of 19% over the prior year. These
assets are primarily held in self-directed RRSPs and RRIFs accounts which
numbered 18,803 (2003 – 16,823), an increase of 12% from one year ago.
Table 19 - Banking and Trust Highlights
($ thousands)
Net interest income (teb)(1)
Other income
Total revenues (teb)
Provision for credit losses
Non-interest expenses
Provision for income taxes (teb)
Net income
Efficiency ratio (teb)
Net interest margin (teb)
Average loans ($ millions)
Average assets ($ millions)
(1) teb - taxable equivalent basis, see definition on page 18.
(2) bp-basis point
This segment’s net income for fiscal 2004 was $41.6 million, an increase
of $3.4 million (9%) over 2003. The increased earnings reflect total
revenue (teb) growth of $11.4 million (9%) and the $1.6 million tax
benefit previously noted, partially offset by a $9.9 million (16%) increase
in non-interest expenses. The growth in total revenues (teb) reflects
loan growth of 11% over the past year, 30% growth in lower cost demand
and notice deposits and trust fees of $1.8 million from newly acquired
Valiant Trust. Approximately $5.1 million of the increase in non-interest
expenses related to Valiant Trust, additional costs from seven
significantly upgraded, relocated and new branch locations and an
increase in relocation costs and stock-based compensation charges.
Excluding the impact of these items, non-interest expenses increased by
$4.8 million (8%), reflecting increased staffing levels due to business
growth, annual salary adjustments and various other initiatives.
The efficiency ratio (teb) for this segment at 49.5% was higher than the
Bank’s target for 2004 of 46.0% or less. The negative variance reflects
certain human resource and other expenses being higher than
anticipated, as well as net interest income being lower than expected.
Net interest income was impacted by average loan volumes increasing
only 9% compared to the target of 12%. On a year-over-year balance
basis, loans almost reached the target with growth of over 11%, however
the average balance reflects slower growth in the first part of 2004.
Outlook for Banking and Trust
The growth prospects for this segment in 2005 are good given the current positive economic outlook for Western Canada and the
anticipation of moderately rising interest rates. This segment is expected to produce strong revenue growth, supported by strong
growth in loans and lower cost branch generated deposits, including through CWT. Trust fee income is expected to again have
significant growth in 2005, reflecting the full year impact of Valiant Trust as well as strong growth in personal and corporate and group
trust fee income. Credit quality is also expected to remain strong.
38 CWB 2004 ANNUAL REPORT
Number of Self-directed AccountsLoans by PortfolioNet Impaired Loans as a Percentage of Net Loans Outstanding04000800012000160002000018,8032004200020012002200316,82314,67412,81411,468Efficiency Ratio(1) (expenses to revenues) (teb)Allowance for Credit Losses as a Percentage of Gross Impaired Loans49.8%20042000200120022003200420002001200220032004200020012002200346.3%50.7%50.0%54.3%0.25%0.25%0.26%0.23%0.21%Personal Loans 2%Corporate Loans 4%General Commercial 23%British Columbia 39%Saskatchewan 4%Manitoba 4%Other 3%Alberta 50%Commercial Mortgages Real Estate 23%Commercial Project Loans Real Estate 11%Industrial Financing & Leasing 17%Oil & Gas Production 3%Multi-unit Residential 5%Residential Mortgages 8%(0.36)%(0.36)%0.13%158%159%88%80%86%0.25%0.17%20042000200120022003Provision for Credit Losses as a percentage of Average Loans (10 year average 0.25%)Geographical Distribution of Loans(1)18,80316,82314,67412,81411,46820042000200120022003Number of Self-directed Accounts INSURANCE
Highlights of 2004 (since acquisition on April 30, 2004)
• Net earnings of $2.6 million.
• Claims loss ratio of 62% and a combined ratio of 89%.
• Number of policyholders increased by 5%.
• Policy retention rate of 86%.
CDI was launched in May 1996 and was the first company in British
Columbia to offer customers auto insurance directly over the
telephone, bypassing the traditional broker and agent. CDI now
provides auto, household and travel insurance products to over 130,000
British Columbia and Alberta policyholders through two dedicated call
centres and over the Internet for auto and travel products.
CDI’s mission is to provide customers with attractively priced
products and excellent customer service –“better insurance for less
money”. CDI’s core strategy is to use sophisticated underwriting
selection criteria to offer more competitively priced insurance to
better risk customers. Products are offered direct to the customer
thereby reducing costs, as there are no broker commissions. The
“Canadian Direct Insurance” brand is marketed using TV, radio and
newspaper channels and has a high level of brand awareness in the
B.C. market, with an opportunity to grow the brand in the Alberta
market. All claims are administered using modern imaging
technology and effective workflow management to develop a
“paperless office” environment. This has enabled CDI to achieve a
low claims expense ratio without compromising high customer
satisfaction ratings. CDI currently retains a high percentage of its
business on renewal, which is a measure of its success in providing
customers with a superior level of service at a competitive price.
As CDI was acquired at the end of the second quarter of 2004, Table
20 includes financial information for this segment beginning with
the third quarter.
Table 20 - Insurance Highlights
($ thousands)
Net interest income
Other income (net)
Net earned premiums
Commissions and other
Net claims, adjustment
and policy acquisition expenses
Total revenues
Non-interest expenses
Provision for income taxes
Net income
Claims loss ratio
Expense ratio
Combined ratio
Efficiency ratio
Policies outstanding
Average cash and securities (Q3-Q4 only)
Average total assets (Q3-Q4 only)
2004
$
957
27,362
3,468
(22,865)
7,965
8,922
4,890
1,461
2,571
62%
27%
89%
54.8%
135,201
57,858
114,138
$
$
$
CDI generated net income of $2.6 million since acquisition, reflecting
net earned premiums of $27.4 million, a claim loss ratio of 62% and a
combined ratio of 89%. Seasonality contributed to the strong loss
ratio, as the six month period since acquisition was primarily
summer months, which are typically the most favourable months for
companies underwriting automobile insurance. All lines of the
insurance business experienced favourable results, with the
exception of Alberta home insurance which was impacted by severe
flooding and hailstorms in July. Since acquisition, CDI has grown its
policyholder base by nearly 5% or 6,000 policyholders and had a
policy retention rate of 86%.
Outlook for Insurance Operations
CDI’s outlook for 2005 is for continued growth in policies outstanding and net earned premiums while controlling expenses. Changes in
Alberta’s automobile insurance regulations came into effect on October 1, 2004. These changes are anticipated to result in a decrease in net
earned premiums as well as an increase in the claims loss ratio for CDI’s Alberta automobile insurance market. Overall, financial targets for
2005 include a 10% growth in the number of policyholders, a claim loss ratio of 68% and an expense ratio of 27%. The forecasted increase
in the claims loss ratio reflects that CDI’s fiscal 2005 operating results will include the winter driving season. This compares to CDI’s results
for the six months since acquisition which primarily included summer months.
CWB 2004 ANNUAL REPORT 39
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SUMMARY OF QUARTERLY RESULTS
AND FOURTH QUARTER
QUARTERLY RESULTS
The financial results for each of the last eight quarters are
summarized in the following table. In general, CWB’s results reflect a
consistent growth pattern. An exception to the consistency is the
impact of the previously noted acquisitions of CDI and Valiant Trust
at the end of second quarter of 2004. These acquisitions resulted in
increased other income, non-interest expenses and earnings in third
and fourth quarters of fiscal 2004.
The business of CDI also exposes the Bank’s quarterly financial
results to some fluctuations. CDI is in the property and casualty
Table 21 - Quarterly Financial Highlights
($ thousands, except per share amounts)
insurance business, providing personal auto and home insurance
directly to customers in British Columbia and Alberta. The financial
results for this business (see information for the insurance segment
provided on page 39) are subject to seasonal weather conditions,
cyclical patterns of the
industry and other unpredictable
including weather-related and other natural
developments,
catastrophes.
Net interest income (teb)(1)
Less teb adjustment
Net interest income per
financial statements
Other income
Total revenues (teb)
Total revenues
Net income
Return on common
Q4
2004
Q3
Q2
Q1
Q4
2003
Q3
Q2
Q1
$
30,756 $
1,313
30,750 $
930
27,855 $
854
27,875 $
801
27,500 $
559
28,369 $
906
25,953 $
685
25,833
842
29,443
10,895
41,651
40,338
12,787
29,820
11,273
42,023
41,093
11,675
27,001
7,303
35,158
34,304
9,842
27,074
6,628
34,503
33,702
9,857
26,941
6,358
33,858
33,299
9,604
27,463
6,416
34,785
33,879
10,375
25,268
6,172
32,125
31,440
8,868
24,991
6,380
32,213
31,371
9,346
shareholders' equity
Return on average total assets
Earnings per common share
Basic
Diluted
$
Efficiency ratio (teb)
Efficiency ratio
Net interest margin (teb)
Net interest margin
Provision for credit losses as a
percentage of average loans
0.25%
(1) teb – taxable equivalent basis, see definition on page 18.
14.1%
1.04%
0.94 $
0.85
51.7%
53.4%
2.49%
2.39%
13.4%
1.01%
0.87 $
0.79
50.0%
51.1%
2.65%
2.57%
11.9%
0.92%
0.74 $
0.67
49.2%
50.4%
2.61%
2.53%
12.1%
0.89%
0.75 $
0.68
48.0%
49.2%
2.53%
2.45%
12.3%
0.91%
0.74 $
0.67
46.9%
47.7%
2.60%
2.55%
13.7%
1.00%
0.81 $
0.72
44.5%
45.7%
2.73%
2.65%
12.5%
0.92%
0.70 $
0.63
47.8%
48.9%
2.69%
2.62%
13.2%
0.97%
0.74
0.67
46.0%
47.3%
2.68%
2.60%
0.25%
0.25%
0.25%
0.25%
0.25%
0.25%
0.25%
FOURTH QUARTER OF 2004
In the fourth quarter of 2004, CWB posted record quarterly earnings
and achieved its 66th consecutive quarter of profitability. Net income
for the quarter was $12.8 million, an increase of 33% over the fourth
quarter last year and diluted earnings per share were $0.85 ($0.94 basic)
in the fourth quarter, up from $0.67 ($0.74 basic) in the same quarter
last year.
The increased earnings reflect strong growth in total revenues,
continued strong credit quality and a consistent provision for credit
losses as well as a tax benefit of $1.6 million resulting from the
redemption of tax-advantaged preferred shares in which CWB had
an investment. Total revenues (teb) increased 23% over the same
quarter last year due in part to 12% growth in net interest income.
Net interest income (teb) reflects 11% growth in loans and the benefit
of reduced funding costs primarily as a result of 30% growth in lower
cost demand and notice deposits generated through the branch
network. Also contributing to revenue growth were the acquisitions
of CDI and Valiant Trust completed at the end of the second quarter.
Both acquisitions have been accretive to earnings since acquisition,
with CDI providing an after tax contribution of $1.3 million in the
fourth quarter.
40 CWB 2004 ANNUAL REPORT
Non-interest expenses were $21.5 million in the quarter, an increase
of $5.6 million over the same quarter last year. This increase reflects
the additional operating expenses ($3.4 million) and amortization of
intangible assets ($120,000) associated with CDI and Valiant Trust.
Also contributing to the increase were additional expenses from the
Bank’s seven significantly upgraded, relocated and new branch
locations ($700,000), and an increase in non-cash stock-based
compensation charges of $192,000 (the total fourth quarter
stock-based compensation charges were $332,000). Excluding the
impact of these items, non-interest expenses were up $1.1 million
(7%) over the fourth quarter last year. This remaining increase
reflects additional staffing levels as a result of business growth,
annual salary adjustments and various other initiatives.
The efficiency ratio (teb), which measures non-interest expenses as a
percentage of total revenues, was 51.7% for the quarter compared to
50.0% in the previous quarter and 46.9% in the same quarter one
year ago. The operations of CDI and Valiant Trust added
approximately 170 basis points to the ratio in the quarter compared
to 110 basis points in the third quarter.
Fourth quarter earnings were up $1.1 million (10%) over the third
quarter earnings of $11.7 million with the increase due to a lower tax
provision, including the previously noted preferred share tax benefit,
partially offset by increased non-interest expenses and lower
revenues. Non-interest expenses increased $528,000 compared to
the third quarter, with the increase primarily related to CDI’s
operations. Total revenues reflect a decrease in credit related fees
from the record fees achieved in the third quarter, as well as a
reduction in trust fees in large part due to the fourth quarter for
Valiant generally being slower than the third quarter. Net interest
income in the fourth quarter was impacted by a 6% increase in total
average assets, offset by a decrease in the net interest margin to
2.49% compared to 2.65% in the third quarter. The decrease in
margin was primarily due to an increase in the proportion of lower
yielding cash and securities, reduced loan related interest income (i.e.
payout penalties), and an increase in preferred share premium
amortization due to previously unanticipated early redemptions. The
decrease more than offset the positive impact from two 25 basis
point increases in the prime rate this quarter.
ACCOUNTING POLICIES AND ESTIMATES
CRITICAL ACCOUNTING ESTIMATES
CWB’s significant accounting policies are outlined in Note 1 of the
consolidated financial statements. The policies discussed below are
considered particularly important as they require management to
make significant estimates or judgements, some of which may relate
to matters that are inherently uncertain.
Allowance for Credit Losses
An allowance for credit losses is maintained to absorb probable
credit related losses in the loan portfolio. This allowance reflects
management’s estimate of probable losses in the loan portfolio at
the balance sheet date.
In assessing existing credit losses,
management must rely on estimates and exercise judgement
regarding matters for which the ultimate outcome is unknown. These
matters include economic factors, developments affecting particular
industries and specific issues with respect to single borrowers.
Changes in circumstances may cause future assessments of credit risk
to be significantly different than current assessments and may
require an increase or decrease in the allowance for credit losses.
Establishing a range for the allowance for credit losses is difficult due
to the number of uncertainties involved. This uncertainty is captured
within the general allowance for credit losses. At October 31, 2004, the
Bank’s total allowance for credit losses was $39.3 million (2003–$35.4
million), which included a specific allowance of $10.5 million
(2003–$7.8 million) general allowance of $28.8 million (2003–$27.6
million). Additional information on the process and methodology for
determining the allowance for credit losses can be found in the
discussion of credit quality beginning on page 27 of this
Management’s Discussion and Analysis and Note 1(f) to the
consolidated financial statements. This critical accounting estimate
relates to CWB’s banking and trust segment.
Provision for Unpaid Claims and Adjustment Expenses
A provision for unpaid claims is maintained, with the provision
representing the amounts needed to provide for the estimated
ultimate expected cost of settling claims related to insured events
(both reported and unreported) that have occurred on or before each
balance sheet date. A provision for adjustment expenses is also
maintained which represents the estimated ultimate expected costs
of investigating, resolving and processing these claims. Estimated
recoveries of these costs from reinsurance ceded are included in
assets. The computation of these provisions takes into account the
time value of money using discount rates based on projected
investment income from the assets supporting the provisions. The
process of determining the provision for unpaid claims and
adjustment expenses necessarily involves risks that the actual
results will deviate from the best estimates made. These risks vary in
proportion to the length of the estimation period and the volatility of
each component comprising the liabilities. To recognize the
uncertainty in establishing these best estimates and to allow for
possible deterioration in experience, actuaries are required to
include explicit margins for adverse deviation in assumptions for
asset defaults,
risk, claims development and
recoverability of reinsurance balances. All provisions are periodically
reviewed and evaluated in the light of emerging claim experience
and changing circumstances. Changes in circumstances may cause
future assessments of unpaid claims and adjustment expenses to be
significantly different than current assessments and may require an
increase or decrease in the provision. In estimating the provision for
unpaid claims and adjustment expenses, there are a number of
uncertainties taken into account and assumptions made, which
makes it difficult to estimate a range for the provision. Further, as
noted above, the provision includes a margin for adverse deviations
in assumptions. At October 31, 2004 the provision for unpaid claims
and adjustment expenses totalled $37.0 million. Additional
information on the process and methodology for determining the
provision for unpaid claims and adjustment expenses can be found
in Notes 1( j) and 16 to the consolidated financial statements. This
critical estimate relates to CWB’s insurance segment.
reinvestment
CWB 2004 ANNUAL REPORT 41
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CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
A summary of the CWB’s significant accounting policies is presented
in Note 1 to the 2004 consolidated financial statements and changes
to significant accounting polices since October 31, 2003 are provided
in Note 2. Specifically, the changes in fiscal 2004 relate to new
requirements on hedging relationships and sources of Canadian
generally accepted accounting principles. The financial statement
impact of these changes was insignificant. Note 1 also includes
accounting policies related to insurance operations which arose
when CDI was acquired in April 2004.
RISK MANAGEMENT
OVERVIEW
Effective risk management is central to the ability to remain
financially sound and profitable and includes identifying, assessing,
managing and monitoring all forms of risk. The Bank is exposed to
several categories of risk including: strategic, reputation, credit,
liquidity, structural (asset/liability), market, fiduciary, insurance and
operational. Additional information on risk factors is available in the
Annual Information Form dated January 5, 2005 which is available on
SEDAR at www.sedar.com.
Senior management is 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 risks and risk management policies is presented to the
Board and/or Board committees for review and assessment.
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;
• the review and approval of 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.
The Asset Liability Committee (ALCO) provides the management
oversight related to the risks of banking and trust operations, other
than credit 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:
• ensuring that risks other than credit risk are identified and assessed
and appropriate policies are in place and effective;
• 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
respecting management of risks.
Asset liability management policies are approved and reviewed at least
annually by the Board with quarterly status reporting also provided.
42 CWB 2004 ANNUAL REPORT
The Operations Committee meets regularly and is made up of
supervisory and management personnel from all areas of banking
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 banking operations.
The internal audit department performs inspections in all areas of
the Bank, including CWT, Valiant Trust and CDI, and reports the
results directly to senior management, as well as the Bank’s CEO and
Audit Committee. For CDI, inspection results are also reported
directly to CDI’s Audit Committee.
CREDIT RISK
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, unless approved by the
Board of Directors, to an amount not exceeding 10% of common
equity plus retained earnings.
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 approval 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 those 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);
• quarterly review of risk diversification by geographic area, industry
sector and product measured against assigned portfolio limits;
• pricing of credits commensurate with risk to ensure appropriate
compensation;
• management of growth within quality objectives;
• early
recognition of problem accounts and
implementation of steps to protect the safety of Bank funds;
immediate
• independent 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;
• detailed quarterly reviews of accounts rated less than satisfactory
including establishment of an action plan for each account; and
• completion of 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.
Environmental Risk
The operations of the Bank do not have a material effect on the
environment. However, a risk of default may occur if a borrower is
unable to repay loans due to environmental clean up costs. The Bank
may become directly liable for clean up costs when 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 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 to individuals with operations
conducted in the four western provinces. Relationship banking and
“know your customers” are
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 selected syndications, which are generally
led by the major Canadian banks. In addition to being able to lend to
larger companies, this initiative has also provided a degree of
geographic diversification.
important
LIQUIDITY RISK
Liquidity risk is the risk that there will not be sufficient cash to meet
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.
Liquidity policies include:
• 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 forward four month rolling basis;
• consideration of the term structure of assets and liabilities, with
emphasis on deposit maturities, as well as expected loan fundings
and other commitments to provide funds when determining
required levels of liquidity; and
• separate management of the liquidity position of the Bank and CWT
to ensure compliance with related party and other regulatory tests.
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. 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 result in 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.
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.
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. Note 23 to the
consolidated financial statements shows the consolidated gap position
at October 31, 2004 for selected time intervals.
CWB 2004 ANNUAL REPORT 43
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The gap analysis in Note 23 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 2.5% to 0.2% and the one month and under gap decreased from
3.6% to 0.3%. Gaps remained positive and the Bank’s asset/liability
position is expected to continue such that rising interest rates would
generally increase net interest income.
Of the $1,668 million in fixed term deposit liabilities maturing within
one year from October 31, 2004, approximately $1,214 million (28% of
total deposit liabilities) mature by April 30, 2005 (as shown in Table
13). The term in which maturing deposits are retained will have an
impact on the future asset liability structure and hence interest rate
sensitivity. Approximately $185 million of the fixed term deposit
liabilities maturing within one month are floating rate redeemable
deposits with a one year contractual maturity redeemable without
penalty at any time.
Table 22 - Estimated Sensitivity of Net Interest Income as a Result
of a One Percentage Point Change in Interest Rates
($ thousands)
Period
90 days
1 year
1 year percentage change
2004
219
963
0.8%
2003
508
2,110
2.0%
$
$
The estimated sensitivity of net interest income to a change in
interest rates is presented in Table 22. 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.
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.
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 Derivative Financial Instruments).
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
subordinated debentures, were not material as at October 31, 2004.
44 CWB 2004 ANNUAL REPORT
The subordinated debentures, which typically are renegotiated after
five years or redeemed (subject to OSFI approval), are discussed in
Note 14 to the consolidated financial statements.
Foreign Exchange Risk
In providing financial services to its customers, the Bank has assets
and liabilities denominated in U.S. dollars. At October 31, 2004, assets
denominated in U.S. dollars were 0.8% (2003 – 0.7%) of total assets
and U.S. dollar liabilities were 0.8% (2003 – 0.7%) 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 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.
INSURANCE RISK
With the acquisition of Canadian Direct Insurance Incorporated in April
2004, the Bank became exposed to the elements of risk associated
with the property and casualty insurance business which can cause
fluctuations and uncertainties in profitability. The insurance business
involves various types of insurance related risk,
in particular:
underwriting risk, pricing risk, claims risk, reinsurance risk and
regulatory risk. Policies and procedures have been established to
manage insurance related risk. CDI’s Board of Directors, either directly
or through a Board committee, is responsible for reviewing and
approving key policies and implementing reporting requirements to
enable them to monitor compliance over significant areas.
Underwriting risk is the risk of financial loss due to inappropriate
selection of customers and is reduced through controls built into the
rating and underwriting system. These controls include eligibility
audits and more senior staff review of exceptions. Pricing risk is the
risk that products may be inappropriately priced due to actual
experience not matching the assumptions made at the time pricing
is determined. This is mitigated by regular underwriting reviews of
product rate adequacy. Regulatory intervention may also impact rate
adequacy, as described below under regulatory risk.
Claims risk includes the risk of financial loss due to adverse deviation
in the amount, frequency or timing of claims. Policies and procedures
are in place to ensure that properly trained staff handle claims.
However the process for establishing the provision for unpaid claims
may reflect significant judgement and uncertainty, especially with
respect to liability claims. Factors such as inflation, claims settlement
patterns, legislative activity and litigation trends may impact the
actual claims amount as the claims are adjusted over time.
The risk that CDI might be exposed to single large claims or to an
accumulation of claims resulting from a natural catastrophe, such as
a weather related or seismic event, is mitigated by reinsurance
• regular inspections for compliance and the effectiveness of
procedural controls by a strong, independent internal audit team;
• centralized reporting of operating losses for risk assessment;
• 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 shareholders' auditors report annually on the
consolidated financial statements of the Bank in accordance with
Canadian generally accepted auditing standards, and their audit
includes a review of certain systems of operating and financial
controls and other such tests and procedures considered necessary to
obtain reasonable assurance that the consolidated financial
statements are free of material misstatement. Accordingly, an audit
would not identify all such matters that may be of interest to the
Audit Committee, however any weaknesses in internal controls and
other non-trivial matters identified are communicated to the Audit
Committee.
UPDATED SHARE INFORMATION
As at November 30, 2004, the Bank had 14,298,838 common shares
outstanding. In addition, there were outstanding debentures with a
combined principal amount of $23.4 million that will be converted
into a total of 766,679 common shares and employee stock options
that have been issued which are or will be exercisable into 1,251,685
common shares (1,258,509 authorized) for proceeds of up to
$37.4 million.
On December 2, 2004, a quarterly cash dividend of $0.18 per share
was declared. Also on this date, the Board of Directors declared a
stock dividend which when paid will effectively achieve a two for one
stock split. This stock dividend will be paid subsequent to the above
noted quarterly cash dividend, with each common share outstanding
being entitled to one additional common share.
treaties that protect from such risks. Reinsurance risk includes the
risk that reinsurance counterparties are not financially strong and
that underwriting strategies are inappropriately matched with
reinsurance programs. Reinsurance is only purchased from reinsurers
meeting a certain minimum security rating. Reinsurance treaties are
properly matched to underwriting strategies through participation
of senior underwriting staff in the process. CDI is dependent on the
availability and pricing of its external reinsurance arrangements and
this availability and global markets may impact pricing. If CDI is
unable to renew such arrangements at favourable rates and to
adequate limits, then CDI may need to modify its underwriting
practices or commitments.
In addition, as the insurance business is heavily regulated, CDI is
exposed to regulatory risk. This is evidenced by the recent provincial
government changes to auto insurance in Alberta that created a
premium rate rollback to Alberta policyholders. This risk is countered
mainly by monitoring current developments and by actively
participating in relevant bodies and associations in order to
contribute CDI’s perspective.
OPERATIONAL RISK
Operational risk is inherent in all business activities, including
banking, trust and insurance operations. It is the potential for loss as
a result of external events, human error or inadequacy or failure of
processes, procedures or controls. Its impact can be financial loss, loss
of reputation, loss of competitive position or regulatory penalties.
the Bank is exposed to operational risk from internal business
activities and from activities that are outsourced. The financial
measure of operational risk is actual losses incurred. No material
losses occurred in 2004 or 2003.
Strategies to minimize and manage 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 banking 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 banking operations;
• communication of the importance of effective risk management to
all levels of staff through training and policy implementation;
Dated as of December 2, 2004.
CWB 2004 ANNUAL REPORT 45
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CONSOLIDATED FINANCIAL
STATEMENTS
46 CWB 2004 ANNUAL REPORT
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
judgements of management with
informed estimates and
appropriate consideration to materiality. The financial information
presented elsewhere in this annual report is fairly presented and
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, assets are safeguarded and 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 shareholders’ auditors.
The Audit Committee, appointed by the Board of Directors, is
comprised entirely of independent directors who are not officers or
employees of the Bank. The committee is responsible for reviewing
the financial statements and annual report, including management’s
discussion and analysis of operations and financial condition, and
recommending them to the Board of Directors for approval. Other
AUDITORS’ REPORT
To The Shareholders of Canadian Western Bank
We have audited the Consolidated Balance Sheet of Canadian
Western Bank as at October 31, 2004 and 2003 and the Consolidated
Statements of Income, Changes in Shareholders’ Equity and Cash
Flow for the years then ended. These consolidated financial
statements are the responsibility of the Bank’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits 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.
key responsibilities of the Audit Committee include meeting with
management, the Chief Inspector and the shareholders’ auditors to
discuss the effectiveness of internal controls over the financial
reporting process and the planning and results of the external audit.
The committee also meets regularly with the Chief Inspector and the
shareholders’ auditors without management present.
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 independent auditors appointed by the
shareholders of the Bank, have performed an audit of the
consolidated financial statements and their report follows. The
shareholders’ auditors 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, CA
President and
Chief Executive Officer
November 29, 2004
Executive Vice President and
Chief Financial Officer
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Bank as at
October 31, 2004 and 2003 and the results of its operations and its
cash flow for the years then ended in accordance with Canadian
generally accepted accounting principles.
Chartered Accountants
Edmonton, Alberta
November 29, 2004
CWB 2004 ANNUAL REPORT 47
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CONSOLIDATED BALANCE SHEET
As at October 31
($ thousands)
Assets
Cash Resources
Cash
Deposits with regulated financial institutions
Securities
Issued or guaranteed by Canada
Issued or guaranteed by a province or municipality
Other securities
Loans
Securities purchased under resale agreements
Residential mortgages
Other
Allowance for credit losses
Other
Land, buildings and equipment
Goodwill
Intangible assets
Insurance related
Other assets
Total Assets
Liabilities and Shareholders' Equity
Deposits
Payable on demand
Payable after notice
Payable on a fixed date
Other
Cheques and other items in transit
Insurance related
Other liabilities
Subordinated Debentures
Conventional
Convertible
Shareholders' Equity
Capital stock
Contributed surplus
Retained earnings
Total Liabilities and Shareholders' Equity
(Note 4)
(Note 5)
(Note 6)
(Note 7)
(Note 8)
(Note 8)
(Note 9)
(Note 10)
(Note 11)
(Note 12)
(Note 13)
(Note 14)
(Note 15)
2004
2003
$
2,831 $
229,895
232,726
238,153
148,555
153,779
540,487
1,951
279,921
281,872
241,352
95,826
75,649
412,827
74,966
700,791
3,268,643
4,044,400
(39,320)
4,005,080
72,000
662,825
2,901,543
3,636,368
(35,365)
3,601,003
18,499
6,933
4,309
55,583
55,278
140,602
13,019
–
–
–
35,251
48,270
$ 4,918,895 $ 4,343,972
$ 190,214 $ 136,874
519,560
3,163,316
3,819,750
662,518
3,415,056
4,267,788
18,175
90,427
64,316
172,918
68,126
42,474
110,600
17,477
–
68,563
86,040
68,126
53,825
121,951
167,125
1,159
199,305
367,509
150,782
252
165,197
316,231
$ 4,918,895 $ 4,343,972
Jack C. Donald
Chairman
48 CWB 2004 ANNUAL REPORT
Larry M. Pollock
President and Chief Executive Officer
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
Subordinated debentures
Net Interest Income
Provision for credit losses
Net Interest Income after Provision for Credit Losses
Other Income
Credit related
Insurance, net
Trust services
Retail services
Gains on sale of securities
Foreign exchange gains and 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
Earnings Per Common Share
Basic
Diluted
2004
2003
$ 220,101 $ 220,043
11,900
4,427
236,370
13,519
4,565
238,185
118,087
6,760
124,847
113,338
9,390
103,948
13,641
7,896
6,208
5,066
1,685
1,603
36,099
140,047
45,998
13,922
14,487
1,993
76,400
63,647
19,486
44,161 $
127,766
3,941
131,707
104,663
8,600
96,063
13,099
–
4,017
4,679
2,095
1,436
25,326
121,389
37,680
11,034
11,144
1,708
61,566
59,823
21,630
38,193
3.30 $
3.00 $
2.98
2.69
$
$
$
(Note 6)
(Note 16)
(Note 18)
(Note 19)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the year ended October 31
($ thousands)
Capital Stock
Balance at beginning of year
Issued on debenture conversions
Issued on exercise of employee stock options
Balance at end of year
Contributed Surplus
Balance at beginning of year
Amortization of fair value of employee stock options
Balance at end of year
Retained Earnings
Balance at beginning of year
Net income
Dividends
Share issue costs, net of income taxes of $7 (2003 - $nil)
Balance at end of year
Total Shareholders' Equity
(Note 15)
(Note 17)
2004
2003
$ 150,782 $ 145,203
175
5,404
150,782
11,351
4,992
167,125
252
907
1,159
–
252
252
165,197
44,161
(10,038)
(15)
199,305
132,884
38,193
(5,880)
–
165,197
$ 367,589 $ 316,231
CWB 2004 ANNUAL REPORT 49
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CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended October 31
($ thousands)
Cash Flows from Operating Activities
Net income
Adjustments to determine net cash flows:
Provision for credit losses
Depreciation and amortization
Future income taxes, net
Gain on sale of securities, net
Accrued interest receivable and payable, net
Current income taxes payable, net
Other items, net
Cash Flows from Financing Activities
Deposits, net
Common shares issued
Dividends
Debentures issued
Cash Flows from Investing Activities
Loans, net
Interest bearing deposits with regulated financial institutions, net
Securities, purchased
Securities, sales proceeds
Securities, maturities
Land, buildings and equipment
Business acquisitions
Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year *
* Represented by:
Cash resources
Non-operating, interest bearing deposits with regulated financial institutions
Cheques in transit
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
(Note 15)
(Note 3)
50 CWB 2004 ANNUAL REPORT
2004
2003
$
44,161 $
38,193
9,390
4,291
414
(1,685)
(7,458)
(9,826)
(6,851)
32,436
448,038
4,992
(10,038)
–
442,992
8,600
3,088
(1,581)
(2,095)
5,043
37
(3,750)
47,535
390,679
5,404
(5,880)
65,000
455,203
(413,467)
58,645
(1,167,608)
152,088
935,708
(7,833)
(33,697)
(476,164)
(736)
20,522
19,786 $
(360,856)
(117,516)
(1,012,656)
99,828
849,846
(2,382)
–
(543,736)
(40,998)
61,520
20,522
$
$ 232,726 $ 281,872
(243,873)
(17,477)
20,522
(194,765)
(18,175)
19,786 $
$
$ 129,426 $ 127,247
23,174
$
29,276 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2004
($ thousands, except per share amounts)
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 Canadian
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. These accounting policies conform, in all material respects, to
Canadian generally accepted accounting principles (GAAP).
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amount of revenues
and expenses during the year. Key areas of estimation where
management has made subjective judgments, often as a result of
matters that are inherently uncertain, include those relating to the
allowance for credit losses, the fair value of financial instruments,
goodwill and intangible assets, provision for unpaid claims and
adjustment expenses and the future income tax asset and liability.
Therefore, actual results could differ from these 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 intercompany transactions and balances.
Subsidiaries are defined as corporations whose operations are
controlled by the Bank and are corporations in which the Bank owns
more than fifty percent of the voting shares. See Note 28 for details
of the subsidiaries.
b) Business Combinations, Goodwill and Other Intangible Assets
Business acquisitions are accounted for using the purchase method.
Goodwill is the excess of the purchase price paid for the acquisition of
a subsidiary over the fair value of the net assets acquired, including
identifiable intangible assets. Goodwill and other intangibles with an
indefinite life are not amortized, but are subject to a fair value
impairment test at least annually. Other intangibles with a finite life
are amortized to the statement of income over their expected lives
not exceeding ten years. These intangible assets are tested for
impairment whenever circumstances indicate that the carrying
amount may not be recoverable. Any impairment of goodwill or other
intangible assets will be charged to the statement of income in the
period of impairment.
c) Cash and Cash Equivalents
Cash and cash equivalents presented on the statement of cash flow
include cash and non-interest bearing deposits with other banks less
cheques in transit.
d) 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 and preferred shares are stated at amortized cost and other
equity securities are stated at cost or, if an impairment in value is
other than temporary, at net realizable value. Gains and losses
realized on disposal of securities and adjustments to record any other
than temporary 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.
e) Loans
Loans are stated net of unearned income, unamortized premiums
and an allowance for credit losses (Note 1(f)).
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 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.
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. Premiums
paid on the acquisition of loan portfolios are amortized to interest
income over the expected term of the loans.
CWB 2004 ANNUAL REPORT 51
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1.
Significant Accounting Policies (continued)
j)
Insurance Operations
f) Allowance for Credit Losses
An allowance for credit losses is maintained, which in the Bank’s
opinion, is adequate to absorb credit related losses in its loan
portfolio. The adequacy of the allowance for credit losses is reviewed
at least quarterly. The allowance for credit losses is deducted from
the loans balance.
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.
g) 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.
h) 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 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 year of disposal.
i) Deferred Financing Costs
Deferred financing costs relating to the issuance of debentures are
amortized on a straight-line basis over the life of the related
debenture.
Premiums Earned and Deferred Policy Acquisition Costs
Insurance premiums are included in other income on a daily pro rata
basis over the terms of the underlying insurance policies. Unearned
premiums represent the portion of premiums written that relate to
the unexpired term of the policies in-force and are included in other
liabilities.
Policy acquisition costs are those expenses incurred in the
acquisition of insurance business. Acquisition costs comprise
advertising and marketing expenses, insurance advisor salaries and
benefits, premium taxes and other expenses directly attributable to
the production of business. Policy acquisition costs related to
unearned premiums are only deferred, and included in other assets,
to the extent that they are expected to be recovered from unearned
premiums and are amortized to income over the periods in which the
premiums are earned.
Unpaid Claims and Adjustment Expenses
The provision for unpaid claims represents the amounts needed to
provide for the estimated ultimate expected cost of settling claims
related to insured events (both reported and unreported) that have
occurred on or before each balance sheet date. The provision for
adjustment expenses represents the estimated ultimate expected
costs of investigating, resolving and processing these claims. These
provisions are included in other liabilities and their computation
takes into account the time value of money using discount rates
based on projected investment income from the assets supporting
the provisions.
All provisions are periodically reviewed and evaluated in the light of
emerging claims experience and changing circumstances. The
resulting changes in estimates of the ultimate liability are recorded
as incurred claims in the current period.
Reinsurance Ceded
Earned premiums and claims expenses are recorded net of amounts
ceded to, and recoverable from, reinsurers. Estimates of amounts
recoverable from reinsurers on unpaid claims and adjustment
expenses are recorded in other assets and are estimated in a manner
consistent with the liabilities associated with the reinsured policies.
k) 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.
52 CWB 2004 ANNUAL REPORT
1. Significant Accounting Policies (continued)
l) Stock Option Plans
The fair value based method has been adopted to account for stock
options granted to employees on or after November 1, 2002. The
estimated fair value is recognized over the applicable vesting period
as an increase to both salary expense and contributed surplus. When
options granted on or after November 1, 2002 are exercised, the
proceeds received and the applicable amount in contributed surplus
will be credited to capital stock. In accordance with GAAP, no expense
is recognized for options granted prior to November 1, 2002. When
these options are exercised, the proceeds received are credited to
capital stock.
m) 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.
n) Derivative Financial Instruments
Interest rate, foreign exchange and equity contracts such as futures,
options, swaps and floors are entered into for risk management
purposes in accordance with the Bank’s asset liability management
policies. It is the Bank’s policy not to utilize derivative financial
instruments for trading or speculative purposes. Interest rate swaps
and floors are used to reduce the impact of fluctuating interest rates.
Equity contracts are used to offset the return paid to depositors on
certain deposit products that are linked to a stock index. Foreign
exchange contracts are only used for the purposes of meeting needs
of clients or day to day business.
The Bank designates each derivative financial instrument as a hedge
of identified assets and liabilities, firm commitments or forecasted
transactions. On an ongoing basis the Bank assesses whether the
derivatives that are used in hedging transactions are effective in
offsetting changes in fair values or cash flows of the hedged items.
Derivatives that qualify for hedge accounting are accounted for on
the accrual basis. Interest income received or interest expense paid is
recognized as interest income or expense, as appropriate, over the
term of the hedge contract. Premiums on purchased contracts are
amortized to interest expense over the term of the contract. Accrued
interest receivable and payable and deferred gains and losses for
these contracts are recorded in other assets or liabilities as
appropriate. Realized and unrealized gains or losses associated with
derivative instruments, which have been terminated or cease to be
effective prior to maturity, are deferred under other assets or other
liabilities, as appropriate, and amortized into income over the
original hedged period. In the event a designated hedged item is
terminated or eliminated prior to the termination of the related
derivative instrument, any realized or unrealized gain or loss on such
derivative instrument is recognized in other income.
o) Employee Future Benefits
All employee future benefits are accounted for on an accrual basis.
The Bank’s contributions to the group retirement savings and
employee share purchase plans totalled $3,493 (2003–$2,426).
p) Earnings per Common Share
Basic earnings per common share is calculated based on the average
number of common shares outstanding during the year. Diluted
earnings per share is calculated based on the treasury stock method
which assumes that any proceeds from the exercise of in-the-money
stock options would be used to purchase the Bank’s common shares
at the average market price during the year. Convertible debentures
are assumed to be converted into common shares at the beginning
of the year, or at the date the debenture was issued if later, and all
related income statement charges are added back to earnings.
2.
Changes in Accounting Policies
Hedging Relationships
The Canadian Institute of Chartered Accountants (CICA) has issued
an accounting guideline for hedging relationships that establishes
certain requirements for the application of hedge accounting that
has been adopted prospectively. Effective November 1, 2003, changes
in the fair value of derivatives that do not qualify for hedge
accounting are recorded in other income. The Bank enters into
derivative financial instruments for risk management purposes as
described in Note 25. Virtually all of the Bank’s existing derivative
financial instruments qualify for hedge accounting under the new
guideline and, as a result, the impact of the implementation of the
guideline was negligible.
Generally Accepted Accounting Principles
Effective November 1, 2003, the Bank adopted new accounting
requirements that provide guidance on sources to consult when
selecting accounting policies on matters not covered explicitly in the
primary sources of generally accepted accounting principles. There
were no significant changes in the existing accounting policies as a
result of the new requirements.
CWB 2004 ANNUAL REPORT 53
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3.
Business Acquisitions
On April 30, 2004, the Bank acquired all of the outstanding shares of HSBC Canadian Direct Insurance Incorporated (subsequently renamed Canadian
Direct Insurance Incorporated). Canadian Direct Insurance Incorporated offers property and casualty insurance directly to consumers in British Columbia
and Alberta. The Bank also acquired Valiant Trust Company on April 29, 2004 by purchasing all of the outstanding shares of its holding company
Corporate Shareholder Services Inc. Valiant Trust Company is a non-deposit taking, specialty trust company based in Calgary, Alberta that provides stock
transfer and corporate trustee services to public companies and income trusts. The results of operations for the two companies have been included in
the Bank’s consolidated financial statements since the dates of acquisition. The total cost of the acquisitions of $33,697 was paid in cash. The following
table summarizes the fair value of the assets acquired and liabilities assumed:
Net assets acquired
Cash resources
Securities
Other assets
Other intangible assets
Goodwill
Other liabilities, including future income tax liability of $1,718
$
$
9,537
48,036
55,626
4,580
6,933
(91,015)
33,697
The cash resources acquired are included in interest-bearing deposits with regulated financial institutions on the consolidated statement of cash
flows. The identified intangible assets include a trademark, a non-competition agreement, computer software and customer relationships. The
trademark, which has a value of $300, is not subject to amortization. Goodwill includes $3,679 related to the banking and trust segment and $3,254
related to the insurance segment. The total amount of goodwill and intangible assets will not be deductible for income tax purposes.
4.
Securities
The analysis of securities at carrying value, by type and maturity is as follows:
Maturities
Within
1 Year
Over 1
to 3 Years
Over 3
to 5 Years
Over 5
2003
2004
Total
Total
Years Book Value Book Value
Securities issued or
guaranteed by:
Canada
A province or municipality
Other debt securities
Equity securities
Preferred shares
Other equity
Total(1)
(1) All securities are held in the investment account.
(2) Includes securities with no specific maturity.
$ 226,140 $
8,748 $
769 $
61,719
12,241
18,781
2,380
83,609
13,264
–
–
1,024
11,786
30,233
–
$ 321,261 $
105,621 $
43,812 $
The analysis of unrealized gains and losses on investment securities is as follows:
2,496 $ 238,153 $ 241,352
95,826
2,203
3,236
4,115
148,555
41,406
58,090
71,897
107,104
516
5,269
69,793 $ 540,487 $ 412,827
2,889(2)
2004
2003
Book Unrealized Unrealized
Losses
Gains
Value
Estimated
Market
Value
Book Unrealized Unrealized
Losses
Gains
Value
Estimated
Market
Value
$ 238,153 $
11 $
227 $
237,937 $ 241,352 $
765 $
41 $ 242,076
148,555
41,406
107,104
5,269
$ 540,487 $
409
50
132
38
148,832
41,418
1,564
–
2,034 $
739
365
1,501 $
107,929
4,904
541,020 $ 412,827 $
95,826
3,236
71,897
516
430
–
43
1
96,213
3,235
1,176
618
2,989 $
224
–
72,849
1,134
309 $ 415,507
Securities issued or
guaranteed by:
Canada
A province or
municipality
Other debt securities
Equity securities
Preferred shares
Other equity
Total
54 CWB 2004 ANNUAL REPORT
5.
Loans
Outstanding gross loans and impaired loans, net of allowances for credit losses, are as follows:
Securities purchased under
resale agreements
Consumer and personal
Real estate
Industrial
Other
Totals
General allowance(1)
Net impaired loans after
general allowance
2004
2003
Gross
Amount
Gross
Specific
Impaired
Amount Allowance
Net
Impaired
Loans
Gross
Amount
Gross
Specific
Impaired
Amount Allowance
Net
Impaired
Loans
$
74,966 $
431,891
1,556,411
724,853
1,256,279
$ 4,044,400 $
– $
847
4,485
4,819
14,739
24,890 $
– $
– $
72,000 $
386
1,494
1,335
7,289
10,504
461
2,991
3,484
7,450
388,516
1,442,271
609,951
1,123,630
14,386 $ 3,636,368 $
(28,816)
– $
2,421
3,376
7,276
9,168
22,241 $
– $
503
841
2,849
3,614
7,807
–
1,918
2,535
4,427
5,554
14,434
(27,558)
$
(14,430)
$
(13,124)
(1) The general allowance for credit risk is available for the total loan portfolio.
(2) There are no foreclosed real estate assets held for sale.
There are no outstanding other past due loans. Other past due loans are loans where payment of interest or principal is contractually 90 – 180
days in arrears or government insured loans where payment of interest or principal is contractually 365 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 $449 (2003 - $2,063).
6. 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
2004
General
Allowance
Provisions for Credit Risk
Specific
$
$
7,807 $
8,132
(5,745)
310
10,504 $
27,558 $
1,258
–
–
28,816 $
2003
General
Allowance
Provisions for Credit Risk
Specific
7,208 $
4,839
(4,327)
87
7,807 $
23,797 $
3,761
–
–
27,558 $
Total
35,365 $
9,390
(5,745)
310
39,320 $
Total
31,005
8,600
(4,327)
87
35,365
The Bank has virtually no loans booked outside of Canada and therefore has no country risk provisions.
7.
Land, Buildings and Equipment
Land
Buildings
Computer equipment
Office equipment and furniture
Leasehold improvements
Total
Accumulated
Depreciation and
Amortization
–
$
2,257
10,702
6,196
5,979
25,134
$
Cost
2,783
4,545
14,996
9,070
12,239
43,633
$
2004
Net Book
Value
2,783
2,288
4,294
2,874
6,260
$
$
18,499
$
2003
Net Book
Value
2,935
1,064
3,008
1,863
4,149
13,019
$
$
Depreciation and amortization for the year amounted to $4,020 (2003 - $3,088).
CWB 2004 ANNUAL REPORT 55
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8. Goodwill and Intangible Assets
Goodwill
Identifiable intangible assets
Customer relationships
Trademark
Others
Total
Cost
6,933
3,950
300
330
4,580
11,513
Accumulated
Amortization
–
$
235
–
36
271
271
$
$
$
2004
Net Book
Value
6,933
3,715
300
294
4,309
11,242
$
$
Amortization of customer relationships and other intangible assets for the year amounted to $271 (2003 - nil). The trademark has an indefinite
life and is not subject to amortization. Goodwill includes $3,679 related to the banking and trust segment and $3,254 related to the insurance
segment. The goodwill and intangible assets were acquired in 2004 and therefore there are no comparative figures.
9.
Insurance Related Other Assets
Instalment premiums receivable
Reinsurers’ share of unpaid claims and adjustment expenses
Reinsurers’ share of unearned premiums
Deferred policy acquisition expenses
Due from reinsurers
Recoverable on unpaid claims
Total
The insurance operations were acquired during 2004 and therefore there are no comparative figures.
10. Other Assets
2004
16,588
12,106
10,670
6,483
4,848
4,888
55,583
$
$
Accrued interest receivable
Prepaid expenses
Future income tax asset
Accounts receivable
Taxes receivable
Deferred financing costs(1)
Other
Total
(1) Amortization for the year amounted to $215 (2003 - $178). During the year, deferred financing costs of $103 (2003-$nil) were charged to retained earnings on the
(Note 18)
$
$
$
$
2004
16,270
9,473
8,329
11,716
5,169
1,076
3,245
55,278
2003
13,391
8,749
8,262
1,924
–
1,394
1,531
35,251
conversion of debentures and were offset against forfeited interest (see also Note 14).
11. Deposits
Payable on demand
Payable after notice
Payable on a fixed date
Total
Payable on demand
Payable after notice
Payable on a fixed date
Total
56 CWB 2004 ANNUAL REPORT
Individuals
11,388
247,575
2,719,912
2,978,875
Individuals
8,162
199,886
2,598,171
2,806,219
$
$
$
$
Business and
Government
178,826
414,943
674,807
1,268,576
$
$
Business and
Government
128,712
319,674
540,048
988,434
$
$
Financial
Institutions
–
–
20,337
20,337
Financial
Institutions
–
–
25,097
25,097
$
$
$
$
2004
Total
190,214
662,518
3,415,056
4,267,788
2003
Total
136,874
519,560
3,163,316
3,819,750
$
$
$
$
12.
Insurance Related Other Liabilities
Unearned premiums
Unpaid claims and adjustment expenses
Due to insurance companies
Unearned reinsurance commissions
Total
The insurance operations were acquired during 2004 and therefore there are no comparative figures.
13. Other Liabilities
Accrued interest payable
Accounts payable
Future income tax liability
Deferred revenue
Taxes payable
Other
Total
14. Subordinated Debentures
(Note 18)
2004
52,707
4,528
1,727
941
726
3,687
64,316
$
$
2004
43,220
36,970
7,116
3,121
90,427
2003
57,286
4,082
235
537
5,383
1,040
68,563
$
$
$
$
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 CICA 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.
Maturity
Date
June 30, 2012
July 7, 2013
October 24, 2013
Earliest Date
Redeemable or
Convertible by CWB
June 30, 2007
July 7, 2008
October 24, 2008
$
2004
3,126
30,000
35,000
68,126
$
2003
3,126
30,000
35,000
68,126
Interest
Rate
Conventional
6.85%(1)
5.66%(2)
5.96%(2)
Convertible
5.50%(3)
5.70%(4)
March 31, 2008
July 31, 2009
March 31, 2003
July 31, 2004
42,474
–
42,474
110,600
49,825
4,000
53,825
121,951
Total
(1) This conventional debenture has a ten-year term with a fixed interest rate for the first five years. Thereafter, unless the terms are amended or the debenture is
$
$
redeemed by the Bank, interest will be payable at a rate equal to the Canadian Dollar CDOR 90 day Bankers’ Acceptance rate plus 100 basis points.
(2) These conventional debentures have a ten-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly to the Canadian
Dollar CDOR 90 day Bankers’ Acceptance rate plus 175 basis points.
(3) These debentures are convertible into common shares at the option of the holder at any time prior to maturity, or the date specified for redemption by the Bank,
whichever is earlier, at a conversion price of $30.50 per share (1,392,596 shares, 2003 - 1,633,603 shares). During the year, convertible debentures of $7,351 (2003 - $175)
were converted by the holders into 241,007 (2003 - 5,736) common shares. Interest expense accrued on the debentures prior to conversion and forfeited by the
debenture holders of $81 (2003–$nil) was credited to retained earnings and offset against unamortized deferred financing costs (see also Note 10).
(4) The Bank redeemed the debenture on August 1, 2004 for 160,000 shares.
On November 5, 2004 the Bank announced its intention to redeem all of the outstanding 5.5% convertible debentures on December 14, 2004. As
a result, under the terms of the trust indenture, the trustee will convert all outstanding debentures into common shares on the last day before
the redemption date.
On November 19, 2004, the Bank issued $60,000 of conventional subordinated debentures. The new debentures have a fixed interest rate of 5.55%
until November 19, 2009. Thereafter the rate will be reset quarterly at the Canadian dollar CDOR 90 day Bankers’ Acceptance rate plus 160 basis
points until maturity on November 19, 2014. The Bank may redeem the debentures on or after November 20, 2009 with the approval of OSFI.
CWB 2004 ANNUAL REPORT 57
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15. 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 conversion of debentures
Issued on exercise of options
Outstanding at end of year
2004
Number
of Shares
13,002,066
401,007
262,057
13,665,130
$
$
Amount
150,782
11,351
4,992
167,125
2003
Number
of Shares
12,659,372
5,736
336,958
13,002,066
Amount
145,203
175
5,404
150,782
$
$
The Bank has subordinated debentures which are convertible to common shares of the Bank as more fully described in Note 14.
The Bank is prohibited by the Bank Act from declaring any dividends on common shares when the Bank is or would be placed, as a result of the
declaration, in contravention of the capital adequacy and liquidity regulations or any regulatory directives issued under the Act. These limitations
do not currently restrict the payment of dividends.
16.
Insurance Operations
As described in Note 3, the Bank acquired Canadian Direct Insurance Incorporated (the Company) on April 30, 2004. Accordingly, the results of
operations have been included since the date of acquisition and no comparatives for 2003 are presented. The following information outlines issues
specifically related to insurance operations.
(a) Insurance income
Insurance income reported in other income on the consolidated statement of income is presented net of claims, adjustment and policy acquisition
expenses.
Net earned premiums and other
Net claims, adjustment and policy acquisition expenses
(b) Unpaid claims and adjustment expenses
2004
30,761
22,865
7,896
$
$
(i) Nature of unpaid claims
The establishment of the provision for unpaid claims and adjustment expenses and the related reinsurers’ share is based on known facts and
interpretation of circumstances, and is therefore a complex and dynamic process influenced by a large variety of factors. These factors include
experience with similar cases and historical trends involving claim payment patterns, loss payments, pending levels of unpaid claims, product mix
or concentration, claims severity and claims frequency patterns.
Other factors include the continually evolving and changing regulatory and legal environment, actuarial studies, professional experience and
expertise of the claims department personnel and independent adjusters retained to handle individual claims, the quality of the data used for
projection purposes, existing claims management practices including claims handling and settlement practices, the effect of inflationary trends
on future claims settlement costs, investment rates of return, court decisions, economic conditions and public attitudes. In addition, time can be
a critical part of the provision determination, since the longer the span between the incidence of a loss and the payment or settlement of the
claim, the more variable the ultimate settlement amount can be. Accordingly, short-tailed claims, such as property claims, tend to be more
reasonably predictable than long-tailed claims, such as liability claims.
58 CWB 2004 ANNUAL REPORT
16.
Insurance Operations (continued)
Consequently, the establishment of the provision for unpaid claims and adjustment expenses relies on the judgement and opinions of a large
number of individuals, on historical precedent and trends, on prevailing legal, economic, social and regulatory trends and on expectations as to
future developments. The process of determining the provisions necessarily involves risks that the actual results will deviate, perhaps
substantially, from the best estimates made.
ii) Provision for unpaid claims and adjustment expenses
An annual evaluation of the adequacy of unpaid claims is completed at the end of each financial year. This evaluation includes a re-estimation of
the liability for unpaid claims relating to each preceding financial year compared to the liability that was originally established. The results of this
comparison and the changes in the provision for unpaid claims and adjustment expenses for the period ended October 31, 2004 follows:
Unpaid claims and adjustment expenses, net, April 30, 2004
Claims incurred
In the current period
In prior periods
Claims paid during the period
Unpaid claims and adjustment expenses, net, October 31, 2004
Reinsurers' share of unpaid claims and adjustment expenses, October 31, 2004
Recoverable on unpaid claims
Unpaid claims and adjustment expenses, October 31, 2004
2004
15,885
10,970
188
(7,067)
19,976
12,106
4,888
36,970
$
$
The provision for unpaid claims and adjustment expenses and related reinsurance recoveries are discounted using rates based on the projected
investment income from the assets supporting the provisions, and reflecting the estimated timing of payments and recoveries. The investment
rate of return used for the period ended October 31, 2004 was 3.8%. However, that rate was reduced by a 1% provision for adverse deviation in
discounting the provision for unpaid claims and adjustment expenses and related reinsurance recoveries. The impact of this provision for adverse
deviation results in an increase in unpaid claims and adjustment expenses and related reinsurance recoveries by $423.
Policy balances, included in insurance related other assets and other liabilities, analyzed by major line of business are as follows:
Unpaid claims and adjustment expenses, net
Reinsurers' share of unpaid claims and adjustment expenses
Unearned premiums
Reinsurers' share of unearned premiums
c) Underwriting policy and reinsurance ceded
2004
$
$
Automobile
31,977
9,599
33,438
8,225
Property
4,993
2,507
9,782
2,445
Reinsurance contracts with coverage up to maximum policy limits are entered into to protect against losses in excess of certain amounts that may arise
from automobile, personal property and liability claims.
Reinsurance with a limit of $100,000 is also obtained to protect against certain catastrophic losses. Due to the geographic concentration of the business,
management believes earthquakes and windstorms are its most significant exposure to catastrophic losses. Utilizing sophisticated computer modeling
techniques developed by independent consultants to quantify the estimated exposure to such losses, management believes that there is sufficient
catastrophe reinsurance protection.
Twenty-five per cent of gross retentions are ceded under the quota share arrangement.
At October 31, 2004, $12,106 of unpaid claims and adjustment expenses was recorded as recoverable from the reinsurers.
Failure of a reinsurer to honour its obligation could result in losses. The financial condition of its reinsurers are evaluated to minimize the exposure to
significant losses from reinsurer insolvency.
CWB 2004 ANNUAL REPORT 59
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16.
Insurance Operations (continued)
The amounts shown in other income are net of the following amounts relating to reinsurance ceded to other insurance companies:
Premiums earned reduced by
Claims incurred reduced by
17. Share Incentive Plans
$
2004
12,129
6,661
The Bank has authorized 1,266,309(1) common shares (2003 - 1,193,391) for issuance under share incentive plans. Of the amount authorized, options
exercisable into 1,260,735 shares (2003 - 1,153,992) are issued and outstanding. The options generally vest within three years and 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. All options expire within ten years of date
of grant. Outstanding options expire on dates ranging from November 2004 to September 2009.
The details of and changes in the issued and outstanding options follow:
2004
2003
Options
Balance at beginning of year
Granted
Exercised
Forfeited
Balance at end of year
Number
of Options
1,153,992
378,500 (1)
(262,057)
(9,700)
1,260,735
Exercisable at end of year
518,700
(1) Of this amount, 221,000 options are subject to shareholder and Toronto Stock Exchange approval.
Further details relating to stock options outstanding and exercisable follow:
Range of exercise prices
$10.25 to $14.00
$18.73 to $19.50
$20.44 to $24.79
$25.87 to $28.23
$33.04 to $39.98
$40.21 to $43.35
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
1.6
2.9
0.8
1.8
3.9
4.8
3.1
Number of
Options
122,149
103,800
55,845
350,141
282,300
346,500
1,260,735
Weighted
Average
Exercise
Price
24.02
40.23
19.05
32.74
29.85
Number
of Options
1,129,815
371,235
(336,958)
(10,100)
1,153,992
21.34
637,957
Weighted
Average
Exercise
Price
19.28
31.26
16.04
25.48
24.02
19.26
$
$
$
Weighted
Average
Exercise
Price
12.08
19.08
24.29
26.42
33.98
40.34
29.85
Options Exercisable
Weighted
Average
Exercise
Price
12.08
19.08
24.29
26.41
$
–
–
$
21.34
Number of
Options
122,149
103,800
55,845
236,906
–
–
518,700
$
$
$
$
$
Salary expense of $907 (2003 - $252) has been recognized relating to the estimated fair value of options granted since November 1, 2002. The fair value
of options granted was estimated using a binomial option pricing model with the following variables and assumptions: (i) risk-free interest rate of 3.8%
(2003 - 4.1%), (ii) expected option life of 3.9 (2003 - 3.9) years, (iii) expected volatility of 19% (2003 - 21%), and (iv) expected dividends of 1.8% (2003 - 1.5%).
The weighted average fair value of options granted was estimated at $6.52 (2003 - $5.59) per share.
60 CWB 2004 ANNUAL REPORT
18.
Income Taxes
The provision for income taxes consists of the following:
Current
Future
Provision for income taxes
2004
19,072
414
19,486
$
$
$
$
2003
23,211
(1,581)
21,630
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
Increase (decrease) arising from:
Tax-exempt income
Large corporations tax
Other
Provision for income taxes and effective tax rate
$
Future income tax balances are comprised of the following:
Net future income tax assets
Allowance for credit losses
Other temporary differences
Net future income tax liabilities
Intangible assets
Allowance for credit losses
Other temporary differences
2004
2003
$
22,532
35.4% $
22,584
(4,095)
351
698
19,486
(6.4)
0.6
1.0
30.6% $
$
$
$
$
(1,887)
358
575
21,630
2004
10,007
(1,678)
8,329
1,596
(439)
570
1,727
$
$
$
$
37.8 %
(3.2)
0.6
1.0
36.2 %
2003
9,613
(1,351)
8,262
–
(415)
650
235
The Bank has approximately $11,832 (2003 - $11,851) 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 the consolidated financial statements.
19. Earnings per Common Share
The calculation of earnings per common share is as follows:
Numerator
Net income - basic
Dilutive instruments:
Conversion of debentures(1)
Net income - diluted
Denominator
Weighted average number of common shares outstanding - basic
Dilutive instruments:
Conversion of debentures(2)
Employee stock options(3)
Weighted average number of common shares outstanding - diluted
Earnings per Common Share
Basic
Diluted
2004
44,161
1,733
45,894
$
$
2003
38,193
1,947
40,140
13,391,242
12,808,335
1,547,872
369,467
15,308,581
1,798,578
329,782
14,936,695
3.30
3.00
$
$
2.98
2.69
$
$
$
$
(1) Net income is adjusted by the potential impact on earnings if the convertible debentures were converted into common shares at the beginning of the year.
(2) See note 14 for more information about the convertible subordinated debentures.
(2) The denominator excludes those employee stock options where the exercise price is greater than the average monthly market price.
CWB 2004 ANNUAL REPORT 61
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20. Contingent Liabilities and Commitments
a) Credit 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
2004
2003
$
$
94,270
989,433
1,083,703
$
$
64,413
812,082
876,495
Guarantees and standby letters of credit represent the Bank’s obligation to make payments to third parties when a customer is unable to make
required payments or meet other contractual obligations. These instruments carry the same credit risk, recourse and collateral security requirements
as loans extended to customers and generally have a term that does not exceed one year. 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 undrawn availability under lines
of credit and commercial operating loans of $370,000 (2003 - $294,000) and recently authorized but unfunded loan commitments of $619,000
(2003 - $518,000). In the majority of instances, availability of undrawn commercial commitments is subject to the borrower meeting specified
financial tests or other covenants regarding completion or satisfaction of certain conditions precedent. It is also usual practice to include the right
to review and withhold funding in the event of a material adverse change in the financial condition of the borrower. 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.
b) Lease Commitments
The Bank has obligations under long-term non-cancellable operating 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:
2005
2006
2007
2008
2009
2010 and thereafter
Total
c) Guarantees
$
$
5,032
4,666
4,382
3,485
2,983
15,074
35,622
A guarantee is defined as a contract that contingently requires the guarantor to make payments to a third party based on i) changes in an
underlying economic characteristic that is related to an asset, liability or equity security of the guaranteed party, ii) failure of another party to
perform under an obligating agreement, or iii) failure of another third party to pay indebtedness when due.
Significant guarantees provided to third parties include guarantees and standby letters of credit as discussed above.
In the ordinary course of business, the Bank enters into contractual arrangements under which the Bank may agree to indemnify the other party.
Under these agreements, the Bank may be required to compensate counterparties for costs incurred as a result of various contingencies such as
changes in laws and regulations and litigation claims. A maximum potential liability cannot be identified as the terms of these arrangements vary
and generally no pre-determined amounts or limits are identified. The likelihood of occurrence of contingent events that would trigger payment
under these arrangements is either remote or difficult to predict and in the past payments under these arrangements have been insignificant.
The Bank issues personal and business credit cards through an agreement with a third party card issuer. The Bank has indemnified the card issuer
from loss if there is a default on the issuer’s collection of the business credit card balances. The Bank has provided no indemnification relating to
the personal or travel reward credit card balances. The issuance of business credit cards and establishment of business credit card limits are
approved by the Bank and subject to the same credit assessment, approval and monitoring as the extension of direct loans. At year end, the total
approved business credit card limit was $2,002 (2003 - $114) and the balance outstanding was $376 (2003 - $6). No payments have been made to
date under the indemnity.
No amounts are reflected in the consolidated financial statements related to these guarantees and indemnifications.
62 CWB 2004 ANNUAL REPORT
21. Trust Assets Under Administration
Trust assets under administration of $1,759,473 (2003 - $1,474,964) 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.
22. Related Party Transactions
The Bank makes loans, primarily residential mortgages, to its officers and employees at various preferred rates and terms. The total amount
outstanding for these type of loans is $27,045 (2003 - $21,319).
23. Interest Rate Sensitivity
The Bank is exposed to interest rate risk as a result of a difference, or gap, between the maturity or repricing date of interest sensitive assets and
liabilities. The following table shows the gap position at October 31 for selected time intervals. Figures in brackets represent an excess of liabilities
over assets or a negative gap position.
October 31, 2004 ($millions)
Assets
Cash resources
Securities
Loans
Other assets
Derivative financial instruments(1)
Total
Liabilities and Equity
Deposits
Other liabilities
Debentures
Shareholders' equity
Derivative financial instruments(1)
Total
Interest Rate Sensitive Gap
Cumulative Gap
Cumulative Gap as a
Percentage of Total Assets
October 31, 2003
Total assets
Total liabilities and equity
Interest Rate Sensitive Gap
Cumulative Gap
Cumulative Gap as a
$
$
$
$
$
$
Total
Within
1 Year
1 Year to
5 Years
Over
5 Years
Non-
interest
Sensitive
– $
– $
Floating
Rate and
Within
1 to 3
1 Month Months
64 $
43
2,190
–
25
2,322
1,400
4
–
–
900
2,304
18 $
18 $
27 $
53
146
–
10
236
217
6
42
–
–
265
(29) $
(11) $
3 Months
to 1 Year
96 $
225
390
–
226
937
904
9
–
–
–
913
187 $
321
2,726
–
261
3,495
2,521
19
42
–
900
3,482
150
1,313
–
639
2,102
1,746
17
68
–
–
1,831
24 $
13 $
13 $
13 $
271 $
284 $
67
5
–
–
72
–
–
–
–
–
–
72 $
356 $
45 $
3
(39)
136
–
145
1
132
–
368
–
501
(356) $
– $
Total
232
541
4,005
136
900
5,814
4,268
168
110
368
900
5,814
–
–
0.3%
(0.2)%
0.2%
0.2%
4.9%
6.1%
–
–
2,084 $
1,899
185 $
185 $
421 $
386
35 $
220 $
952 $
1,046
(94) $
126 $
3,457 $
3,331
126 $
126 $
1,580 $
1,396
184 $
310 $
40 $
–
40 $
350 $
52 $
402
(350) $
– $
5,129
5,129
–
–
Percentage of Total Assets
3.6%
4.3%
2.5%
2.5%
6.0%
6.8%
–
–
Notes:
(1) Derivative financial instruments are included in this table at the notional amount.
(2) Accrued interest is excluded in calculating interest sensitive assets and liabilities.
(3) 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.
CWB 2004 ANNUAL REPORT 63
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23. Interest Rate Sensitivity (continued)
The effective, weighted average interest rates for each class of financial asset and liability, including off-balance sheet instruments, are shown below.
October 31, 2004
Assets
Cash resources
Securities
Loans
Derivative financial instruments
Total
Liabilities
Deposits
Debentures
Derivative financial instruments
Total
Interest Rate Sensitive Gap
October 31, 2003
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
2.2%
0.3
5.3
3.0
5.1
1.7
–
2.5
2.0
3.1%
5.4%
2.2
3.2%
2.6%
2.3
5.1
4.1
4.1
3.1
5.5
–
3.4
0.7%
4.0%
3.4
0.6%
2.6%
2.3
6.1
2.9
4.2
3.3
–
–
3.3
0.9%
4.7%
3.9
0.8%
2.5%
2.6
5.4
2.9
4.8
2.4
5.5
2.5
2.5
2.3%
5.0%
2.9
2.1%
–%
–%
4.0
6.4
3.6
5.4
3.9
5.9
–
3.9
1.5%
6.0%
4.5
1.5%
6.6
6.2
–
6.6
–
–
–
–
6.6%
7.1%
–
7.1%
2.5%
3.5
5.7
3.4
5.0
3.0
5.7
2.5
3.0
2.1%
5.3%
3.4
1.9%
24. Fair Value of Financial Instruments
Fair value represents the estimated consideration that would be agreed upon in a current transaction between knowledgeable, willing parties
who are under no compulsion to act. The best evidence of fair value is a quoted market price. However, most of the Bank’s financial instruments
lack an available trading market as they are not typically exchanged. Therefore, these instruments have been valued assuming they will not be
sold, using present value or other suitable techniques and are not necessarily representative of the amounts realizable in an immediate
settlement of the instrument.
Changes in interest rates are the main cause of changes in the fair value of the Bank’s financial instruments. The carrying value of the majority of
the financial instruments is not adjusted to reflect increases or decreases in fair value due to interest rate changes as the Bank’s intention is to
realize their value over time by holding them to maturity. The carrying value of financial instruments held for trading purposes would be
continually adjusted to reflect fair value. At October 31, 2004 and 2003 there were no financial instruments held for trading purposes.
The table below sets out the fair values of on-balance sheet financial instruments and off-balance sheet derivative instruments using the valuation
methods and assumptions referred to below the table.The table does not include assets and liabilities that are not considered financial instruments.
2004
2003
Fair Value
Over(Under)
Fair Value Book Value Book Value
Fair Value
Over(Under)
Fair Value Back Value
Book Value
Assets
Cash resources
Securities
Loans(1)
Other assets(2)
Liabilities
Deposits(1)
Other liabilities(3)
Subordinated debentures
(Note 4)
$ 232,726 $
540,487
4,005,253
72,799
232,726 $
541,020
3,998,500
72,799
– $ 281,872 $ 281,872 $
533
(6,753)
–
412,827
3,599,008
16,846
415,507
3,608,566
16,846
4,267,788
170,036
110,613
4,283,947
168,354
111,778
16,159
(1,682)
1,165
3,819,536
84,228
121,951
3,853,955
84,228
124,938
–
2,680
9,558
–
34,419
–
2,987
(1) Loans and deposits exclude deferred premiums and deferred revenue which are not financial instruments.
(2) Other assets exclude land, buildings and equipment, goodwill and other intangible assets, reinsurer’s share of unpaid claims and adjustment expense,
future income tax asset, prepaid and deferred expenses, financing costs and other items which are not financial instruments.
(3) Other liabilities exclude future income tax liability, deferred revenue and other items which are not financial instruments.
(4) For further information on interest rates associated with financial assets and liabilities, including off-balance sheet instruments, refer to Note 23.
64 CWB 2004 ANNUAL REPORT
24. Fair Value of Financial Instruments (continued)
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 4. 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.
25. Derivative Financial Instruments
The Bank enters into off-balance sheet 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 (ALCO) of the Bank.
Foreign exchange transactions are undertaken 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 ALCO 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. Additional discussion of OSFI’s capital adequacy requirements is provided in the
Capital Management section of Management’s Discussion and Analysis.
2004
Future
Replace-
ment
Credit
Cost Exposure Equivalent
Credit
Risk-
Risk weighted Notional
Balance Amount
2003
Future
Replace-
ment
Credit
Cost Exposure Equivalent
Credit
Risk-
Risk weighted
Balance
Notional
Amount
Interest Rate Contracts
Interest rate swaps
Interest rate floor
Equity Contracts
Foreign Exchange
Contracts(1)
$882,500 $ 3,918 $ 3,713 $ 7,631 $ 1,527 $769,500 $
–
17,765
996
–
73
–
–
1,421
–
1,494
–
299
50,000
15,825
–
–
–
86
Total
(1) The Bank has contracted to deliver Canadian dollars in exchange for United States dollars.
$901,261 $ 3,991 $ 5,134 $ 9,125 $ 1,826 $835,411 $
4,524 $ 2,462 $ 6,986 $
31
1,266
88
1,290
57
24
–
1
4,605 $ 3,760 $ 8,365 $
1
1,404
11
258
–
1,673
CWB 2004 ANNUAL REPORT 65
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25. Derivative Financial Instruments (continued)
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).
Interest Rate Contracts
Interest rate swaps
Interest rate floor
Equity Contracts
Foreign Exchange
Contracts
Total
2004
2003
Favourable Contracts
Notional
Amount
Fair
Value
Unfavourable Contracts
Fair
Value
Notional
Amount
Favourable Contracts
Notional
Amount
Fair
Value
Unfavourable Contracts
Fair
Value
Notional
Amount
$ 542,000 $
3,915 $ 340,500 $
(1,377) $ 607,500 $
4,524 $ 162,000 $
(514)
–
2,620
–
–
73
–
–
15,145
996
–
(278)
(42)
50,000
1,600
–
57
24
–
$ 544,620 $
3,988 $ 356,641 $
(1,697) $ 659,100 $
4,605 $ 176,311 $
–
14,225
–
(525)
86
(6)
(1,045)
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)
2004
6,475
1,310
$
$
2003
6,306
976
$
$
The following table summarizes maturities of off-balance sheet financial instruments and weighted average interest rates paid and received
on interest rate contracts.
2004
Maturity
2003
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
$ 140,000
–
4,725
2.47% $ 742,500
–
13,040
–
3.54% $ 271,000
50,000
–
–
3.07% $ 498,500
–
3.00%
15,825
3.90%
–
Interest Rate Contracts
Interest rate swaps -
receive fixed amounts(1)
Interest rate floor(2)
Equity Contracts(3)
Foreign Exchange
Contracts(4)
783
$ 145,508
–
$ 755,540
86
$ 321,086
–
$ 514,325
Total
(1) The Bank pays (floating) interest amounts based on the one-month (30 day) Canadian Bankers’ Acceptance rate.
(2) The Bank would have received interest amounts if the one-month (30 day) Canada Bankers’ Acceptance rate fell below a specified rate.
(3) The contractual interest rate is not meaningful for equity contracts. The Bank receives amounts based on the increase in an equity index.
(4) The contractual interest rate is not applicable for foreign exchange contracts.
66 CWB 2004 ANNUAL REPORT
26. Risk Management
As part of the Bank’s risk management practices, the risks that are significant to the business are identified, monitored and controlled. These risks
include credit risk, liquidity risk, market risk and operational risk. The nature of these risks and how they are managed is provided in the
commentary on pages 42 to 45 of Management’s Discussion and Analysis of Operations and Financial Condition. Information on specific measures
of risk including the allowance for credit losses, derivative financial instruments, interest rate sensitivity and fair value of financial instruments are
included elsewhere in these notes to the consolidated financial statements.
27. Segmented Information
The Bank operates principally in two industry segments – banking and trust, and insurance. These two segments differ in products and services
but are both within the same geographic region. Prior to the acquisition of Canadian Direct Insurance Incorporated on April 30, 2004, the Bank
operated in one industry segment.
The banking and trust segment provides services to personal clients and small to medium-sized commercial business clients primarily in western
Canada. The insurance segment provides home and automobile insurance direct to individuals in Alberta and British Columbia.
Total
For the year ended October 31, 2004
113,338
Net interest income
36,099
Other income(1)
149,437
Total revenues
9,390
Provision for credit losses
76,400
Non-interest expense(2)
19,486
Provision for income taxes
44,161
Net income
4,919
Total assets ($ millions)
(1) Other income for the insurance segment is presented net of claims, adjustment expenses and policy acquisition expenses (see Note 16) and also includes the gain of the
Insurance
957
7,965
8,922
–
4,890
1,461
2,571
113
$
$
$
$
$
$
$
$
$
Banking
and Trust
112,381
28,134
140,515
9,390
71,510
18,025
41,590
4,806
sale of securities.
(2) Goodwill of $3,679 is allocated to the banking and trust segment and $3,254 to the insurance segment. Amortization of intangible assets of $271 is included in the
banking and trust segment and $nil in the insurance segment.
(3) Additions to land, building and equipment total $7,326 for the banking and trust segment and $507 for the insurance segment while related amortization amounted to
$3,616 and $404 respectively.
(4) Transactions between the segments are reported at the exchange amount which approximates fair market value.
CWB 2004 ANNUAL REPORT 67
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28. Subsidiaries
Canadian Western Bank Subsidiaries
(annexed in accordance with subsection 308 (3) of the Bank Act)
October 31, 2004
Canadian Western Trust Company
Canadian Direct Insurance Incorporated
Valiant Trust Company
CWB Canadian Western Financial Ltd.
Address of
Head Office
10303 Jasper Avenue
Edmonton, Alberta
610 - 6th Street
New Westminster, British Columbia
#310, 606 4th St. SW
Calgary, Alberta
10303 Jasper Avenue
Edmonton, Alberta
Carrying Value of
Voting Shares Owned
by the Bank(1)
15,414
28,205
8,200
101
$
$
$
$
Percentage of Issued and
Outstanding Voting
Shares Owned by the Bank
100%
100%
100%
100%
(1) The carrying value of voting shares is stated at the Bank’s equity in the investments.
29. Future Accounting Changes
Consolidation of Variable Interest Entities (VIE’s)
The CICA has issued an accounting guideline that is effective November 1, 2004. The guideline provides a framework for identifying VIE’s and
requires the consolidation of VIE’s if the company is the primary beneficiary of the VIE. Based on the existing requirements, the Bank has no
significant VIE’s that would require consolidation.
Liabilities and Equity
Effective November 1, 2004, certain obligations that must or could be settled with a variable number of the issuer’s own equity instruments are
required to be presented in the financial statements as liabilities rather than equity. These requirements will have no impact on the Bank’s
financial statement presentation.
30. Comparative Figures
Certain comparative figures have been reclassified to conform with the current year presentation.
68 CWB 2004 ANNUAL REPORT
SENIOR OFFICERS
Chairman
Jack C. Donald
Executive Officers
Larry M. Pollock
President and
Chief Executive Officer
William J. Addington
Executive Vice President
Tracey C. Ball, CA
Executive Vice President and
Chief Financial Officer
Allister J. McPherson
Executive Vice President
Donald C. Kemp
Senior Vice President
Credit Risk Management
Corporate Office
Chris H. Fowler
Vice President
Credit Risk Management
David R. Gillespie
Vice President and Chief Inspector
Gail L. Harding
Vice President and General Counsel
Uve Knaak
Vice President
Human Resources
Ricki L. Moffat
Treasurer
David R. Pogue
Vice President
Marketing and Product Development
Michael Vos
Chief Technology Officer
Jack C. Wright
Vice President
Darin R. Coutu, CA
Senior Assistant Vice President
and Chief Accountant
Finance
Dennis Crough
Senior Assistant Vice President
Credit Risk Management
Les Shore
Senior Assistant Vice President
Corporate Development
Wally N. Streit
Senior Assistant Vice President
Credit Risk Management
Laurie Newlands
Assistant Vice President
Administration
Roger J. Pogue
Assistant Vice President
Operations
Commercial Banking
Prairie Region
Michael N. Halliwell
Vice President
and Regional Manager
Douglas R. Crook
Senior Assistant Vice President
Main Branch, Calgary
Gus W. Itzek
Senior Assistant Vice President
Energy Lending
Main Branch, Calgary
Commercial Banking
Northern Alberta Region
William A. Book
Vice President
and Regional Manager
Keith Wilkes
Senior Assistant Vice President
Main Branch, Edmonton
Commercial Banking
British Columbia Region
Rod W. Sorbo
Vice President
and Regional Manager
Rob Berzins
Senior Assistant Vice President
Park Place, Vancouver
Real Estate Lending
Vancouver
Raymond L. Young
Vice President
Robert E. Wigmore
Senior Assistant Vice President
Industrial Lending and
Leasing
James O. Burke
Vice President
Canadian Western Trust
Company
Adrian M. Baker
Vice President
and Chief Operating Officer
Cathy L. Phillips
Managing Director
Fiduciary Operations and
Risk Management
Robert D. Nakoneshny
Managing Director,
Strategic and Business Development
Valiant Trust Company
Adrian Baker
President
Canadian Direct Insurance
Incorporated
Brian Young
President and Chief Executive Officer
Susannah Bach
Vice President
Corporate and Strategic Operations
Colin Brown
Chief Operating Officer
Michael Martino
Chief Financial Officer
Vince Muto
Vice President, Claims
Ombudsman
R. Graham Gilbert
CWB 2004 ANNUAL REPORT 69
Directors Emeritus
John Goldberg
Jordan L. Golding
Arthur G. Hiller
Peter M.S. Longcroft
Dr. Maurice W. Nicholson
Alma M. McConnell
Eugene I. Pechet
Dr. Maurice M. Pechet
Fred Sparrow
BOARD OF DIRECTORS
Canadian Western
Bank and Trust
Charles R. Allard
President
Rosedale Meadows Development Inc.
Edmonton, Alberta
Albrecht W. A. Bellstedt, QC
Executive Vice President
Law and General Counsel
TransCanada Corporation
Calgary, Alberta
Jack C. Donald
President and CEO
Parkland Properties Ltd.
Red Deer, Alberta
Allan W. Jackson
President
ARCI Ltd.
Calgary, Alberta
Wendy A. Leaney
President
Wyoming Associates Ltd.
Toronto, Ontario
Robert A. Manning
President
Cathton Holdings Ltd.
Edmonton, Alberta
Gerald A.B. McGavin, FCA, CM
President
McGavin Properties Inc.
Vancouver, British Columbia
Howard E. Pechet
President
Mayfield Consulting Inc.
La Jolla, California, USA
Robert L. Phillips
President
R.L. Phillips Investments Inc.
North Vancouver, British Columbia
Larry M. Pollock
President and Chief Executive Officer
Canadian Western Bank and Trust
Edmonton, Alberta
Alan M. Rowe, CA
Senior Vice President,
Chief Financial Officer and
Corporate Secretary
Crown Life Insurance Company
Regina, Saskatchewan
Arnold J. Shell
President
Arnold J. Shell Consulting Inc.
Calgary, Alberta
AWARDS OF EXCELLENCE
Awards of Excellence recognize employees who display qualities for which CWB is known and which are inherent under the brand Think Western®.
Award recipients for 2004 include:
Deb Lehune
Debbie Mackisey
Kim Merkosky
Ornella Morgan
Jeff Picardel
Jennifer Skoreiko
Shin Tsuchida
Greg Wyma
All CWT Staff ( joint award)
70 CWB 2004 ANNUAL REPORT
SHAREHOLDER INFORMATION
Canadian Western Bank and 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
Suite 2200, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 685-2081
Fax: (604) 669-6069
Website: www.cwt.ca
Canadian Direct Insurance Incorporated
Suite 217, 610 – 6th Street
New Westminster, British Columbia V3L 3C2
Telephone: (888) 225-5234
Fax: (604) 517-3224
Website: www.canadiandirect.com
Valiant Trust Company
Suite 310, 606 – 4th Street S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 233-2801
Fax: (403) 233-2857
Stock Exchange Listing
The Toronto Stock Exchange
Share Symbol: CWB
Transfer Agent and Registrar Mailing Address
Valiant Trust Company
Suite 310, 606 – 4th Street SW
Calgary, Alberta T2P 1T1
Telephone: (403) 233-2801
Fax: (403) 233-2857
Corporate Secretary
Gail L. Harding
Vice President and General Counsel
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 3, 2005 at the Fairmont Palliser
Hotel, 133 - 9th Avenue S.W., Calgary, Alberta at 3:00 p.m. (MST).
Investor Relations
For further financial information contact:
Matt Colpitts
Senior Manager, Investor and Public Relations
Canadian Western Bank
Telephone: (780) 441-3770
Fax: (780) 423-8899
E-mail: InvestorRelations@cwbank.com
or visit our website at www.cwbank.com
Online Investor Information
Additional investor information including supplemental financial
information and a corporate presentation is available on our website
at www.cwbank.com
Complaints or Concerns regarding Accounting, Internal
Accounting Controls or Auditing Matters
Please contact either:
Tracey C. Ball
Executive Vice President and Chief Financial Officer
Canadian Western Bank
Telephone: (780) 423-8855
Fax: (780) 423-8899
E-mail: tracey.ball@cwbank.com
or
Robert A. Manning
Chairman of the Audit Committee
c/o 210 – 5324 Calgary Trail
Edmonton, AB T6H 4J8
Telephone: (780) 438-2626
Fax: (780) 438-2632
E-mail: rmanning@shawbiz.ca
CWB 2004 ANNUAL REPORT 71
Calgary
Calgary Main
606 – 4th Street S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 262-8700
Branch Manager – Doug Crook
Calgary Northeast
2810 – 32nd Avenue N.E.
Calgary, Alberta T1Y 5J4
Telephone: (403) 250-8838
Branch Manager – Glen Eastwood
Calgary Chinook
6606 MacLeod Trail S.W.
Calgary, Alberta T2H 0K6
Telephone: (403) 252-2299
Branch Manager – Lew Christie
Calgary Foothills
6127 Barlow Trail S.E.
Calgary, Alberta T2C 4W8
Telephone: (403) 269-9882
Branch Manager – Chris Minke
Red Deer
4822 – 51 Avenue
Red Deer, Alberta T4N 4H3
Telephone: (403) 341-4000
Branch Manager – Don Odell
Lethbridge
744 – 4th Avenue South
Lethbridge, Alberta T1J 0N8
Telephone: (403) 328-9199
Branch Manager – Don Grummett
Grande Prairie
11226 – 100 Avenue
Grande Prairie, Alberta T8V 7L2
Telephone: (780) 831-1888
Branch Manager – David Hardy
British Columbia
Vancouver
Regional Office
22nd Floor, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 669-0081
Regional Manager – Rod Sorbo
West Broadway
Suite 110, 1333 West Broadway
Vancouver, B.C. V6H 4C1
Telephone: (604) 730-8818
Branch Manager – Jules Mihalyi
Park Place
Suite 100, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 688-8711
Branch Manager – Rob Berzins
Vancouver Deposit
Processing Centre
Suite 2368, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 443-5175
Toll free: 1-800-663-1000
Branch Manager – Huguette Holmes
Coquitlam
310, 101 Schoolhouse Street
Coquitlam, B.C. V3K 4X8
Telephone: (604) 540-8829
Branch Manager – David McCosh
Courtenay
Unit 200, 470 Puntledge Road
Courtenay, B.C. V9N 3R1
Telephone: (250) 334-8888
Branch Manager – Alan Dafoe
BRANCH OFFICES
Alberta
Edmonton
Edmonton Main
11350 Jasper Avenue
Edmonton, Alberta T5K 0L8
Telephone: (780) 424-4846
Branch Manager – Keith Wilkes
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
St. Albert
300 – 700 St. Albert Road
St. Albert, Alberta T8N 7A5
Telephone: (780) 458-4001
Branch Manager – Ward Fleming
West Point
17603 – 100 Avenue
Edmonton, Alberta T5S 2M1
Telephone: (780) 484-7407
Branch Manager – Kevin MacMillen
Edmonton Deposit
Processing Centre
Suite 2200, 10303 Jasper Avenue
Edmonton, Alberta T5J 3X6
Telephone: (780) 423-8888
Branch Manager – Anna Lasic
72 CWB 2004 ANNUAL REPORT
2004 HIGHLIGHTS
• Record net income of $44.2 million, an increase of 16% over
the previous high in 2003
• Achieved our 66th quarter of profitability, a period spanning
more than 16 years
• Grew total revenues by 15%, with non-interest revenues up
a very strong 43%
• Grew loans by 11% - marking our fifteenth consecutive year
of double digit loan growth
• Demonstrated continued strong credit quality, with an
annual provision for credit losses of 0.25% of average loans
• Grew lower cost demand and notice deposit balances by
30%, a key factor in leveraging our core profitability
• Continued to lead the Canadian banking industry in
productivity as measured by our 49.8% efficiency ratio
(expenses to total revenues)
• Completed a major branch development program that
included two new and four significantly upgraded and
relocated branches, as well as one expanded branch
• Entered a third pillar of the financial services industry with
the acquisition of Canadian Direct Insurance Incorporated, a
direct provider of home and automobile insurance to over
130,000 policyholders in British Columbia and Alberta
• Enhanced our trust services with the acquisition of Valiant
Trust Company, a specialty trust company that provides
stock transfer and corporate trustee services to public
companies and income trusts
• Realized strong revenue and earnings contributions from
Canadian Direct and Valiant since their acquisition in
April 2004
PERFORMANCE TARGETS
We are pleased with our achievement against
2004 performance targets. The key target of 15%
net income growth was exceeded with actual
growth of 16%. Total revenue growth of 15% for
the year came in at the high end of our target
range of 12-15%. While loan growth of 11% was
slightly below the target of 12%, we achieved our
fifteenth consecutive year of double-digit loan
growth. We also continued a long trend of strong
and stable credit quality during the year and
achieved our target for loan loss provisions of
0.25% of average loans. Our efficiency ratio
reflects lower than expected revenue growth
from banking and trust operations as well as the
impact of the expense structure of Canadian
Direct Insurance.
Key financial targets for 2005 include earnings
growth of 15%, total revenue growth of 15-18%,
loan growth of 12% and continued strong credit quality with a provision for
credit losses of 0.25% of average loans. We expect continued growth across all
business lines and with our strong capital base, we are well positioned to address
new growth opportunities.
Net Income Growth
2004
Target
15%
Total Revenue Growth
12-15%
Loan Growth
12%
2004
Performance
16%
15%
11%
2005
Target
15%
15-18%
12%
Provision for Credit Losses as 0.25% or less
a Percentage of Average Loans
0.25%
0.25% or less
Efficiency Ratio
46.0% or less
49.8%
50.0% or less
Return on Equity
13-15%
12.9%
12% or greater
Return on Assets
0.98% or greater
0.97% 0.98% or greater
OUR HISTORY OF FINANCIAL GROWTH
Total Assets (millions)
Loans (millions)
Total Revenues (teb) (millions)
Net Income (millions)
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
0
$4,919
$2,692
$706
$341
1989
1994
1999
2004
$50
1984
$5,000
$4,000
$3,000
$2,000
$1,000
0
$4,005
$2,254
$601
$253
1989
1994
1999
2004
$15
1984
$200
$150
$100
$50
0
$153
$82
$12
$2
$23
1984
1989
1994
1999
2004
$50
$40
$30
$20
$10
0
$44
$20
$1
$2
$5
1984
1989
1994
1999
2004
Kelowna
Kelowna
1674 Bertram Street
Kelowna, B.C. V1Y 9G4
Telephone: (250) 862-8008
Branch Manager – Ron Baker
Kelowna Industrial Centre
#101 – 1505 Harvey Avenue
Kelowna, B.C. V1Y 6G1
Telephone: (250) 860-0088
Branch Manager – Jim Kitchin
Cranbrook Satellite Office
2009 – 5th Street South
Cranbrook, B.C. V1C 1K6
Telephone: (250) 426-1140
Account Manager – Mike Eckersley
Kamloops
Unit 112, 300 Columbia Street
Kamloops, B.C. V2C 6L1
Telephone: (250) 828-1070
Manager – Hugh Sutherland
Langley
100, 19915 – 64th Avenue
Langley, B.C. V2Y 1G9
Telephone: (604) 539-5088
Branch Manager – Craig Martin
Nanaimo
101, 6475 Metral Drive
Nanaimo, B.C. V9T 2L9
Telephone: (250) 390-0088
Branch Manager – Russ Burke
Prince George
300 Victoria Street
Prince George, BC V2L 4X4
Telephone: (250) 612-0123
Manager – David Duck
Surrey Strawberry Hill
1, 7548 – 120 Street
Surrey, B.C. V3W 3N1
Telephone: (604) 591-1898
Branch Manager – Rick Howard
Victoria
1201 Douglas Street
Victoria, B.C. V8W 2E6
Telephone: (250) 383-1206
Branch Manager – Gerry Laliberte
Saskatchewan
Regina
#100, 1881 Scarth Street
McCallum Hill Centre II
Regina, Saskatchewan S4P 4K9
Telephone: (306) 757-8888
Branch Manager – Trent Bobinski
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
230 Portage Avenue
Winnipeg, Manitoba R3C 0B1
Telephone: (204) 956-4669
Branch Manager – Robert Bean
Canadian Western Trust
British Columbia
Suite 2200, 666 Burrard Street
Vancouver, B.C. V6C 2X8
Telephone: (604) 685-2081
Toll free: 1-800-663-1124
Alberta
200 – 606 4th St. S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 717-3145
Manitoba
230 Portage Avenue
Winnipeg, Manitoba R3C 0B1
Telephone: (204) 956-4669
Valiant Trust Company
310, 606 4th Street S.W.
Calgary, Alberta T2P 1T1
Telephone: (403) 233-2801
Canadian Direct Insurance
Incorporated
British Columbia
Suite 217 - 610 6th Street
NewWestminster, British Columbia V3L 3C2
Telephone: (604) 525-2115
Alberta
11th Floor - 10250 101 Street
Edmonton, Alberta T5J 3P4
Telephone: (780) 413-5933
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FIVE YEAR FINANCIAL SUMMARY
($ thousands, except per share amounts)
Results of Operations
Net interest income (teb)(1)
Less teb adjustment
Net interest income
Other income
Total revenues (teb)
Total revenues
Net income from continuing operations(2)
Net income
Return on common shareholders' equity
Return on average total assets
Per Common Share
Average common shares outstanding (thousands)
Basic earnings per share
Net income from continuing operations
Net income
Diluted earnings per share
Net income from continuing operations
Net income
Dividends(3)
Book value
Market price
High
Low
Close
Balance Sheet and Off-Balance Sheet Summary
Assets
Cash resources and securities
Loans
Deposits
Subordinated debentures
Shareholders' equity
Assets under administration
Capital Adequacy
Tangible common equity to
risk-weighted assets
Tier 1 ratio
Total ratio
Other Information
Efficiency ratio (teb)
Efficiency ratio
Net interest margin (teb)
Net interest margin
Provision for credit losses
as a percentage of average loans
Net impaired loans as a percentage
of total loans
Number of full time equivalent staff(4)
Number of bank branches
$
$
$
$
2004
2003
2002
2001
$
117,236
3,898
113,338
36,099
153,335
149,437
44,161
44,161
12.9%
0.97%
$
107,655
2,992
104,663
25,326
132,981
129,989
38,193
38,193
12.9%
0.95%
$
91,284
2,449
88,835
22,136
113,420
110,971
29,612
29,612
11.2%
0.84%
$
85,501
0
85,501
19,758
105,259
105,259
30,145
30,145
13.5%
0.95%
2000
73,367
0
73,367
15,255
88,622
88,622
29,394
26,349
14.7%
0.95%
13,391
12,808
12,629
12,001
11,134
3.30
3.30
3.00
3.00
0.75
26.90
48.25
38.25
47.65
4,918,895
773,214
4,005,080
4,267,788
110,600
367,589
1,759,473
$
$
$
2.98
2.98
2.69
2.69
0.46
24.32
40.00
23.25
39.95
4,343,972
694,699
3,601,003
3,819,750
121,951
316,231
1,474,964
$
$
$
2.34
2.34
2.14
2.14
0.40
21.97
29.35
23.26
25.75
3,828,162
533,496
3,248,747
3,429,071
57,126
278,087
1,166,489
$
$
$
2.51
2.51
2.26
2.26
0.36
20.08
30.50
22.30
26.27
3,439,568
501,228
2,886,640
3,042,307
67,126
252,262
873,538
$
$
$
2.65
2.37
2.41
2.18
0.34
17.35
24.00
16.25
23.00
3,059,540
446,351
2,560,092
2,727,809
67,126
194,595
741,181
9.0%
9.0%
11.8%
49.8%
51.1%
2.57%
2.48%
0.25%
(0.36)%
936
29
8.9%
8.9%
13.1%
46.3%
47.4%
2.68%
2.60%
0.25%
0.13%
632
27
8.8%
8.8%
11.4%
50.7%
51.8%
2.60%
2.53%
0.26%
0.25%
583
27
9.3%
9.3%
12.5%
50.0%
50.0%
2.69%
2.69%
0.23%
0.17%
548
27
8.1%
8.1%
11.6%
54.3%
54.3%
2.64%
2.64%
0.21%
509
25
(1) Most banks analyze revenue on a taxable equivalent basis (teb) to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the
consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividend received is significantly lower
than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they
would have been had the tax-exempt securities been taxed at the statutory rate. Prior to fiscal 2002, tax-exempt security income was insignificant and no taxable equivalent
adjustments were made. The taxable equivalent basis does not have a standardized meaning prescribed by generally accepted accounting principles and therefore may not be
comparable to similar measures presented by other banks.
(2) The sale of our brokerage subsidiary closed February 16, 2000. The results of operations and the loss on disposal have been disclosed separately from continuing operations.
(3) The dividend policy was amended to be quarterly instead of semi-annual during the first quarter of fiscal 2004. The dividend rate for fiscal 2004 appears unusually high
as it includes the last semi-annual dividend of $0.30 per share paid in the first quarter and quarterly dividends of $0.15 paid in subsequent quarters.
(4) The increase in employees in 2004 is due to the acquisitions of Canadian Direct Insurance Incorporated and Valiant Trust Company.