SHARED VISION
WORKING TOGETHER TO REALIZE SUCCESS
Canadian Western Bank Group – Annual Report 2011
Canadian Western Bank Group at a Glance
(October 31, 2011)
Canadian Western Bank, along with
its subsidiaries and operating divisions,
comprise Canadian Western Bank Group
Subsidiary (Affiliate) Companies
Canadian Western
Bank Group
Employees†: 1,900+
Clients: 600,000+
Total assets: $14.7 billion+
President & CEO: Larry M. Pollock
Chairman: Allan W. Jackson
Canadian Direct Insurance
Employees†: 290+
Number of policies outstanding: 190,000+
Annual gross written premiums: $129 million+
Valiant Trust
Employees†: 40+
Client appointments in 2011 (#): 560+
Number of clients: 300+
Canadian Western Bank
Canadian Western Trust
Optimum Mortgage
Employees†: 1,200+
Consecutive profitable quarters: 94
Number of branches: 40
Employees†: 70+
Investment accounts (#): 47,000+
Total assets under administration:
$6.7 billion+
Employees†: 40+
Total mortgages: $930 million+
Number of client mortgages:
3,700+
Operating Division
Canadian Direct Financial
Established: 2008
Client deposits: $100 million+
Provinces and territories in Canada
where products are offered (#): 12
Operating Division
Adroit Investment
Management
Employees†: 10+
Total assets under management: $815 million+
Number of client relationships: 300+
Canadian Western Financial
Mutual fund representatives (#): 120+
Number of mutual fund clients: 3,000+
National Leasing
Employees†: 260+
Total leases under management: $770 million+
Number of leases outstanding: 60,000+
† Includes both full- and part-time employees
Five Year Financial Summary
($ thousands, except per share amounts)
Results of Operations
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 shareholders’ equity (2)
Return on assets (3)
Per Common Share
Average common shares outstanding (thousands)
Earnings per share
Basic
Diluted
Diluted cash (4)
Dividends
Book value
Market price
High
Low
Close
Balance Sheet and Off-Balance Sheet Summary
Assets
Cash resources, securities and resale agreements
Loans
Deposits
Subordinated debentures
Shareholders’ equity
Assets under administration
Assets under management
Capital Adequacy
Tangible common equity to risk-weighted assets (5)
Tier 1 ratio (6)
Total ratio (6)
Other Information
Efficiency ratio (teb) (7)
Efficiency ratio
Net interest margin (teb) (8)
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 (9)
Number of bank branches
2011
2010
2009
2008
2007
$
384,683
11,059
373,624
106,331
491,014
479,995
178,149
$
328,664
11,186
317,478
105,595
434,259
423,073
163,621
$
236,354
7,847
228,507
91,612
327,966
320,119
106,285
$
228,617
5,671
222,946
70,240
298,857
293,186
102,019
210,659
5,410
205,249
62,821
273,480
268,070
96,282
15.6%
1.20
17.1%
1.24
13.2%
0.86
15.9%
1.03
17.4%
1.18
72,205
65,757
63,613
63,214
62,354
$
$
$
$
$
2.26
2.12
2.18
0.54
14.36
31.75
24.00
28.50
$
2.26
2.05
2.09
0.44
14.08
26.59
19.85
25.36
$
1.51
1.47
1.49
0.44
12.16
23.00
7.52
21.38
1.61
1.58
1.59
0.42
10.70
32.20
14.67
18.44
$ 14,772,035
2,238,039
12,221,143
12,499,689
545,000
1,293,566
9,369,589
816,219
$ 12,701,691
1,876,085
10,496,464
10,812,767
315,000
1,148,043
8,530,716
795,467
$ 11,635,872
2,188,512
9,236,193
9,617,238
375,000
986,499
5,467,447
878,095
$ 10,600,732
1,798,137
8,624,069
9,245,719
375,000
679,148
4,347,723
8.6%
11.1
15.4
45.3%
46.3
2.82
2.74
0.20
0.21
1,796
40
8.5%
11.3
14.3
44.1%
45.3
2.74
2.64
0.21
0.62
1,716
39
8.0%
11.3
15.4
48.2%
49.4
2.10
2.03
0.15
0.68
1,339
37
—
7.7%
8.9
13.5
45.2%
46.1
2.30
2.25
0.15
0.19
1,284
36
1.54
1.50
1.50
0.34
9.48
30.86
20.78
30.77
9,525,040
1,961,241
7,405,580
8,256,918
390,000
595,493
4,283,900
—
7.7%
9.1
13.7
44.6%
45.5
2.58
2.51
0.16
(0.57)
1,185
35
(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 statements
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. The
taxable equivalent basis does not have a standardized meaning prescribed by generally accepted accounting
principles (GAAP) and, therefore, may not be comparable to similar measures presented by other banks.
(2) Return on common shareholders’ equity is calculated as net income after preferred share dividends divided
(5) Tangible common equity to risk-weighted assets is calculated as shareholders’ equity less subsidiary
goodwill divided by risk-weighted assets, calculated in accordance with guidelines issued by the Office of the
Superintendent of Financial Institutions Canada (OSFI). As of November 1, 2007, OSFI adopted a new capital
management framework called Basel II, and capital is managed and reported in accordance with those
requirements. Capital ratios prior to fiscal 2008 have been calculated using the previous framework.
(6) Tier 1 and total capital adequacy ratios are calculated in accordance with guidelines issued by OSFI. As
of November 1, 2007, OSFI adopted a new capital management framework called Basel II, and capital is
managed and reported in accordance with those requirements. Capital ratios prior to fiscal 2008 have been
calculated using the previous framework.
by average common shareholders’ equity.
(3) Return on assets is calculated as net income after preferred share dividends divided by average total assets.
(4) Diluted cash earnings per share is diluted earnings per common share excluding the after-tax amortization
of acquisition-related intangible assets.
(7) Efficiency ratio is calculated as non-interest expenses divided by total revenues.
(8) Net interest margin is calculated as net interest income divided by average total assets.
(9) The significant increase in the number of full-time equivalent staff in 2010 compared to the prior year
reflects CWB’s acquisition of National Leasing Group Inc., effective February 1, 2010.
Our History of Financial Performance
www.cwbankgroup.com
Total Assets ($ millions)
Total Loans ($ millions)
14,772
11,636
12,702
10,601
9,525
8,624
9,236
7,406
12,221
10,496
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Total Revenue (teb) ($ millions)
Net Income ($ millions)
491
434
178
163
299
328
273
96
102
106
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Provision for Credit Losses
(as a percentage of average loans)
Efficiency Ratio (teb)
(expenses to revenues)
44.6%
45.2%
48.2%
44.1%
45.3%
0.16%
0.15%
0.15%
0.21%
0.20%
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Performance Targets
Net income growth (1)
Net income growth, before taxes (teb) (2)
Total revenue (teb) growth
Loan growth
Provision for credit losses as a percentage of average loans
Efficiency ratio (teb)
Return on common shareholders’ equity (3)
Return on assets (4)
2011
Minimum Targets
2011
Performance
6%
10%
12%
10%
0.20 to 0.25%
46% or less
15%
1.20%
9%
11%
13%
16%
0.20%
45.3%
15.6%
1.20%
(1) Net income before preferred
share dividends.
(2) Net income before income
taxes (teb), non-controlling
interest in subsidiary and
preferred share dividends.
(3) Return on common equity
calculated as net income after
preferred share dividends
divided by average common
shareholders’ equity.
(4) Return on assets calculated
as net income after preferred
share dividends divided
by average total assets.
No matter what you want to achieve, it helps to work
alongside people who share the same vision. Here
at Canadian Western Bank Group (CWB Group), we’re
proud that our management teams and dedicated
employees share a common vision of what a financial
institution can, and should, be. This shared commitment
to provide exceptional service and customized client
solutions has shaped how we have done business
since our inception almost 30 years ago, and it’s how
we continue to serve our clients and add value for
shareholders today. It has created an organization that
is focused, aligned and strong enough to both embrace
opportunities and weather challenges. It has directed
our success and growth, and allowed us to do what
we do while always striving to do better.
In the pages that follow, you’ll learn more about CWB Group’s successes and initiatives over the
past year. You’ll see how our shared vision guided us as we achieved record financial performance
despite uncertainties in the global economy and financial markets. You’ll also discover how this
vision shapes our strategies to deliver products and services that help our clients achieve their
financial goals. We are confident that our pursuit of this shared vision will give CWB shareholders
the best possible return on their investment over time.
Table of Contents
1
2
4
Shared Vision
CWB Group
An Interview with Larry Pollock,
President and CEO
8
An Interview with Allan Jackson,
Board Chair
Canadian Western Bank
Canadian Western Financial
Canadian Direct Financial
National Leasing
Canadian Western Trust
Optimum Mortgage
Valiant Trust
Canadian Direct Insurance
Adroit Investment Management
Corporate Social Responsibility
Corporate Governance
Board of Directors
Executive Committee and
Senior Officers
Shareholder Information
Award of Excellence Recipients
10
14
15
16
17
18
19
20
21
22
28
29
31
32
32
33 Management’s Discussion and Analysis
84
Financial Statements
CWB Group 2011 Annual Report • SHAREDVISION
1
Shared Vision
CWB Group
The ability to listen to and understand your
clients’ needs while helping them reach their
goals is essential to building a successful
financial services organization. You also need
extraordinary employees who are guided
by strong principles and who can deliver the
right combination of products and services.
Operating across multiple pillars of the financial
services industry requires a group of companies
that are driven by a common vision of what
really matters. We believe we offer our clients
and shareholders exactly that.
Our focus on taking care of our clients,
employees and our communities has served
us and our shareholders well for almost three
decades. It has helped us grow and evolve,
while ensuring we stay true to our fundamental
values. It has guided us successfully through
numerous economic cycles, including the
fallouts of a global financial crisis. It has made
us who we are today – and continues to
shape who we will become.
CWB Group is made up of Canadian Western
Bank (CWB or the Bank) and eight operating
companies/divisions that offer services in the
areas of banking, trust, insurance and wealth
management. We currently serve clients across
Canada through our network of 40 banking
branches, corporate headquarters, a centralized
equipment leasing office, eight trust locations,
two insurance call centres and one wealth
management location.
CWB’s affiliate companies include National Leasing,
Canadian Western Trust, Valiant Trust, Canadian
Direct Insurance, Adroit Investment Management
and Canadian Western Financial. Canadian Direct
Financial is a division of the Bank, while Optimum
Mortgage is a division of Canadian Western Trust.
As Western Canada’s largest publicly traded
Canadian bank, we have combined balance
sheet assets of almost $15 billion, including more
than $12 billion of total loans. Our assets under
administration surpassed $9 billion in 2011 and
assets under management are approaching
$1 billion. Together, the CWB Group now employs
more than 1,900 people in 50-plus communities
across Canada.
CWB Group Employees by Province
Manitoba
Ontario (and other)
936
Alberta
652
British Columbia
254 65
32
Saskatchewan
2
SHAREDVISION • CWB Group 2011 Annual Report
“CWB Group’s strength is
based on the talents and
dedication of our diverse
team of employees.
We are not just a bank;
together, we represent
a growing financial
institution that offers
a full range of products
that are delivered with
the exceptional level
of personal service that
our clients have come
to expect.”
Tracey Ball, Executive Vice President
and Chief Financial Officer
Canadian Western Bank
Our shared vision
CWB Group’s vision and mission guide how we
work. We provide exceptional service and deliver
customized client solutions in areas where we
have proven expertise. We are headquartered in
Western Canada and have a unique understanding
of both the opportunities and challenges that
exist in our key markets. We’ve also proven that
the right mix of organic growth and carefully
considered strategic acquisitions are an effective
way to expand our client offerings and increase
value for CWB shareholders. Finally, we know our
conservative growth strategies – backed by high
quality assets, a strong capital base and an ongoing
focus on business fundamentals – have been
integral to what we’ve achieved so far. As we look
to the future, we believe this understanding makes
us a smart choice for both clients and investors.
Our shared vision of what’s important and
what’s possible has guided the development of
CWB Group’s vision to “be crucial to our clients’
futures.” It has also driven the development of
our strategic plan which is based on two themes:
“do what we do, only better,” and “make the
whole worth more than the sum of the parts.”
For us, this means continuing to improve upon
the things that make us successful. We also
recognize many of our clients don’t realize most
of their financial needs can be met right here –
by people they already know and trust. This means
we have to work harder to help clients recognize
the full range of services CWB Group can provide.
CWB Group’s
Executive Team
Left to Right: Tracey
Ball, Randy Garvey,
Chris Fowler,
Brian Young,
Bill Addington
and Larry Pollock
CWB Group 2011 Annual Report • SHAREDVISION
3
An Interview with Larry Pollock
President and Chief Executive Officer (CEO)
Q. The theme of this year’s annual report
is “Shared Vision.” How has a shared vision
contributed to CWB Group’s historical
success, and how important is it for the
Group’s future?
A. First of all, I believe it’s crucial for everybody
who works for this organization to share a
similar set of core values and to appreciate
the importance of our strong organizational
culture. If you hire people or acquire companies
that want or believe in something completely
different, it’s going to be very challenging to
manage, let alone cultivate success. When
everybody shares the same vision, we know
we’re all pulling in the same direction and very
few changes are necessary. National Leasing
is a good example of this. When they first joined
us, the President asked, “What’s going to change
for us?” and I said, “The shareholder.” That was
all. We knew there were areas where we could
help each other do better, but nothing else
needed to change because we already shared
a similar vision.
Q. CWB Group had another year of record
performance in 2011. When you reflect
on the past year, are there any particular
highlights that stand out for you?
A. I think in order to reflect on our successes
this past year, you need to look even further
back to the recessionary period in 2008-2009.
To support our clients through those tough
times, we knew we should be highly liquid and
have lots of capital because that’s when many
of them needed us the most. We also wanted
to continue to grow, which we did, and it’s
really phenomenal because many other banks
were shrinking during that period as they re-
evaluated their priorities. In fact, over the past
22 years, we’ve never had a year where we
didn’t grow. And, of those 22 years, 21 were
years with double-digit loan growth. We had
tremendous 16 per cent loan growth in 2011 –
which I believe was much higher than anyone
else in the industry – and I think that’s largely
the result of what we did during the recession,
when we stood by our clients and continued
4
SHAREDVISION • CWB Group 2011 Annual Report
to lend. We also attracted a lot of new clients.
Our commitment to continue to invest in the
development of our people and infrastructure
is also paying off nicely for us. We continue to
focus on our core businesses, our people and
our clients. We believe our success in taking care
of these key factors is what will ultimately build
value for CWB shareholders over time. That’s
why we developed our strategic theme of
“do what we do, only better.”
Q. The business strategies have always
been focused on specific areas of financial
services, whether you’re speaking
about product offerings or your primary
geographic footprint in Western Canada.
How has this focus contributed to CWB
Group’s success, and will you maintain this
strategy in the future?
A. In order to be successful, we’ve always felt
you need to be a little bit different, particularly
when most of our competitors are much larger
organizations. We like to think of ourselves
as relationship builders. When we saw the
industry moving away from relationship-based
financial services many years ago, particularly
on the business banking side, we knew it was
an opportunity for us. When you call us, we
answer the phone – every time. When you walk
into one of our branches or offices, our goal is to
provide thoughtful service right away, because
a person’s money or their business is very
personal to them. Their time is important, too.
People don’t want to deal with some impersonal
entity. We’ve also found that concentrating our
efforts on doing certain things really well is a
much more effective strategy than trying to be
all things to all people. Being headquartered
in Western Canada is definitely an advantage
because it allows us to grow in our own
backyard, a place where we are best positioned
to identify the opportunities and challenges in
our key markets. Our business focus also allows
us to offer an increased level of expertise and a
unique perspective on issues that are relevant
to our clients. We are different, and we provide
a different brand of service.
“We believe our
success in taking care
of our core businesses,
our people and our
clients is what will
ultimately build value
for CWB shareholders
over time.”
Q. The CWB Group is now comprised
of several businesses that offer services
across different pillars of the financial
services industry. Can you explain some
of the synergies among the companies
in CWB Group and if there are additional
opportunities to offer more services to
existing clients?
A. People have a relationship with us, so our
ability to offer clients a range of products
and services across the different pillars of our
business means they can get more of what they
need directly from us, an organization they
already know and trust. Clients really appreciate
that. Our challenge is we haven’t let many of
our existing clients know about all the other
products and services we offer. So we’re working
on that. Sometimes this can be as simple as
asking our clients for the right to earn more of
their business. We’re also taking additional time
to identify cross-partnering opportunities. These
initiatives are the primary focus of our second
strategic theme to “make the whole worth more
than the sum of the parts.”
Q. CWB Group has a long history of strong
growth achieved through a combination
of organic development and successful
acquisitions. How is CWB Group positioned
to maintain its strong organic growth?
A. Our business model has always been built on
organic growth, whether it’s the Bank or any
of our affiliate companies. We still have lots of
untapped potential across all our businesses.
In addition to achieving record results this year
within the Bank, National Leasing’s earnings
were far beyond their best year ever. Canadian
Western Trust, which also includes Optimum
Mortgage, had a record year as well. Valiant
Trust continued to develop and is now much
larger than when we acquired it. Canadian
Direct Insurance continues to grow steadily
and, in addition to contributing solid earnings
growth, provides good diversification because
it’s less susceptible to economic swings.
People sometimes ask why our dividend payout
ratio is low compared to the large Canadian
banks. It’s because we reinvest a much greater
share of our earnings to build our capital and
support growth. We also leave the capital in
place within our various companies so we can
say, “use it to grow.” Because, if you have the raw
materials to grow, you will. We know it works.
In fact, we’re projecting double-digit growth
again for 2012.
Q. Are you currently looking at any
acquisition opportunities?
A. We’re always interested in purchasing high
quality loan portfolios, but, when it comes
to strategic acquisitions, you have to be more
patient. We never budget for an acquisition.
If it happens, it’s great; if it doesn’t, that’s okay,
too. We’re looking for the prince among the
frogs. As I mentioned, we believe we still have
lots of growth potential organically, so we’re
happy to wait for an acquisition that we know
is a good fit with both our culture and our
current lines of business. We’ve learned over
the years that patience is a huge benefit, and
sometimes your best possible move when
considering a potential acquisition is no
move at all.
Q. In light of macroeconomic factors and
ongoing uncertainty in the United States
(U.S.) and globally, what are your thoughts
on Canada’s economic outlook? How
do you expect this will impact CWB
Group’s businesses?
CWB Group 2011 Annual Report • SHAREDVISION
5
“Our growth numbers
are very impressive, as
was the improvement
in the quality of our
loan portfolio, but
I’m most proud of the
incredible people we
have working here.”
An Interview with Larry Pollock (Continued)
President & CEO
A. I think Canada is in great shape compared
to the rest of the world, but we also have to be
mindful of global economic risks outside our
control. We’ve got a positive outlook, particularly
for our key markets in Western Canada. However,
if Europe goes into a further tailspin due to debt
problems, or the U.S. goes back into recession, or
if growth in China drops significantly, there’s no
doubt these types of circumstances would have
an impact on our markets and our customers.
So, we always closely monitor these things.
We’re prepared for challenges, but maintain
a positive view. We have lots of capital, low
leverage and we’re ready to take advantage
of opportunities. We’re very pleased with our
strategy, and it’s working well for our clients and
our shareholders.
Q. What would you say are the most
significant risks faced by Canadian financial
institutions in today’s environment?
A. Risks and uncertainties with regard to global
banking regulations are definitely something
we’re monitoring very closely. The industry is
evolving toward much more stringent global
capital and liquidity standards. The new rules
will be implemented starting in 2013, and
Canadian banks are generally very well
positioned to meet the requirements, but I
think regulators and governments have a very
challenging job to ensure they maintain effective
regulatory standards without inhibiting the
ability of banks to support economic growth
through lending. Regulations also need to
ensure Canadian banks stay on a relatively level
playing field with global banks that may be
subject to less stringent rules. That being said,
with change there’s always opportunity.
What are the potential advantages for us?
Fortunately, CWB already meets the higher
capital standards so, as we move forward,
we need to determine how to better take
advantage of this enviable position.
Q. Can you explain what you are currently
seeing in your markets as it relates
to competition?
A. We’re seeing that growth is a challenge
for many of our competitors and a lot of them,
in order to achieve growth, are price cutting.
And that puts additional pressure on margins in
an already low interest rate environment. When
stores have a lot of inventory and they need to
sell more product, they have a sale. That’s what
we’re seeing right now. There’s an industry-
wide focus on growing market share, so there’s
a sale on money. It certainly does affect us, but
some of our business lines are a bit different, so
we can manage the pressure more easily. Our
heavy equipment financing is a good example.
This is a big part of our business, but it’s not an
area that’s top-of-mind for most of our larger
banking competitors. And the competitors we
do have – the factory finance companies and
others – often don’t offer the same full range
of services we do, or have the same channels
for funding. We can give clients products like
a business bank account, preapproved lines
of credit or payroll services, whereas many of
our competitors are simply transactional. As
I previously mentioned, the benefit we receive
from the relationships built during the tough
times is also significant.
Q. You have a very deep and highly
experienced management team.
How is the team structured under
your leadership, and how do you see
this talent contributing to the Group’s
ongoing success?
A. We have one chief operating officer and four
executive vice presidents who report to
me. Each one of them runs a part of our
organization – I only provide direction to them.
The head of National Leasing also reports to
me. Our management structure works well
by providing short lines of communication,
so we all know what’s going on and can make
decisions quickly. We develop strategies as
6
SHAREDVISION • CWB Group 2011 Annual Report
a team, and the depth and experience of our
management means I’m quite often just the last
bounce to provide some additional perspective
and a final answer. And I guarantee that when
you ask me a question you will get an answer.
That has been my management style for my
entire career, and I can tell you it pays off.
I may not always be right, but I’d hope others
would see me as batting nine out of ten.
All members of the executive management
team have been hand-picked for their jobs.
And there’s a solid layer of experience and talent
behind them as well. There is a succession plan
charted for every key position. We’re fortunate
we have exemplary employees at every level.
Our people are self-motivated to do their best
and care about the company in ways that go
beyond their job descriptions. One good example
this past year was when Marie Thompson, a
telecommunications officer, found the Bank
had been incorrectly charged for several years
by one of our service providers. She took it
upon herself to track down the appropriate
information and succeeded in getting the
Bank a refund. It was a significant amount,
so this was no small task. We encourage people
to make their own decisions and do what’s
right, and that’s exactly what Marie did.
Q. You have been President and CEO for
over 22 years. Can you speak a bit about
your personal plans moving forward over
the next few years?
A. At 22 years, I may just be the longest serving
chief executive officer in Canada’s banking
industry. I’m quite proud of that. In the early days,
the Bank was very small, and it was really a labour
of love. I joined because I saw it as a tremendous
opportunity to build something. I’ve been very
fortunate to be a part of this. I always tell people
the real satisfaction in life is doing something
every day that you enjoy. And I’m definitely still
enjoying every day of my time at CWB Group.
Once I step down from this role, I will stay on
for another two years as a special consultant
to the Board of Directors – so I’ll be involved for
awhile yet. I love business and the challenge
of identifying opportunities and proposing
solutions. And there are still many things I
want to see accomplished here before I leave.
A few years ago, we established five-year
performance targets that included a goal to
surpass $200 million of net income by the end
of 2013. I’m optimistic that before I’ve completed
my time as CEO we’ll be positioned to adjust
that target upward quite a bit.
Q. What were you most proud of during
the year?
A. I think our growth numbers are very impressive,
as was the improvement in the quality of
our loan portfolio, but I’m most proud of the
incredible people we have working here.
They’re the biggest part of our success. I’m
particularly proud of the development of some
of our younger people. I recently met with our
equipment financing group and I asked how
many came through our management associate
program. I bet about 35 hands went up out of
the 70 people in the room. That’s just incredible,
because we hired and trained most of these
people right out of school. It’s a great example
of the benefits of both growing your own talent
and giving people strong career opportunities.
Q. Looking ahead, what are CWB Group’s
key objectives for 2012 and beyond?
A. Our objective is to remain focused on our core
businesses and build on our history of double-
digit growth. Overall, we’re very excited about
our future, in both the short term and the
long term. I’m looking forward to CWB Group
posting another year of record performance
in 2012 – that’s what we’ve budgeted for –
and we’ll see where we go from there. The
possibilities are pretty remarkable.
Marie Thompson receives recognition from CWB
Group and Larry Pollock for going above and
beyond in her role as telecommunications officer.
CWB Group 2011 Annual Report • SHAREDVISION
7
“I’m proud to say I believe
our Board members and
management teams all
share a similar set of
core values, while still
thinking independently
about shared objectives.”
An Interview with Allan Jackson
Board Chair
Q. You’ve just completed your first full
year as Chair of the Board of Directors
(the Board) – what has been your main
focus and how have things changed
under your leadership?
A. Our main focus has always been on people
and strategy, and I wouldn’t say that has really
changed. We try to spend most of our time on
strategic questions – questions related to the
businesses of CWB Group: What are the risks
we face? How are our markets changing?
What are we best at? What do our clients want?
What can we do better?
Q. When you say the Board is focused
on people, what does that mean?
A. It means we look at what our employees
need to be happy and productive because –
like any business – a company is only as
good as its people. So we make it a priority
to work with management to ensure we
provide our people with the right tools,
the right training and the opportunity to
advance in their careers. We have to listen
to feedback– both ideas and criticism – and
be prepared to support change. We believe
companies that focus on the needs of their
clients, and their people, always succeed.
And that means the shareholders succeed.
Q. How important is a shared vision to
the Board and the work you do?
A. I believe it’s vitally important to have a shared
vision that guides where an organization is
trying to go. Otherwise, it’s very difficult to
succeed. CWB’s strategies are developed
based on broad input from various levels
throughout the Group. Once established
and approved by the Board, we work together
to ensure the strategies are effectively
implemented. The Board and management
also have to be open to identifying changed
circumstances, and, if warranted, be ready
to act. I’m proud to say I believe our Board
members and management teams all share
a similar set of core values, while still thinking
independently about shared objectives.
8
SHAREDVISION • CWB Group 2011 Annual Report
Q. What do you think are CWB Group’s
most important competitive
advantages?
A. Without doubt, I think our number one
advantage is our people. There is just no
substitute for talented, hard-working
people. Even with a great idea, you need
the right people to pull it off effectively,
and that’s what we have.
I think our second competitive advantage
is we stay focused on doing what we
understand, and doing it well. We’re
always open to new ideas, but we need to
understand how something works or how
it leverages our skills, or we don’t go after
it. When you look over the fence and see
someone else making a lot of money at a
particular business, it can be tempting to
pursue it. At the end of the day, you need
discipline to remain focused on what you
do best. It means ignoring many potential
distractions while still staying open to real
opportunities in your markets.
Q. How do the contributions and expertise
from the Bank’s affiliate companies
make CWB Group stronger?
A. Typically, when we expand through
acquisition, we’re dealing with a closely
related business like National Leasing.
National Leasing specializes in the small-
and mid-ticket leasing business, which was
a part of the leasing business we weren’t
in. We believed we could learn from each
other. And we have.
It also works well when we find related
businesses that can offer services to
existing CWB Group clients. A good
example is Adroit, which now provides
investment management services to many
banking clients, and to the Bank itself. Or
Valiant Trust, which provides stock transfer
and related shareholder services to public
companies, some of which are also clients
of the Bank. In both these situations, as well
as others, there are also opportunities for
the Bank to provide services to the clients of
these businesses – so it works both ways.
“CWB Group once
again met or exceeded
all growth targets in all
categories, across all
divisions.”
We are also very proud of the success of
Canadian Western Trust and Canadian Direct
Insurance. In fact, in 2011, Canadian Direct
was named “Highest in Customer Satisfaction
among Auto Insurers in Western Canada,”
by J.D. Power and Associates.
Our affiliate companies also bring great
people into the CWB family. We’ve benefited
from their talent while giving them more
opportunities to grow and develop. In turn,
both our financial performance and client
service get better and better.
Q. CWB added three new members to its
Board in 2011. What type of attributes
and experience do you look for when
recruiting new Board members?
A. We always start by looking for individuals
who share a common view of what’s
important. For us, that means integrity with a
firm belief in the importance of being service-
oriented and people-focused – the attributes
that underpin the values of the CWB Group.
If you share these, you’re very likely to buy
into the vision. As a Board, we believe that
providing a great place to work and offering
a high level of customer service are what
drives success and, ultimately, the bottom line.
We also look for individuals with a strong
business background, a reputation for
clear thinking, common sense and the
strength to stand up for what they believe
is right. Then we look for specific skills that
we know will complement the skills of
those who already serve on the Board.
Q. Has the Board made any recent changes
in terms of corporate governance?
A. With the financial crisis that occurred in 2008,
the entire banking industry worldwide and
its regulators started focusing on better ways
to identify and manage risk. CWB Group has
always managed its risks wisely and, as a
result, I think we came through the banking
crisis as well as any bank. We’re very proud
of that. Even through the worst of the crisis,
we were profitable every quarter. In fact,
we posted record net income in 2008 and
each year since. We’ve been profitable for 94
consecutive quarters, which is a phenomenal
record. Still, we always strive to do better. Over
the past year, we’ve been developing a more
robust risk management framework that will
help us better understand all the risks we face
and how they are interrelated, and ensure
we have the tools to identify and address
emerging risks. However, it’s important to
note the objective is not to eliminate risk.
Risk is the business we’re in. The objective
is to make sure it is managed prudently.
Q. Larry Pollock has been the President
and CEO for more than 20 years
– what are the Board’s plans to
identify CWB Group’s next leader?
A. Larry has announced he will retire as
President and CEO in March 2013, and we’re
already well along in our succession planning
process. Larry has led the organization
to become what it is today. Through that
process, he has also built an incredibly
talented management team that, like our
Board, firmly believes in our shared values
and vision of what’s important for CWB
Group and our clients. Whoever steps into
Larry’s role will be very fortunate to have
a remarkably strong and committed team
behind them, not only at the executive
level, but at all levels within CWB Group.
Q. From your perspective, what was
CWB Group’s most significant achievement
over the past year? Did anything
surprise you?
A. I think our most significant achievement in
2011 is that CWB Group once again met or
exceeded all growth targets in all categories,
across all divisions. And no, it didn’t surprise
me. I’m always impressed, but I’m not
surprised anymore by what the people
in this organization can do.
CWB Group 2011 Annual Report • SHAREDVISION
9
Canadian Western Bank
cwbank.com • theworkingbank.ca
It’s amazing how much you can accomplish
in just over a quarter of a century. When we
finished our first year of operations in 1984,
we had only 25 employees and assets of just
$50 million. Today, Canadian Western Bank
(CWB or the Bank) has assets approaching $15
billion and is the seventh largest Schedule I bank
in Canada measured by market capitalization.
We take a common-sense approach to banking,
with most of our revenues earned through
traditional spread lending. This means we take
client deposits and responsibly use this money
to offer sensible loans to businesses and
individuals across Western Canada and other
select regions. Simply put, the difference
between what we earn on loans and what we
pay on deposits is referred to as net interest
income, or the spread on loans. While this may
seem almost too straightforward in today’s
highly complex world, that’s the way we like it.
We’ve proven that a
relatively simple strategy
can be highly effective.
This common-sense approach continued
to serve us well throughout 2011. Despite
market volatility and global economic
uncertainties, we achieved record total
revenues, on a taxable equivalent basis (teb),
of $491 million, record net income of $178
million and exceptional annual loan growth
of 16 per cent. Our provision for bad loans
also remained very low, representing only
0.20 per cent of average loans outstanding.
We realized our 94th consecutive profitable
quarter, which marked almost 24 years of
uninterrupted profitability. We also opened
our 40th branch in Western Canada with
a new full-service business and personal
banking centre in Richmond, British
Columbia (BC). Looking forward, we plan
to further develop our infrastructure in a
cost-effective manner that will both enhance
service and facilitate future growth.
Composition of CWB Group 2011 Total Revenues (teb)
Breakdown of Other Income Categories
78%
Net Interest
Income (teb)
22%
Other Income
Categories
7%
4%
4%
2%
2%
3%
10
SHAREDVISION • CWB Group 2011 Annual Report
Credit related
Insurance, net
Trust and wealth
management
Retail services
Gains on sale of securities
Other
Scott Weiss, AVP, Real Estate Lending
Canadian Western Bank
CWB Group Loans by
Location of Security
(October 31, 2011)
46%
What we do best
Our focus from the start has been to build on
our expertise in business banking for small-
to mid-sized companies. We are positioned to
understand the unique needs of business clients
in Western Canada and we also recognize their
significant potential. We specialize in general
commercial lending, equipment financing
and leasing, commercial real estate financing,
real estate construction financing, and energy
lending. A quick glance at this list shows that
our areas of expertise are a reflection of the
industries that drive much of Western Canada’s
economic prosperity. And that’s no coincidence.
Our commitment to serving the banking needs
of our business clients is reflected in our ongoing
awareness advertising campaign. Now in its
third year, “The Working Bank®” marketing
and sales activities have created new business
opportunities for CWB. The latest campaign
theme, “The Way We Work,” expands on the
original messaging and increases awareness
of what we do and what we offer in our key
markets. We know what it takes for businesses
to grow and succeed, and confirm this expertise
by offering a series of customer testimonials
and profiles in both our advertising and on our
website theworkingbank.ca. We understand
our clients’ businesses and we share their
entrepreneurial spirit.
In addition to our many business banking
offerings, we also have a full range of personal
banking products and services – everything
from personal chequing/savings accounts
to Guaranteed Investment Certificates (GICs),
mortgages, personal lending and a wide range
of third-party mutual funds. Many of our
business clients are also personal clients
because they recognize that our commitment
to exceptional service and customized
solutions applies to everything we do.
Whether it’s a business looking for a bank
that understands its needs, or individuals
who appreciate a uniquely western Canadian
banking experience, we work to build lasting
professional relationships with our clients. We
think the fact that so many of our first clients are
still with us today speaks volumes about what
we offer and the way we do business. And we’re
working hard to ensure they have every reason
to stay with us for many years to come.
Loans by Lending Portfolio (October 31, 2011)
22%
21%
15%
17%
16%
Commercial
mortgages
General
commercial
loans
Real estate
project
loans
Personal
loans &
mortgages
Equipment
financing &
leasing
Corporate
loans
Oil & gas
production
loans
6%
3%
CWB Group 2011 Annual Report • SHAREDVISION
11
Alberta33%6%12%3%British ColumbiaSaskatchewanOntario (and other)Manitoba “When it comes to
building long-term
relationships, trust is
essential. Our clients
know who we are and
what we stand for, and
they can be confident
that we’ll be here in both
the good times and the
bad to support them in
reaching their goals.”
Randy Garvey
Executive Vice President
Canadian Western Bank
Canadian Western Bank
cwbank.com • theworkingbank.ca
The right way to work
We’ve always held ourselves to the same
standards our clients use to measure their
success. We work hard and stay focused on
what we understand and do best. We endeavour
to make smart decisions and always look for
ways to improve our efficiency and increase
productivity. In fact, CWB has one of the best
efficiency ratios in the financial services industry.
The efficiency ratio measures how much we
spend on operating costs to earn $1 of revenue.
CWB’s efficiency ratio of 45.3 per cent means
we spent less than 46 cents to generate every
$1 of revenues in 2011 – this compares to the
average of Canada’s six largest banks of 58.5
per cent. We believe our commitment to focus
on what matters, while keeping expenses down
and productivity up, matches how our clients
run their businesses.
This year’s implementation of our new loan
origination system in all CWB branches is a good
example of how we enhance our business and
increase efficiency. This new system, named
WAVE™, provides a streamlined credit application
process that will allow us to make faster credit
decisions and improve client response times.
It will give our account managers more time
to spend with clients, getting to know their
business and building even better relationships.
In addition to making the entire loan process
quicker and more efficient, WAVE™ will also
significantly enhance our tracking and portfolio
management capabilities. This adds value for
shareholders by giving us more tools to further
optimize the Bank’s credit profile and overall
capital structure.
Our focus on efficiency is balanced with
our efforts to grow and diversify the Bank’s
revenues. We plan to increase sources of
fee-based income by enhancing product
offerings and expanding our business banking
relationships with existing clients. Our success
in growing and diversifying the Bank’s deposit
base will ensure we can support sustained asset
growth. This includes further developing our
strong base of branch-raised deposits as well as
other efficient funding sources. One significant
success in further diversifying our funding base
in 2011 was our first-ever issuance of floating
rate deposits in the debt capital markets.
Efficiency Ratio (teb) - Industry Comparison
62.8%
62.1%
60.9%
57.6%
58.5%
44.6%
45.2%
48.2%
44.1%
45.3%
2007
2008
2009
2010
2011
12
SHAREDVISION • CWB Group 2011 Annual Report
CWB Group
Average of the six
largest Canadian
banks(1)
(1) Average of the six
largest Canadian banks
is calculated based on
information contained
in the publicly available
company reports of the
following (TSX Trading
Symbols): BMO, BNS, CM,
NA, RY, and TD.
“We’ve always remained
focused on the industries
and opportunities we
understand because our
competitive advantages
are centred on doing
what we do best. That
being said, we also
recognize there are
many ways we can
do things better.”
Chris Fowler
Chief Operating Officer
Canadian Western Bank
We constantly look for strategies to improve
profitability while staying true to our service
commitment. Many people come to us
because they appreciate our ability to deliver
outstanding service, competitive products and
client-focused solutions. Once they’ve worked
with us, they know we will recommend what
we believe are the best ways for them to reach
their goals. We view our clients as partners;
we support them and value their choice to do
business with us. And that, in turn, allows us to
build value for CWB shareholders.
We also work to help our employees reach
their professional and personal goals. We value
their contributions and offer them a positive,
diverse work environment that recognizes
their successes, encourages their community
involvement and creates opportunities for
professional growth. Our commitment to being
an employer of choice resulted in CWB being
named one of the 50 Best Employers in Canada
for the sixth consecutive year.
Additional key factors that allow us to
maintain consistent profitability are our
strong credit discipline and secured lending
practices. We take pride in our ability to
provide clients with the financing they
need, while also ensuring we are not
taking any undue risks for CWB’s other key
stakeholders. This requires us to understand
the financial metrics and security behind
every loan. We also work closely with our
clients to quickly and effectively manage
troubled accounts. This unwavering
commitment to strong credit underwriting
has led to lower loan losses for CWB
compared to other Canadian banks when
measured against total loans, and is another
way we add value for CWB shareholders.
Provision for Credit Losses (as a % of average loans) - Industry Comparison
1.0
0.8
0.6
0.4
0.2
0
2007
2008
2009
2010
2011
CWB Group
Average of the six largest Canadian banks(1)
(1) Average of the six largest Canadian banks is calculated based on information contained in the publicly available
company reports of the following (TSX Trading Symbols): BMO, BNS, CM, NA, RY and TD.
Dave Thomson (L), VP, Credit Risk Management,
and Joe Matties (R), AVP, Real Estate Lending,
regularly work together to help CWB clients
get the business financing they need.
CWB Group 2011 Annual Report • SHAREDVISION
13
Canadian Western Bank
cwbank.com • theworkingbank.ca
CWB Branch Locations
Grande Prairie
Prince George
St. Albert
Edmonton (5)
Vancouver (4)
Kamloops
Kelowna(2)
Sherwood Park
Leduc
Red Deer
Calgary (5)
Courtenay
Nanaimo
Coquitlam
Langley
Abbotsford
Surrey (2)
Cranbrook
Medicine Hat
Lethbridge
Richmond
Victoria
Saskatoon (2)
Yorkton
Regina
Winnipeg
Branch locations
New full-service branch in Richmond, BC
Canadian Western Financial
canadianwesternfinancial.com
Along with earning and saving, smart investing
is crucial to our clients’ financial well-being.
Canadian Western Financial (CWF) is CWB Group’s
mutual fund dealer company that helps clients
get the most out of their investments. CWF
representatives work across CWB’s branch
network to offer clients sound investment advice
and access to mutual fund products from more
than 20 well-known third-party fund companies.
Our representatives do not work on commission
and always focus on recommending investments
that are specifically suited to each individual
client. Over the past year, the book value of
mutual funds held by CWF clients increased
16 per cent. We also teamed up with Canadian
Western Trust to deliver what we believe is
one of the most unique and efficient Group
Registered Retirement Savings Plans (RRSPs) in
the marketplace. The plan is designed to meet
the needs of small- and medium-sized employers
and represents an excellent service option for
many of CWB Group’s key business clients.
14
SHAREDVISION • CWB Group 2011 Annual Report
Hilmar Lemke, AVP, Asset Management
Canadian Western Financial
Canadian Direct Financial
canadiandirectfinancial.com
“Our products and
great service are
available to people
any time, from
anywhere.”
New products and continued growth
CDF’s no-nonsense products and outstanding
service gives Canadians A better way to save®.
This past year, we achieved deposit growth
of 15 per cent and a 58 per cent increase in
the number of clients. We also expanded our
product offerings to include the KeyFlex®
Mortgage Line, an easy-to-use line of credit that
allows people flexibility to meet their changing
borrowing needs using the equity in their home.
With KeyFlex®, homeowners can borrow up to
80 per cent of the value of their home. Once
approved, clients can decide when, if and how
they want to use it – whether it’s consolidating
debt, renovating their home or helping their
kids through post-secondary education.
As we move ahead, we’re working to support
CWB Group’s shared vision by offering the
types of competitive products that clients
want and need. Our goal is to diversify and
grow deposits across Canada by building
on our reputation for offering competitive
products and exceptional service.
CWB now has 40 branches in communities across
Western Canada; however, we know not everyone
has a branch close to home. Canadian Direct
Financial (CDF) was created to make it easier for
people to take advantage of our competitive
interest rates, sensible products and exceptional
service from wherever they live.
User-friendly website
Through canadiandirectfinancial.com, CDF
serves clients in every province and territory
across Canada, with the exception of Quebec.
“We are the Internet-banking division of CWB;
however, we still have a dedicated customer
service team that answers questions and offers
clients personalized advice over the telephone.
And because we’re Internet-based, CDF is
accessible any time, from anywhere,” notes
Peter Morrison, Vice President of Marketing
and Product Development with CWB. “This
means people can bank where and when they
want, and get many of the same great types of
products they would get in one of our branches.”
In addition to offering chequing accounts, savings
accounts and GICs with highly competitive rates,
CDF also offers RRSPs and a Tax-Free Savings
Account (TFSA) as part of our KeyReach® suite
of products.
Client & Deposit Growth (CDF)
)
s
n
o
i
l
l
i
m
$
(
s
t
i
s
o
p
e
D
$140
120
100
80
60
40
20
2,100
1,800
1,500
1,200
900
600
300
N
u
m
b
e
r
o
f
C
l
i
e
n
t
s
Lawrence Lorimer, Manager
Canadian Direct Financial
2008
2009
2010
2011
Deposits (left-scale)
Number of Clients (right-scale)
CWB Group 2011 Annual Report • SHAREDVISION
15
“Our goal is to be
Canada’s premier
provider of equipment
lease financing
solutions.”
National Leasing
nationalleasing.com
Whether a company is just starting out or is
ready to reach the next stage of its evolution,
having the right equipment is imperative for
them to get to where they want to be. National
Leasing is a leader in commercial equipment
financing for a variety of industries, and
offers lease financing solutions for deals that
range anywhere from $5,000 to $2 million. In
addition to general commercial leasing, we also
specialize in medical and dental, golf and turf,
and agricultural equipment financing. With the
contributions of National Leasing, CWB Group
has a presence in every province across Canada.
Our proprietary FastCredit™ scoring software
allows us to make fair, accurate decisions fast –
in fact, we guarantee a credit decision on
applications up to $50,000 within four hours
of receiving the necessary documentation.
Headquartered in Winnipeg, Manitoba, with
representation across Canada, we have more
than 260 employees who understand the leasing
business. We are also the only leasing company in
Canada to be ISO 9001:2008 certified, a standard
that helps us consistently meet or exceed client
expectations while improving our processes
and business practices. Not surprising, many
of National Leasing’s standards for service and
quality mirror the vision and principles that
guide the entire CWB Group.
The first full year
“During our first full year as part of CWB Group,
we worked to share resources and implement
cross-partnering wherever possible, but we only
integrated where it made sense,” notes Nick
Logan, President and CEO of National Leasing. The
increased capital and improved funding sources
provided by the Bank have added to our competitive
advantages and allowed us to further expand our
reach across different industries. We nearly doubled
our annual earnings since 2009, based on both
improved financing margins and a record volume of
applications in 2011. Our leases under management
reached almost $800 million, and our strategic plan
is focused on surpassing the $1 billion milestone in
the foreseeable future. National Leasing’s success has
made strong contributions to CWB Group’s financial
performance, diversification and future growth
profile. Our success in cross-partnering with other
CWB Group companies has also made it easier for
certain clients to access a broader array of financial
services options.
As we look forward, our goal is to build on National
Leasing’s reputation as Canada’s premier provider
of equipment lease financing solutions. We expect
to achieve solid organic growth across all areas
of our business and will continue to investigate
opportunities to acquire lease portfolios from our
competitors. Most important, we will continue
to deliver the exceptional level of service and
customized solutions that have made us
successful throughout our history.
Provincial Breakdown of Leases (October 31, 2011)
British Columbia
Saskatchewan
Ontario
Atlantic provinces
and other
9%
19%
14%
7%
31%
13%
7%
Alberta
Manitoba
Quebec
Candice Dowhaniuk, Account Manager
National Leasing
16
SHAREDVISION • CWB Group 2011 Annual Report
Canadian Western Trust
cwt.ca
“We always offer a fast
response, meticulous
attention to detail, and
a flexible, solutions-
oriented approach.”
Canadian Western Trust (CWT) provides
exceptional service and expertise on trustee
and custodial solutions for financial advisors,
corporations and individuals across Canada.
We’ve been a leader in trust services since
1987 and currently operate two business units:
Individual Retirement and Investment Services
(IRIS) and Corporate and Group Services (CGS).
Although each unit has a different focus,
both offer the same high level of service and
customized client solutions that are synonymous
with CWB Group.
IRIS and CGS
IRIS focuses on providing a full range of
trustee, custody and record-keeping services
for independent financial advisors, mortgage
brokers, individuals and group RRSP plans.
Revenues within IRIS are largely driven by fee
income earned from the various account and
administrative services we provide. IRIS has more
than 47,000 accounts and holds over $3.3 billion
of assets under administration.
CGS provides similar trustee, custody and
record-keeping services to pension plans,
custody operations and investment managers.
In addition, we offer high-end tax deferred
products for small business owners and senior
executives of large corporations. Revenues
within CGS are comprised of both fee income
and deposit interest income. CGS has over 690
direct clients, representing approximately
150,000 employees and individuals, and more
than $3.3 billion of assets under administration.
CWT Assets Under Administration ($ billions)
Continued growth
“In a time of change, uncertainty and
consolidation within our chosen trust services
markets, CWT continues to be a consistent and
stable partner that our clients can depend on
for the long term,” notes Matt Colpitts, Vice
President and General Manager of CWT.
“For us, consistency means continually building
on our reputation of providing great service
and innovative products that our clients
deserve.” Our employees are highly engaged
and committed to CWT’s Service you can
trust® philosophy. This philosophy makes sure
we always offer a fast response, meticulous
attention to detail, and a flexible, solutions-
oriented approach.
We believe training, education and ongoing
investment in our people puts us in the best
position to continually grow and exceed our
clients’ expectations. We have also devoted
considerable time and effort to further
integrate and improve our systems. These
technology improvements allow us to enhance
our offerings for existing clients while also
building our future service capacity.
With offices in Vancouver, Calgary, Edmonton
and Toronto, CWT is poised to expand our
reach and further diversify CWB Group’s
operations. We are also committed to help
existing CWB Group clients understand the
full scope of retirement, custodial and trustee
services that are available to them.
$7
6
5
4
3
2
1
Ryan Green, Corporate Trust Administrator
Canadian Western Trust
2007
2008
2009
2010
2011
CWB Group 2011 Annual Report • SHAREDVISION
17
“Mortgage brokers
know that when they
contact us, we’ll answer
their questions quickly
and respond to their
applications promptly.”
Optimum Mortgage
optimummortgage.ca
When it comes to owning a home, finding
the right mortgage often requires people
who are willing to take the extra time to
understand the specific circumstances of
each individual client. Optimum Mortgage,
a division of CWT, works with a team of
more than 6,500 mortgage brokers located
across Western Canada and select regions
of southern Ontario. We offer our brokers a
variety of financial solutions for their clients,
including alternative mortgages, traditional
mortgages, and high-ratio insured mortgages.
We know from experience that small business
owners and other individuals who are self-
employed often have challenges confirming
their income. We also know there are many
people who fall just outside the specific
lending guidelines of more traditional
mortgage providers. Our alternative (Alt-A)
mortgage offerings were created specifically
to meet the needs of these types of clients.
A more sensible approach
Optimum’s Sensible Lending® approach
goes well beyond just credit scores and debt
ratios. It allows us to carefully review every
potential deal and make common-sense
credit decisions based on the merits of each
application. Among other things, we consider
the value of the property, the amount of the
down payment and the borrower’s job or
other sources of income. We then use this
information to make responsible lending
decisions that help mortgage brokers offer
their clients preferred mortgage options.
We take the same sensible approach in
partnering with our network of mortgage
brokers, offering personalized service and
prompt, efficient responses to all applications.
“Our brokers know that when they contact
us, we’ll answer their questions quickly and
respond to their applications promptly –
usually within 24 hours,” states Les Shore, Vice
President and Manager of Optimum Mortgage.
“And they know that whenever they call,
they’ll talk directly to one of our more than
40 employees – without ever having to make
their way through a maze of voice mail.”
Our Sensible Lending® philosophy helped
many Canadian homebuyers throughout
2011. Our total loans grew 17 per cent to reach
$934 million at year end. Optimum‘s current
portfolio is comprised of more than 3,700
mortgages on individual properties located
throughout our key markets.
As we move into 2012 and beyond, we’ll
continue to deliver the products and services
mortgage brokers need for their clients. We’re
also looking to further expand our Canadian
broker network and are evaluating additional
opportunities to provide mortgages directly
to individuals via the Internet.
Total Optimum Mortgage Loans ($ millions)
934
796
561
450
380
2007
2008
2009
2010
2011
Mitch Estrada, Manager,
Mortgage Administration
Optimum Mortgage
18
SHAREDVISION • CWB Group 2011 Annual Report
Valiant Trust
valianttrust.com
“Corporations and
organizations choose
us, and stay with
us, because they
know we can meet
their needs.”
Corporate clients who require responsive and
reliable services can count on Valiant Trust; we have
A reputation for getting things done®. With offices
in Vancouver, Calgary, Edmonton and Toronto,
we are a specialty trust services provider and
federal deposit-taking institution that is focused
on Canadian operations. We mainly provide trust
services in the areas of stock transfer, corporate
trust, escrow, and employee plan services to
public and private corporations. Our stock transfer
service has more than 152,000 active registered
holders with a combined number of shares issued
and outstanding of over $19 billion. We process
more than 1,600 security registration transfers per
month and, over the past six years, have distributed
in excess of $21 billion in cash entitlements to
security holders on behalf of our clients.
“We provide exceptional service and help our clients
communicate clearly with their security holders and
regulatory bodies. Corporations and organizations
choose us, and stay with us, because they know
we can meet their needs,” says Adrian Baker, Chief
Operating Officer of Trust Services and President of
Valiant Trust. We take pride in our attention to detail
and always act fast when clients make a request.
We are responsive to questions and offer expert,
professional advice. To maximize convenience
for our clients, we’ve also created VWeb, an
Internet-based service that provides secure,
anytime access to essential company reports.
Number of Client Appointments
Continued growth and expansion
Our goal is to continually expand our market
presence by building on our reputation and
earning business away from our key competitors.
In 2011, we served more than 300 companies
through 560-plus client appointments. We also
realized significant successes from our targeted
business development activities in Toronto,
which represents a key market for Valiant’s
future growth.
Another highlight was Valiant’s offering of GICs
through CWB branches after obtaining a licence
from the Canada Deposit Insurance Corporation
(CDIC). Valiant’s CDIC licence complements the
deposit insurance already available through the
Bank and CWT, and provides CWB Group with the
capacity to offer clients an additional channel for
insured deposits. Now that CWB, CWT and Valiant
are each federal deposit-taking institutions,
clients can “stack” CDIC insurance across multiple
holdings. Adding this source of insured deposits
to Valiant’s balance sheet also allows us to better
deploy our capital and increase the earnings
potential for CWB Group.
Number of Clients
319
2011
567
276
2010
496
468
440
433
Julia Yan, Director,
Business Development
Valiant Trust
2007
2008
2009
2010
2011
The number of client appointments is a primary driver of
revenues and confirms Valiant’s increased market presence.
254
2009
246
2008
233
2007
CWB Group 2011 Annual Report • SHAREDVISION
19
“We were built on
the promise of delivering
unparalleled customer
service in an industry
where service is
often overlooked.”
Canadian Direct Insurance
canadiandirect.com
Canadian Direct Insurance (Canadian Direct)
offers customers in BC and Alberta more
ways to save on their auto, home and travel
insurance. By offering insurance products
directly via the telephone and Internet,
we lower costs for our customers.
We make it easy for customers to get quotes,
ask questions, compare rates and secure the
auto, home and travel insurance coverage
they need – all without leaving the comfort of
their home. In BC, customers can also choose
to talk face-to-face with representatives from
our select channel of auto insurance brokers.
Committed to customer satisfaction
Canadian Direct was built on the promise of
delivering unparalleled customer service in
an industry where service is often overlooked.
This means we always work hard to meet and
exceed expectations – we return calls promptly,
answer questions clearly and crunch numbers
with precision. Our customer satisfaction rates
tell us we’re doing things right.
We are very proud to be ranked “Highest in
Customer Satisfaction among Auto Insurers in
Western Canada” by J.D. Power and Associates*
in their 2011 Canadian Auto Insurance Study SM.
The study measures customer satisfaction across
five factors: interaction; price; policy offerings;
billing and payment; and claims.
Canadian Direct’s current position as one of
the fastest growing insurance companies in
Western Canada didn’t happen by chance,
and we believe the positive feedback from
our customers tells a good part of our story.
“We think it speaks volumes about our service
that so much of our new business is built on
existing clients referring their friends and family
to us,” explains Brian Young, President and CEO
of Canadian Direct. “People don’t make those
recommendations unless they’re happy with
the service and the rates they’re getting.”
During 2011, Canadian Direct surpassed
190,000 of policies outstanding by attracting
clients through each of our three distribution
channels. In addition to customer growth,
strong net insurance revenues were realized
by maintaining our disciplined insurance
underwriting and efficient claims management
processes. Our claims ratio, which measures
claims expense as a percentage of revenue
earned from premiums, was 64 per cent, and
our expense ratio, which measures operating
costs as a percentage of revenue earned from
premiums, was 29 per cent. As we move into
2012 and beyond, we plan to achieve continued
growth and profitability by offering affordable
and relevant insurance products that meet the
needs of our customers.
Canadian Direct Highlights
2007
2008
2009
2010
2011
Policies outstanding
164,263
168,071
175,662
185,167
190,994
Gross written premiums ($ millions)
$104.8
$107.1
$116.8
$124.5
$129.7
*Canadian Direct Insurance received the highest numerical score among auto insurance providers in Western Canada in the proprietary
J.D. Power and Associates 2011 Canadian Auto Insurance Customer Satisfaction StudySM. Study based on 11,286 total responses measuring
11 providers in Western Canada (AB, BC, MB, SK) and measures consumer satisfaction with auto insurance providers. Proprietary study
results are based on experiences and perceptions of consumers surveyed in July-August 2011. Your experiences may vary. Visit jdpower.com
20
SHAREDVISION • CWB Group 2011 Annual Report
Suzanne Caldwell,
Senior Operations Assistant
Canadian Direct Insurance
Adroit Investment Management
adroitinvestments.ca
“Clients know they
can count on us to
deliver sound decisions
and solid advice.”
Knowing where to invest and how to do it right
can be intimidating for many people. Adroit
Investment Management (Adroit) is an investment
counselling firm helping clients understand, build
and maintain an investment portfolio that
is right for them.
Our experienced investment professionals
work directly with individuals, corporations
and institutional clients (including non-profit
organizations, colleges, foundations and
endowment funds) to maintain an investment
portfolio that meets their specific goals. We
meet face-to-face with clients at the outset of
any relationship to establish detailed Investment
Policy Guidelines – a set of rules that spells out
their long-term objectives and tolerance for risk.
We then use this information to make decisions
and build a diversified investment portfolio best
suited for their unique interests. We also maintain
regular communication with our existing clients
to ensure the Investment Policy Guidelines
appropriately reflect their current position.
Clients know they can count on us to deliver
sound decisions and solid advice. They also
know we adhere to the highest ethical standards
and will always maintain our conservative
and consistent principles to achieve long-term
investment growth. “We take our jobs, and the
trust clients place in us, very seriously,” explains
David Schuster, President and CEO of Adroit.
“Our investment philosophy and our reputation
are based on integrity, trust and discipline –
these basic principles guide everything we
do on behalf of our clients.”
Strong investment performance
Our conservative growth principles, exceptional
service and customized client solutions
have resulted in strong relative investment
performance, even in the midst of ongoing
volatility in global markets. Throughout
2011, we worked to adjust portfolios where
required to ensure we maintained an
optimal balance between risk and potential
reward. Currently, our client assets under
management are approaching $1 billion.
Our strategies for continued growth are based
on helping clients achieve their investment goals
while we work to expand our geographic reach.
We devoted considerable time over the past year
to enhance our business development strategy,
which includes identifying more ways to help
existing CWB clients across Western Canada.
Cumulative Value of $100 Invested on October 31, 1996
$450
400
350
300
250
200
150
100
Maria Holowinsky,
Executive Vice President
Adroit Investment Management
‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
‘04 ‘05 ‘06
‘07 ‘08
‘09 ‘10 ‘11
Adroit Canadian Equity Portfolio
S&P/TSX Composite Index
CWB Group 2011 Annual Report • SHAREDVISION
21
Corporate Social Responsibility
cwbankgroup.com/csr
Although Corporate Social Responsibility
(CSR) is now an industry standard, supporting
our people, giving back to our communities,
and creating sustainable processes and
practices have been fundamental parts of our
business from day one.
In the following pages, you’ll find information
about our economic impact, how we make our
products and services more accessible, our
environmental efforts, and how we support
our employees in reaching their professional
and personal potential. If you’d like to know
more about our CSR activities, please visit
cwbankgroup.com/csr.
22
SHAREDVISION • CWB Group 2011 Annual Report
Left to Right: Angela Saveraux (Manager, Community Investment), Janessa Donald (Sales & Service
Representative), Russ Dalgetty (AVP, Commercial Banking), Andy Chen (Senior Internal Auditor & Green
Team Member) and Pam Choi (Employee Relations Specialist)
Economic ImpactMarketplaceCommunityEnvironmentPeopleCWB Group’s shared vision of what matters and what’s possible has always included our belief in the importance of being a good corporate citizen. It’s no surprise the largest publicly traded bank
headquartered in Western Canada contributes
to the economic health of western Canadian
communities. CWB Group serves thousands
of businesses each year, providing them with
the financial products they need to grow their
revenues and expand their opportunities.
From loans and leases to other complementary
financial services, we help business people do
what they do best. In turn, they can strengthen
the economy by investing in their companies and
creating more jobs. At the same time, we work
with personal clients to help them meet their
financial goals, including offering the mortgage,
insurance and wealth management services
they need. Total loans outstanding to CWB
Group clients grew by more than $1.7 billion in
2011. We created value for our shareholders, as
demonstrated by our 2011 return on common
shareholders’ equity of 15.6 per cent. We also
paid more than $54 million of dividends to CWB
common and preferred shareholders.
Our spending
With more than 1,900 employees working in
50 different communities, the salaries and
benefits earned by our people have a direct and
measurable economic impact. Our employees
reinvest their income in the communities
where they live, shop, dine, play and pay
taxes. In total, CWB Group invested more
than $141 million in employee salaries and
benefits in 2011. We also paid more than
$64 million in government taxes, which
included approximately $42 million in federal
income taxes and more than $22 million
in provincial income and capital taxes.
Our business practices and growth also create
economic activity. In 2011 alone, we invested
approximately $18 million in office leasing and
maintenance. This past year, we opened a
new branch in Richmond, BC and expanded
our branch in Medicine Hat, Alberta to offer
full-service banking. These projects, among
many others, created activity that crossed
numerous economic sectors and utilized
dozens of local businesses. Each year, CWB
Group spends more than $4 million on office
supplies and travel costs. Add it all together –
net new loans, dividends, compensation,
taxes, and general corporate spending - and
CWB Group injected more than $2 billion into
businesses and the economy last year alone.
Total Federal and Provincial Income and Capital Taxes Paid ($ millions)
$64,433
$50,502
$46,180
$46,130
$42,453
2007
2008
2009
2010
2011
CWB Group 2011 Annual Report • SHAREDVISION
23
Economic ImpactCWB Group injected more than $2 billion into businesses and the economy last year alone. Corporate Social Responsibility
cwbankgroup.com/csr
We’ve always believed everyone deserves the
chance to benefit from the products and services
we offer – which includes the many Canadians
living with low incomes. That’s why we offer all
our clients a flexible, low-cost chequing account
for as little as $4/month. We waive monthly
account fees for youth under 18 and students
pursuing post-secondary studies. Our Gold Leaf
Plus® account waives fees for our clients aged 57
or older. We help senior citizens by offering them
an option to receive monthly interest payments
on certain types of investments, as well as
reduced fees on safety deposit box rentals.
Removing barriers
We’ve made sure all our facilities are accessible
to people with varying levels of mobility by
making every branch wheelchair friendly and
offering sit-down banking alternatives. And
we’ve created more services in banking, trust
and insurance that are accessible online
and/or over the telephone to give our clients
the flexibility to better manage their financial
needs from the comfort of their home or office.
We know that new Canadians often struggle to
receive the service and support they need, which
can sometimes be a result of language barriers.
The diversity and experience of our employees
allows us to offer services in multiple languages.
This makes it easier for clients to ask questions
and share important information without fear of
being misunderstood. It also creates a banking
experience that is welcoming for everyone.
Our new branch in Richmond, BC is a great
example of our commitment to offer financial
services to culturally diverse clients. The branch
is fully multilingual and can serve clients in
both English and Chinese languages.
“Everyone deserves
the chance to benefit
from the products
and services we offer.”
CWB’s new branch in Richmond, BC is one of our locations
that provides financial services in multiple languages.
24
SHAREDVISION • CWB Group 2011 Annual Report
Michael Yeung,
AVP and Branch Manager
Richmond Branch
Marketplace “Our employees
volunteer countless
hours giving back
to charities and
other worthwhile
organizations.”
Giving back to the communities where we live
and work has always been part of our vision
to be a good corporate citizen. We invested
approximately $1.6 million into our communities
in 2011 through charitable donations and
sponsorships that were mainly within our three
target areas: health, wellness and caregiving;
education; and community and civic services.
The money was used to support dozens of
community agencies, fundraising campaigns,
charitable associations, scholarships, awards
and programs throughout our key markets.
Volunteering time and energy
Our employees volunteer countless hours in their
respective communities while also giving back to
charitable and other worthwhile organizations.
Just a few examples include Canadian Direct’s
employees in Vancouver who support the Greater
Vancouver Food Bank and BC Children’s Hospitals.
In Winnipeg, National Leasing employees have built
affordable homes for low income families through
Habitat for Humanity. And in Calgary, employees
from CWB have taken time out of their day to serve
lunch at the Calgary Drop-In & Rehab Centre.
In recognition of the commitment our employees
bring to volunteering, we created the Western
Spirit program, which includes both our Employee
Volunteer grant and Funds for Fundraisers grant.
The Employee Volunteer program offers a $250
grant to an employee’s charity of choice when
they volunteer 50 hours or more of their own
time within their community. The Funds for
Fundraisers program matches the donations
employees raise through various pledge-based
charity events, dollar-for-dollar, to a maximum
of $250 per individual and $1,500 per team.
Over the past two years, we’ve donated more
than $60,000 through the Western Spirit
program, and we saw an 83 per cent increase
in the number of grants awarded in 2011.
Encouraging community investment
Based on an idea submitted by one of our
employees, we’ve created a way for our
clients to invest in their communities while
also strengthening their own financial future.
During the months of September and October,
for every dollar our clients invest in The Greater
Interest GIC ®, CWB makes a donation of 1/8 per
cent to the local Big Brothers Big Sisters agency
in the community where the deposits are
raised. Since 2008, CWB has donated more than
$840,000 to support mentorship opportunities
for Canada’s youth. In 2010, CDF introduced a
similar product – the KeyGiving GIC ® – which
allows clients to invest in GICs online, with
donations directed to the national office of Big
Brothers Big Sisters. To increase the profile of
CWB Group’s work in the community, we now
feature related information, updates and photos
on the CWB Group In the Community Facebook
page (facebook.com/CWBcommunity).
Employee Volunteer Grants
Funds for Fundraisers Grants
$28,343
57 grants awarded
33 grants awarded
$9,465
Carolyn Graham, Senior VP and Chief
Accountant, received an Employee
Volunteer Grant for her volunteer
work with Habitat for Humanity.
2010
2011
2010
2011
CWB Group 2011 Annual Report • SHAREDVISION
25
Community Corporate Social Responsibility
cwbankgroup.com/csr
The recent conversion of the data centre
at our corporate office is an excellent example
of the impact sustainable choices can make.
Our new data centre utilizes server virtualization
technology to store more data in less space.
This change substantially lowered cooling and
electrical costs, leading to estimated annual
energy savings of 1,884,513 kWh.
We encourage CWB Group employees to explore
environmental initiatives and projects at work
and in their communities. In recent years, our
employees have established environmental
teams, like the CWB Green Team or Canadian
Direct’s EcoSquad, that focus on finding
innovative ways to reduce our carbon footprint.
In addition, employees have spearheaded office
recycling programs, transitioned lunchrooms
to ceramic cups and stainless steel cutlery, and
provided all staff with monthly “Green Tips”
through our Intranets.
Our commitment to the environment also
guides our lending decisions. Our lending
practices require us to perform due diligence
to help identify the potential risks and
environmental impacts of a client’s business
operations. If our process identifies any material
risks, we encourage clients to revise their plans
to reduce these risks. In instances where the
issue can’t be resolved to our satisfaction,
we’ll deny the application.
290
(Million BTU’S)
118
(Water Saved gals.)
Gases Prevented
(lbs. Co2 Equiv.)
29,435
(Landfill Reduced lbs.)
8,414
132,736
42 Tons
(1)Eco audit information is based on use of the
following products: 11,000 sheets of 26 x 40
Lenza 92lb Cover 368M and 180,000 sheets of
23 x 35 Lenza 60lb Text 102M. Data research
provided by environmentaldefence.org
The new data centre at CWB Group’s corporate office
stores more data in less space, which saves money
and reduces our impact on the environment.
26
SHAREDVISION • CWB Group 2011 Annual Report
EnvironmentEnvironmental responsibility is more than good business – it’s common sense. After all, we live, play and raise our families in the communities where we work and support economic growth. And whether it’s as good corporate citizens or as responsible individuals, we all have a vested interest in creating a sustainable future. CWB Group takes our commitment to environmental responsibility seriously, both inour actions as a successful financial services organization and as a facilitator and driver ofeconomic growth. From using online statements, tools and processes to reduce our paper usage, to incorporating environmentally friendly design elements into our branches, we’re making sustainability a part of the way we do business.This Annual Report uses FSC certified paper that comes from well-managed forests. The paper used for the report contains 100% Post Consumer Recycled fiber instead of virgin paper and is produced using wind power. As a result, the following savings to our natural resources were realized:(1)Eco AuditTrees SavedEnergy Not Consumed WastewaterWood Saved (lbs.)Net Greenhouse Solid Waste “Our employees
not only share our
vision of what a good
corporate citizen
should be – they
helped shape it.”
Rejean Roberge of Optimum Mortgage
was the first employee CWB Group
hired through social media networks,
which was a new effort by our human
resources team this year.
Much of what we’ve accomplished over the past
27 years is because of the talent, dedication and
enthusiasm our employees bring to their work.
They not only share our vision of what a good
corporate citizen should be – they helped shape it.
We hire people who share our values, our attitude
and our commitment to delivering exceptional
service. And once they’re part of our team,
we reward them with competitive salaries,
outstanding benefits, and opportunities to
grow and advance in their careers. We also offer
initiatives like our CWBalance® program to promote
a healthy work/life balance, and our Employee
Share Purchase Plan (ESPP) that encourages
employees to become CWB shareholders.
Today, more than 94 per cent of our employees
are CWB shareholders through the ESPP.
It’s an approach that has helped us build a
dynamic, loyal team that is invested in our
success. It’s also allowed us to continue
to attract the best and the brightest. This
past year, the number of full- and part-time
employees increased by 111 people, bringing
our total number of employees to 1,939.
Reaching potential employees
Although many of our new employees come to
us through traditional hiring practices, a growing
number come through our Employee Referral
Incentive Program. The program, which offers
employees a monetary payment for referrals that
result in a successful hire, is based on the idea that
the people who work here know exactly what
we’re looking for in new employees. They can
also vouch for what we have to offer. In 2011, we
received 308 referrals, which resulted in 125 hires.
Over the past 10 years, we’ve hired a total of 757
new employees through this program.
This past year, for the first time ever, we began
using social media platforms such as Twitter and
LinkedIn as a way to reach potential employees.
We received positive responses on these initiatives
and were pleased to make our first new hire based
on a social media referral. We’re also encouraging
employees to begin using social media as a way
to connect with colleagues and clients, conduct
research and share information on CWB Group’s
products and services.
Encouraging excellence
It’s because we recognize how valuable our
employees are that we’ve created training
programs that encourage them to set and
reach new goals. Two years ago, we launched
the CWB Learning Centre, an internal website
dedicated to providing management and
leadership training for CWB Group employees.
We also pay up to 100 per cent of tuition and
other related costs for approved programs and
courses offered by external sources, and will
cover the cost of relevant professional dues. In
total, we spent more than $1.7 million on training
and development for our employees in 2011.
We devote time and resources to ask our
employees what matters most to them when
it comes to their compensation and benefits.
Focus groups were held in Vancouver, Calgary
and Edmonton this past year to gather input
and ideas about our long-term compensation
plan. Many of the ideas that come out of these
focus groups are now being incorporated
into our compensation planning process.
Our commitment to creating a rewarding
working environment was recognized again
in 2011 when we were named one of the
50 Best Employers in Canada for the sixth year
in a row. We’re both humbled and grateful for
the award, which lets us know our employees
appreciate us as much as we appreciate them.
CWB Group 2011 Annual Report • SHAREDVISION
27
People Corporate Governance
cwbankgroup.com/investor_relations/corporate_governance
Requirements and best practices
The Board regularly reviews CWB Group’s
governance practices to ensure adherence to
all legal and other regulatory requirements,
including those of the Office of the Superintendent
of Financial Institutions, the Canadian Securities
Administrators and the Toronto Stock Exchange.
The Board also supplements corporate governance
requirements by evaluating and, where appropriate,
implementing corporate governance practices
advanced by groups that represent the interests
of shareholders and other stakeholders.
“It’s important to note
the objective is not
to eliminate risk. Risk
is the business we’re
in. The objective is
to make sure it is
managed prudently.”
Allan Jackson
Board Chair
Canadian Western Bank
Clearly defined roles
CWB Group’s corporate governance framework
is supported by clearly defined mandates for
the Board and each of the Board Committees. In
addition, the Board has adopted written mandates
for the Chair of the Board and the Chairs of Board
Committees. These mandates, which the Board
reviews annually, outline areas of responsibility
and provide for accountability at the Board level.
Left to Right: Robert Phillips, Gerald McGavin, Wendy Leaney (seated), Larry Pollock, Arnold Shell, Howard Pechet, Robert Manning,
Allan Jackson, Linda Hohol, Raymond Protti, H. Sanford Riley, Alan Rowe, Albrecht Bellstedt (seated) and Ian Reid
28
SHAREDVISION • CWB Group 2011 Annual Report
CWB’s Board of Directors (the Board) is responsible for developing and monitoring CWB Group’s governance structure. The Board’s objective is to effectively oversee operations for the benefit of customers, employees, shareholders and other stakeholders.The Board The Board is comprised of fourteen business and community leaders whose broad experience, individually and collectively, is invaluable in developing the strategic direction of CWB Group and ensuring appropriate levels of accountability are maintained. Thirteen of the fourteen directors are independent. Mr. Pollock, CWB’s President and Chief Executive Officer, is the only non-independent director. It is a regulatory requirement that the President and Chief Executive Officer sit on the Board. Board of Directors
• Albrecht W. A. Bellstedt, Q.C.,
President, A.W.A. Bellstedt Professional
Corporation, Canmore, Alberta
• Linda M.O. Hohol, Corporate Director,
Calgary, Alberta
• Allan W. Jackson (Chairman),
President & Chief Executive Officer,
ARCI Ltd., Calgary, Alberta
• Wendy A. Leaney, President,
Wyoming Associates Ltd.,
Toronto, Ontario
• Robert A. Manning, President,
Cathton Investments Ltd.,
Edmonton, Alberta
• Gerald A.B. McGavin, C.M., O.B.C., FCA,
President, McGavin Properties Ltd.,
Vancouver, British Columbia
• Howard E. Pechet, President,
Mayfield Consulting Inc.,
Rancho Mirage, California, USA
• Robert L. Phillips, Q.C., President,
R.L. Phillips Investments Inc.,
Vancouver, British Columbia
• Larry M. Pollock, President
& Chief Executive Officer,
Canadian Western Bank,
Edmonton, Alberta
• Raymond J. Protti, ICD.D, Corporate
Director, Victoria, British Columbia
• Ian M. Reid, Corporate Director,
Edmonton, Alberta
• H. Sanford Riley, C.M., President
& Chief Executive Officer, Richardson
Financial Group Limited, Winnipeg,
Manitoba
• Alan M. Rowe, CA, Partner, Crown
Realty Partners, Toronto, Ontario
• Arnold J. Shell, President, Arnold J. Shell
Consulting Inc., Toronto, Ontario
Directors Emeritus
• Jack C. Donald
• John Goldberg
• Jordan L. Golding
• Arthur G. Hiller
• Peter M.S. Longcroft
• Alma M. McConnell-Kingston
• Dr. Maurice W. Nicholson
• Dr. Maurice M. Pechet
The Corporate Governance section of the
CWB Group website contains information on
CWB Group’s corporate governance practices,
including the mandate of the Board, the
mandates of each of the Board Committees,
the Personal and Business Conduct Policy for
CWB Group’s officers and employees, and
the Personal and Business Conduct Policy
for directors.
A higher standard – CWB Group’s
corporate governance initiatives
Fiscal 2011
CWB adopts a recoupment or “clawback” policy
whereby senior executive bonuses, option grants
and restricted share grants may be clawed back.
Fiscal 2010
CWB adopts a “say-on-pay” resolution, allowing
shareholders to express an opinion on CWB’s
approach to executive compensation.
Fiscal 2009
CWB does away with “slate” voting, allowing
shareholders to vote on individual directors.
Fostering an ethical culture
The Board approves all major strategy and
policy recommendations for CWB Group and
ensures that management maintains a culture
of integrity throughout the organization. CWB
Group has codes of conduct for all directors,
officers and employees, and the Board monitors
compliance with these codes. In addition, a
whistleblower policy allows for the anonymous
reporting of complaints and concerns.
Risk management
The Board plays an integral role in CWB Group’s
enterprise risk framework and directly oversees
risk management to ensure a comprehensive
approach to risk.
CWB’s director and executive compensation
policies are also designed with risk management
in mind. Directors and senior officers are required
to maintain a minimum level of share ownership
to ensure their decisions align with the interests
of shareholders. Executive compensation policies
are linked to CWB Group’s performance and a
recoupment or “clawback” policy discourages
excessive risk taking.
For more information
The annual proxy circular contains information
about each director, a detailed discussion of the
responsibilities of the Board and each Board
Committee, and a description of CWB’s corporate
governance practices.
Overview of Corporate Governance Structure
Governance Committee
Human Resources
Committee
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Loans Committee
CWB Group 2011 Annual Report • SHAREDVISION
29
Corporate Governance
cwbankgroup.com/investor_relations/corporate_governance
Board Committees
Audit Committee Members:
Robert A. Manning (Chair),
Wendy A. Leaney, Gerald A.B. McGavin,
Robert L. Phillips, Raymond J. Protti,
Ian Reid and Alan M. Rowe.
Responsibilities:
• Oversees the integrity of the CWB
Group’s financial reporting, internal
controls, disclosure controls and
internal audit function.
• Recommends the appointment of
the external auditors and oversees
the whistleblower procedures.
Governance Committee Members:
Albrecht W.A. Bellstedt (Chair),
Linda M.O. Hohol, Allan W. Jackson,
Wendy A. Leaney, Robert A. Manning,
Raymond J. Protti and Arnold J. Shell.
Responsibilities:
• Reviews and monitors corporate
governance trends and best practices.
• Monitors procedures regarding related
party transactions, conflicts of interest,
standards of business conduct, the
handling of customer complaints, and
recommends director compensation
and director succession.
Loans Committee Members:
Gerald A.B. McGavin (Chair),
Linda M.O. Hohol, Allan W. Jackson,
Wendy A. Leaney, Howard E. Pechet,
Robert L. Phillips (alternate), Larry M.
Pollock, Ian Reid, H. Sanford Riley
and Alan M. Rowe.
Responsibilities:
• Oversees the documentation,
measurement and management
of credit risk.
• Approves, declines or recommends
approval to the Board of all credit
applications in excess of a
specified limit.
Human Resources Committee
Members:
Alan M. Rowe (Chair), Albrecht W.A.
Bellstedt, Allan W. Jackson, Robert A.
Manning, Howard E. Pechet, Robert L.
Phillips, H. Sanford Riley and
Arnold J. Shell.
Responsibilities:
• Approves executive compensation
and incentive compensation plans.
• Oversees CEO performance
assessment and senior management
succession.
Corporate governance highlights
• The Board is led by a non-executive
chairman to ensure independent
leadership.
• 13 of the 14 current directors
are independent.
• Independent directors set aside time
at each Board and Board Committee
meeting for discussion without the
presence of management.
• The Board and Board Committees each
have the power to retain independent
advisors, when they deem it necessary,
to assist them in fulfilling their mandates.
• Shareholders vote for individual
directors, not a slate. Directors who
receive more “withhold” than “for”
votes are required to tender their
resignation for the Board’s consideration.
• Director and executive officer
compensation is reviewed annually.
At the March 2011 annual shareholder
meeting, CWB Group’s approach to
executive compensation received the
support of more than 99 per cent
of votes cast by shareholders.
• The Board prioritizes ongoing director
education by actively participating in
presentations by senior management
and outside experts.
• The Board evaluates, in alternating years,
the effectiveness of each director and
the Board as a whole through a written
assessment and feedback process. In
2011, the assessment and feedback
process was reviewed and enhanced.
• CWB has established separate codes
of conduct for directors and employees.
All directors, officers and employees
must annually certify they have read,
understand and agree to abide by
the applicable code.
30
SHAREDVISION • CWB Group 2011 Annual Report
CWB Group Executive Committee
Larry Pollock
President and
Chief Executive Officer (CEO)
Bill Addington, FCMA
Executive Vice President
Tracey Ball, FCA
Executive Vice President
and Chief Financial Officer
Chris Fowler
Chief Operating Officer
Randy Garvey, CFA, FCMA
Executive Vice President
Brian Young
Executive Vice President
With CWB Group since 1990
(22 years)
With CWB Group since 1986
(26 years)
With CWB Group since 1987
(25 years)
With CWB Group since 1991
(21 years)
With CWB Group since 2005
(7 years)
With CWB Group since 2004
(8 years)
Key Areas of Responsibility
• CWB Group Executive
Committee
Positions Held at CWB Group
• President & CEO
Key Areas of Responsibility
• Mergers and Acquisitions
• Corporate Initiatives
• Corporate Lending
• Adroit Investment
Management
Positions Held Prior
to CWB Group
• Regional Vice
President, Lloyds Bank
Canada (Calgary)
• Regional Vice President,
Lloyds Bank Canada
(Toronto)
• Assistant General Manager
& Branch Manager,
Continental Bank
of Canada
Positions Held at CWB Group
• Executive Vice President
• Senior Vice President,
Strategic & Corporate
Operations
• Senior Vice President,
Treasury & Corporate
Development
• Vice President, Treasury
& Administration
• Vice President,
Commercial Credit
Positions Held Prior
to CWB Group
• Assistant Vice President,
Canadian Commercial Bank
Key Areas of Responsibility
• Finance and Tax
• Investor Relations
• Legal
• Regulatory Compliance
Positions Held at CWB Group
• Executive Vice President
& Chief Financial Officer
• Senior Vice President
& Chief Financial Officer
• Vice President & Chief
Financial Officer
• Vice President & Chief
Accountant
• Assistant Vice President
& Chief Accountant
• Manager, Finance &
Administration; Chief
Accountant
Positions Held Prior
to CWB Group
• Audit Manager, KPMG LLP
Key Areas of Responsibility
• Banking Operations
• Credit Risk Management
• Optimum Mortgage
• Canadian Western
Financial
Positions Held at CWB Group
• Chief Operating Officer
• Executive Vice President
• Senior Vice President,
Credit Risk Management
• Vice President, Credit Risk
Management
• Assistant Vice President,
Credit Risk Management
• Manager, Commercial
Banking
Positions Held Prior
to CWB Group
• Senior Account Manager,
Commercial Banking,
HSBC Bank Canada
• Account Manager,
Corporate Banking
& Treasury Division,
Lloyds Bank Canada
Key Areas of Responsibility
• Treasury
• Human Resources
• Information Services
• Internal Audit
• Marketing & Product
Development
• Corporate Administration
& Operations
Positions Held at CWB Group
• Executive Vice President
• Senior Vice President,
Corporate Support
Positions Held Prior
to CWB Group
• Vice President & CFO,
Workers Compensation
Board, Alberta
• Central Manager,
Corporate Services & CFO,
the City of Edmonton
• Director, Support Services,
the City of Regina
• City Treasurer, the City
of Regina
Key Areas of Responsibility
• Canadian Direct
Insurance
• Canadian Western Trust
• Valiant Trust
Positions Held at CWB Group
• Executive Vice President
• President & CEO, Canadian
Direct Insurance (acquired by
the Bank in 2004)
Positions Held Prior
to CWB Group
• President & CEO, Canadian
Direct Insurance
• Chief Operating Officer,
Canadian Direct Insurance
• Vice President, Commercial
Banking, HSBC Bank Canada
• Assistant Vice President,
Commercial Banking, HSBC
Bank Canada
• Senior Manager, Commercial
Banking, Lloyds Bank Canada
CWB Group Senior Officers
• Glen Eastwood
Senior Vice President and
Regional General Manager
• Richard Gilpin
Senior Vice President
Credit Risk Management
• Ricki Golick
Senior Vice President
and Treasurer
• Carolyn Graham, FCA
Senior Vice President
and Chief Accountant
• Michael Halliwell
Senior Vice President and
Regional General Manager
• Gail Harding, Q.C.
Senior Vice President,
General Counsel and
Corporate Secretary
• Darrell Jones, CMA
Senior Vice President and
Chief Information Officer
• Uve Knaak
Senior Vice President
Human Resources
• Gregory Sprung
Senior Vice President and
Regional General Manager
• Jack Wright
Senior Vice President
Canadian Western Trust
& Valiant Trust
• Adrian Baker
Chief Operating Officer,
Trust Services
Adroit Investment
Management
• David Schuster, CFA
President and
Chief Executive Officer
Ombudsman
• R. Graham Gilbert
National Leasing
• Nick Logan
President and Chief
Executive Officer
Canadian Direct Insurance
• Brian Young
President and
Chief Executive Officer
CWB Group 2011 Annual Report • SHAREDVISION
31
Shareholder Information
Award of Excellence Recipients for 2011
32
SHAREDVISION • CWB Group 2011 Annual Report
CWB Group Corporate HeadquartersCanadian Western BankSuite 3000, Canadian Western Bank Place10303 Jasper AvenueEdmonton, Alberta T5J 3X6Telephone: (780) 423.8888Fax: (780) 423.8897cwbankgroup.com Transfer Agent and RegistrarValiant Trust CompanySuite 310, 606 - 4th Street S.W.Calgary, Alberta T2P 1T1Telephone: (866) 313.1872Fax: (403) 233.2857valianttrust.comStock Exchange ListingsThe Toronto Stock Exchange (TSX)Common Shares: CWBSeries 3 Preferred Shares: CWB.PR.AShareholder Administration Valiant Trust Company, with offices in Calgary, Edmonton, Vancouver and Toronto, serves as Transfer Agent and Registrar for the common and preferred shares of CWB. For dividend information, change in share registration or address, lost share certificates, tax forms or estate transfers, please write or call the Transfer Agent and Registrar, or email inquiries@valianttrust.com.Duplicated CommunicationsIf you receive, but do not require, more than one mailing for the same ownership, please contact the Transfer Agent and Registrar to combine the accounts. Direct Deposit ServicesShareholders may choose to have cash dividends paid on CWB common and preferred shares deposited directly into accounts held at their financial institution. To arrange direct deposit service, please contact the Transfer Agent and Registrar. These are characteristics exemplified by the recipients of the Award of Excellence, an annual recognition for employees who, every day, live and breathe the qualities for which CWB Group is known.Exceeding the expectations of both clients and colleagues, these individuals consistently take initiative, innovate and inspire.Congratulations to the 2011 recipients of the Award of Excellence.• Tracy Bond, CWB, Edmonton • Angela Chavez, CWB, Regina• Maristela Cruz, CDI, Vancouver• Adrienne Dickson, Valiant Trust, Vancouver• Helen Do, CWB, St. Albert • Donna Glor, CDI, Edmonton • Tom Haarman, CWB, Edmonton• Dustin Jones, CWB, Calgary• Amanda Lemay, CWB, Edmonton• Jenna McLean, CWB, Vancouver • Jennifer Voth, CWB, Abbotsford• Peter Yeung, CWB, EdmontonHard Working - Enthusiastic - Responsive - Dedicated.Eligible Dividend Designation CWB designates all common and preferred share dividends paid to Canadian residents as “eligible dividends”, as defined in the Income Tax Act (Canada), unless otherwise noted.Dividend Reinvestment Plan CWB’s dividend reinvestment plan allows common and preferred shareholders to purchase additional common shares by reinvesting their cash dividend without incurring brokerage and commission fees. For information about participation in the plan, please contact the Transfer Agent and Registrar. Investor RelationsShareholders, institutional investors or research analysts who would like additional financial information are asked to contact: Investor Relations DepartmentCanadian Western Bank Suite 3000, Canadian Western Bank Place10303 Jasper AvenueEdmonton, Alberta T5J 3X6Telephone: (800) 836.1886Fax: (780) 969.8326Email: Investorrelations@cwbank.comMore comprehensive investor information - including supplemental financial reports, quarterly financial releases, corporate presentations, corporate fact sheets and frequently asked questions - is available under the Investor Relations section on our website at cwbankgroup.com.This 2011 Annual Report, along with our Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular, is available on our website. For additional printed copies of these reports, please contact the Investor Relations Department.Filings are available on the Canadian Securities Administrator’s website at www.sedar.com.2012 Annual MeetingThe annual meeting of the common shareholders of Canadian Western Bank will be held in Edmonton, Alberta, on March 8, 2012 at The Fairmont Hotel Macdonald (Empire Ballroom) at 3:00 p.m. MT (5:00 p.m. ET).Corporate SecretaryGail L. Harding, Q.C.Senior Vice President General Counsel and Corporate SecretaryCanadian Western BankSuite 3000, 10303 Jasper AvenueEdmonton, Alberta T5J 3X6Telephone: (780) 969.1525Fax: (780) 969.1503Complaints or Concerns regarding Accounting, Internal Accounting Controls or Auditing MattersPlease contact either: Tracey C. BallExecutive Vice President and Chief Financial OfficerCanadian Western BankTelephone: (780) 423.8855Fax: (780) 969.8326Email: tracey.ball@cwbank.comorRobert A. ManningChairman of the Audit Committeec/o 210-5324 Calgary TrailEdmonton, Alberta T6H 4J8Telephone: (780) 438.2626Fax: (780) 438.2632Email: rmanning@shawbiz.ca Management’s Discussion and Analysis
table of contents
33 BuSinESS PRofilE AnD StRAtEgy
36 gRouP finAnciAl PERfoRMAncE
36 Overview
39 Net Interest Income
40 Other Income
42 Non-interest Expenses
and Efficiency
Income and Capital Taxes
43
44 Comprehensive Income
44 Cash and Securities
45 Loans
48 Credit Quality
51 Deposits
53 Other Assets
and Other Liabilities
53 Liquidity Management
56 Contractual Obligations
57 Capital Management
61 Financial Instruments
and Other Instruments
62 Acquisitions
62 Off-Balance Sheet Arrangements
63 oPERAting SEgMEnt REViEw
63 Banking and Trust
66
Insurance
67 SuMMARy of QuARtERly RESultS
67 Quarterly Results
68 Fourth Quarter of 2011
69 Accounting PoliciES AnD EStiMAtES
69 Critical Accounting Estimates
70 Changes in Accounting Policies
71 Future Changes in Accounting
Policies
75 RiSk MAnAgEMEnt
75 Overview
77 Credit Risk
78 Liquidity Risk
78 Market Risk
80
Insurance Risk
80 Operational Risk
81 General Business
and Economic Conditions
81 Level of Competition
82 Regulatory and Legal Risk
82 Accuracy and Completeness
of Information on Customers
and Counterparties
82 Ability to Execute Growth
82
Initiatives
Information Systems
and Technology
82 Reputation Risk
82 Other Factors
83 uPDAtED SHARE infoRMAtion
83 contRolS AnD PRocEDuRES
Business Profile and Strategy
Canadian Western Bank (CWB or the Bank) offers a diverse range
of financial services and is the largest publicly traded Canadian
bank headquartered in Western Canada. The Bank, along with
its subsidiaries, National Leasing Group Inc. (National Leasing),
Canadian Western Trust Company (CWT), Valiant Trust Company
(Valiant), Canadian Direct Insurance Incorporated (Canadian
Direct), Adroit Investment Management Ltd. (Adroit) and Canadian
Western Financial Ltd. (CWF), are together known as Canadian
Western Bank Group (CWB Group).
CWB Group currently operates in the financial services areas
of banking, trust, insurance and wealth management. The
Bank is primarily focused on its core business lending and
personal banking services in Western Canada. National Leasing
specializes in commercial equipment leasing for small and
mid-sized transactions and is represented across Canada. CWT
provides trustee and custody services to independent financial
advisors, corporations, brokerage firms and individuals. CWT
also underwrites and administers residential mortgages through
its operating division, Optimum Mortgage. Valiant’s operations
include stock transfer and corporate trust services. Canadian
Direct provides personal auto and home insurance to customers
in British Columbia (BC) and Alberta. Adroit specializes in
discretionary wealth management for individuals, corporations
and institutional clients. Third-party mutual funds are offered
through CWF, the Bank’s mutual fund dealer subsidiary.
Vision
CWB Group is seen as crucial to our clients’ futures.
Mission
To build a western Canadian-based financial services franchise
through responsible delivery of:
• Entrepreneurial approaches to assist clients and support
growth in the business areas of banking, trust, insurance
and wealth management;
• Best-in-class client experiences that are responsive, resourceful
and realistic;
• Relevant financial products that fit with demonstrated areas
of expertise and chosen geographic markets;
• Progressive career opportunities that are engaging, educational
and rewarding;
• Meaningful contributions to the communities where
CWB Group operates; and,
• Consistent profitability and strong shareholder returns
that reflect an industry-leading, growth-focused group
of companies.
CWB Group 2011 Annual Report • SHAREDVISION
33
CWB’s overall strategic plan is based on two overriding themes:
1) “Do what we do, only better.”
2) “Make the whole worth more than the sum of the parts.”
Additional strategic priorities include:
• Maintenance of a conservative risk profile and strong capital
base while ensuring growth is focused, strategic and accretive
for shareholders;
• Reinforcement of leadership in cost efficiency and low
credit losses by enhancing service delivery capabilities and
maintaining strong discipline in managing lending portfolios;
• Leveraging core profitability and further diversifying funding
sources, which includes ongoing generation of internal core
deposits raised through the branch network, trust operations
and over the Internet;
• Improvement of revenue diversification by further developing
non-interest revenue sources through both internal growth and
potential strategic acquisitions;
• Supporting return on common shareholders’ equity by
maintaining strong operating performance, an efficient capital
structure, and continued diversification into business areas
with lower capital requirements;
• Recruiting, developing and retaining high quality employees,
who embrace the Bank’s culture, by offering a rewarding work
environment that includes comprehensive employee benefits,
career growth opportunities, a focus on work/life balance
and competitive compensation packages. CWB believes that
such employees are critical to build and maintain competitive
advantages related to offering superior client service and
relationship-based banking; and,
• Further building CWB’s reputation and reinforcing public
confidence through continued stakeholder communication,
diligence in corporate governance practices, and high
standards in corporate social responsibility, corporate reporting
and accountability.
The consolidated financial statements have been prepared
in accordance with Canadian generally accepted accounting
principles (GAAP) and are presented in Canadian dollars.
The following pages contain management’s discussion of the
financial performance of CWB, as well as a discussion of the
performance of each operating segment and a summary of
quarterly results. Additional information relating to the Bank,
including the Annual Information Form, is available on SEDAR
at www.sedar.com and on the Bank’s website at
www.cwbankgroup.com.
forward-looking Statements
From time to time, CWB makes written and verbal forward-looking statements.
Statements of this type are included in the Annual Report and reports to shareholders
and may be included in filings with Canadian securities regulators or in other
communications such as press releases and corporate presentations. Forward-
looking statements include, but are not limited to, statements about the Bank’s
objectives and strategies, targeted and expected financial results and the outlook
for the Bank’s businesses or for the Canadian economy. Forward-looking statements
are typically identified by the words “believe”, “expect”, “anticipate”, “intend”,
“estimate”, “may increase”, “may impact”, “goal”, “focus”, “potential”, “proposed”
and other similar expressions, or future or conditional verbs such as “will”, “should”,
“would” and “could”.
By their very nature, forward-looking statements involve numerous assumptions and
are subject to inherent risks and uncertainties, which give rise to the possibility that
the Bank’s predictions, forecasts, projections, expectations and conclusions will not
prove to be accurate, that its assumptions may not be correct and that its strategic
goals will not be achieved.
A variety of factors, many of which are beyond the Bank’s control, may cause
actual results to differ materially from the expectations expressed in the forward-
looking statements. These factors include, but are not limited to, general business
and economic conditions in Canada, including the volatility and lack of liquidity
in financial markets, fluctuations in interest rates and currency values, changes
in monetary policy, changes in economic and political conditions, legislative and
regulatory developments, legal developments, the level of competition in the
Bank’s markets, the occurrence of weather-related and other natural catastrophes,
changes in accounting standards and policies, the accuracy of and completeness
of information the Bank receives about customers and counterparties, the ability to
attract and retain key personnel, the ability to complete and integrate acquisitions,
reliance on third parties to provide components of the Bank’s business infrastructure,
changes in tax laws, technological developments, unexpected changes in consumer
spending and saving habits, timely development and introduction of new products,
and management’s ability to anticipate and manage the risks associated with
these factors. It is important to note that the preceding list is not exhaustive of
possible factors.
Additional information about these factors can be found in the Risk Management
section of this Management’s Discussion and Analysis (MD&A).
These and other factors should be considered carefully, and readers are cautioned
not to place undue reliance on these forward-looking statements as a number of
important factors could cause the Bank’s actual results to differ materially from
the expectations expressed in such forward-looking statements. Unless required
by securities law, the Bank does not undertake to update any forward-looking
statement, whether written or verbal, that may be made from time to time by it or
on its behalf.
Assumptions about the performance of the Canadian economy in 2012 and how it
will affect CWB’s businesses are material factors the Bank considers when setting its
objectives. In setting minimum performance targets for fiscal 2012, management’s
assumptions included:
• Modest economic growth in Canada aided by positive relative performance in the
four western provinces;
• Relatively stable energy and other commodity prices;
• Sound credit quality with actual losses remaining within the Bank’s historical
range of acceptable levels; and,
• A lower net interest margin attributed to expectations for a prolonged period of
very low interest rates due to uncertainties about the strength of global economic
recovery and potential adverse effects from the ongoing European debt crisis.
34
SHAREDVISION • CWB Group 2011 Annual Report
taxable Equivalent Basis (teb)
Most banks analyze revenue on a taxable equivalent basis to permit uniform
measurement and comparison of net interest income. Net interest income (as
presented in the consolidated statements of income) includes tax-exempt income
on certain securities. Since this income is not taxable, the rate of interest or dividends
received is significantly lower than would apply to a loan or security of the same
amount. The adjustment to taxable equivalent basis of $11.1 million (2010 – $11.2
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
GAAP 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
taxable equivalent basis throughout this MD&A.
non-gAAP Measures
Taxable equivalent basis, return on common shareholders’ equity, return on assets,
diluted cash earnings per share, efficiency ratio, net interest margin, tangible
common equity to risk-weighted assets, Tier 1 and total capital adequacy ratios,
average balances, provision for credit losses as a percentage of average loans, claims
loss ratio, expense ratio and combined ratio do not have standardized meanings
prescribed by GAAP and, therefore, may not be comparable to similar measures
presented by other financial institutions. The non-GAAP measures used in this MD&A
are calculated as follows:
• taxable equivalent basis – described above;
• return on common shareholders’ equity – net income after preferred share
dividends divided by average common shareholders’ equity;
• return on assets – net income after preferred share dividends divided by average
total assets;
• diluted cash earnings per share – diluted earnings per common share excluding
the after-tax amortization of acquisition-related intangible assets;
• efficiency ratio – non-interest expenses divided by total revenues (net interest
income plus other income);
• net interest margin – net interest income divided by average total assets;
• tangible common equity to risk-weighted assets – shareholders’ equity less
subsidiary goodwill divided by risk-weighted assets, calculated in accordance
with guidelines issued by the Office of the Superintendent of Financial Institutions
Canada (OSFI);
• Tier 1 and total capital adequacy ratios – in accordance with guidelines issued
by OSFI;
• average balances – average daily balances;
• provision for credit losses as a percentage of average loans - provision for credit
losses divided by average loans;
• claims loss ratio – net insurance claims and adjustment expenses as a percentage
of net earned premiums;
• expense ratio – policy acquisition costs and non-interest expenses net of
commissions and processing fees as a percentage of net earned premiums; and,
• combined ratio – sum of the claims loss and expense ratios.
CWB Group 2011 Annual Report • SHAREDVISION
35
group financial Performance
overview
Highlights of 2011 (compared to 2010)
• Record net income of $178.1 million, up 9%, marking
94 consecutive profitable quarters.
• Very strong loan growth of 16%.
• Return on common shareholders’ equity of 15.6%, down
150 basis points.
• Return on assets of 1.20%, down four basis points.
• Record diluted earnings per common share of $2.12, up
3%. Record diluted cash earnings per common share of
$2.18, up 4%.
• Record total revenues (teb) of $491.0 million, up 13%.
• Efficiency ratio (teb) of 45.3%, a 120 basis point deterioration.
• Tangible common equity to risk-weighted assets ratio of 8.6%,
up from 8.5%; Tier 1 capital ratio of 11.1%, down 20 basis
points; total capital ratio of 15.4%, up from 14.3%.
• Net interest margin (teb) of 2.82%, up eight basis points.
• Cash dividends of $0.54 per share paid to common
• Improved credit quality as evidenced by six consecutive
quarterly reductions in the level of gross impaired loans;
provision for credit losses measured as a percentage of
average loans of 20 basis points, down one basis point.
shareholders, up 23%.
• Surpassed $14 billion of total assets, $12 billion of total loans
and $9 billion of total assets under administration.
Table 1 – SelecT annual Financial inFormaTion (1)
($ thousands, except per share amounts)
Change from 2010
key Performance indicators
Net income
Earnings per share
Basic
Diluted
Diluted cash (1)
Provision for credit losses as a percentage of average loans
Net interest margin (teb) (1)
Net interest margin
Efficiency ratio (teb) (1) (3)
Efficiency ratio
Return on common shareholders’ equity
Return on assets
other financial information
Total revenues (teb)
Total revenues
Total assets
Subordinated debentures
Common share dividends
2011
2010
2009
$
$ 178,149
$
163,621
$
106,285
$
14,528
–
0.07
0.09
2.26
2.12
2.18
0.20%
2.82
2.74
45.3
46.3
15.6
1.20
2.26
2.05
2.09
0.21%
2.74
2.64
44.1
45.3
17.1
1.24
1.51
1.47
1.49
0.15%
2.10
2.03
48.2
49.4
13.2
0.86
$ 491,014
479,955
14,772,035
545,000
0.54
$
434,259
423,073
12,701,691
315,000
0.44
$
327,966
320,119
11,635,872
375,000
0.44
$
56,755
56,882
2,070,344
230,000
0.10
%
9%
–
3
4
(1) bp(2)
8
10
120
100
(150)
(4)
13%
13
16
73
23
(1) See page 35 for a discussion of teb and non-GAAP measures.
(2) bp – basis points.
(3) A decrease in the ratio reflects improved efficiency, while an increase reflects deterioration.
36
SHAREDVISION • CWB Group 2011 Annual Report
Record net income of $178.1 million increased 9% ($14.5 million)
over 2010 while diluted earnings per common share was $2.12
($2.26 basic), up 3% from $2.05 ($2.26 basic) in the prior year.
Diluted cash earnings per share, which excludes the after-tax
amortization of acquisition-related intangible assets, was $2.18,
up 4%. Record total revenues (teb) of $491.0 million grew
13% ($56.8 million), reflecting the combined benefit of very
strong 16% ($1,725 million) loan growth, an eight basis point
improvement in net interest margin (teb) to 2.82% and a 1% ($0.7
million) increase in other income. Margin expansion in the year
was mainly due to improved deposit costs and lower average
liquidity levels, partially offset by higher debenture expense.
Credit quality improved consistent with expectations, and the
provision for credit losses as a percentage of average loans
remained relatively low at 20 basis points.
The efficiency ratio (teb), which measures non-interest expenses
as a percentage of total revenues (teb), of 45.3% deteriorated 120
basis points from last year as the benefit of strong percentage
growth in total revenues was more than offset by a 16%
($31.0 million) increase in non-interest expenses. The increase
in non-interest expenses was mainly attributed to additional
staff complement and ongoing investment in branches, other
infrastructure and technology to support continued business
growth. The acquisition of National Leasing, effective
February 1, 2010, impacted the change in both total revenues
and non-interest expenses as fiscal 2011 represented the Bank’s
first full year of operations from this business.
The annual return on common shareholders’ equity of 15.6%
was down 150 basis points compared to 2010, while return on
assets decreased four basis points to 1.20%. The reduction in
these key profitability ratios was mainly due to the impact of
additional common shares issued upon the exercise of warrants
and a tax recovery from certain prior period transactions that
increased 2010 net income by approximately $8.3 million. Total
cash dividends paid to common shareholders of $0.54 per share
increased 23% from $0.44 per share paid in the prior year.
Total assets increased 16% to reach $14,772 million, driven by
loan growth. Each lending sector recorded strong growth for
the year, reflecting positive performance across all of the Bank’s
geographic regions.
Total branch-raised deposits increased 9% ($602 million)
compared to the previous year, while the demand and notice
component within branch-raised deposits was up 13% ($461
million). Strong growth in branch-raised deposits, including the
demand and notice component, reflects the success of ongoing
strategies to further enhance and diversify the Bank’s core
funding sources. Total deposits grew 16% ($1,687 million) in the
year to reach $12,500 million and kept pace with very strong loan
growth. Additional personal fixed rate term deposits were raised
through the deposit broker network and $250 million of fixed
term floating rate notes were issued in the debt capital markets.
Total branch-raised deposits represented 58% of total deposits
at October 31, 2011, compared to 61% a year earlier. The demand
and notice component comprised 32% of total deposits, down
from 33% at October 31, 2010. The ratio of total deposits to total
loans at October 31, 2011 was 1.02 times, down slightly from 1.03
times last year.
The maintenance of strong capital levels is fundamental to
management’s objectives to effectively manage risks, support
strong loan growth and maintain adequate flexibility to pursue
strategic opportunities that are accretive for CWB shareholders.
The Bank’s Tier 1 and total capital ratios at October 31, 2011 of
11.1% and 15.4%, respectively, remained well above both internal
and regulatory minimums. The tangible common equity ratio,
which represents the highest quality form of capital, was also
strong at 8.6%, up from 8.5% twelve months ago. Application
of the expected Basel III rules as prescribed by OSFI to the Bank’s
financial position at October 31, 2011 confirms management’s
view that CWB is already in compliance with the new minimum
regulatory capital ratio requirements.
CWB Group 2011 Annual Report • SHAREDVISION
37
Minimum Performance targets and outlook
The performance targets established for the 2011 fiscal year,
together with actual performance, and new minimum targets
for fiscal 2012 are presented in Table 2. The 2012 minimum
targets are calculated under Canadian GAAP. Starting in the first
quarter of 2012, the Bank will transition to International Financial
Reporting Standards (IFRS) and the following targets will change
when calculated under IFRS. The Bank intends to pre-release the
2011 transition adjustments between GAAP and IFRS before the
end of the first quarter 2012, and the minimum targets will be
amended accordingly at that time.
Table 2 – PerFormance TargeTS
Net income growth (1)
Net income growth, before taxes (teb) (2)
Total revenue (teb) growth
Loan growth
Provision for credit losses as a percentage of average loans
Efficiency ratio (teb)
Return on common shareholders’ equity (3)
Return on assets (4)
2011
Minimum
Targets
2011
Performance
2012
Minimum
Targets
6%
10
12
10
0.20 – 0.25
46
15
1.20
9%
11
13
16
0.20
45.3
15.6
1.20
6%
n/a (5)
6
10
0.20 – 0.25
46
15
1.10
(1) Net income before preferred share dividends.
(2) Net income before income taxes (teb), non-controlling interest in subsidiary and preferred share dividends.
(3) Return on common shareholders’ equity calculated as net income after preferred share dividends divided by average common shareholders’ equity.
(4) Return on assets calculated as net income after preferred share dividends divided by average total assets.
(5) n/a – not applicable.
CWB exceeded or met all of its fiscal 2011 minimum
performance targets, led by very strong loan growth of 16%.
Growth in both total revenues (teb) and net income was well
above the respective targets due to loan growth, a relatively
stable net interest margin and significant gains on sale of
securities realized in the first two quarters. Strong loan growth
was apparent across each of the Bank’s lending sectors and all
geographic markets. Measured in dollars, the strongest loan
growth by lending sector was in general commercial loans,
closely followed by equipment financing. Overall credit quality
improved throughout the year and, as a result, the provision
for credit losses was at the low end of the target range. The
return on common shareholders’ equity was slightly above
expectations while return on assets was on par with the target.
Management believes Canada will see modest growth in
2012 despite ongoing impacts of the European debt crisis and
economic uncertainties in the United States (U.S.). The Bank’s
key markets in Western Canada are expected to perform well
relative to the rest of Canada largely owing to strong capital
investment related to a favourable long-term outlook for
commodities, including the positive impact on demand from
developing economies. The Bank will maintain its focus on
quality, secured loans that offer a fair and profitable return.
While certain challenges will persist related to increased
competition and uncertainty about the strength of economic
recovery, the volume in the pipeline for new loans remains
solid. The 2012 target for loan growth has been set at 10%.
Overall credit quality is within expectations and the provision
for credit losses is targeted between 20 to 25 basis points of
average loans. Targets for growth in total revenues and net
income reflect confidence in CWB’s proven business model and
overall strategic direction, but also consider ongoing challenges.
The growth target for total revenues (teb) of 6% compares to
actual growth achieved in 2011 of 13%; the difference largely
reflects a comparatively higher starting point that includes a full
year of revenue recognition from National Leasing, as well as
expectations for limited gains on sale of securities in 2012. Net
interest margin is also expected to be lower in 2012. Minimum
targets for return on common shareholders’ equity and return
on assets have been established at 15% and 1.10%, respectively.
One of management’s key priorities is to maintain effective
control of costs while ensuring the Bank is positioned to deliver
continued strong growth. In consideration of targeted revenue
growth and planned expenditures, the 2012 efficiency ratio (teb)
is expected to remain at 46% or less.
Ongoing strong performance is expected within each company
of the CWB Group, and the development of each business will
remain a key priority to further diversify operations. With its
strong capital position, CWB is well positioned to take advantage
of opportunities and manage unforeseen challenges that may
arise. Management will maintain its focus on creating value and
growth for shareholders over the long term. While potential
adverse impacts from the European debt crisis and global
economic uncertainties will continue to be closely monitored,
the current overall outlook for 2012 and beyond is positive.
38
SHAREDVISION • CWB Group 2011 Annual Report
net interest income
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.
Highlights of 2011
• Record net interest income (teb) increased 17% to $384.7 million
based on 14% growth in average total interest earning assets.
• Net interest margin (teb) was up eight basis points to 2.82%.
Table 3 – neT inTereST income (teb)(1)
($ thousands)
2011
2010
Average
Balance
Mix
interest
interest
Rate
Average
Balance
Mix
Interest
Interest
Rate
$ 1,902,370
14% $ 58,382
3.07% $
1,767,193
15% $
56,627
3.20%
Assets
Cash, securities and deposits with
regulated financial institutions
Securities purchased under
resale agreements
94,403
1
916
0.97
163,390
2,794,172
8,534,996
11,329,168
13,325,941
307,310
20
63
83
98
2
119,800
477,485
597,285
656,583
–
4.29
5.59
5.27
4.93
0.00
2,319,765
7,486,043
9,805,808
11,736,391
270,379
2
19
62
81
98
2
872
0.53
103,371
407,903
511,274
568,773
–
4.46
5.45
5.21
4.85
0.00
$ 13,633,251
100% $ 656,583
4.82% $ 12,006,770
100% $ 568,773
4.74%
$
569,709
4% $
–
0.00% $
461,662
4% $
–
0.00%
Loans
Residential mortgages
Other loans
Total interest bearing assets
Other assets
total Assets
liabilities
Deposits
Demand
Notice
Fixed term
3,286,379
7,437,030
Deposit from CWB Capital Trust
105,000
Other liabilities
Subordinated debentures
Shareholders’ equity
11,398,118
455,119
523,639
1,256,375
24
55
1
84
3
4
9
35,668
202,937
6,745
245,350
98
26,452
–
1.09
2.73
6.42
2.15
0.02
5.05
0.00
2,970,970
6,642,576
105,000
10,180,208
430,468
318,729
1,077,365
25
55
1
85
3
3
9
21,274
194,258
6,745
222,277
79
17,753
–
total liabilities and Equity
$ 13,633,251
100% $ 271,900
total Assets/net interest income
$ 13,633,251
$ 384,683
1.99% $ 12,006,770
2.82% $ 12,006,770
100% $ 240,109
$ 328,664
(1)
See page 35 for a discussion of teb and other non-GAAP measures.
0.72
2.92
6.42
2.18
0.02
5.57
0.00
2.00%
2.74%
Record net interest income (teb) of $384.7 million increased 17%
($56.0 million) for the year, reflecting the combined positive impact
of 14% ($1,590 million) growth in average interest earning assets,
a slightly higher overall asset yield and lower deposit costs. Growth
in average interest earning assets was mainly driven by very
strong growth in total average loans of 16% ($1,523 million). Net
interest margin increased eight basis points to 2.82% based on
lower average costs on fixed rate term deposits, a slight increase in
average loan yields (with the exception of residential mortgages),
a 17% ($179 million) increase in the average balance of
shareholders’ equity and 23% ($108 million) growth in the average
balance of zero cost demand deposits. The improvement in margin
was partially offset by the impact of higher average liquidity
measured as a percentage of average assets, increased expense
related to the higher balance of subordinated debentures and
lower yields on securities. Margin further benefited from increased
yields on fixed rate loans reflecting a generally favourable pricing
environment and a full-year contribution from National Leasing. The
average yield on residential mortgages was down for the year, mainly
due to changes in benchmark bond rates and competitive factors.
CWB Group 2011 Annual Report • SHAREDVISION
39
The current very low interest rate environment, the relatively flat
shape of the interest rate curve, increased competitive influences
and higher average liquidity levels have a negative impact on
net interest margin. Generally, increases in the prime interest
rate positively impact the Bank’s net interest margin because
prime-based loans reprice more quickly than deposits, which
subsequently expands the interest spread earned on the Bank’s
assets. The prime rate averaged 3.00% compared to 2.46% last year.
The prime rate as at October 31, 2011 was 3.00%, up slightly from
its historic low of 2.25% established in April 2009, but unchanged
throughout fiscal 2011.
outlook for net interest income
Fiscal 2012 net interest income is expected to increase with the
targeted 10% loan growth. The current very low interest rate
environment and relatively flat shape of the interest rate curve
will limit the Bank’s ability to enhance margins from current
levels, particularly on low and no-cost deposits where margin
is diminished. In a more normal interest rate environment, a
steeper upward sloping interest rate curve would be observed
that would allow for a significant incremental earnings benefit
from the Bank’s growing base of core deposits that are less
interest sensitive. In addition, a steeper curve provides a more
meaningful positive differential between the incremental price on
loans and the cost of matched funding based on the duration of
certain portfolios. Increased competition currently encountered in
certain business areas also lowers overall loan pricing. The Bank
expects to carry higher than normal liquidity due to elevated
global economic uncertainties, including concerns about the
ongoing European debt crisis. Higher liquidity generally pressures
net interest margin due to the increased level of lower yielding
assets. The foregoing factors support management’s current
expectations that net interest margin (teb) will continue to be
pressured in 2012, consistent with what was observed in the
latter part of 2011.
other income
Highlights of 2011
• Other income increased 1% as growth in trust and wealth
management services, credit-related fee income and foreign
exchange gains was largely offset by lower gains on sale of
securities and a reduction in net insurance revenues reflecting
the impact of the Alberta auto risk sharing pools and the
catastrophic wildfire in Slave Lake, Alberta.
• Other income represented 22% of total revenues (teb),
compared to 24% in 2010, reflecting relatively stronger growth
in net interest income due to very strong loan growth and a
slightly improved margin.
Table 4 – oTher income
($ thousands)
Insurance
Net earned premiums
Commissions and processing fees
Net claims and adjustment expenses
Policy acquisition costs
Net insurance revenues
Credit related
Trust and wealth management services
Gains on sale of securities, net
Retail services
Securitization revenue
Foreign exchange
Other (1)
total other income
2011
2010
$
Change from 2010
$
117,632
$
111,368
$
1,869
(74,734)
(24,517)
20,250
32,821
19,050
10,306
9,486
3,969
3,488
6,961
2,347
(68,641)
(23,358)
21,716
31,550
17,316
12,447
9,017
4,285
2,422
6,842
$
106,331
$
105,595
$
6,264
(478)
(6,093)
(1,159)
(1,466)
1,271
1,734
(2,141)
469
(316)
1,066
119
736
%
6%
(20)
9
5
(7)
4
10
(17)
5
(7)
44
2
1%
(1)
Includes lease administration services, fair value changes related to derivative financial instruments not accounted for as hedges, gains/losses on land, buildings and equipment disposals, and other
miscellaneous non-interest revenues.
40
SHAREDVISION • CWB Group 2011 Annual Report
Other income of $106.3 million was up 1% ($0.7 million), led by
strong results across CWB’s core banking and trust operations,
including National Leasing’s revenue contributions, which
commenced in the second quarter of 2010. Strong 10% ($1.7
million) growth in trust and wealth management services and
4% ($1.3 million) higher credit-related fee income more than
offset the impact of $2.1 million lower gains on sale of securities.
Fees related to trust and wealth management services reflected
solid performance in each of CWT, Valiant and Adroit, while
growth in credit fee income was mainly related to increased
lending activity. Despite the decrease in the level of gains on
sale of securities, contributions from this category of other
income continued to exceed normal historical amounts as
significant gains were realized in the first half of the year due to a
repositioning of investments in common equities and preferred
shares. Management’s decision to sell certain preferred shares
issued by financial institutions reflects forthcoming changes
under the new regulatory capital framework known as Basel III,
which requires a deduction from regulatory capital of amounts
over a certain threshold for this type of investment. Unusually
high gains realized in 2010 reflected market conditions and
investment strategies that allowed the Bank to capitalize on
opportunities to realize gains while maintaining relatively
comparable yields on reinvestment in other high quality
investment grade securities.
Net insurance revenues were down $1.5 million as the positive
impact of 6% growth in net earned premiums was more than
offset by the combined impact of increased claims expense
and a $2.5 million lower before tax earnings contribution from
Canadian Direct’s share of the Alberta auto risk sharing pools.
Increases in foreign exchange gains and retail services fee
income of $1.1 million and $0.5 million, respectively, more than
offset a $0.3 million decline in National Leasing’s securitization
revenue. The ‘other’ category within other income was relatively
unchanged and mainly included lease administration revenues
and changes in fair value of National Leasing’s interest rate
swaps. The ‘other’ category of other income also included
approximately $1.9 million attributed to the fourth quarter sale
of a relatively small portfolio of residential mortgages by
Optimum Mortgage.
Other income as a percentage of total revenues (net interest
income and other income) declined to 22%, compared to 24% in
the prior year. The change was mainly attributed to comparatively
higher growth in net interest income due to very strong loan
growth and a slightly improved net interest margin.
outlook for other income
CWB’s objective is to grow non-interest revenues through the
generation of new business with both existing and potential
clients, an enhanced market presence and expanded product
offerings. The achievement of this objective will be supported
by plans for continued expansion of CWB’s branch network
and further development of insurance, trust services, wealth
management and other complementary fee-based businesses.
Management also expects to continue to evaluate opportunities
to expand sources of other income through acquisition.
Growth is expected across all core categories of other income,
reflecting double-digit loan growth and the Bank’s continued
focus on enhancing transactional services and other sources of
fee income. Based on the current composition of the securities
portfolio, interest rate curves and elevated volatility in financial
markets due to global uncertainties, management expects the
future level of gains on sale of securities will be significantly
lower than has been achieved in the past three years. The IFRS
transition in 2012 will introduce additional potential for volatility
in other income as it relates to accounting for both unrealized
losses in the available-for-sale securities portfolio and any
change in fair value of the acquisition-related contingent
consideration for National Leasing. The ‘other’ category of other
income is expected to be lower in future periods, partially
reflecting a reduction in lease administration revenues due
to the termination of a servicing contract.
The trust companies, including Optimum Mortgage, expect
solid growth in 2012 resulting from increased market share and
ongoing business development in both core western markets
and select areas in Ontario. Net insurance revenues should
benefit from continued policy growth supported by Canadian
Direct’s sound underwriting practices and continued focus on
building a well balanced book of business. However, increased
volatility in the claims ratio could result from seasonal storm
activity, particularly in the winter months, and by the strategic
decision to increase the retention limit on Canadian Direct’s
catastrophe reinsurance treaty to $5 million (2011 – $2 million).
Adroit had good success in the year introducing its services to
many CWB banking clients and this positive trend is expected
to continue.
CWB Group 2011 Annual Report • SHAREDVISION
41
Non-interest Expenses and Efficiency
Highlights of 2011
The efficiency ratio (teb) of 45.3% represented a 120 basis point
deterioration compared to 2010 as the positive impact of strong
13% growth in total revenues was offset by a 16% increase in
non-interest expenses.
Table 5 – non-inTereST exPenSeS and eFFiciency raTio
($ thousands)
2011
2010
$
Change from 2010
Salaries and Employee Benefits
Salaries
Employee benefits
Premises
Rent
Depreciation
Other
Equipment and furniture
Depreciation
Other
general
Professional fees and services
Marketing and business development
Amortization of intangibles
Banking charges
Postage and stationery
Regulatory costs
Travel
Communications
Capital and business taxes
Community investment
General insurance
Other
total non-interest Expenses
$
118,323
$
23,542
141,865
14,929
4,736
2,975
22,640
7,609
6,489
14,098
6,979
6,973
6,000
3,222
2,845
2,439
2,375
1,631
1,588
1,140
970
7,686
$
103,273
20,699
123,972
15,050
2,843
17,893
13,564
3,697
2,208
19,469
6,335
5,644
11,979
5,122
5,220
4,068
2,907
2,458
1,916
1,636
998
1,979
1,158
1,280
7,318
1,365
1,039
767
3,171
1,274
845
2,119
1,857
1,753
1,932
315
387
523
739
633
(391)
(18)
(310)
368
43,848
$
222,451
$
36,060
191,480
$
7,788
30,971
%
15%
14
14
10
28
35
16
20
15
18
36
34
47
11
16
27
45
63
(20)
(2)
(24)
5
22
16%
Efficiency Ratio (teb) (1) (2)
45.3%
44.1%
120 bp (3)
(1) Non-interest expenses as a percentage of total revenues (net interest income (teb) plus other income). See page 35 for a discussion of teb and other non-GAAP measures.
(2) A decrease in this ratio reflects improved efficiency, while an increase reflects deterioration.
(3) bp – basis points.
42
SHAREDVISION • CWB Group 2011 Annual Report
Total non-interest expenses of $222.5 million increased 16% ($31.0
million) largely driven by a 14% ($17.9 million) increase in salary
and employee benefits due to a combination of increased staff
complement and annual salary increments. The number of full-time
equivalent employees (FTEs) grew 5% (80 FTEs) from October 31,
2010, reflecting staffing requirements for additional bank branches,
corporate support services and other business expansion. For
comparison purposes, results for fiscal 2010 included only nine
months of National Leasing’s operations. Excluding the impact of
National Leasing for both years, including related amortization of
intangible assets, total non-interest expenses were up 11% ($18.9
million). Premises and equipment expenses, including depreciation,
increased 17% ($5.3 million) and reflected the impact of two new
full-service branches opened near the end of 2010, the ongoing
development and expansion of existing branches, and one new
full-service branch opened in September 2011. Other premises
and technology infrastructure investment such as the Bank’s new
loan origination system and corporate office data centre also
contributed to the increase. The new loan origination system is
expected to provide considerable efficiencies at both the branch
and corporate office level, which include improving the turnaround
time of credit approvals and affording lenders more time to assist
clients. It also offers enhanced statistical tracking and portfolio
management capabilities. General non-interest expenses increased
22% ($7.8 million) reflecting costs to manage the ongoing growth
and development of CWB’s businesses and the first full year of
National Leasing’s operations. Excluding National Leasing and the
related amortization of intangibles, general non-interest expenses
were up 14% (4.3 million).
Figure 1 – number oF Full-Time equivalenT STaFF
2011
+5%
2010
+28%
2009
2008
2007
+4%
+8%
+8%
1,796
1,716
1,339
1,284
1,185
The efficiency ratio (teb), which measures non-interest expenses
as a percentage of total revenues (teb), was 45.3%, compared to
44.1% last year as percentage growth in non-interest expenses
exceeded percentage growth in total revenues. Non-interest
expenses as a percentage of average assets of 1.6% was
unchanged compared to 2010.
Outlook for Non-interest Expenses and Efficiency
One of management’s key priorities is to maintain effective
control of costs while ensuring the Bank is positioned to deliver
strong growth over the long term. Effective execution of CWB’s
strategic plan will continue to require increased investment
in certain areas. Significant anticipated expenditures relate to
additional staff complement as well as expanded infrastructure
and further technology upgrades. Investment in these areas
is an integral part of the Bank’s commitment to maximize
shareholder value and is expected to provide material benefits
in future periods. A new full-service branch is expected to
open in Winnipeg, Manitoba in 2012. Other potential new
branch locations are currently under consideration. Upgrades
and expansion of existing branch infrastructure will also
continue. Lower provincial capital tax payments combined with
expectations for modest inflationary pressures in 2012 will help
moderate growth in non-interest expenses.
Anticipated growth in total revenues (teb) should largely offset
the impact of increased investment necessary for effective
execution of CWB’s strategic plan. However, expected pressures
on net interest margin, as previously discussed, will limit the
potential for a meaningful improvement in the efficiency ratio in
2012. Overall, CWB expects to achieve an efficiency ratio (teb) of
46% or better in fiscal 2012.
income and capital taxes
The effective income tax rate (teb) was 27.6%, up 130 basis points
from 2010, while the tax rate before the teb adjustment was
24.2%, or 180 basis points higher. The provision in 2010 included
a reduction to income taxes of $7.5 million related to taxation
authorities’ confirmation of certain transactions that occurred
in a prior year; the 2010 effective tax rate (teb) excluding the tax
recovery would have been 29.9%, or 230 basis points higher than
the current year. The lower tax rate, excluding the unusual item,
mainly reflects a 150 basis point decrease in the basic federal
income tax rate and a 50 basis point reduction in the provincial
income tax rate in BC, both effective January 1, 2011.
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 and liability relate primarily
to the general allowance for credit losses and intangible assets,
respectively. Future tax assets and liabilities are measured using
enacted or substantively enacted tax rates anticipated 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.
CWB Group 2011 Annual Report • SHAREDVISION
43
Capital losses of $11.1 million (2010 – $11.1 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.
Capital taxes applicable to CWB for 2011 were lower than prior
years. In the past two years, capital tax has been eliminated for
CWB in both BC and Manitoba, while Alberta has not had a capital
outlook
CWB’s expected income tax rate (teb) for fiscal 2012 is
approximately 27.0%, or 23.5% before the teb adjustment. Total
provincial capital taxes will decline significantly as only CWB’s
Saskatchewan operations will be subject to capital tax. Capital
tax for several years. CWB remains subject to provincial capital
tax in Saskatchewan. Capital taxes for 2011 totaled $1.4 million,
representing a 10% decline from 2010. Provincial capital taxes in
2011 include final payments to provinces where CWB’s capital tax
requirements have been eliminated.
taxes in Saskatchewan will increase with the ongoing retention
of earnings and any potential impact from the issuance of new
capital, if material.
comprehensive income
Comprehensive income is comprised of net income and other
comprehensive income (OCI), all net of income taxes. CWB’s OCI
includes unrealized gains and losses on available-for-sale cash
and securities, and, in 2010, fair value changes for derivative
instruments designated as cash flow hedges.
Comprehensive income totaled $159.1 million for the year, compared
to $167.4 million last year. Lower OCI in 2011 reflects $11.7 million
of unrealized losses on available-for-sale securities, compared to
$14.3 million of unrealized gains last year. The significant change
in unrealized gains/losses mainly reflects the negative impact on
equity prices from a broad sell-off in financial markets in the latter
part of the year due to escalating concerns about the European debt
crisis. The decrease in OCI was partially offset by $14.5 million higher
net income compared to 2010, as previously mentioned.
Table 6 – comPrehenSive income
($ thousands)
net income
other comprehensive income (loss)
Available-for-sale securities
Gains (losses) from change in fair value, net of tax
Reclassification to other income, net of tax
Derivatives designated as cash flow hedges
Gains from change in fair value, net of tax
Reclassification to net interest income, net of tax
2011
2010
Change from
2010
$
178,149
$
163,621
$
14,528
(11,710)
(7,340)
(19,050)
–
–
–
(19,050)
14,285
(8,868)
5,417
17
(1,613)
(1,596)
3,821
(25,995)
1,528
(24,467)
(17)
1,613
1,596
(22,871)
total comprehensive income
$
159,099
$
167,442
$
(8,343)
cash and Securities
Cash, securities and securities purchased under resale agreements
totaled $2,238 million at October 31, 2011, compared to $1,876
million one year ago. Total net unrealized gains before tax recorded
on the balance sheet at October 31, 2011 were $5.4 million,
compared to $32.1 million last year. The significant change in net
unrealized gains mainly reflects fluctuations in the market value
of common and preferred equities, as well as net gains realized
through the income statement. The portfolio of preferred shares
included net unrealized gains of $6.9 million at year end, down from
$18.3 million a year earlier. The common equities portfolio showed
net unrealized losses of $3.0 million, compared to net unrealized
gains of $7.7 million at October 31, 2010. The cash and securities
portfolio is mainly comprised of high quality debt instruments and
a comparatively smaller component of preferred and common
equities. Securities are not held for trading purposes and, where
applicable, are typically held until maturity. Fluctuations in the value
of securities, other than common equities, are generally attributed
to changes in interest rates, movements in market credit spreads
and shifts in the interest rate curve. Volatility in financial markets
directly affects the value of common and preferred equities and,
while the combined value of these investments is relatively small
in relation to total liquid assets, it does increase the potential for
comparatively larger fluctuations in OCI. The Bank’s common
equity portfolio is mainly comprised of Canadian large market
44
SHAREDVISION • CWB Group 2011 Annual Report
capitalization entities and is managed under a mandate to achieve
dividend income with reasonable long-term capital appreciation.
The IFRS transition in 2012 will introduce additional potential
for volatility in reported earnings as it relates to accounting for
unrealized losses on available-for-sale securities.
In the past three years, the Bank capitalized on opportunities to
realize gains on sale of securities resulting from a combination of
investment strategies and market conditions. Realized net gains on
sale of securities in 2011 were $10.3 million, a $2.1 million decline
compared to the prior year, but still well above the Bank’s longer
term historical average. Based on the current composition of the
securities portfolio, interest rate curves and elevated volatility in
financial markets due to global uncertainties, management expects
the level of gains on sale of securities in 2012 will be significantly
lower than has been achieved in each of the past three years.
CWB has no direct credit exposure to sovereign debt outside of
Canada. CWB also has no direct exposure to any credit default
swaps, collateralized debt obligations, non-bank sponsored
asset-backed commercial paper or monoline insurers.
See Table 27 – Valuation of Financial Instruments of this MD&A for
additional information.
Cash and securities are managed in conjunction with CWB’s overall
liquidity; additional information and management’s outlook for 2012
is included in the Liquidity Management discussion of this MD&A.
loans
Highlights of 2011
• Loan growth of 16% was driven by very strong performance
• Double-digit loan growth; an achievement realized in 21
in all lending sectors and across each of the Bank’s
geographic markets.
of the past 22 years (the exception being 2009 when loan
growth was 7%).
Table 7 – ouTSTanding loanS by PorTFolio
($ millions)
Commercial mortgages
General commercial
Personal loans and mortgages
Equipment financing
Real estate project loans
Corporate loans
Oil & gas production
total outstanding loans
Change from 2010
$
$
2011
2,700
2,606
2,020
2,006
1,888
709
363
$
2010
2,458
2,197
1,794
1,624
1,576
660
266
$
242
409
226
382
312
49
97
$
12,292
$
10,575
$
1,717
%
10%
19
13
24
20
7
36
16%
Total loans, excluding the allowance for credit losses, increased
16% ($1,717 million) to reach $12,292 million at year end. Measured
by loan type as shown in Table 7, growth in general commercial
loans of 19% ($409 million) represented the strongest source of
loan growth in dollar terms. Based on industry sector as shown
in Table 8, general commercial loans includes categories such as
manufacturing, finance and insurance, wholesale and retail trade,
and others. Oil and gas production loans had the best percentage
growth at 36% ($97 million). The equipment financing portfolio,
which includes the Bank’s heavy equipment financing business
and the small and mid-ticket leasing business of National Leasing,
increased 24% ($382 million). Real estate project loans increased
20% ($312 million) reflecting strong activity in both residential
and commercial construction. Commercial mortgages, an area
where loan pricing continued to be highly competitive, grew
10% ($242 million). Personal loans and mortgages, which include
combined lending activity in CWB branches and the Bank’s broker-
sourced residential mortgage business, Optimum Mortgage, also
showed solid results with 13% ($226 million) growth. Corporate
loans represent a diversified portfolio that is centrally sourced
and administered through a designated lending group located in
Edmonton. These loans include participation in select syndications
structured and led primarily by the major Canadian banks, but
exclude participation in various other syndicated facilities sourced
through relationships developed at CWB branches. Syndicated
facilities that are sourced in branches are primarily real estate
project loans and oil and gas production loans and are included
under the related classifications in Table 7.
Loans in Optimum Mortgage increased 17% ($138 million) over
October 31, 2010 to reach $934 million, reflecting growth in
both alternative mortgages and high ratio insured mortgages.
Uninsured mortgages continue to be secured via conventional
residential first mortgages carrying a weighted average loan-to-
value ratio at initiation of approximately 70%, and represented
about 62% of Optimum Mortgage’s total portfolio at year end.
Management remains committed to further developing this
mortgage business as it continues to produce solid returns while
maintaining an acceptable risk profile. The level of new lending
opportunities in this business could moderate going forward,
reflecting increased competitive pressure and overall slower growth
in demand for residential mortgages.
CWB Group 2011 Annual Report • SHAREDVISION
45
While the mix of the portfolio remained relatively unchanged
during the year (see Figure 2), the distribution did shift slightly
from commercial mortgages to equipment financing. Based on the
location of security, Alberta and BC represented 46% and 33% of
total loans at year end, respectively. The geographic distribution
of loans (see Figure 3 of this MD&A) shifted slightly from Alberta
to “other” provinces reflecting the broader geographic footprint of
National Leasing’s portfolio, increased participation in syndicated
facilities led by other Canadian banks and growth of Optimum
Mortgage’s business in Ontario.
Figure 2 – ouTSTanding loanS by PorTFolio
(October 31, 2010 in brackets)
General Commercial
Loans (21%)
Personal Loans
& Mortgages (17%)
Equipment
Financing (15%)
Oil & Gas
Production
Loans (3%)
21%
22%
17%
15%
16%
6%
3%
Commercial
Mortgages (23%)
Real Estate
Project Loans (15%)
Corporate
Loans (6%)
outlook for loans
The Bank expects to maintain double-digit loan growth and has
set its fiscal 2012 minimum loan growth target at 10%. While
there is increased competition in certain areas, management
believes market share will be gained from the combined positive
influences of an expanded market presence, increased brand
awareness in core geographic markets due in part to targeted
marketing initiatives, and the effective execution of CWB’s
strategic plan, which is focused on further enhancing existing
competitive advantages.
Canada’s domestic economy is expected to grow modestly in
2012 despite impacts from the ongoing European debt crisis and
U.S. economic uncertainties. The Bank’s key markets in Western
Canada are expected to perform well relative to the rest of
Canada, largely owing to strong capital investment related to a
favourable long-term outlook for commodities. In Alberta, the
forecast for 2012 is supported by significant long-term capital
investment in the oilsands, as well as a relatively positive outlook
for activity related to conventional oil production. Activity related
to the resource sector in BC has also remained solid due to
current favourable energy and commodity prices. Construction
activity (both residential and non-residential) largely attributed
to ongoing in-migration, as well as exports to Pacific Rim
countries, including China, are expected to remain key economic
drivers for BC in 2012. Growth in Saskatchewan will be supported
by the region’s growing energy sector, potash production and
the potential for improvement in agriculture output. Manitoba’s
economy is diverse with positive economic growth contributions
mainly expected from agriculture production, mining, and energy.
Prices for natural gas have been very low for several years and no
meaningful change is expected in the foreseeable future. This will
likely continue to adversely affect companies that rely on activities
related to natural gas exploration and production, drilling activity
and supporting services. Relatively stable employment, real
income growth, the expected very low interest rate environment,
and continued migration of individuals and families toward
Western Canada will help maintain an adequate balance between
supply and demand for residential real estate.
While strong competition from domestic banks and other
financial services firms is expected to persist, the current
overall outlook for new loans is encouraging. Major risks that
would have a material adverse impact on the Bank’s economic
expectations include a global economic recession spurred by
the European debt crisis, a prolonged recession in the U.S., or a
meaningful slowdown in China’s economic growth.
46
SHAREDVISION • CWB Group 2011 Annual Report
Diversification of Portfolio
Total advances based on location of security.
Figure 3 – geograPhical diSTribuTion oF loanS (1)
(October 31, 2010 in brackets)
British Columbia (33%)
Manitoba (3%)
46%
33%
6%
3%
12%
Alberta (48%)
Saskatchewan (6%)
Other (10%)
(1) Includes letters of credit.
The following table illustrates the diversification in lending operations by standard industry sectors.
Table 8 – ToTal advanceS baSed on induSTry SecTor (1)
(% at October 31)
Real estate operations
Construction
Consumer loans and residential mortgages (2)
Hotel/motel
Health and social services
Transportation and storage
Finance and insurance
Oil and gas production
Manufacturing
Retail trade
Oil and gas service
Wholesale trade
Other services
Logging/forestry
All other
total
2011
22%
19
15
2010
22%
20
16
6
5
5
5
3
3
3
2
2
2
1
7
5
6
5
4
3
3
3
2
2
1
1
7
100%
100%
(1) Table is based on the North American Industry Classification System (NAICS) codes.
(2) Residential mortgages in this table include only single-family properties.
The loan portfolio is focused on areas of demonstrated lending
expertise, while concentrations measured by geographic area
and industry sector are managed within specified tolerance
levels. The portfolio is well diversified with a mix of commercial
and personal business. Heavy equipment financing is primarily
sourced within branches or through stand-alone equipment
financing centres, while small- and mid-sized leases are offered
across Canada through National Leasing. Oil and gas production
lending is conducted by specialists located in Calgary. Real estate
specialists are established in the major centres of Edmonton,
Calgary and Vancouver. Optimum Mortgage maintains centralized
administration based in Edmonton and sources residential
mortgages throughout Western Canada and select regions of
Ontario through an established network of mortgage brokers.
CWB Group 2011 Annual Report • SHAREDVISION
47
Outlook for Diversification of Portfolio
Solid loan growth is expected to continue across all lending
sectors and portfolio diversification by geography will likely
remain relatively consistent with October 31, 2011. The
proportion of total loans in general commercial mortgages
could reduce slightly in 2012, reflecting increased competition
and comparatively faster growth in other areas such as oil
and gas production loans, general commercial loans and
equipment financing.
credit Quality
Highlights of 2011
• Credit quality improved significantly and remained within
expectations.
• The dollar level of gross impaired loans decreased $46.2 million
or 32% from the prior year.
• The provision for credit losses was $22.2 million and represented
20 basis points of average loans, the low end of the 2011 target
range of 20 to 25 basis points of average loans.
• Gross impaired loans measured as a percentage of total loans
represented 79 basis points, compared to 135 basis points one
year ago.
impaired loans
As shown in Table 9, gross impaired loans totaled $97.0 million
and represented 0.79% of outstanding loans, compared to
$143.2 million, or 1.35% of total loans last year. The ten largest
accounts classified as impaired, measured by dollars outstanding,
represented approximately 48% of total gross impaired loans at
quarter end, down from 56% a year earlier. New formations of
impaired loans totaled $94.6 million, compared to $165.8 million
last year and $158.1 million in 2009. While the trends are positive,
Table 9 – change in groSS imPaired loanS
($ thousands)
management expects the dollar level of gross impaired loans will
fluctuate from the current level until global uncertainties subside
and overall economic conditions strengthen further. The dollar
level of gross impaired loans fluctuates as loans become impaired
and are subsequently resolved and does not directly reflect the
dollar value of expected write-offs given the tangible security held
against the Bank’s lending positions.
Change from 2010
Gross impaired loans, beginning of period
New formations
Reductions, impaired accounts paid down
or returned to performing status
Write-offs
Total, end of period (1)
Balance of the ten largest impaired accounts
Total number of accounts classified as impaired (2)
Total number of accounts classified as impaired
under $1 million
Gross impaired loans as a percentage of total loans (3)
$
$
$
2011
143,207
94,601
(108,747)
(32,074)
96,987
46,884
153
$
$
$
2010
137,944
165,833
(135,971)
(24,599)
143,207
79,721
189
$
$
$
2009
91,636
158,129
(97,979)
(13,842)
137,944
76,101
224
$
$
$
137
0.79%
163
1.35%
199
1.49%
$
5,263
(71,232)
27,224
(7,475)
(46,220)
(32,837)
(36)
(26)
–
%
4
(43)
(20)
30
(32)
(41)
(19)
(16)
(56) bp (4)
(1) Gross impaired loans includes foreclosed assets held for sale with a carrying value of $3,241 (2010 – $867).
(2) Total number of accounts excludes National Leasing accounts.
(3) Total loans do not include an allocation for credit losses or deferred revenue and premiums.
(4) bp – basis point change.
48
SHAREDVISION • CWB Group 2011 Annual Report
The level of gross impaired loans decreased compared to the
prior two years reflecting the ongoing resolution of impaired
accounts and improved economic conditions. The Bank’s ability
over the past three years to manage a much higher level of
gross impaired loans with relatively consistent loss experience
demonstrates the benefits of CWB’s secured lending practices,
as well as the ongoing success of loan realization efforts and
work-out programs. The current estimates of expected write-
offs for existing loans classified as impaired are reflected in the
specific provisions for credit losses, which totaled $10.4 million
at year end, compared to $19.0 million a year earlier. The Bank
establishes its current estimates of expected write-offs through
detailed analyses of both the overall quality and ultimate
marketability of the security held against impaired accounts.
In addition to the foregoing explanation, comparatively higher
write-offs in 2011 and, in part, the lower level of 2011 specific
provisions for credit losses, reflect a change in the Bank’s internal
process where loans are now written off in the quarter that the
finalized loss is determined. Under the previous internal process,
loans were written off in the quarter following when the finalized
loss was determined. Consequently, the reported amount of
2011 write-offs reflects five quarters of finalized losses. This is
a change in timing only and is expected to improve both data
quality and efficiency.
The 2011 provision for credit losses in dollar terms of $22.2
million increased 9% ($1.8 million) over the previous year and
represented 20 basis points of average loans, compared to 21
basis points in 2010. The slightly lower provision when measured
against average loans reflects a combination of very strong
2011 loan growth and overall improved credit quality. At October
31, 2011, gross impaired loans exceeded the total allowance
for credit losses by $26.2 million, representing 21 basis points
(2010 – 62 basis points) of net loans outstanding (see Figure 4).
In the five years prior to fiscal 2008, a relatively consistent dollar
provision for credit losses together with an exceptionally low
level of impaired loans resulted in the total allowance for credit
losses exceeding gross impaired loans. The general allowance
represented 50 basis points of risk-weighted assets at year end
(2010 – 57 basis points). The allowance for credit losses as a
percentage of gross impaired loans (coverage ratio) was 73%,
up from 55% in 2010.
Figure 4 – neT imPaired loanS aS a PercenTage oF neT loanS ouTSTanding
2011
2010
2009
2008
0.21%
0.19%
0.62%
0.68%
-0.57%
-0.75%
-0.68%
-0.36%
-0.36%
2007
2006
2005
2004
2003
2002
0.13%
The overall loan portfolio is reviewed regularly with credit
decisions undertaken on a case-by-case basis to provide early
identification of possible adverse trends. Loans that have become
impaired are monitored closely by a specialized team with
regular quarterly, or more frequent, reviews of each loan and its
realization plan.
outlook for impaired loans
Overall credit quality is expected to remain satisfactory in
view of management’s current economic outlook and actual
losses should be within CWB’s range of acceptable levels. The
level of gross impaired loans has returned to more normal
levels, but is expected to continue to fluctuate from this point.
Lending exposures will continue to be closely monitored and
management remains confident in the strength, diversity and
underwriting structure of the overall loan portfolio.
CWB Group 2011 Annual Report • SHAREDVISION
49
Allowance for credit losses
Table 10 shows the year-over-year change in the allocation of the allowance for credit losses to specific provisions by category of impaired
loans and to the general allowance for credit risk.
Table 10 – allowance For crediT loSSeS
($ thousands)
Specific Allowance
Commercial
Real estate
Equipment financing
Consumer and personal
general Allowance
total
(1) Recoveries in 2011 totaled $2,062 (2010 – $600).
$
2011
Opening
Balance
2,655
4,880
10,215
1,288
19,038
59,603
Provision
for Credit
Losses
Write–Offs,
net of
Recoveries (1)
$
6,170
8,369
4,762
2,052
21,353
826
$
(7,456)
$
(10,733)
(9,656)
(2,167)
(30,012)
–
$
78,641
$
22,179
$
(30,012)
$
2011
Ending
Balance
1,369
2,516
5,321
1,173
10,379
60,429
70,808
The allowance for credit losses is maintained to absorb both
identified and unidentified losses in the loan portfolio and, at
October 31, 2011, consisted of $10.4 million of specific allowances
and $60.4 million in the general allowance for credit losses. Specific
allowances include the accumulated allowances for losses required
on identified impaired accounts to reduce the carrying value of
those loans to their estimated realizable amount. The general
allowance for credit risk includes allowances for losses inherent in
the portfolio that are not presently identifiable on an account-by-
account basis. The general allowance at year end represented 49
basis points of gross outstanding loans (2010 – 56 basis points)
and 50 basis points of risk-weighted assets (2010 – 57 basis
points). An assessment of the adequacy of the general allowance
is conducted quarterly and measured against the three-, 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 with a common risk rating is utilized to test the
adequacy of the general allowance. The dollar level of the general
allowance increased in four of the past five years as the provision
for credit losses exceeded the amount allocated to specific credits.
The exception was 2010 when challenging economic conditions
contributed to a decrease in the general allowance.
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 12 levels of risk and ratings
are updated at least annually for all loans, with the exception
of consumer loans and single-unit residential mortgages.
At October 31, 2011, the general allowance for credit losses met
all of management’s tests of adequacy.
outlook for Allowance for credit losses
Specific allowances will continue to be determined on an
account-by-account basis and reviewed at least quarterly.
The general allowance is expected to fluctuate to account for
portfolio growth, lower levels of specific allowances in strong
economic times and higher levels of specific allowances in
weaker economic times. Based on management’s current outlook
for credit performance, actual historical loss experience and
results from stress testing of the portfolio, the existing level of
the general allowance is deemed sufficient to mitigate losses
inherent in the portfolio that are not presently identifiable.
A new more robust methodology has been developed to estimate
the adequacy of the collective (i.e. general) allowance for credit
losses under IFRS. No material change is expected regarding the
amount of the allowance. However, the new methodology does
have potential to increase the quarterly volatility of the provision
for credit losses.
50
SHAREDVISION • CWB Group 2011 Annual Report
Provision for credit losses
The provision for credit losses represented 20 basis points of
average loans in 2011 (see Table 11), an increase from both the
three-year average of 19 basis points and the five-year average
of 17 basis points. The increase in the provision as a percentage
of average loans over the past two years reflects both the
characteristics of National Leasing’s portfolio and less robust
economic conditions compared to earlier years. Net new specific
provisions represented 19 basis points of average loans in 2011.
These results compare to the three-, five- and ten-year trends
when the net new specific provisions for credit losses averaged 19,
14 and 13 basis points of average loans, respectively. The Bank has
a long history of strong credit quality and low loan losses, both of
which compare very favourably to the Canadian banking industry.
External factors that may impact Western Canada and the sectors
in which the Bank’s customers operate are continually analyzed.
Table 11 – ProviSion For crediT loSSeS
($ thousands)
Provision for credit losses (1)
Net new specific provisions (net of recoveries) (2)
General allowance
Coverage ratio (3)
2011
0.20%
0.19
2010
0.21%
0.27
2009
0.15%
0.14
2008
0.15%
0.09
2007
0.16%
0.04
$ 60,429
$
59,603
$
61,153
$
60,527
$
55,608
73%
55%
55%
82%
299%
(1) As a percentage of average loans.
(2) Portion of the year’s provision for credit losses allocated to specific provisions as a percentage of average loans.
(3) Allowance for credit losses as a percentage of gross impaired loans.
outlook for the Provision for credit losses
The provision for credit losses in 2012 is expected to be 20 to 25
basis points of average loans, consistent with the target range
established for 2011. The expected provision reflects the Bank’s
current assessment based on assumptions about the economic
outlook, expected loan growth, the overall quality of the portfolio
and its underlying security, and the adequacy of the general
allowance for credit losses. This assessment is ongoing and
the Bank’s updated expectations are communicated no less
than quarterly.
Deposits
Highlights of 2011
• Personal deposits, which represent an important part of the
• Obtained a credit rating on deposits and senior debt from
Bank’s lower cost core funding, increased 14%.
DBRS Limited of A (low) with a stable outlook.
• Business and government deposits increased 12%.
• Completed a $250 million offering of senior deposit notes
• Branch and trust generated demand and notice deposits
increased 13%.
• Branch and trust generated deposits were 58% of total
deposits, down from 61% a year earlier, mainly reflecting
growth in fixed rate term deposits raised through the deposit
broker network to help fund very strong loan growth.
representing the Bank’s first issue of floating rate senior debt
in the capital markets.
• Began offering Valiant deposits through CWB branches.
CWB Group 2011 Annual Report • SHAREDVISION
51
Table 12 – dePoSiTS
($ thousands)
Personal
Business and government
Capital markets
Deposit-taking institutions
Deposit from CWB Capital Trust (1)
Total Deposits
% of Total
Personal
Business and government
Capital markets
Deposit-taking institutions
Deposit from CWB Capital Trust (1)
Total Deposits
% of Total
Demand
notice
term
2011
total
$
30,440
$ 2,086,231
$ 6,229,158
$ 8,345,829
552,827
1,321,359
–
–
–
–
–
–
1,916,674
250,000
8,000
105,000
3,790,860
250,000
8,000
105,000
% of
total
67%
30
2
–
1
$
583,267
$ 3,407,590
$ 8,508,832
$ 12,499,689
100%
5%
27%
68%
100%
Demand
Notice
Term
2010
Total
$
23,308
$
1,840,026
$
5,462,231
$
7,325,565
507,300
1,159,573
1,713,329
3,380,202
–
–
–
–
–
–
–
2,000
105,000
–
2,000
105,000
% of
Total
68%
31
–
–
1
$
530,608
$
2,999,599
$
7,282,560
$ 10,812,767
100%
5%
28%
67%
100%
(1) The senior deposit note of $105 million issued to Canadian Western Bank Capital Trust (CWB Capital Trust) is reflected as a deposit payable on a fixed date. This senior deposit note bears interest at an annual
rate of 6.199% until December 31, 2016 and, thereafter, at the CDOR 180-day Bankers’ Acceptance Rate plus 2.55%. This note is redeemable at the Bank’s option, in whole or in part, on and after December
31, 2011, or earlier in certain specified circumstances, both subject to the approval of OSFI. Each one thousand dollars of WesTS note principal is convertible at any time into 40 non-cumulative redeemable
CWB First Preferred Shares Series 1 of the Bank at the option of CWB Capital Trust. CWB Capital Trust will exercise this conversion right in circumstances in which holders of WesTS exercise their holder
exchange right. See the Capital Management discussion of this MD&A or Note 15 to the consolidated financial statements for more information on WesTS and CWB Capital Trust.
Total deposits at year end of $12,500 million increased 16%
($1,687 million) over 2010 reflecting, 14% ($1,020 million) growth
in personal deposits, 12% ($411 million) growth in business and
government deposits, and a $250 million issuance of senior deposit
notes representing the Bank’s first issue of floating rate senior
debt in the capital markets. Consistent with the Bank’s commercial
focus, a considerable portion of branch deposits are generated
from corporate clients that tend to hold larger balances compared
to personal retail clients (See the Liquidity Management section of
this MD&A). Subsequent to year end, $150 million of senior deposit
notes were issued to a broad group of investors.
Table 13 – dePoSiTS by Source
(as a percentage of total deposits at October 31)
Branches
Deposit brokers
Capital markets
Deposit from CWB Capital Trust
Corporate wholesale
total
2011
58%
39
2
1
–
2010
61%
38
–
1
–
2009
64%
34
–
1
1
2008
63%
34
–
1
2
2007
64%
33
–
1
2
100%
100%
100%
100%
100%
Deposits are primarily generated from the branch network (including
CWT and Valiant) and a deposit broker network. Increasing the
level of retail deposits is an ongoing focus as success in this area
provides the most reliable and stable source of funding. CWT raises
deposits through notice accounts (comprised primarily of cash
balances held in self-directed registered accounts), corporate trust
deposits and through the Bank’s branch network, in addition to
deposits generated through the deposit broker network. Valiant’s
status as a federal deposit-taking institution adds a third Canada
Deposit Insurance Corporation (CDIC) licence and provides an
additional channel to raise insured deposits. Valiant deposits are
currently offered only in CWB branches. Management is optimistic
about the potential for Canadian Direct Financial® to provide
an enhanced source of funding in the future. Canadian Direct
Financial® currently offers deposits and registered saving products
via the Internet to customers in all provinces and territories except
Quebec. Insured deposits raised through deposit brokers remain
a valued funding source. Although these funds are subject to
commissions, this cost is countered by a reduced dependence on
a more extensive branch network and the benefit of generating
insured fixed term retail deposits over a wide geographic base.
Corporate wholesale deposits represent larger deposits raised
through CWB’s corporate office rather than the branch network.
52
SHAREDVISION • CWB Group 2011 Annual Report
Growth in total branch-raised deposits, which includes deposits
raised through trust operations, was 9% in 2011. The demand and
notice component within branch-raised deposits increased 13%
and comprised 32% of total deposits at year end, down from 33%
the previous year. Branch-raised deposits comprised 58% of total
deposits, compared to 61% in the previous year, with the decrease
reflecting growth in fixed rate term deposits raised through the
deposit broker network and $250 million of senior deposit notes
raised in the debt capital markets. The level of growth in demand
and notice deposits reflects ongoing execution of strategies to
further enhance and diversify the Bank’s core funding sources as
well as CWT’s success in generating deposits through its fiduciary
trust business.
outlook for Deposits
A strategic focus on increasing branch-raised deposits (including
CWT and Valiant) will continue in 2012, with emphasis on the
demand and notice component, which is often lower cost and
provides associated transactional fee income. CWB’s expanded
market presence, which includes the opening of three new full-
service branches since September 2010, also supports objectives
to generate branch-raised deposits. The Bank’s deposit broker
network remains a valued source for raising insured fixed term
retail deposits and has proven to be an extremely effective
and efficient way to access funding and liquidity over a wide
geographic base. Selectively utilizing the debt capital markets
is also part of management’s strategy to further diversify
the Bank’s funding base over time. Provided costs remain
satisfactory, National Leasing is planning to utilize securitization
channels for a portion of its funding requirements in 2012 to
broaden overall funding sources. Management continues to
evaluate the benefits of using loan securitization and/or whole
loan sales as additional sources of funding for certain other
types of portfolios, most notably residential mortgages.
other Assets and other liabilities
At October 31, 2011, other assets totaled $313 million
(2010 – $329 million). The decrease from last year primarily
reflects a receivable outstanding at October 31, 2010 related
to redemptions of securities that were not settled until the
first business day in November of that year. Net property and
equipment as shown on the balance sheet increased $7 million,
mainly due to ongoing investment in both physical infrastructure
and technology. Insurance related other assets were $57 million
(2010 – $60 million) and consisted primarily of instalment
premiums receivable as well as the reinsurers’ share of unpaid
liquidity Management
Highlights of 2011
• Maintained a strong liquidity position and conservative
investment profile.
• For much of the year, relative stability in Canadian capital
markets allowed for a reduction in liquid assets to more
normal levels. Liquidity was augmented in the fourth quarter
of the year due to potential market disruptions related to the
European debt crisis.
claims. Other assets at October 31, 2011 included goodwill and
intangible assets of $38 million and $37 million, respectively.
Other liabilities totaled $434 million at October 31, 2011 (2010 –
$426 million). Insurance related other liabilities were $149 million
(2010 – $149 million) and consisted primarily of provisions for
unpaid claims and adjustment expenses and unearned premiums.
Other liabilities at October 31, 2011 also include a $31 million
provision for contingent consideration and $44 million of other
liabilities related to National Leasing.
• In November 2010, received a credit rating from DBRS Limited
on senior debt/deposits A (low) and subordinated debentures
BBB (high); both ratings were issued indicating a stable
trend. The ratings and trend were confirmed in October 2011.
Maintaining this competitive credit rating is important for the
Bank’s strategies to selectively utilize the debt capital markets
as a supplementary source of cost-effective funding.
CWB Group 2011 Annual Report • SHAREDVISION
53
A schedule outlining the consolidated securities portfolio at
October 31, 2011 is provided in Note 4 to the consolidated financial
statements. A conservative investment profile is maintained
by ensuring:
CWB has no direct credit exposure to sovereign debt outside of
Canada. CWB also has no direct exposure to any credit default
swaps, collateralized debt obligations, non-bank sponsored
asset-backed commercial paper or monoline insurers.
• all investments are high quality and include government debt
securities, short-term money market instruments, preferred
shares and other marketable securities;
• specific investment criteria and procedures are in place to
manage the securities portfolio;
• regular review, monitoring and approval of investment policies
is completed by management’s Asset Liability Committee
(ALCO); and,
• quarterly reporting to the Board of Directors (the Board) on the
composition of the securities portfolio, further supported by the
Board’s annual review and approval.
Table 14 – liquid aSSeTS
($ thousands)
The Bank’s liquidity management is a comprehensive process
that includes, but is not limited to:
• monitoring of liquidity reserve levels;
• operating micro and macro scenario stress testing;
• maintenance of a short duration liquidity portfolio;
• monitoring the credit profile of the liquidity portfolio;
• monitoring deposit behaviour; and,
• ongoing market surveillance.
Cash and non-interest bearing deposits with financial institutions
Deposits with regulated financial institutions
Cheques and other items in transit
total cash Resources
Securities purchased under resale agreement
Government of Canada treasury bills
Government of Canada, provincial and municipal bonds, term to maturity 1 year or less
Government of Canada, provincial and municipal bonds, term to maturity more than 1 year
Preferred shares
Common shares
Other debt securities
total Securities Purchased or Sold 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
2011
$
73,318
$
233,964
5,053
312,335
–
384,721
173,723
465,943
497,130
100,642
303,545
$
Change
from
2010
64,353
64,966
(4,928)
124,391
(177,954)
(49,662)
44,924
375,953
(14,098)
11,399
47,001
2010
8,965
168,998
9,981
187,944
177,954
434,383
128,799
89,990
511,228
89,243
256,544
1,925,704
$ 2,238,039
$ 14,772,035
1,688,141
237,563
$
1,876,085
$ 12,701,691
$
361,954
$ 2,070,344
15%
15%
–%
$ 12,499,689
$ 10,812,767
$ 1,686,922
18%
17%
1%
As shown in Table 14, liquid assets comprised of cash, interbank
deposits, securities purchased under resale agreements and
marketable securities totaled $2,238 million at October 31, 2011,
an increase of $362 million compared to a year earlier. The Bank
carried more liquidity at year end than it would in a more normal
market environment with reduced global economic uncertainties.
Liquid assets represented 15% (2010 – 15%) of total assets and
18% (2010 – 17%) of total deposit liabilities at year end.
Compared to October 31, 2010, the Bank shifted the composition
of total liquid assets in response to the current interest rate
environment and elevated market risks attributed to the European
debt crisis. This strategy resulted in significant increases in the
balance of total cash resources and government securities with
maturities greater than one year. Highlights of the composition of
liquid assets at October 31, 2011 are as follows:
• maturities within one year decreased to 40% (2010 – 49%) of
liquid assets, or $892 million (2010 – $921 million);
• Government of Canada, provincial and municipal debt securities
increased to 46% (2010 – 35%) of liquid assets;
• deposits with regulated financial institutions, including Bankers’
Acceptances, increased to 14% (2010 – 9%) of liquid assets;
• preferred shares decreased to 22% (2010 – 27%) of liquid
assets; and,
• other marketable securities remained constant at 18% of
liquid assets.
54
SHAREDVISION • CWB Group 2011 Annual Report
When applicable, securities purchased under resale agreements
are included in liquid assets. These represent short-term loans
to securities dealers that require subsequent repurchase of the
securities given as collateral, typically within a few days. CWB may
also enter into reverse resale agreements, which are included in
other liabilities. These are short-term advances from securities
dealers, typically no more than a few days in duration, and require
the bank to repurchase the securities. Collateral securities are
comprised of government or other high quality liquid securities.
Short-term uncommitted and committed 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; this was confirmed
in the fourth quarter of 2011 with the sale of a relatively small
portfolio of residential mortgages by Optimum Mortgage. Total
liquid assets contained no securities purchased under resale
agreements at October 31, 2011. This compares to October 31,
2010 when securities purchased under resale agreements totaled
$178 million. These agreements are primarily used for cash
management purposes.
A significant portion of branch-generated deposits comes from
corporate clients that tend to hold larger balances that are typically
subject to greater fluctuations compared to deposits generated
from personal retail clients.
The primary source of incremental new funding is the issuance of
deposit instruments.
A summary of outstanding deposits by contractual maturity date is presented in Tables 15 and 16.
Table 15 – dePoSiT maTuriTieS wiThin one year
($ millions)
October 31, 2011
Demand deposits
Notice deposits
Deposits payable on a fixed date
total
October 31, 2010 Total
Table 16 – ToTal dePoSiT maTuriTieS
($ millions)
October 31, 2011
Demand deposits
Notice deposits
Deposits payable on a fixed date
Note to CWB Capital Trust
total
October 31, 2010 Total
within
1 year
$
583
$
3,408
4,814
–
8,805
7,417
$
$
$
$
1 to 2
years
–
–
2,046
–
2,046
1,555
2 to 3
years
–
–
893
–
893
796
$
$
$
within
1 Month
1 to 3
Months
3 Months
cumulative
to 1 year within 1 year
$
583
$
3,408
893
4,884
4,574
3 to 4
years
–
–
376
–
376
557
$
$
$
$
$
$
$
$
$
$
–
–
1,009
1,009
892
$
$
$
–
–
2,912
2,912
1,951
4 to 5
years
More than
5 years
–
–
275
–
275
383
$
$
$
–
–
–
105
105
105
$
583
$
$
$
3,408
4,814
8,805
7,417
total
583
3,408
8,404
105
$ 12,500
$
10,813
A breakdown of deposits by source is provided in Table 13.
Target limits by source have been established as part of the overall
liquidity policy and are monitored to ensure an acceptable level
of funding diversification is maintained. The Bank continues to
aggressively pursue deposits through the branch network as its
core funding source. At the same time, the total dollar value of
broker-generated deposits is expected to increase to support asset
growth or when higher levels of liquidity are required. Insured
deposits raised through deposit brokers remain a highly effective
and valued funding source. At October 31, 2011, CWT’s notice
account balances totaled $1,124 million (2010 – $993 million),
reflecting ongoing business and client growth.
CWB Group 2011 Annual Report • SHAREDVISION
55
In addition to deposit liabilities, CWB has subordinated debentures outstanding as presented in the table below:
Table 17 – SubordinaTed debenTureS ouTSTanding
($ thousands)
Interest
Rate
4.389% (1)
5.070% (2)
5.571% (3)
5.950% (4)
5.426% (5)
total
Maturity
Date
Earliest Date
Redeemable
by CWB at Par
2011
November 30, 2020
November 30, 2015
$
300,000
$
March 21, 2017
March 21, 2022
June 27, 2018
March 22, 2012
March 22, 2017
June 28, 2013
November 21, 2015
November 22, 2010
120,000
75,000
50,000
–
$
545,000
$
2010
–
120,000
75,000
50,000
70,000
315,000
(1) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 193 basis points.
(2) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 155 basis points. Of the $125,000 debentures issued, $5,000 are held by Canadian Direct Insurance Incorporated, a wholly owned subsidiary, and have been eliminated on
consolidation.
(3) These conventional debentures have a 15-year term with a fixed interest rate for the first 10 years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 180 basis points.
(4) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 302 basis points.
(5) These conventional debentures had a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate would have reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 180 basis points. On November 22, 2010, these conventional debentures were redeemed by the Bank.
outlook for liquidity Management
The Bank continues to refine its methodologies for measuring
and monitoring liquidity risk. Use of dynamic scenario analysis
has allows for a reduction in the level of liquid asset coverage
while continuing to maintain prudent liquidity standards. In view
of elevated market risks mainly attributed to the European debt
crisis, the composition of liquid assets will continue to include a
higher balance of cash resources and low yielding government
securities compared to what would be held in a more normal
market environment. This strategy has a negative impact on net
interest margin but is considered appropriate in response to
increased market uncertainties.
The Bank for International Settlements (BIS) finalized liquidity
proposals initially described in its document “International
Framework for Liquidity Risk, Measurement, Standards and
Monitoring.” The proposals as outlined remain subject to
significant transition and monitoring activities, and revisions are
expected. The new liquidity coverage ratio (LCR) and net stable
funding ratio (NSFR) are presently subject to an observation
period and will include a review clause to address any unintended
consequences. It is too early to tell how this framework will
impact CWB. BIS is currently expected to introduce the LCR
effective January 1, 2015 and the NSFR effective January 1, 2018.
contractual obligations
In addition to the obligations related to deposits and subordinated debentures discussed in the Deposits and Liquidity Management
sections of this MD&A, as well as Notes 14, 18, 21 and 29 of the consolidated financial statements, the following contractual obligations
are outstanding at October 31, 2011.
Table 18 – conTracTual obligaTionS
($ thousands)
Lease commitments
Purchase obligations for capital expenditures
october 31, 2011
October 31, 2010
within 1
year
10,932
1,267
12,199
8,975
$
$
$
$
$
$
1 to 3
years
21,760
147
21,907
16,454
$
$
$
4 to 5
years
18,580
–
18,580
15,173
More than
5 years
$
$
$
23,745
–
23,745
19,636
$
$
$
total
75,017
1,414
76,431
60,238
56
SHAREDVISION • CWB Group 2011 Annual Report
capital Management
Highlights of 2011
• Maintained strong Tier 1 and total capital adequacy ratios
of 11.1% and 15.4%, respectively.
• Supported very strong loan growth while maintaining the ratio
of tangible common equity to risk-weighted assets at 8.6%, up
from 8.5%.
• Issued $300 million and redeemed $70 million of
subordinated debentures.
• Cash dividends of $0.54 per share paid to common
shareholders, up 23%.
• Purchased and canceled one million warrants through an
approved Normal Course Issuer Bid (NCIB); on August 31, 2011,
redeemed all 4.2 million outstanding warrants (TSX: CWB.WT)
for cash of $72.5 million.
• On October 31, 2011, announced an approved NCIB for
the Bank to purchase, for cancelation, up to 2,261,434 common
shares (purchases under the NCIB were eligible to begin on
November 2, 2011 and will end no later than November 1, 2012).
Subsequent Highlights
• In December 2011, the Board of Directors declared a quarterly cash dividend of $0.15 per common share, an increase of 7% ($0.01)
over the previous quarterly cash dividend and 15% ($0.02 per share) over the quarterly cash dividend declared one year earlier. The
Board of Directors also declared a cash dividend of $0.453125 per Series 3 Preferred Share.
Capital funds are managed in accordance with policies and
plans that are regularly reviewed and approved by the Board
of Directors. Capital management takes into account forecasted
capital needs with consideration of anticipated profitability, asset
growth, market and economic conditions, regulatory changes
and dividends. The overriding goal is to remain well capitalized
in order to protect customer deposits and provide capacity for
internally generated growth and strategic opportunities that
do not otherwise require accessing the capital markets, all
while providing a satisfactory return for common shareholders.
Consistent with Basel II guidelines described below, CWB has
implemented an Internal Capital Adequacy Assessment Process
(ICAAP) to ensure capital levels remain adequate in relation to
current and anticipated future risks.
The Bank provides a share incentive plan 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 dividends. Note 20 to the consolidated financial
statements details the number of options outstanding, the
weighted average exercise price and the amounts exercisable
at year end. Holders of CWB’s common shares and holders of
any other class of shares deemed eligible by the Bank’s Board
of Directors are offered the choice to direct cash dividends paid
toward the purchase of common shares through a dividend
reinvestment plan (DRIP). Further details regarding the Bank’s
DRIP are available on the Bank’s website at www.cwbankgroup.
com/investor_relations.
Basel ii capital Adequacy Accord
The Office of the Superintendent of Financial Institutions Canada
(OSFI) currently requires banks to measure capital adequacy in
accordance with published guidelines commonly referred to as
Basel II for determining risk-adjusted capital and risk-weighted
assets, including off-balance sheet commitments. CWB currently
uses the Standardized Approach under Basel II to calculate
risk-weighted assets for both credit and operational risk. The
Standardized Approach for credit risk applies a weighting of 0%
to 150% based on the deemed credit risk for each type of asset.
As an example, a loan that is fully insured by Canada Mortgage
and Housing Corporation (CMHC) is applied a risk weighting
of 0% as the Bank’s risk of loss is nil, while typical 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 CWB’s ICAAP thresholds and standards for
Canadian financial institutions as established by OSFI. Off-
balance sheet items, such as the notional amount of derivatives
and some credit commitments, are included in the calculation
of risk-weighted assets and both the credit risk equivalent and
the risk-weighted calculations are prescribed by OSFI. National
Leasing’s off-balance sheet securitized asset portfolio is reflected
in a deduction from both Tier 1 and total capital. As Canadian
Direct is subject to separate OSFI capital requirements specific
to insurance companies, the Bank’s investment in this company
is deducted from total capital and Canadian Direct’s assets are
excluded from the calculation of risk-weighted assets.
CWB Group 2011 Annual Report • SHAREDVISION
57
Current regulatory guidelines require banks to maintain a minimum
ratio of capital to risk-weighted assets and off-balance sheet items
of 8%, of which 4% must be core capital (Tier 1) and the remainder
supplementary capital (Tier 2). However, OSFI has established
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 primarily comprised of common shareholders’
equity, preferred shares and innovative capital, while Tier 2 capital
primarily includes subordinated debentures and the general
allowance for credit losses (to a prescribed regulatory maximum).
Refer to Table 19 for additional details on CWB’s capital structure
and regulatory capital ratios.
The Bank complied with all internal and external capital
requirements in 2011.
Table 19 – caPiTal STrucTure and baSel ii regulaTory raTioS aT year end
($ thousands)
tier 1 capital
Retained earnings
Common shares
Preferred shares
Contributed surplus
Innovative capital instrument (1)
Non-controlling interest in subsidiary
Less goodwill of subsidiaries
Less securitization
total
tier 2 capital
General allowance for credit losses (Tier 2A) (2)
Accumulated unrealized gains on available-for-sale securities, net of tax (3)
Subordinated debentures (Tier 2B) (4)
total
Less investment in insurance subsidiary
Less securitization
total Regulatory capital
Regulatory Capital to Risk-Weighted Assets
Tier 1 capital
Tier 2 capital
Less investment in insurance subsidiary and securitization
total Regulatory capital Adequacy Ratio
Assets to Regulatory capital Multiple (5)
2011
2010
2010
Change from
$
650,028
$
614,710
$
408,014
209,750
21,884
105,000
225
(37,852)
(6,583)
279,352
209,750
21,291
105,000
180
(37,723)
(8,880)
1,350,466
1,183,680
60,429
1,509
545,000
606,938
(80,941)
(6,583)
59,603
16,119
315,000
390,722
(68,993)
(8,880)
35,318
128,662
–
593
–
45
(129)
2,297
166,786
826
(14,610)
230,000
216,216
(11,948)
2,297
$ 1,869,880
$
1,496,529
$
373,351
11.1%
5.0
(0.7)
15.4%
7.9
11.3%
3.7
(0.7)
14.3%
8.5
(0.2)%
1.3
–
1.1%
(0.6)
(1) The innovative capital instrument consists of CWB’s WesTS and may be included in Tier 1 capital to a maximum of 15% of net Tier 1 capital. Any excess innovative capital outstanding is included in Tier
2B capital.
(2) Banks are allowed to include their general allowance for credit losses up to a prescribed percentage of risk-weighted assets in Tier 2A capital. At October 31, 2011, the Bank’s general allowance
represented 0.50% (2010 – 0.57%) of risk-weighted assets.
(3) Accumulated other comprehensive income related to unrealized losses on certain available-for-sale equity securities, net of tax, reduces Tier 1 capital, while unrealized gains on certain available-for-
sale securities, net of tax, increases Tier 2 capital.
(4) Tier 2B capital may be included in Tier 2 capital to a maximum of 50% of net Tier 1 capital. Any excess Tier 2B capital is included in capital as net Tier 1 capital increases. All subordinated debentures are
currently included in Tier 2B capital.
(5) Total assets plus off-balance sheet credit instruments, such as letters of credit and guarantees, less goodwill divided by regulatory capital.
58
SHAREDVISION • CWB Group 2011 Annual Report
Table 20 – riSk-weighTed aSSeTS
($ thousands)
Corporate
Sovereign
Bank
Retail residential mortgages
Other retail
Excluding small business entities
Small business entities
Equity
Undrawn commitments
Operational risk
Other
As at october 31, 2011
As at October 31, 2010
Table 21 – riSk-weighTed caTegory
($ thousands)
cash,
Securities
and Resale
Agreements
loans
$ 115,818 $ 9,344,142
$
1,012,718
17,028
367,230
–
38,963
1,879,366
–
–
541,018
–
–
–
183,346
849,395
–
234,961
–
56,600
2011
other
items
total
Risk–
weighted
Assets
–
–
–
–
–
–
–
–
56,443
293,383
$ 9,459,960
$ 9,051,686
1,029,746
406,193
1,879,366
183,346
849,395
541,018
234,961
56,443
349,983
15,440
151,042
655,470
133,753
648,935
344,301
229,788
705,542
224,954
$ 2,036,784 $ 12,603,801
$ 10,778,761
$ 1,748,459
$ 349,826
351,705
$
$ 14,990,411
$ 12,878,925
$ 12,160,911
$ 10,489,618
2011
150%
and
Corporate
Sovereign
Bank
Retail residential
mortgages
Other retail
Excluding small
business entities
Small business
entities
Equity
Undrawn
commitments
Operational risk
Other
0%
20%
35%
50%
75%
100%
greater
Balance weighted
$
34,381 $
13,115 $
– $ 776,585 $
– $ 8,586,092 $
49,787 $ 9,459,960 $ 9,051,686
952,548
77,198
–
312,080
–
–
–
10,973
–
–
–
83,140
–
–
1,029,746
15,440
406,193
151,042
378,758
–
1,194,624
–
274,531
31,453
–
1,879,366
655,470
184
7,983
2,562
3,902
–
–
–
245,897
–
–
118,795
5,252
–
–
–
–
–
–
–
–
–
–
–
–
174,117
49
1,013
183,346
133,753
788,548
49,662
4,721
849,395
648,935
–
295,121
20,694
214,267
–
–
541,018
344,301
234,961
229,788
–
–
56,443
56,443
705,542
8,129
217,807
–
349,983
224,954
As at october 31, 2011 $ 1,487,228 $ 665,427 $ 1,194,624 $ 787,558 $ 1,266,019 $ 9,477,591 $ 111,964 $ 14,990,411 $ 12,160,911
527,016 $ 900,345 $ 8,251,862 $ 139,046 $ 12,878,925 $ 10,489,618
As at October 31, 2010 $ 1,155,071 $ 678,500 $ 1,227,085 $
At as October 31, 2011, the Basel II Tier 1 capital adequacy ratio was
11.1% (2010 – 11.3%). The total capital adequacy ratio was 15.4%
(2010 – 14.3%). Tier 1 regulatory capital increased $167 million over
2010, mainly resulting from:
• earnings, net of common and preferred dividends, of $124
million;
• common shares issued upon the exercise of warrants of $116
million; partially offset by,
• total costs for the purchase of warrants for cancellation of
$88 million.
Total regulatory capital increased $373 million over 2010, mainly
resulting from the factors mentioned above and:
• the issuance of $300 million and redemption of $70 million of
subordinated debentures;
• a decrease of $12 million in the deduction for investment in
insurance subsidiary; partially offset by
• a $15 million lower capital impact related to accumulated after-
tax unrealized gains on available-for-sale securities.
CWB Group 2011 Annual Report • SHAREDVISION
59
OSFI has publicly stated that all Canadian banks must comply with
the Basel III standards and maintain minimum capital ratios of 7.0%
tangible common equity Tier 1, 8.5% Tier 1 and 10.5% total capital
by January 1, 2013. The only available transition is related to the
10-year phase out of non-qualifying capital instruments. Pro forma
Basel III calculations for CWB confirm that the Bank already complies
with the new ratios owing to its very strong base of tangible
common equity, as well as its relatively straightforward operations
and composition of capital. Application of the proposed 2019 Basel
III standards to the Bank’s financial position at October 31, 2011
results in a 7.9% tangible common equity Tier 1 ratio, an 8.6% Tier
1 ratio and a 12.8% total capital ratio. The foregoing estimates are
based on the Bank’s current capital structure and composition of
risk-weighted assets, and will change depending on management
strategies, the composition of regulatory capital and financial
performance in the future. Management will maintain its practice of
prudent capital planning, which includes a comprehensive ICAAP.
Basel iii capital Adequacy Accord
The Basel Committee on Banking Supervision of the BIS (the
Committee) has published the Basel III rules text supporting more
stringent global standards on capital adequacy and liquidity, and
OSFI has confirmed its intent to implement the Basel III rules for
Canadian banks. OSFI also issued guidance and advisories on
its implementation plan for all Canadian financial institutions,
including transition allowances and details about the treatment of
non-viability contingent capital (NVCC).
Significant capital changes most relevant to CWB include:
• increased focus on tangible common equity;
• all forms of non-common equity, such as conventional
subordinated debentures and preferred shares, must be NVCC
compliant. Compliant NVCC instruments include a clause that
would require conversion to common equity in the event that
OSFI deems the institution to be insolvent or a government is
ready to inject a “bail out” payment;
• innovative Tier 1 instruments, such as CWB’s WesTS, will no
longer qualify;
• an investment in an insurance subsidiary is no longer deducted
from capital except for any amount that exceeds 15% of tangible
common equity; and,
• changes in the risk weighting or capital treatment for
investments in the regulatory capital of other financial
institutions.
outlook for capital Management
Management expects the Bank to maintain its strong capital
position, which is particularly important in view of the future
Basel III changes and elevated global uncertainties primarily
related to the European debt crisis that could affect the economic
outlook in CWB’s markets. The Bank’s strong capital ratios are
currently well above the targeted ICAAP ranges, assuming
a normal operating environment, and have the Bank well
positioned to manage future unexpected events. The ongoing
retention of earnings should support capital requirements
associated with the anticipated achievement of the 2012
minimum performance targets. Management continues to
evaluate alternatives to deploy capital for the long-term benefit
of CWB shareholders, which includes the potential for strategic
acquisitions.
management capabilities, and was also a preliminary step in the
plan for the Bank’s possible transition to an Advanced Internal
Ratings Based (AIRB) methodology for calculating risk-weighted
assets. Although the potential implementation of an AIRB
methodology is a few years away and requires the approval of
OSFI, the eventual transition is expected to meaningfully enhance
the data available to manage credit risk associated with the Bank’s
growing loan portfolio. The transition would also likely reduce
capital requirements for certain types of risk-weighted assets
and provide additional capital flexibility for management to
pursue accretive growth opportunities in the future. Management
recently engaged a third-party consultant to help identify existing
gaps and develop a road map for the Bank’s potential compliance
with AIRB requirements.
Additional strategies are under development to further optimize
the Bank’s existing capital structure and the redemption of CWB’s
warrants in 2011 reflects this focus. Implementation of the new
loan origination system in all branches, completed in the third
quarter of 2011, will enhance statistical tracking and portfolio
The Bank’s target capital ratios under Basel III, including an
appropriate capital buffer over and above the prescribed OSFI
minimums, will be established through development of the 2012
ICAAP. The transition to IFRS is not expected to have a material
impact on the Bank’s regulatory capital ratios.
60
SHAREDVISION • CWB Group 2011 Annual Report
financial instruments and other instruments
As a financial institution, most of CWB’s balance sheet is comprised
of financial instruments and the majority of net income results from
gains, losses, income and expenses related to the same.
Financial instrument assets include cash resources, securities,
securities purchased under resale agreements, loans and derivative
financial instruments. Financial instrument liabilities include
deposits, securities sold under repurchase agreements, derivative
financial instruments and subordinated debentures.
The use of financial instruments exposes the Bank to credit,
liquidity and market risk. A discussion of how these and other
risks are managed can be found in the Risk Management section
of this MD&A.
Further information on how the fair value of financial instruments
is determined is included in the Financial Instruments Measured at
Fair Value discussion in the Critical Accounting Estimates section of
this MD&A.
Income and expenses are classified as to source, either securities
or loans for income, and deposits or borrower funds for expense.
Gains on the sale of securities, net, are shown separately in
other income.
Derivative financial instruments
More detailed information on the nature of derivative financial
instruments is shown in Note 12 to CWB’s consolidated financial
statements. The notional amounts of derivative financial
instruments are not reflected on the consolidated balance sheets.
Table 22 – derivaTive Financial inSTrumenTS
($ thousands)
notional Amounts
Interest rate contracts (1)
Foreign exchange contracts (2)
Equity contract (3)
total
2011
2010
$
$
19,400
6,384
–
25,784
$
$
47,550
57,032
500
105,082
Interest rate contracts are used as economic hedging devices to manage interest rate risk. The outstanding contracts mature between November 2012 and April 2014.
(1)
(2) U.S. dollar foreign exchange contracts are used from time to time to manage the difference between U.S. dollar assets and liabilities. Forward foreign exchange contracts outstanding mature between
November 2011 and April 2012.
(3) The equity contract was used to offset the return paid to depositors on certain deposit products where the return was linked to a stock index.
The active use of interest rate contracts remains an integral
component in managing the Bank’s short-term gap position;
however, the volume of outstanding contracts (measured by the
notional amount) continues to decrease. During 2010, CWB allowed
outstanding interest rate swaps designated as cash flow hedges
for interest rate risk to mature without replacement. This strategy
positions CWB to benefit further in a period of increasing interest
rates while maintaining interest rate risk within prudent policy
guidelines. Derivative financial instruments are entered into only
for the Bank’s own account and CWB 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, including an
assessment of the credit worthiness of the counterparty. Policies
regarding the use of derivative financial instruments are approved,
reviewed and monitored on a regular basis by ALCO and reviewed
and approved by the Board of Directors at least annually.
CWB Group 2011 Annual Report • SHAREDVISION
61
Acquisitions
On February 1, 2010, the Bank acquired 100% of the outstanding
common shares of National Leasing in exchange for $53 million
in cash, 2,065,088 common shares of the Bank (equating to an
equivalent dollar value of $43 million) and contingent consideration
for a total cost of $127 million. Both the Bank and the vendors have
the option to trigger payment of the contingent consideration no
earlier than November 1, 2012. The final amount of the contingent
consideration is not yet determinable and, under Canadian GAAP,
any change would be recognized as an adjustment to goodwill
in the period in which the contingency is resolved. Under IFRS,
contingent consideration related to a business combination is
accounted for as a financial liability and fair valued at the time
of the acquisition. An adjustment of the liability to current fair
Details of the fair values of assets and liabilities acquired are as follows:
Table 23 – aSSeTS and liabiliTieS acquired aT Fair value
($ thousands)
Leases
Intangible assets
Goodwill
Retained interest in securitized assets
Long-term debt
Future income tax liabilities
Other items, net
net Assets Acquired
value is recorded through net income every period thereafter
until settlement (refer to Future Changes in Accounting Policies in
this MD&A for additional information on accounting for business
combinations and contingent consideration under IFRS).
National Leasing is a commercial equipment leasing company
headquartered in Winnipeg, Manitoba that specializes in small to
mid-size transactions. The average size of each lease transaction
has historically been approximately $20,000. The average size
of each lease transaction since the acquisition has increased to
approximately $25,000, and this upward trend could continue as
a result of an expected shift in the allocation of National Leasing’s
portfolio. The company has representation across Canada with the
largest concentration of leases sourced in Ontario.
$
$
322,512
40,708
27,937
19,109
(270,630)
(10,611)
(2,407)
126,618
Intangible assets include customer relationships, computer
software, non-competition agreements, lease administration
contracts and trademarks. The trademarks were assigned an
estimated value of $1.6 million and are not subject to amortization.
National Leasing’s financial results, the goodwill and other
intangible assets related to the acquisition are included in the
banking and trust segment. The total amount of goodwill and
intangible assets are not deductible for income tax purposes.
The long-term debt was repaid immediately after the acquisition.
off-Balance Sheet Arrangements
Off-balance sheet items include assets under administration and
assets under management. Total assets under administration,
including both trust assets under administration and third-party
service agreements for leases and residential mortgages, totaled
$9,370 million at October 31, 2011, compared to $8,531 million
one year ago. Assets under management held within Adroit
Investment Management Ltd. were $816 million at year end,
compared to $795 million last year. The gross amount of securitized
assets at year end attributed to National Leasing was $91 million,
compared to $199 million one year ago. On the adoption of IFRS in
fiscal 2012, securitized assets will be reported on-balance sheet.
Other off-balance sheet items are comprised of standard industry
credit instruments (guarantees, standby letters of credit and
commitments to extend credit), and deposit instruments issued by
the non-consolidated variable interest entity. CWB does not utilize,
nor does it have exposure to, collateralized debt obligations or credit
default swaps. For additional information regarding off-balance
sheet items, refer to Notes 8, 15 and 21 of the audited consolidated
financial statements for 2011.
62
SHAREDVISION • CWB Group 2011 Annual Report
operating Segment Review
CWB operates in two business segments: 1) banking and trust,
and 2) insurance. Segmented information is also provided
in Note 33 of the consolidated financial statements.
Banking and trust
Highlights of 2011
• Realized record net income of $166.0 million, an increase of 10%.
• Achieved record total revenues (teb) of $462.5 million, an
increase of 14%.
• Surpassed $12 billion of total loans based on very strong loan
growth of 16%.
• Surpassed $14 billion of total assets and $9 billion of total
assets under administration.
• Realized improved credit quality as evidenced by a $46.2 million
(32%) reduction in total gross impaired loans.
• Maintained a provision for credit losses of 20 basis points of
average loans while realizing a $0.8 million increase in the
dollar level of the general allowance for credit losses.
• Increased branch and trust generated deposits 9%, with
the demand and notice component up13%.
• Reported an efficiency ratio (teb) of 45.4%, a slight
deterioration from 44.4%.
• Opened a new full-service business and retail banking
centre in Richmond, BC, bringing CWB’s total number
of branches to 40.
• Expanded CWB’s existing branch in Medicine Hat, Alberta
to offer full-service business and retail banking.
• Implemented the Bank’s new loan origination system in all
CWB branches.
• Obtained a credit rating on deposits and senior debt from DBRS
Limited of A (low) with a stable outlook; the rating issued on
subordinated debentures was BBB (high), also with a stable
outlook.
• Completed a $250 million offering of senior deposit notes
representing the Bank’s first issue of floating rate senior debt
in the capital markets.
• CWB recognized as one of the 50 Best Employers in Canada
for a sixth consecutive year.
The operations of the banking and trust segment are comprised
of business and personal banking services, including equipment
leases offered by National Leasing, the offering of third-party
mutual funds through CWF, personal and corporate trust services
provided through CWT and Valiant, and discretionary wealth
management services offered through Adroit. Optimum Mortgage,
a division of CWT, underwrites and administers residential
mortgages. With a focus on mid-market commercial banking, real
estate financing, equipment financing and energy lending, CWB’s
proven strategy is based on building strong customer relationships
and providing value-added services to businesses and individuals
across Western Canada and other select markets. The Bank delivers
a wide variety of personal financial products and services, including
personal loans and mortgages, deposit accounts, investment
products and other banking services.
Customer access is provided through a network of 40 client-focused
branches in select locations across the four western provinces.
Canadian Direct Financial® is an Internet-based division of the
Bank that mainly offers a range of deposit and registered savings
products directly to customers in all provinces and territories
except Quebec. Optimum Mortgage sources residential mortgages
through a network of mortgage brokers in Western Canada and
select markets in Ontario. National Leasing specializes in small and
mid-sized commercial equipment leases and has representation
across Canada. CWT provides trustee and custody services to
independent financial advisors, corporations, brokerage firms
and individuals. Valiant’s operations include stock transfer and
corporate trust services. Adroit specializes in discretionary wealth
management for individuals, corporations and institutional clients.
CWB Group 2011 Annual Report • SHAREDVISION
63
Table 24 – banking and TruST highlighTS (1)
($ thousands)
Net interest income (teb)
Other income
Total revenues (teb)
Provision for credit losses
Non-interest expenses
Provision for income taxes (teb)
Non-controlling interest in subsidiary
net income
Efficiency ratio (teb)
Efficiency ratio
Net interest margin (teb)
Net interest margin
Average loans ($ millions) (3)
Average assets ($ millions) (3)
$
2011
376,781
85,706
462,487
22,179
210,193
63,848
228
$
2010
321,640
83,393
405,033
20,413
179,734
53,438
215
$
166,039
$
151,233
45.4%
46.5
2.81
2.74
11,329
13,398
$
$
44.4%
45.5
2.73
2.64
9,806
11,792
Change from
2010
17%
3
14
9
17
19
6
10%
100 bp (2)
100
8
10
16%
14
(1) See page 35 for a discussion of teb and non-GAAP measures.
(2) bp – basis points.
(3) Loans and assets are disclosed on an average daily balance basis as this measure is most relevant to a financial institution and is the measure reviewed by management.
Record banking and trust net income of $166.0 million was up
10% ($14.8 million) over 2010 on 14% ($57.5 million) growth
in total revenues (teb). Growth in total revenues (teb) reflects
net interest income (teb) that was 17% ($55.1 million) higher
compared to the prior year due to the positive contributions
from very strong 16% loan growth and an eight basis point
improvement in net interest margin (teb) to 2.81%. Loan growth
reflected performance across all lending sectors and each of
the Bank’s key geographic regions. The increase in net interest
margin was mainly driven by improved deposit costs and lower
average liquidity, partially offset by increased debenture expense.
Other income increased 3% ($2.3 million) as strong results across
CWB’s core banking operations, including a full-year contribution
from National Leasing, a 10% ($1.7 million) increase in trust and
wealth management fee income and $1.1 million higher foreign
exchange gains more than offset the combined impact of a $2.0
million decline in gains on sale of securities and slightly lower
securitization revenue. Non-interest expenses increased 17%
($30.5 million) mainly due to additional staff complement and
ongoing investment in premises and technology infrastructure
to support continued business growth. Excluding the impact of
National Leasing in both years, including related amortization
of intangible assets, the year-over-year increase in non-interest
expenses was $18.9 million (11%). Very strong growth in total
revenues (teb) was slightly offset by the impact of higher
non-interest expenses and led to a 100 basis point deterioration
in the efficiency ratio (teb) to 45.4%.
Overall credit quality remained satisfactory and showed continuous
improvement throughout the year. Gross impaired loans totaled
$97.0 million at year end, compared to $143.2 million a year earlier.
The annual provision for credit losses exceeded net new specific
provisions and led to a $0.8 million increase in the dollar level of
the general allowance for credit losses compared to last year.
Significant infrastructure and technology initiatives completed
in 2011 included the opening of a new full-service branch in
Richmond, BC, implementation of the Bank’s new loan origination
system in all CWB branches and completion of a new data centre
at the Bank’s corporate offices in Edmonton. Further upgrades
and expansions to systems and existing premises
were also completed.
The balance of total branch and trust deposits grew 9% ($603
million), while the demand and notice component of branch and
trust deposits was up 13% ($461 million). Growth in branch and
trust generated deposits reflect ongoing execution of strategies
to further enhance and diversify the Bank’s core funding sources,
as well as CWT’s continued success in generating deposits
through its fiduciary trust business.
Total assets under administration, including both trust assets
under administration and third-party service agreements for
leases and residential mortgages, surpassed the $9 billion
milestone to reach $9,370 million at October 31, 2011, compared
to $8,531 million a year earlier. Growth in assets under
administration mainly reflects strong business performance
in CWT. A portion of assets under administration are held in
investment accounts, including self-directed RRSP and RRIF
accounts, which numbered 47,842 (2010 – 46,009), an increase
of 4% from one year ago. Assets under management were $816
million at October 31, 2011, compared to $795 million one year
ago, reflecting an increasing level of success in offering more
comprehensive wealth management services to existing banking
clients. Assets under administration and assets under management
are not reflected in the consolidated balance sheets (see Note 27
to the consolidated financial statements). The gross amount of
securitized assets at year end, which are attributed to National
Leasing, was $91 million, compared to $199 million one year ago.
64
SHAREDVISION • CWB Group 2011 Annual Report
Figure 5 – number oF bank brancheS
2011
2010
2009
2008
+3%
+5%
+3%
+3%
40
39
37
36
2007
+6%
35
outlook for Banking and trust
The outlook for 2012 includes expectations for solid performance
across all business lines. The achievement of management’s
10% minimum loan growth target is expected to be supported
by modest economic growth in Canada and comparatively
stronger economic performance in the four western provinces.
The volume in the pipeline for new loans remained solid at the
end of 2011 despite global uncertainties and potential effects
of the European debt crisis. Growth will further benefit from an
expected increase in market share that will be supported by the
Bank’s expanding market presence and an ongoing commitment
to relationship-based business banking. Advertising and
communication initiatives intended to improve client awareness
within key geographic regions will also continue. Management
is optimistic about opportunities to continue to build National
Leasing’s business by strengthening its market position
and further diversifying the lease portfolio. While residential
sales activity has moderated, Optimum Mortgage expects to
achieve continued growth by maintaining its primary focus on
alternative mortgages. In view of the current very low interest
rate environment, a flat interest rate curve, ongoing competitive
influences on loan pricing and expected higher liquidity levels,
net interest margin will likely be under pressure in 2012, as was
evidenced by actual results in the fourth quarter of fiscal 2011.
Credit and retail services fee income is expected to grow in line
with increased lending activity and an expanded branch network.
Gains on the sale of securities are expected to be significantly
lower in fiscal 2012, reflecting the current composition of the
securities portfolio, interest rate curves and elevated volatility in
financial markets due to global uncertainties. The IFRS transition
in 2012 will introduce additional potential for volatility in other
income as it relates to accounting for unrealized losses in the
available-for-sale securities portfolio. The acquisition-related
contingent consideration for National Leasing will add further
volatility as the amount will be fair valued each period going
forward under IFRS.
Ongoing growth in CWT’s trust business will positively
contribute to both fee income and deposit growth, as this
company continues to gain market share and deliver solid
overall performance. Valiant has been successful in growing its
client base across each of its geographic regions. Adroit is also
expected to make positive contributions as the Bank continues
to build its presence in wealth management services.
The Bank will maintain its focus on disciplined credit
underwriting and direct appropriate resources towards
continued realization efforts and the ongoing resolution of
problem accounts. The dollar level of gross impaired loans is
expected to fluctuate from the current level. Largely owing to
the Bank’s secured lending practices and an overall positive, yet
cautious, economic outlook for key geographic markets, actual
loan losses are expected to remain within CWB’s historical range
of acceptable levels.
One of management’s key priorities is to maintain effective
control of costs while ensuring the Bank is positioned to deliver
strong growth over the long term. Effective execution of CWB’s
strategic plan will continue to require increased investment in
certain areas. Significant expenditures relate to additional staff
complement as well as expanded premises and technology
upgrades. Anticipated revenue growth supported by planned
capital investment and higher non-interest expenses necessary
for continued business growth should translate to a 2012
efficiency ratio (teb) that is relatively consistent with that
achieved in fiscal 2011.
CWB Group 2011 Annual Report • SHAREDVISION
65
insurance
Highlights of 2011
• Net income of $12.1 million, down 2%; net income, excluding
the impact of the Alberta auto risk sharing pools, was up 14%.
• Customer retention rate of 86% and very high customer
satisfaction ratings.
• Record gross written premiums of $130 million.
• CDI Direct for home sales launched, taking the next step
• Claims loss ratio of 64% and a combined ratio of 93%.
• Balanced profit contribution between underwriting
and investment income.
• Very strong Minimum Capital Test ratio of 361%.
in providing home products over the Internet.
• Online claims estimating system implemented to improve
customer service and efficiency.
Canadian Direct provides auto and home insurance products in
BC and Alberta and has more than 190,000 policies outstanding.
Policy distribution channels include two dedicated call centres,
the Internet and, for customers in BC, the option to purchase auto
insurance through select broker networks. Offering enhanced
electronic fulfillment of Canadian Direct’s products and services is
an important part of the overall business strategy, and continued
development of this technology will remain a priority.
Canadian Direct’s mission is to provide customers with attractively
priced products and a high level of customer service – “better
insurance for less money.” The core strategy includes the use of
sophisticated underwriting techniques to offer more competitively
priced insurance to better risk customers. The Canadian Direct
Insurance brand is marketed through several media channels,
including television, radio, newspapers and the Internet. A very
high level of awareness has been established in the BC market
and the level of awareness in Alberta continues to grow. All
claims are administered by Canadian Direct’s head office in BC
using imaging technology and effective workflow management
to maintain a paperless office environment. Canadian Direct’s
use of technology helps to maintain a favourable expense ratio
without compromising customer satisfaction. Canadian Direct
currently retains a high percentage of its customers (2011 – 86%),
a measure that confirms its success in providing quality products
and services at competitive prices.
Table 25 – inSurance highlighTS (1)
($ thousands)
Net interest income (teb)
Other income
Net earned premiums
Commissions and processing fees
Net claims and adjustment expenses
Policy acquisition costs
Insurance revenues (net)
Gains on sale of securities
Total revenues (teb)
Non-interest expenses
Provision for income taxes (teb)
net income
Policies outstanding at October 31
Gross written premiums
Claims loss ratio
Expense ratio
Combined ratio
Alberta automobile insurance risk sharing pools impact on net income before tax
Average total assets ($ millions) (3)
2011
$
7,902
$
117,632
1,869
(74,734)
(24,517)
20,250
375
28,527
12,258
4,159
$
$
$
12,110
$
190,994
129,671
$
64%
29
93
729
$
235
2010
7,024
111,368
2,347
(68,641)
(23,358)
21,716
486
29,226
11,746
5,092
12,388
185,167
124,451
62%
29
91
3,255
215
Change from
2010
13%
6
(20)
9
5
(7)
(23)
(2)
4
(18)
(2)%
3%
4
200 bp (2)
–
200
(78)%
9
(1) See page 35 for a discussion of teb and non-GAAP measures.
(2) bp – basis points.
(3) Average total assets are disclosed on an average daily balance basis as this measure is more relevant to a financial institution and is the measure reviewed by management.
66
SHAREDVISION • CWB Group 2011 Annual Report
Canadian Direct reported net income of $12.1 million, down 2%
($0.3 million) from 2010, as the positive revenue impact of 6%
growth in net earned premiums was offset by higher net claims
expense. Growth in net earned premiums was attributed to 3%
growth in policies outstanding and a higher average premium
per policy in the home product lines of business. Net claims
expense in Alberta increased due to higher frequency and
severity in auto claims and $1.8 million of losses in the home
product line related to a catastrophic wildfire in Slave Lake. Net
claims expense was also higher for Canadian Direct’s share of
the Alberta auto risk sharing pools (the Pools), as 2010 results
included a $1.5 million reduction to unpaid claims reserves
specifically related to a December 2009 decision by the Supreme
Court that denied leave to appeal the cap on minor injuries
suffered in an automobile accident. Following the Supreme
Court decision, the Pools’ unpaid claims reserves were reduced.
Excluding the Pools’ impact in both years, 2011 net income
was $11.5 million, up 14% ($1.4 million) over 2010. Net claims
experience in BC was favourable compared to the prior year.
The claims ratio and the combined ratio of 64% and 93%,
respectively, each increased 200 basis points from the prior year.
The home and auto product lines were both profitable for the
year. Gross written premiums were relatively balanced between
the BC auto, Alberta auto, and the home product lines.
outlook for insurance operations
The outlook for 2012 reflects expectations for continued growth
in premiums written, while cost increases will be kept in line
with revenue growth. Canadian Direct plans to drive growth
in the BC auto product line through careful expansion of the
broker distribution networks to meet challenges brought
about by the pricing strategies of the Insurance Corporation
of British Columbia. In Alberta, the Auto Insurance Rate Board
(AIRB) announced that rates effective November 1, 2011 for basic
coverage on private passenger vehicles will remain unchanged
from the prior year. Effects of this announcement will reduce,
but not reverse, the downward pressure on premium revenue
attributed to 5% rate reductions mandated by the AIRB in each
of the past two years. In the home product lines, Canadian Direct
will review the coverage it provides and likely increase rates to
help cover costs of the increasing frequency of storms
and water-related losses.
The 2012 net claims loss ratio is expected to be in the
mid-range between 60% and 70%. This is consistent with
recent years’ results. The loss ratio can be negatively impacted
by seasonal storm activity, particularly in the winter months.
Earnings volatility may also increase reflecting the strategic
decision to place a higher retention limit of $5 million
(2011 – $2 million) on Canadian Direct’s catastrophe reinsurance
treaty. The target for the combined ratio is 93%. Canadian Direct
will continue to develop its Internet-based technology platform,
which will facilitate growth opportunities and enhance the
customer experience by making more products and services
available online.
Summary of Quarterly Results and fourth Quarter
Quarterly Results
The financial results for each of the last eight quarters are
summarized in Table 26. In general, CWB’s performance reflects
a consistent growth trend, although the second quarter contains
three fewer revenue-earning days.
The Bank’s quarterly financial results are subject to some
fluctuation due to its exposure to property and casualty
insurance. Insurance operations, which are primarily reflected in
other income (refer to Operating Segment Review – Insurance),
are subject to seasonal weather conditions, including higher
claims experience during winter driving months, cyclical
patterns of the industry and natural catastrophes. Mandatory
participation in the Alberta auto risk sharing pools can also result
in unpredictable quarterly fluctuations. Quarterly results can also
fluctuate due to the recognition of periodic income tax items, as
was the case in the third quarter of 2010 when an income tax
recovery and related interest receipt from certain prior period
transactions increased net income by approximately $8.3 million.
The acquisition of National Leasing was effective February 1,
2010 and the results of its operations and financial position are
consolidated as part of the Bank’s overall financial performance
beginning with the second quarter of that year. The acquisition
had a positive impact on all categories included in Table 26
except for the provision for credit losses. The impact of the higher
loan loss experience inherent in National Leasing’s portfolio
compared to the Bank’s core lending business is more than offset
by the relatively higher yield earned on its portfolio.
Gains on sale of securities, reflected in other income, were
unusually high in 2010 and the first two quarters of 2011. Gains
on sale of securities in 2010 and prior periods mainly resulted
from a steep interest rate curve and wide credit spreads that
allowed the Bank to capitalize on specific investment strategies.
The majority of gains on sale of securities in the current year
resulted from the repositioning of common equities and
preferred shares within the investment portfolio. Based on the
current composition of the securities portfolio and elevated
volatility in financial markets resulting from global uncertainties,
management expects the level of net gains on sale of securities
will be significantly reduced in future periods.
Detailed management’s discussion and analysis along with
unaudited interim consolidated financial statements for each
CWB Group 2011 Annual Report • SHAREDVISION
67
quarter, except for the fourth quarter of fiscal 2011, are available
for review on SEDAR at www.sedar.com and on the Bank’s website
at www.cwbankgroup.com. Copies of the quarterly reports to
shareholders can also be obtained, free of charge, by contacting
the Bank’s Investor Relations department via email
at InvestorRelations@cwbank.com.
Table 26 – quarTerly Financial highlighTS (1)
($ thousands, except per share amounts)
Net interest income (teb)
$ 99,842
$ 98,133
$ 93,282
$ 93,426
$ 89,206
$ 85,020
$ 80,132
$ 74,306
2011
2010
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Less teb adjustment
Net interest income
per financial statements
Other income
Total revenues (teb)
Total revenues
Net income
Earnings per common share
Basic
Diluted
Diluted cash
Return on common
3,133
2,797
2,385
2,744
3,179
2,782
2,662
2,563
96,709
24,452
95,336
24,952
90,897
28,506
90,682
28,421
124,294
123,085
121,788
121,847
121,161
120,288
119,403
119,103
45,046
44,711
44,440
43,952
0.55
0.54
0.55
0.55
0.52
0.54
0.58
0.53
0.54
0.59
0.54
0.55
86,027
22,364
111,570
108,391
39,107
0.53
0.48
0.49
82,238
26,025
111,045
108,263
46,595
0.64
0.59
0.60
77,470
30,840
110,972
108,310
37,884
0.52
0.47
0.48
71,743
26,366
100,672
98,109
40,035
0.57
0.52
0.52
shareholders’ equity (ROE)
15.2%
14.6%
16.3%
16.4%
15.1%
19.1%
16.3%
18.0%
Return on average total assets (ROA)
Efficiency ratio (teb)
Efficiency ratio
Net interest margin (teb)
Net interest margin
Provision for credit losses as
1.12
45.1
46.3
2.72
2.64
1.18
45.3
46.4
2.83
2.75
1.25
45.5
46.4
2.87
2.80
1.24
45.2
46.3
2.88
2.79
1.13
46.6
47.9
2.84
2.74
1.40
44.4
45.5
2.78
2.69
1.17
45.0
46.1
2.76
2.67
1.25
40.0
41.0
2.56
2.47
a percentage of average loans
0.18
0.18
0.19
0.23
0.21
0.23
0.23
0.16
(1) See page 35 for a discussion of teb and non-GAAP measures.
fourth Quarter of 2011
CWB posted strong fourth quarter performance marking its 94th
consecutive profitable quarter. Fourth quarter net income of $45.0
million was up 15% ($5.9 million) compared to the same quarter
last year, while diluted earnings per common share increased 13%
to $0.54 (diluted cash earnings per share of $0.55 increased 12%).
Fourth quarter total revenues, measured on a taxable equivalent
basis, grew 11% ($12.7 million) to reach a record $124.3 million
as the combined positive impact of very strong 16% loan growth
and 9% ($2.1 million) higher other income more than offset the
impact of a 12 basis point decline in net interest margin (teb) to
2.72%. Measured by business segment, banking and trust net
income of $42.3 million grew 14%, driven by record total revenues
(teb) of $117.5 million, up 12%. Insurance segment net income
of $2.7 million was up $0.6 million from the fourth quarter last
year, mainly reflecting 6% growth in net earned premiums and
improved claims experience.
Compared to the third quarter, net income increased 1% ($0.3
million) as the positive revenue contribution from 2% quarterly
loan growth was partially offset by the combined impact of an 11
basis point reduction in net interest margin (teb), 2% ($0.5 million)
lower other income and slightly higher non-interest expenses.
Diluted earnings per common share increased 4% ($0.02) over
68
SHAREDVISION • CWB Group 2011 Annual Report
the prior quarter while diluted cash earnings per share was up
2% ($0.01). Higher percentage growth in diluted earnings per
common share compared to growth in net income reflects the
positive impact from the redemption of warrants completed on
August 31, 2011.
Net interest margin (teb) of 2.72% was down from 2.84% in the
fourth quarter last year, with the difference largely resulting from
lower yields on both loans and securities as well as increased
expense related to subordinated debentures issued in the first
quarter of 2011. The 11 basis point reduction in net interest
margin (teb) compared to the prior quarter mainly reflected a
combination of lower loan yields due to the very low interest rate
environment and heightened competitive pressures. The Bank’s
higher average liquidity maintained during the fourth quarter
in response to elevated global uncertainties also negatively
impacted margin.
The quarterly return on common shareholders’ equity of 15.2%
increased 10 basis points compared to a year earlier and 60 basis
points over the prior quarter. Fourth quarter return on assets of
1.12% was down slightly from 1.13% a year earlier and 1.18% in
the previous quarter.
Total loans of $12,221 million grew 2% ($274 million) based on
positive performance across all lending sectors. Quarterly loan
growth was also evident across all of the Bank’s key geographic
regions. The overall volume in the pipeline for new loans
remained solid.
Overall credit quality remained satisfactory and continued to
show improvement. Gross impaired loans totaled $97.0 million at
quarter end, compared to $107.9 million in the third quarter and
Accounting Policies and Estimates
critical Accounting Estimates
CWB’s significant accounting policies are outlined in Note 1
and with related financial note disclosures by major caption in
the consolidated financial statements. The policies discussed
below are considered particularly important, as they require
management to make significant estimates or judgments, 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 based on management’s
estimate at the balance sheet date. In assessing existing credit
losses, management must rely on estimates and exercise
judgment 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. The general allowance for credit losses is intended to
address this uncertainty. At October 31, 2011, the Bank’s total
allowance for credit losses was $70.8 million (2010 – $78.6 million),
which included a specific allowance of $10.4 million (2010 – $19.0
million) and a general allowance of $60.4 million (2010 – $59.6
million). Additional information on the process and methodology
for determining the allowance for credit losses can be found in
the discussion of Credit Quality in this MD&A and in Note 7 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 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
$143.2 million a year earlier. This represented the sixth consecutive
quarter of declining gross impaired loans. The quarterly provision
for credit losses exceeded net new specific provisions and led to a
$2.8 million increase in the dollar level of the general allowance for
credit losses compared to the third quarter.
The fourth quarter efficiency ratio (teb) improved to 45.1%, compared
to 46.6% a year earlier and 45.3% in the previous quarter.
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, reinvestment risk,
claims development and recoverability of reinsurance balances.
All provisions are periodically reviewed and evaluated in light
of emerging claims 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, a number of uncertainties
are 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, 2011, the provision for unpaid
claims and adjustment expenses totaled $76.9 million (2010
– $80.1 million). Additional information on the process and
methodology for determining the provision for unpaid claims and
adjustment expenses can be found in Note 22 to the consolidated
financial statements. This critical estimate relates to CWB’s
insurance segment.
financial instruments Measured at fair Value
Cash resources, securities, securities purchased under resale
agreements, securities sold under repurchase agreements,
retained interest in securitized assets and derivative financial
instruments are reported on the consolidated balance sheets
at fair value.
The fair value of a financial instrument on initial recognition is
the value of the consideration given or received. Subsequent
to initial recognition, financial instruments measured at fair
value that are quoted in active markets are based on bid prices
for financial assets and offer prices for financial liabilities. For
derivative financial instruments or other financial assets and
liabilities where an active market does not exist, fair values are
determined using valuation techniques that refer to observable
market data, including discounted cash flow analysis, option
pricing models and other valuation techniques commonly used by
market participants.
CWB Group 2011 Annual Report • SHAREDVISION
69
The following table summarizes the significant financial assets and liabilities reported at fair value at October 31, 2011.
Table 27 – valuaTion oF Financial inSTrumenTS
($ thousands)
Financial assets
Cash resources
Securities
Retained interest in securitized assets
october 31, 2011
October 31, 2010
Financial liabilities
Derivative related
october 31, 2011
October 31, 2010
Valuation technique
Quoted
Market
Prices
Model with
observable
Market Data
fair
Value
$
312,335
$
272,704
$
39,631
1,925,704
1,925,704
7,767
–
$ 2,245,806
1,885,922
$
$ 2,198,408
1,691,330
$
$
$
$
436
436
992
$
$
$
–
–
–
–
7,767
47,398
194,592
436
436
992
$
$
$
$
$
Notes 3, 4, 5, 12 and 30 to the consolidated financial statements
provide additional information regarding these financial
instruments. This critical accounting estimate relates to both
operating segments.
CWB has no direct credit exposure to sovereign debt outside of
Canada. CWB also has no direct exposure to any credit default
swaps, collateralized debt obligations, non-bank sponsored asset-
backed commercial paper or monoline insurers.
changes in Accounting Policies
There were no changes in accounting policies during 2011.
70
SHAREDVISION • CWB Group 2011 Annual Report
future changes in Accounting Policies
international financial Reporting Standards
The Canadian Institute of Chartered Accountants (CICA) has
transitioned Canadian GAAP for publicly accountable entities to
International Financial Reporting Standards (IFRS) for interim and
annual financial statements effective for fiscal years beginning on
or after January 1, 2011, including comparatives for the prior year.
As a result, the Bank’s consolidated financial statements will be
prepared in accordance with IFRS in effect at October 31, 2012 for
the 2012 fiscal year, and will include comparative information for
the 2011 fiscal year.
The information provided below will allow investors and others
to obtain a better understanding of management’s IFRS transition
plan and the resulting estimated effects on the Bank’s financial
statements. Readers are cautioned, however, that it may not be
appropriate to use this information for any other purpose.
Several accounting standards are in the process of being
amended by the IFRS standard setter, the International
Accounting Standards Board (IASB). Therefore, management
continues to monitor IASB projects for developments. However,
the Bank does not presently anticipate the issuance of new or
revised accounting standards requiring adoption during 2012.
The Bank commenced its IFRS conversion project during 2008
and established a formal project governance structure, including
an IFRS Steering Committee, to monitor the progress and critical
decisions in the transition to IFRS. The Steering Committee
consists of senior levels of management from Finance, Credit Risk
Management and Information Services. An external advisory firm
has been engaged to work with the Bank’s project staff on certain
IFRS topics. Regular reporting is provided by the project team to
the Steering Committee and the Audit Committee.
ifRS transition Plan
The Bank embarked on a four phase project to identify and
evaluate the impact of the transition to IFRS on the consolidated
financial statements, develop a plan and complete the transition.
The project plan includes the following phases:
1) Diagnostic phase – This phase involved performing a high-
level impact assessment to identify key areas that may
be impacted by the transition to IFRS. As a result of these
procedures, the potentially affected areas were ranked as
high, medium or low priority.
2) Design and planning phase – In this phase, each area
identified from the diagnostic phase was addressed through a
detailed impact assessment. This phase involved identification
and analysis of changes required to existing accounting
policies and/or disclosures, information systems and business
processes. In addition, preliminary internal communication
and training was commenced.
3) Solution development phase – This phase included the
execution of any required changes to information systems
and business processes, completing formal authorization
processes to approve recommended accounting policy
changes, development of IFRS financial statement format and
disclosure and delivery of training for the Finance team and
other groups, as necessary.
4) Implementation phase – The final phase involves the collection
of financial information necessary to compile IFRS-compliant
financial statements, embedding IFRS in business processes,
and Audit Committee approval of IFRS financial statements.
CWB Group 2011 Annual Report • SHAREDVISION
71
Progress towards transition Plan
The final implementation phase of the transition plan is now
substantially complete. The following table is a summary of the
Bank’s progress towards completion of selected key activities of the
IFRS transition plan:
activity
milestones
Status
Identify applicable differences in Canadian
GAAP/IFRS accounting policies and practices
and design and implement solutions.
Senior management and Steering
Committee sign-off for all key IFRS
accounting policy choices.
Select IFRS 1 choices.
Develop financial statement and related
note disclosure format.
Quantify effects of transition.
Development and review of draft financial
statement format.
–
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
n
o
i
t
a
r
a
p
e
r
P
Define and introduce appropriate level of
IFRS expertise for each of the following:
• Finance group
• CWB lenders
• Audit Committee & Board
of Directors
Timely training provided to align with work
under transition – all training completed by
the third quarter of 2011.
Communication of effects of transition in
time for 2012 financial reporting process.
i
g
n
n
a
r
T
i
The Diagnostic phase and Design &
Planning phases are complete, which
involved a detailed impact assessment of
the differences between Canadian GAAP
and IFRS.
Completed the analysis of accounting
policy choices.
The development of the annual and
quarterly IFRS financial statement and note
disclosure formats is substantially complete.
Participated in industry IFRS
specialist groups.
Finance group, Audit Committee and Board
of Directors training occurred from 2007
to 2011. Regular status reports continue.
Finance resources are available to all
lenders.
Engaged a third-party subject matter expert
to assist in certain IFRS topics and training.
s
m
e
t
s
y
S
n
o
i
t
a
m
r
o
f
n
i
t
n
e
m
n
o
r
i
v
n
e
l
o
r
t
n
o
c
Identify and address IFRS differences that
require changes to financial systems.
Evaluate and select methods to address
need for dual record-keeping during
2011 (i.e. IFRS and Canadian GAAP)
for comparatives.
Confirmation that business processes and
systems are IFRS compliant throughout
the project.
Diagnostic analysis regarding current
systems completed; no significant business
processes or system changes required.
Confirmation that systems can
address 2011 dual record-keeping
processing requirements.
Dual record-keeping process confirmed
during first quarter of 2009.
Revise existing internal control processes
and procedures to address significant
changes to existing accounting policies
and practices, including the need for dual
record-keeping during 2011.
Design and implement internal controls
with respect to one-time transition
adjustments and related communications.
Assessment of all key control and design
effectiveness implications throughout 2010.
Documentation of changes during the third
and fourth quarter of 2011.
Completed analysis of control requirements
and there was no significant impact
on the Bank’s internal controls over
financial reporting or disclosure controls
and procedures.
72
SHAREDVISION • CWB Group 2011 Annual Report
impact on financial Reporting and Accounting Policies
The Bank’s detailed impact assessment identified the following
significant accounting policy differences on initial transition to
IFRS for the Bank:
1) business combinations – Under IFRS, contingent
consideration related to a business combination is accounted
for as a financial liability and fair valued at the time of the
acquisition. An adjustment of the liability to current fair value
is recorded through net income every period thereafter until
settlement. Under Canadian GAAP, when the amount of
contingent consideration cannot be reasonably estimated
or the outcome of the contingency cannot be determined
without reasonable doubt, the liability is not recognized until
the contingency is resolved and consideration is issued or
becomes issuable and, at such time, the consideration is
recorded as an adjustment of goodwill.
Since the Bank expects to apply IFRS 3 – Business
Combinations retrospectively to the National Leasing
acquisition (see IFRS 1 below for additional discussion),
the associated contingent consideration will be fair valued
at the acquisition date of February 1, 2010. The expected
retrospective restatement will increase IFRS goodwill by
$8 million.
The effect of the contingent consideration is currently
estimated to decrease retained earnings by $10 million at
November 1, 2010, which represents the estimated fair value
change from the February 1, 2010 acquisition date to the IFRS
transition date. The expected net effect on 2011 consolidated
net income, as the obligation is revalued, is a reduction of
$12 million.
2) derecognition of Securitized Financial assets – The Bank
expects that National Leasing’s securitized leases (totaling
$91 million at October 31, 2011 and $199 million at November
1, 2010) will be reported as loans on the balance sheet, which
would increase loans and debt and have an insignificant
impact on net income throughout fiscal 2011.
The currently estimated effect of these securitization
transactions is a decrease to Canadian GAAP retained
earnings of $2 million at November 1, 2010, representing
the elimination of cumulative securitization gains and losses
realized under Canadian GAAP, less recognition of interest
income and expense under IFRS. The currently estimated
net effect on 2011 consolidated net income is an increase of
$1 million.
3) consolidation – Under IFRS, a variable interest entity (VIE)
is consolidated if the entity is deemed to control it, as
determined under specific criteria. Canadian Western Bank
Capital Trust will be consolidated under IFRS, which will
decrease deposits and increase total equity by $105 million.
For more information about this special purpose entity see
Note 15 to the consolidated financial statements.
The currently estimated net effect on 2011 consolidated
net income is an increase of $7 million as the deposit interest
expense under Canadian GAAP is treated as an equity
dividend payment under IFRS. However, the effect on net
income attributable to shareholders of the Bank is nil.
4) impairment of available-for-Sale Securities – Under both
Canadian GAAP and IFRS, available-for-sale securities are
reported on the balance sheet at fair value with changes
in fair value generally reported in other comprehensive
income. An unrealized loss is recognized in net income when
a security is considered impaired; a subsequent recovery in
the value of an equity security is not reversed through net
income until the security is either sold or redeemed. Under
Canadian GAAP, a significant or prolonged decline in the
fair value of an investment below its cost is assessed in the
context of whether the decline is considered an “other than
temporary impairment” (OTTI). Under IFRS, the concept of
OTTI does not exist and either a significant or prolonged
decline in fair value is considered objective evidence of
impairment. This difference between Canadian GAAP and
IFRS will generally result in earlier recognition of impairment
losses through net income under IFRS.
The currently estimated impact of the transition will result in
no change in shareholders’ equity at November 1, 2010 and
a $2 million reduction in 2011 net income.
5) iFrS 1 – IFRS 1: First Time Adoption of IFRS provides a
framework for the transition to IFRS. Generally, retroactive
application is applied to the opening balance sheet at
November 1, 2010 as though the Bank had always applied
IFRS. However, IFRS 1 permits both mandatory exceptions
to retroactive application and optional exemptions from
other IFRS standards. The Bank has evaluated all optional
exemptions under IFRS 1, with the most significant potential
exemption relating to business combinations. The Bank
expects to elect not to apply IFRS 3 – Business Combinations
retrospectively to acquisitions that occurred before February
1, 2010 (further described above).
6) loan loss accounting – Although both existing Canadian
GAAP and IFRS calculate loan losses using the incurred
loss model, IFRS is more specific as to what qualifies as an
“incurred event.” Under IFRS, incurred losses require objective
evidence of impairment, must have a reliably measurable
effect on the present value of estimated cash flows and
be supported by currently observable data. The Bank has
developed an IFRS compliant methodology, and management
currently estimates no difference between the specific or
general (collective under IFRS) allowances for credit losses
between Canadian GAAP and IFRS.
CWB Group 2011 Annual Report • SHAREDVISION
73
Table 28 - reconciliaTion oF condenSed conSolidaTed balance SheeT
As at November 1, 2010 (Unaudited)
($ millions)
IFRS Adjustments
(1)
(2)
(3)
canadian
Business
(4)
AFS
Pro forma
gAAP
Combinations
Derecognition
Consolidation
Impairment
Other (1)
ifRS
Assets
Cash resources, securities
and securities under
resale agreements
Loans
Other assets
total assets
liabilities
Deposits
Other liabilities
Debt
total liabilities
Shareholders’ equity
Non-controlling interest
Total equity
total liabilities and
equity
$
$
$
$
1,876
10,496
330
$
12,702
$
10,813
426
315
11,554
1,148
–
1,148
$
$
$
–
–
8
8
–
18
–
18
(10)
–
(10)
–
196
(10)
186
–
(14)
202
188
(2)
–
(2)
$
$
$
–
–
–
–
$
$
(105)
$
–
–
(105)
–
105
105
$
12,702
$
8
$
186
$
–
$
Table 29 – reconciliaTion oF neT income
For the year ended October 31, 2011 (Unaudited)
($ millions)
IFRS Adjustments
(1)
(2)
(3)
canadian
Business
–
–
–
–
–
–
–
–
–
–
–
–
(4)
AFS
$
$
$
–
(15)
4
(11)
–
–
–
–
(11)
–
(11)
$
1,876
10,677
332
$
12,885
$
10,708
430
517
11,655
1,125
105
1,230
$
(11)
$
12,885
Pro forma
gAAP
Combinations
Derecognition
Consolidation
Impairment
Other (1)
ifRS
Net income
(non-controlling
interest
and shareholders of
the Bank)
Net income attributable to
non-controlling
interests
Net income attributable
to shareholders of the
Bank
$
178
$
(12)
$
1
$
7
$
(2)
$
–
$
172
–
–
–
7
–
–
7
$
178
$
(12)
$
1
$
–
$
(2)
$
–
$
165
(1) Other Reclassifications – Certain other financial statement reclassifications have been made on transition. Examples include the method of recognition of certain credit-related fees and the presentation of
the non-controlling interest in Adroit Investment Management.
74
SHAREDVISION • CWB Group 2011 Annual Report
impact on capital Adequacy Requirements
As at October 31, 2010, the pro forma Basel II Tier 1 regulatory
capital ratio is currently estimated to decline 30 basis points, and
the total regulatory capital ratio is currently estimated to decline
30 basis points under IFRS to 11.0% and 14.0%, respectively. Both
ratios, after considering IFRS transition adjustments, are currently
expected to remain well above the minimum regulatory capital
ratio requirements and the Bank’s internal thresholds.
Risk Management
On an IFRS basis, leases securitized and sold by National Leasing
are accounted for as secured borrowings, which results in
recognition of the securitized assets on the consolidated balance
sheet and, therefore, an increase in the regulatory asset-to-
capital multiple. As at October 31, 2010 the Bank’s asset-to-
capital multiple, after considering IFRS transition adjustments, is
expected to remain well within regulatory guidelines.
The shaded areas of this MD&A represent a discussion of risk
management policies and procedures relating to credit, market
and liquidity risks as required under the CICA Handbook section
3862, Financial Instruments – Disclosures, which permits these
specific disclosures to be included in the MD&A. Therefore, the
shaded areas presented on pages 76 to 80 of this MD&A form an
integral part of the audited consolidated financial statements for
the year ended October 31, 2011.
overview
CWB’s risk management processes have been designed to
complement the organization’s overall philosophy regarding
risk. A strong risk culture which emphasizes transparency and
accountability continues to be a cornerstone of CWB’s approach
to risk management. Selectively taking and managing risks has
been integral to the ability to continually grow profitability in both
favourable and more adverse market conditions.
CWB, like other financial institutions, is exposed to risk factors
that could adversely affect its operating environment, financial
condition and financial performance, and which may also
influence an investor’s decision to buy, sell or hold CWB shares,
deposits or other securities. CWB has demonstrated its ability
to effectively manage risks through conservative management
practices, a strong risk culture and disciplined risk management
approach, but many risk factors are beyond CWB’s direct control.
The Bank actively monitors and manages sources of potential risk.
Economic uncertainties that began with the global financial crisis
in 2008, and continue today with the European debt crisis, have
significantly increased the level of active management related to
regulatory risks applicable to CWB’s operations.
Each of CWB’s businesses is subject to certain risks that require
unique mitigation strategies to manage them effectively. To
provide a more proactive and structured risk management
approach across all areas of CWB’s businesses, the Group Risk
Management function was established to implement a formalized
risk management process across all companies. CWB is utilizing
the ISO 31000 Standard for Risk Management as a comprehensive
framework to help ensure risk is managed effectively and
efficiently across CWB and its subsidiaries. This international
standard provides principles and guidelines for managing risk in
a systematic, transparent and credible manner. A complementary
element of the risk management process is stress testing. Stress
testing is a technique used to assist management in developing
sound business strategy and making informed risk management
and capital planning decisions.
Risk Management Principles
Effective risk management is central to the Bank’s ability to
remain financially sound and profitable, and includes identifying,
assessing, managing and monitoring all aspects of risk that have
the potential to positively or negatively affect CWB’s businesses.
The following principles guide the management of risks on a
company-wide basis:
• Effective balancing of risk and reward by aligning business
strategy with risk appetite, diversifying risk, pricing for risk
appropriately, and mitigating risk through preventive and
detective controls;
• An ongoing focus on “plain vanilla” banking, complemented by
extensive knowledge and experience in CWB’s chosen business
sectors and geographic regions;
• An enterprise-wide view of risk and the acceptance of risks
required to build the business only if those risks do not harm
the CWB brand;
• The belief that every employee is essentially a risk manager
and must be knowledgeable of the risks inherent in their
day-to-day activities;
• Use of common sense, sound judgment and fulsome risk-based
discussions; and,
• Recognition that “knowing your clients” reduces risks by
ensuring that the services provided are suitable for, and
understood by, all clients.
In addition to a strong values-based risk culture, the foundation
for solid risk management requires a well defined risk appetite
and clearly understood and documented risk governance.
CWB Group 2011 Annual Report • SHAREDVISION
75
Risk Appetite
Risk appetite is simply the formalization of basic business principles
such as making decisions based on risk-reward tradeoffs,
understanding potential outcomes of different decisions, and
deciding whether the organization is comfortable with the risk
associated with different decisions. It provides a context to discuss
risks and reach a shared understanding of appropriate risk
thresholds. Setting these risk tolerances is dynamic and requires
flexible processes as well as continuous guidance from both
management and the Board.
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 Asset Liability Committee (ALCO) meets monthly and provides
management oversight related to the risks of banking and trust
operations, other than credit risk. ALCO is a senior management
committee chaired by the executive with responsibility for
Treasury, with the President and Chief Executive Officer (CEO)
and other senior officers as members. ALCO is responsible for:
• ensuring that risks other than credit risk are identified and
assessed and that 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 and derivatives
risk, and trust services risk; and,
• overseeing compliance and strategy respecting diversification
• review and approval of loans in excess of delegated limits;
of product offerings and management of risks.
• review and monitoring of impaired and other less than
satisfactory loans; and,
• recommendation of the adequacy of the allowance for credit
losses to the Audit Committee.
Asset liability management policies are approved and reviewed
at least annually by the Board with quarterly status reporting
also provided.
The Bank’s Operations Committee is comprised of supervisory and
management personnel from all areas of banking operations.
The Committee meets regularly and is chaired by a member of
senior management. Key responsibilities are to develop appropriate
policies and procedures, including internal controls, respecting
routine day-to-day banking operations.
The internal audit group performs audits in all areas of the Bank,
audits all subsidiaries, and reports the results directly to senior
management, as well as the Bank’s CEO and Audit Committee.
Identifying, measuring and monitoring risks are key components
of effective enterprise-wide risk management. While by no
means exhaustive, the following discussions summarize what
management believes are the most important risks applicable to
CWB’s current operations. While each of the risks on the following
pages is described independently, readers are cautioned that many
of the factors and risks discussed may also be interrelated.
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SHAREDVISION • CWB Group 2011 Annual Report
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 CWB or its subsidiaries. Credit
risk is managed through lending policies and procedures, the
establishment of lending limits and a defined approval process.
Risk diversification is addressed by establishing portfolio limits
by geographic area, industry sector and product. CWB’s policy is
to limit connected corporate borrowers’ loan authorizations to
not more than 10% of the Bank’s shareholders’ equity. Generally,
the Bank’s loan limit is $50 million for a single risk exposure.
However, for certain quality connections with more than one
risk exposure, the limit is $75 million. CWB customers with larger
borrowing requirements can be accommodated through loan
syndications with other financial institutions.
• 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;
• a review at least annually of individual credit facilities (except
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 an
appropriate financial return;
• management of growth within quality objectives;
The Bank employs and is committed to a number of important
principles to manage credit exposures, which include:
• early recognition of problem accounts and immediate
implementation of steps to protect the safety of Bank capital;
• 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 group of senior
management prior to making recommendations 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;
• 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 and an impaired loan report covering
loans that 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 cleanup costs. The
Bank, in certain situations, may become directly liable for cleanup
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, secured portfolio.
Efforts are directed toward achieving a diversified loan portfolio
by engaging experienced personnel who provide a hands-on
approach in credit granting, account management and quick
action when problems develop. The lending focus within the
Bank is primarily directed to small and medium-sized businesses
with operations conducted in the four western provinces, and
to individuals. Relationship banking and “knowing your clients”
are important tenets of account management. An appropriate
financial return on the level of risk is fundamental. Geographic
diversification in the loan portfolio outside of Western Canada
is achieved through participation in syndicated lending facilities
primarily led by other Canadian banks, National Leasing’s
representation across all provinces and territories of Canada,
and residential mortgages in select regions of Ontario that are
underwritten and serviced by Optimum Mortgage.
CWB Group 2011 Annual Report • SHAREDVISION
77
liquidity Risk
Liquidity risk is the risk that the Bank cannot meet a demand for
cash or fund its financial obligations in a cost efficient or timely
manner as they come due. These financial obligations can arise
from withdrawals of deposits, debt maturities, and commitments
to provide credit. Effective liquidity management ensures that
adequate cash is available to honour all cash outflow obligations
while limiting the opportunity cost of holding short-term assets.
Maintenance of a prudent liquidity base also provides flexibility to
fund loan growth and 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;
• scenario and stress testing in the operating, micro,
and macro environments;
• diversification of funding sources; and,
• an approved contingency plan.
Key features of liquidity management are:
• daily monitoring of expected cash inflows and outflows;
• 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
each regulated entity to ensure compliance with
regulatory guidelines.
credit ratings
On November 22, 2010, DBRS Limited issued credit ratings on the
Bank’s senior debt and deposits, and subordinated debentures of
A (low) and BBB (high), respectively, both with a stable outlook.
The same ratings and outlook were subsequently confirmed on
October 28, 2011.
Credit ratings do not comment on market price or suitability of
any financial instrument for a particular investor and are not
recommendations to purchase, sell or hold securities. Ratings
are subject to revision or withdrawal at any time by the rating
organization. Credit ratings are largely determined by the
quality of the Bank’s earnings, the adequacy of capital and the
effectiveness of risk management programs. There can be no
assurance that CWB’s credit ratings and rating outlooks will
not be lowered or that rating agencies will not issue adverse
commentaries about CWB, potentially resulting in adverse
consequences for the Bank’s funding capacity or access to capital
markets. A lowering of CWB’s credit ratings may also affect the
Bank’s ability, and the cost, to enter into normal course derivative
or hedging transactions. Management believes the ratings will
increase the breadth of clients and investors who can participate
in CWB’s deposit and debt offerings while also lowering the Bank’s
overall cost of capital.
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. CWB itself does not undertake
trading activities and, therefore, does not have direct risks
related to those activities, such as market making, arbitrage or
proprietary trading. The Bank maintains a diversified securities
portfolio primarily comprised of high quality debt instruments,
preferred shares and common shares that are subject to price
fluctuation based on volatility in financial markets, but CWB’s
material market risks are mainly confined to interest rates and
foreign exchange, as discussed below.
interest Rate Risk
Interest rate risk, or sensitivity, is defined as the impact on net
interest income, both current and future, resulting from a change
in market interest rates. This risk and the 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. Generally, a positive gap will result in an increase
in net interest income when market interest rates rise since assets
reprice earlier than liabilities. The opposite impact will generally
occur when market interest rates fall. However, the correlation
may be disrupted when interest rates approach zero.
CWB’s earnings are affected by the monetary policies of the Bank
of Canada. Monetary policy decisions have an impact on the level
of interest rates, which can have an impact on earnings.
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.
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SHAREDVISION • CWB Group 2011 Annual Report
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, duration analysis 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 29 to the
consolidated financial statements shows the gap position at
October 31, 2011 for select time intervals.
The gap analysis in Note 29 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 to -0.8% from 1.5% at October 31, 2010, while the one-
month and under gap increased to 9.0% from 7.8% a year earlier.
To the extent possible within the Bank’s acceptable parameters for
risk, the asset/liability position will continue to be managed such
that changing interest rates would generally be relatively neutral
to net interest income.
Interest sensitive assets matched against interest sensitive
liabilities are managed on a relatively risk neutral duration
basis. Non-interest rate sensitive assets, liabilities and
shareholders’ equity are typically managed at a target
duration of between two and three years.
Of the $4,814 million in fixed term deposit liabilities maturing
within one year from October 31, 2011, approximately $2,702
million (22% of total deposit liabilities) mature by April 30, 2012.
The term in which maturing deposits are retained will have an
impact on the future asset liability structure and, hence, interest
rate sensitivity. Approximately $306 million of the fixed term
deposit liabilities maturing within one month are deposits
redeemable at any time.
The estimated sensitivity of net interest income to a change in
interest rates is presented in Table 30. The amounts represent
the estimated change in net interest income over the time period
shown resulting from a one-percentage point change in interest
rates. The estimates are based on a number of assumptions and
factors, which include:
• a constant structure in the interest sensitive asset
liability portfolio;
• floor levels for various deposit liabilities;
• interest rate changes affecting interest sensitive assets and
liabilities by proportionally the same amount and applied at the
appropriate repricing dates; and,
• no early redemptions.
At October 31, 2011, a one-percentage point increase in interest
rates is estimated to increase net interest income by 3.0% over
the following twelve months; this compares to October 31,
2010 when a one-percentage point increase in interest rates
was expected to increase net interest income by 2.3% over the
following twelve months. At October 31, 2011, a one-percentage
point decrease in interest rates is estimated to decrease net
interest income by 3.7% over the following twelve months; this
compares to October 31, 2010 when a one-percentage point
decrease in interest rates was expected to decrease net interest
income by 1.5% over the following twelve months.
Table 30 – eSTimaTed SenSiTiviTy oF neT inTereST income aS a reSulT oF one-PercenTage PoinT change in inTereST raTeS
($ thousands)
Impact of 1% increase in interest rates
Period
90 days
1 year
1 year percentage change
Impact of 1% decrease in interest rates
Period
90 days
1 year
1 year percentage change
$
2011
4,015
11,024
3.0%
$
2011
$
(4,786)
$
(13,436)
(3.7)%
2010
2,378
7,372
2.3%
2010
(1,694)
(4,703)
(1.5)%
Based on the current interest rate gap position, it is estimated that
a one-percentage point increase in all interest rates is estimated
to decrease annual other comprehensive income by $9.0
million (2010 – $9.8 million), net of tax. A one-percentage point
decrease in all interest rates is estimated to increase annual other
comprehensive income by a similar amount.
It is management’s intention to continue to manage the asset
liability structure and interest rate sensitivity through pricing and
product policies to attract desired assets and liabilities, as well
as through the use of interest rate swaps or other appropriate
hedging techniques (see discussion under Derivative Financial
Instruments on page 61). Assets and liabilities having a term to
maturity in excess of five years are subject to specific review
CWB Group 2011 Annual Report • SHAREDVISION
79
and control, and, with the exception of subordinated debentures
and the deposit from CWB Capital Trust, were not material. The
subordinated debentures, which are typically redeemed (subject
to OSFI approval) after five years, and the deposit from CWB
Capital Trust are discussed in Notes 18 and 15 to the consolidated
financial statements.
foreign Exchange Risk
Foreign exchange risk arises when there is a difference between
assets and liabilities denominated in a foreign currency. In
providing financial services to its customers, the Bank has assets
and liabilities denominated in U.S. dollars. At October 31, 2011,
assets denominated in U.S. dollars were 1.1% (2010 – 1.6%) of total
assets and U.S. dollar liabilities were 1.2% (2010 – 1.6%) of total
liabilities. Currencies other than U.S. dollars are not bought or sold
other than to meet specific customer needs and, therefore, the Bank
has virtually no exposure to currencies other than U.S. dollars.
Policies have been established that include limits on the
maximum allowable differences between U.S. dollar assets and
liabilities. The difference is measured daily and managed by use
of U.S. dollar forward 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
The Bank is exposed to insurance risk through its wholly owned
subsidiary, Canadian Direct, which offers home and auto
insurance to customers in BC and Alberta. Accordingly, Canadian
Direct’s operations are subject to the elements of risk associated
with these lines of business, which can cause fluctuations and
uncertainties in earnings. These elements include cyclical patterns
in the industry and unpredictable developments, including
weather-related and other natural catastrophes. Canadian Direct
carries reinsurance coverage as part of its strategy to manage
these risks. The industry is also impacted by political, regulatory,
legal and economic influences. 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, as well as other categories of risk to which
Canadian Direct is exposed. Canadian Direct’s Board of Directors
is responsible for reviewing and approving key policies and
implementing reporting requirements 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
Canadian Direct’s rating and underwriting system. These controls
include eligibility audits and a review by senior staff 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.
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 trained staff handle
claims. However, the process for establishing the provision for
unpaid claims may reflect significant judgment 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.
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SHAREDVISION • CWB Group 2011 Annual Report
The risk that Canadian Direct might be exposed to 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 treaties that protect Canadian Direct 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.
Canadian Direct performs financial due diligence procedures on
prospective reinsurers and only purchases coverage from a list
of approved companies. Reinsurers must also meet a certain
minimum security rating and these ratings are monitored on a
regular basis. Canadian Direct’s reinsurance treaties are matched
to underwriting strategies through participation of senior
underwriting staff in the process. Canadian Direct is dependent
on the availability and pricing of its external reinsurance
arrangements and this availability and global markets may
impact pricing. If Canadian Direct is unable to renew such
arrangements at favourable rates and to adequate limits, then
Canadian Direct may need to modify its underwriting practices or
commitments. For fiscal 2012, the Bank made a strategic decision
to place a higher retention limit of $5 million (2011 – $2 million) on
Canadian Direct’s catastrophe reinsurance treaty.
In addition, as the insurance business is heavily regulated,
Canadian Direct is exposed to regulatory risk. This is evidenced by
the provincial government mandated reforms to auto insurance
in Alberta. This risk is managed mainly by monitoring current
developments and by actively participating in relevant bodies and
associations in order to contribute Canadian Direct’s perspective.
operational Risk
Operational risk is inherent in all business activities, including
banking, trust, wealth management and insurance operations
and is embedded in the processes that support other risks, like
credit, liquidity and market risk. 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. CWB is exposed to operational risk from
internal business activities, external threats and activities that
are outsourced. While operational risk cannot be completely
eliminated, proactive operational management is a key strategy
to mitigate this risk. The financial measure of operational risk is
actual losses incurred. No material losses occurred in 2011.
The Basel II framework includes capital requirements related to
operational risk in the banking and trust operating segment.
Under Basel II, CWB uses the Standardized Approach (TSA) for
operational risk. Group Risk Management is responsible for the
continual enhancement of the group-wide Operational Risk
Framework and the ongoing evolution of CWB’s approach to
operational risk management with oversight by ALCO and the
Board of Directors.
Following is a summary of strategies and factors that help
minimize operational risk:
Management
• Knowledgeable and experienced management team
committed to sound management and the preservation of
a highly ethical culture;
• Very clear communication of “tone at the top,” which supports
effective risk management reporting;
• Flat organization structure with management close to their
operations, which facilitates effective internal communication;
• Organizational surveys on employee engagement and
corporate culture;
• Communication of the importance of effective risk management
to all levels of CWB through training and policy implementation;
and,
• Management that is well versed on the Bank’s operational risk
tolerance and appetite.
framework and supporting policies
• A mature company-wide Operational Risk Framework that
uses a common language of risk coupled with programs
and methodologies for identification, measurement, control,
reporting and management of operational risk;
• Implementation of policies and procedural controls appropriate
to address identified risks and which include segregation of
duties and built-in checks and balances;
• An annual anonymous employee survey on the internal
control environment;
• Adoption of the COSO (Committee of Sponsoring Organizations
of the Treadway Commission) for Smaller Business framework
for internal control assessment;
• Ongoing enhancements to CWB’s fraud prevention processes
and policies;
• Regular meetings of ALCO, Canadian Direct’s Operational Risk
Committee and the risk committees of CWT and Valiant;
• Regular meetings of the Bank’s Operations Committee;
• Established “whistleblower” processes and employee codes
of conduct;
• Certification of National Leasing under ISO 9001 standards for
quality management and quality management systems;
• Operational risk assessments conducted by business managers
closest to the identified risks that are annually reviewed and
reported to ALCO and the Board;
• Regular internal audits for compliance and the effectiveness
of procedural controls by a strong, independent internal
audit group;
• Centralized reporting of operating losses to senior
management and the Board;
• Maintenance of a company-wide outsourcing risk
management program;
• Continual assessment and benchmarking of the amount and
type of business insurance to ensure coverage is appropriate;
• Use of technology via automated systems with built-in controls;
• Effective change management processes supported by a
designated committee comprised of both executive and
senior management;
• Continual review and upgrading of systems and procedures;
and,
• Continual updating and testing of procedures and contingency
plans for disaster recovery and business continuity (including
pandemic planning).
In addition, the external auditors provide management and the
Audit Committee with any recommendations for improvements
to internal controls or procedures identified during their annual
examination of the consolidated financial statements. CWB also
maintains appropriate insurance coverage through a financial
institution bond policy.
general Business and Economic conditions
CWB primarily operates in Western Canada. As a result, its
earnings are impacted by the general business and economic
conditions of the four western provinces. The conditions include
short-term and long-term interest rates, resource commodity
prices, inflation, exchange rates, consumer, business and
government spending, fluctuations in debt and capital markets,
as well as the strength of the economies in which CWB and its
customers operate.
level of competition
CWB’s performance is impacted by the level of competition
in the markets in which it operates. Each of CWB’s businesses
operates in highly competitive markets. Customer retention may
be influenced by many factors, including relative service levels,
the prices and attributes of products and services, changes in
products and services, and actions taken by competitors.
CWB Group 2011 Annual Report • SHAREDVISION
81
Regulatory and legal Risk
The businesses operated by CWB and its subsidiaries are highly
regulated through laws and regulations that have been put
in place by various federal and provincial governments and
regulators. Changes to laws and regulations, including changes
in their interpretation or implementation, could adversely
affect CWB. CWB’s failure to comply with applicable laws,
regulations, industry codes or regulatory expectations could
result in sanctions, financial penalties and costs associated with
litigation that could adversely impact earnings and damage
reputation. Although regulatory and legal risks are largely
outside of management’s direct control and cannot be completely
eliminated, CWB takes what it believes to be reasonable and
prudent measures designed to ensure compliance with
governing laws and regulations, including its legislative
compliance framework.
Over the past several years, the level of supervisory oversight of all
federally regulated Canadian financial institutions has increased
significantly in terms of both regulation and new standards. This
includes amplified supervisory activities, more frequent data
and information requests from regulators, and expected early
adoption of the more stringent requirements of Basel III capital
and liquidity standards. Global standards created under Basel
III to more closely manage and monitor risks for internationally
active banks will likely be applied uniformly to all Canadian
banks, including much smaller institutions like CWB that are
not internationally active. These regulations also impact CWB’s
ability to compete against non-OSFI regulated entities. Effective
management of regulatory risk and compliance in the current
environment requires, and is expected to continue to require,
considerable internal resources. Notwithstanding the additional
resources, the volume and pace of new and amended regulations
and standards increases the risk of unintended non-compliance.
Accuracy and completeness of information
on customers and counterparties
CWB and its subsidiaries depend on the accuracy and
completeness of information about customers and
counterparties. In deciding whether to extend credit or enter
into other transactions with customers and counterparties, CWB
and its subsidiaries may rely on information furnished by them,
including financial statements, appraisals, external credit ratings
and other financial information. CWB and its subsidiaries may also
rely on the representations of customers and counterparties as
to the accuracy and completeness of that information and, with
respect to financial statements, on the reports of auditors. CWB’s
financial condition and earnings could be negatively impacted to
the extent it relies on financial statements that do not comply with
GAAP, that are materially misleading, or that do not fairly present,
in all material respects, the financial condition and results of
operations of the customer or counterparties.
Ability to Execute growth initiatives
As part of its long-term corporate strategy, CWB intends
to continue growing its business through a combination
of organic growth and strategic acquisitions. The ability to
successfully grow its business will be dependent on a number
of factors, including identification of accretive new business or
acquisition opportunities, negotiation of purchase agreements
on satisfactory terms and prices, approval of acquisitions by
regulatory authorities, securing satisfactory regulatory capital
and financing arrangements and integration of newly acquired
operations into the existing business. All of these activities may
be more difficult to implement or may take longer to execute than
management anticipates. Further, any significant expansion of
the business may increase the operating complexity and divert
management’s attention away from established or ongoing
business activities. Any failure to manage acquisition strategies
successfully could have a material adverse impact on CWB’s
business, financial condition and results of operations.
information Systems and technology
CWB and its subsidiaries are highly dependent upon information
technology systems. Various third-parties provide key
components of infrastructure and applications. Disruptions in
the Bank’s information technology systems, whether attributed
to internal or external factors, and including potential disruptions
in the services provided by various third parties, could adversely
affect the ability of CWB and its subsidiaries to conduct regular
business and/or deliver products and services to customers. The
Bank has a number of significant technology projects underway,
including the eventual replacement of CWB’s core banking system.
Reputation Risk
Reputation risk is the risk to earnings and capital from negative
public opinion. Negative public opinion can result from actual or
alleged misconduct in any number of activities, but often involves
questions about business ethics and integrity, competence,
corporate governance practices, quality and accuracy of financial
reporting disclosures, or quality of products and service.
Negative public opinion could adversely affect the ability to keep
and attract customers and could expose CWB to litigation or
regulatory action.
other factors
CWB cautions that the above discussion of risk factors is not
exhaustive. Other factors beyond CWB’s control that may affect
future results include changes in tax laws, technological changes,
unexpected changes in consumer spending and saving habits,
timely development and introduction of new products, and the
anticipation of and success in managing the associated risks.
82
SHAREDVISION • CWB Group 2011 Annual Report
updated Share information
As at December 1, 2011, there were 75,463,313 common shares
outstanding. Also outstanding were employee stock options,
which are or will be exercisable for up to 3,532,272 common
shares for maximum proceeds of $75.4 million.
On December 5, 2011, the Board of Directors declared a quarterly
cash dividend of $0.15 per common share payable on January 4, 2012
controls and Procedures
As of October 31, 2011, an evaluation was carried out of the
effectiveness of the Bank’s disclosure controls and procedures.
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer will certify that the design and operating
effectiveness of those disclosure controls and procedures
were effective.
Also at October 31, 2011, an evaluation was carried out of the
effectiveness of internal controls over financial reporting to
provide reasonable assurance regarding the reliability of financial
reporting and financial statement compliance with GAAP. Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer will certify that the design and operating effectiveness of
internal controls over financial reporting were effective.
This Management’s Discussion and Analysis is dated
December 5, 2011.
to shareholders of record on December 22, 2011. The Board of
Directors also declared a cash dividend of $0.453125 per Series 3
Preferred Share payable on January 31, 2012 to shareholders of
record on January 20, 2012.
These evaluations were conducted in accordance with the
standards of COSO for Smaller Business, a recognized control
model, and the requirements of Multilateral Instrument
52-109 of the Canadian Securities Administrators. A Disclosure
Committee, comprised of members of senior management,
assists the Chief Executive Officer and Chief Financial Officer in
their responsibilities. Management’s evaluation of controls can
only provide reasonable, not absolute, assurance that all control
issues that may result in material misstatement, if any, have
been detected.
There were no changes in the Bank’s internal controls over
financial reporting that occurred during the year ended
October 31, 2011 that have materially affected, or are reasonably
likely to materially affect, the Bank’s internal control over
financial reporting.
CWB Group 2011 Annual Report • SHAREDVISION
83
Financial Statements
Management’s Responsibility for Financial Reporting
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 and fair presentation of the information presented, which
includes the consolidated financial statements, Management’s
Discussion and Analysis (MD&A) and other information. 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 Office of the Superintendent of Financial Institutions
Canada. The MD&A has been prepared in accordance with the
requirements of securities regulators, including National Instrument
51-102 of the Canadian Securities Administrators (CSA).
The consolidated financial statements, MD&A and related financial
information reflect amounts which must, of necessity, be based
on informed estimates and judgments of management with
appropriate consideration to materiality. The financial information
represented elsewhere in this annual report is fairly presented and
consistent with that in the consolidated financial statements.
Management has designed the accounting system and related
internal controls, 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.
We, as the Bank’s Chief Executive Officer and Chief Financial Officer,
will certify Canadian Western Bank’s annual filings with the CSA
as required by Multilateral Instrument 52-109 (Certification of
Disclosure in Issuers’ Annual and Interim Filings).
The system of internal controls is also supported by our internal
audit department, which carries out periodic internal audits of all
aspects of the Bank’s operations. The Chief Internal Auditor has full
and free access to the Audit Committee and to the external 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
the MD&A, and recommending them to the Board of Directors for
approval. Other key responsibilities of the Audit Committee include
meeting with management, the Chief Internal Auditor and the
external auditors to discuss the effectiveness of certain internal
controls over the financial reporting process and the planning and
results of the external audit. The Committee also meets regularly
with the Chief Internal Auditor and the external auditors without
management present.
The Governance 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 Office of the Superintendent of Financial Institutions Canada,
at least once a year, makes such examination and inquiry into
the affairs of the Bank and its federally regulated subsidiaries as
is deemed necessary or expedient to satisfy themselves that the
provisions of the relevant Acts, having reference to the safety of the
depositors and policyholders, are being duly observed and that the
Bank is in a sound financial condition.
KPMG 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 external 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
President and Chief Executive Officer
December 5, 2011
Tracey C. Ball, FCA, ICD.D
Executive Vice President and Chief Financial Officer
84
SHAREDVISION • CWB Group 2011 Annual Report
Independent Auditors’ Report
To the Shareholders of Canadian Western Bank
We have audited the accompanying consolidated financial
statements of Canadian Western Bank, which comprise
the consolidated balance sheets as at October 31, 2011 and
October 31, 2010 and the consolidated statements of income,
comprehensive income, shareholders’ equity and cash flows
for the years then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility
for the Consolidated Financial Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting
principles, and for such internal control as management
determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
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 comply with ethical
requirements and plan and perform an audit to obtain reasonable
assurance about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment,
including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, we consider internal
control relevant to the entity’s preparation and fair presentation
of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position
of Canadian Western Bank as at October 31, 2011 and October
31, 2010, and its consolidated results of operations and its
consolidated cash flows for the years then ended in accordance
with Canadian generally accepted accounting principles.
KPMG LLP
Chartered Accountants
Edmonton, Alberta
December 5, 2011
CWB Group 2011 Annual Report • SHAREDVISION
85
Consolidated Balance Sheets
As at October 31
($ thousands)
Assets
Cash Resources
Cash and non-interest bearing deposits with financial institutions
Deposits with regulated financial institutions
Cheques and other items in transit
Securities
Issued or guaranteed by Canada
Issued or guaranteed by a province or municipality
Other securities
Securities Purchased Under Resale Agreements
Loans
Residential mortgages
Other loans
Allowance for credit losses
Other
Property and equipment
Goodwill
Intangible assets
Insurance related
Derivative related
Other assets
Total Assets
Liabilities and Shareholders’ Equity
Deposits
Payable on demand
Payable after notice
Payable on a fixed date
Deposit from Canadian Western Bank Capital Trust
Other
Cheques and other items in transit
Insurance related
Derivative related
Other liabilities
Subordinated Debentures
Conventional
Shareholders’ Equity
Preferred shares
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Total Liabilities and Shareholders’ Equity
Contingent Liabilities and Commitments
(Note 3)
$
2011
2010
73,318
233,964
5,053
312,335
644,356
380,031
901,317
1,925,704
–
3,008,545
9,283,406
12,291,951
(70,808)
12,221,143
$
8,965
168,998
9,981
187,944
564,694
88,478
857,015
1,510,187
177,954
2,479,957
8,095,148
10,575,105
(78,641)
10,496,464
72,674
37,852
37,420
56,734
–
108,173
312,853
$ 14,772,035
65,978
37,723
43,420
59,652
134
122,235
329,142
$ 12,701,691
$
583,267
3,407,590
8,403,832
105,000
12,499,689
$
530,608
2,999,599
7,177,560
105,000
10,812,767
45,986
149,130
436
238,228
433,780
39,628
149,396
992
235,865
425,881
(Note 4)
(Note 5)
(Note 6)
(Note 7)
(Note 9)
(Note 10)
(Note 10)
(Note 11)
(Note 12)
(Note 13)
(Note 14)
(Note 15)
(Note 16)
(Note 12)
(Note 17)
(Note 18)
545,000
315,000
(Note 19)
(Note 19)
(Note 21)
209,750
408,014
21,884
650,028
3,890
1,293,566
$ 14,772,035
209,750
279,352
21,291
614,710
22,940
1,148,043
$ 12,701,691
Allan W. Jackson
Chair
Larry M. Pollock
President and Chief Executive Officer
86
SHAREDVISION • CWB Group 2011 Annual Report
Consolidated Statements 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 and wealth management services
Gains on sale of securities, net
Retail services
Securitization revenue
Foreign exchange gains
Other
Net Interest and Other Income
Non-Interest Expenses
Salaries and employee benefits
Premises and equipment
Other expenses
Provincial capital taxes
(Note 7)
(Note 22)
Net Income before Income Taxes and Non-Controlling Interest in Subsidiary
Income Taxes
(Note 25)
Non-Controlling Interest in Subsidiary
Net Income
Preferred Share Dividends
Net Income Available to Common Shareholders
Average number of common shares (in thousands)
Average number of diluted common shares (in thousands)
Earnings Per Common Share
Basic
Diluted
(Note 26)
2011
2010
$
$
$
$
597,285
44,177
4,062
645,524
245,448
26,452
271,900
373,624
22,179
351,445
32,821
20,250
19,050
10,306
9,486
3,969
3,488
6,961
106,331
457,776
141,865
36,738
42,449
1,399
222,451
235,325
56,948
178,377
228
178,149
15,208
162,941
72,205
76,705
2.26
2.12
$
$
$
$
511,274
40,785
5,528
557,587
222,356
17,753
240,109
317,478
20,413
297,065
31,550
21,716
17,316
12,447
9,017
4,285
2,422
6,842
105,595
402,660
123,972
31,448
34,511
1,549
191,480
211,180
47,344
163,836
215
163,621
15,208
148,413
65,757
72,329
2.26
2.05
CWB Group 2011 Annual Report • SHAREDVISION
87
Consolidated Statements of Changes in Shareholders’ Equity
For the Year Ended October 31
($ thousands)
Retained Earnings
Balance at beginning of year
Net income
Dividends - Preferred shares
- Common shares
Warrants purchased and cancelled
Issuance costs on common shares
Balance at end of year
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Total retained earnings and accumulated other comprehensive income
Preferred Shares
Balance at beginning and end of year
Common Shares
Balance at beginning of year
Issued on exercise of warrants
Issued under dividend reinvestment plan
Transferred from contributed surplus on the exercise or exchange of options
Issued on exercise of options
Issued on acquisition of subsidiary
Balance at end of year
Contributed Surplus
Balance at beginning of year
Amortization of fair value of options
Transferred to capital stock on the exercise or exchange of options
Balance at end of year
Total Shareholders’ Equity
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year Ended October 31
($ thousands)
Net Income
Other Comprehensive Income (Loss), net of tax
Available-for-sale securities
Gains (losses) from change in fair value (1)
Reclassification to other income (2)
Derivatives designated as cash flow hedges
Gains from change in fair value (3)
Reclassification to net interest income (4)
Comprehensive Income for the Year
(1) Net of income tax benefit of $4,731 (2010 – tax expense of $5,647).
(2) Net of income tax benefit of $2,966 (2010 – $3,579).
(3) Net of income tax expense of nil (2010 – $7).
(4) Net of income tax benefit of nil (2010 – $672).
88
SHAREDVISION • CWB Group 2011 Annual Report
(Note 19)
(Note 19)
(Note 19)
(Note 34)
(Note 20)
2011
2010
$
614,710
178,149
(15,208)
(39,177)
(88,446)
–
650,028
22,940
(19,050)
3,890
653,918
$
511,784
163,621
(15,208)
(28,929)
(16,453)
(105)
614,710
19,119
3,821
22,940
637,650
209,750
209,750
279,352
115,716
5,941
4,009
2,996
–
408,014
21,291
4,602
(4,009)
21,884
226,480
323
2,922
3,181
3,864
42,582
279,352
19,366
5,106
(3,181)
21,291
$ 1,293,566
$
1,148,043
2011
178,149
$
2010
163,621
$
(11,710)
(7,340)
(19,050)
–
–
–
(19,050)
14,285
(8,868)
5,417
17
(1,613)
(1,596)
3,821
$
159,099
$
167,442
Consolidated Statements of Cash Flows
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
Current income taxes receivable and payable
Amortization of fair value of employee stock options
Accrued interest receivable and payable, net
Future income taxes, net
Gain on sale of securities, net
Other items, net
Cash Flows from Financing Activities
Deposits, net
Common shares issued
Debentures issued
Debentures redeemed
Dividends
Warrants purchased and cancelled
Securities sold under repurchase agreements, net
Issuance costs on share capital
Long-term debt repaid
Cash Flows from Investing Activities
Interest bearing deposits with regulated financial institutions, net
Securities, purchased
Securities, sales proceeds
Securities, matured
Securities purchased under resale agreements, net
Loans, net
Property and equipment
Acquisition of subsidiaries
Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year*
*Represented by:
Cash and non-interest bearing deposits with financial institutions
Cheques and other items in transit (included in Cash Resources)
Cheques and other items in transit (included in Other Liabilities)
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 19)
(Note 18)
(Note 18)
(Note 19)
(Note 34)
2011
2010
$
178,149
$
163,621
22,179
19,748
5,036
4,602
2,529
(11,212)
(10,306)
35,048
245,773
1,686,922
124,653
300,000
(70,000)
(54,385)
(88,446)
–
–
–
1,898,744
(65,414)
(4,725,843)
2,095,077
2,192,675
177,954
(1,746,858)
(19,041)
–
(2,091,450)
53,067
(20,682)
32,385
73,318
5,053
(45,986)
32,385
268,272
63,034
$
$
$
$
20,413
13,816
(2,164)
5,107
(4,012)
556
(12,447)
41,148
226,038
1,195,528
7,109
–
(60,000)
(44,137)
(16,453)
(300,242)
(105)
(270,630)
511,070
95,168
(2,966,470)
2,717,950
617,444
(177,954)
(957,478)
(21,079)
(53,531)
(745,950)
(8,842)
(11,840)
(20,682)
8,965
9,981
(39,628)
(20,682)
251,739
48,953
$
$
$
$
CWB Group 2011 Annual Report • SHAREDVISION
89
Notes to Consolidated Financial Statements
For the Years Ended October 31, 2011 and 2010
($ thousands, except per share amounts)
1. BASIS OF PRESENTATION
These consolidated financial statements of Canadian Western
Bank (CWB or the Bank) 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 (GAAP). The significant accounting policies
used in the preparation of these financial statements, including
the accounting requirements of OSFI, are summarized below and
in the following notes. These accounting policies conform, in all
material respects, to Canadian 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 and the disclosure of contingent assets and liabilities
as at the date of the financial statements as well as 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, fair value of
financial instruments, goodwill and intangible assets, provision
for unpaid claims and adjustment expenses, future income
tax assets and liabilities, other than temporary impairment of
securities and fair value of employee stock options. 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 entities whose operations are
controlled by the Bank and are corporations in which the Bank
is the beneficial owner. See Note 35 for details of the subsidiaries
and affiliate.
b) Business Combinations
Business acquisitions are accounted for using the purchase method.
c) 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, except for unrealized
foreign exchange gains and losses on available–for–sale securities
that are included in other comprehensive income.
90
SHAREDVISION • CWB Group 2011 Annual Report
d) Specific Accounting Policies
To facilitate a better understanding of the Bank’s consolidated
financial statements, the significant accounting policies are
disclosed in the notes, where applicable, with related financial
disclosures by major caption:
Note
Topic
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Financial instruments
Cash resources
Securities
Securities purchased under resale agreements and
securities sold under repurchase agreements
Loans
Allowance for credit losses
Securitization
Property and equipment
Goodwill and intangible assets
Insurance related other assets
Derivative financial instruments
Other assets
Deposits
Capital trust securities
Insurance related other liabilities
Other liabilities
Subordinated debentures
Capital stock
Stock based compensation
Contingent liabilities and commitments
Insurance operations
Disclosures on rate regulation
Employee future benefits
Income taxes
Earnings per common share
Assets under administration and management
Related party transactions
Interest rate sensitivity
Fair value of financial instruments
Risk management
Capital management
Segmented information
Acquisition of subsidiary
Subsidiaries and affiliate
Comparative figures
e) Future Accounting Changes
International Financial Reporting Standards
The Canadian Institute of Chartered Accountants (CICA) has
transitioned Canadian GAAP for publicly accountable entities to
International Financial Reporting Standards (IFRS). The Bank’s
consolidated financial statements will be prepared in accordance
with IFRS for the fiscal year commencing November 1, 2011 and
will include IFRS comparative information for the prior year.
Initial Transition:
The Bank has substantially completed a four phase project
underway to identify and evaluate the impact of the transition to
IFRS on the consolidated financial statements and develop a plan
to complete the transition. The project plan includes the following
phases – diagnostic, design and planning, solution development,
and implementation. The Bank is currently working on the final
implementation phase.
The quantitative impact of the transition to IFRS on the Bank’s
consolidated financial statements for current standards has not
yet been finalized. However, the most significant accounting
differences identified include business combinations,
derecognition of securitized financial assets, consolidation,
and impairment of available–for–sale securities.
Future IFRS Changes:
CWB continues to monitor the International Accounting Standards
Board’s proposed changes to standards. Although not expected
to materially impact the Bank’s 2012 consolidated financial
statements, these proposed changes may have a significant
impact on the Bank’s future financial statements.
2. FINANCIAL INSTRUMENTS
As a financial institution, most of the Bank’s balance sheet is
comprised of financial instruments and the majority of net
income results from gains, losses, income and expenses related
to the same.
Financial instrument assets include cash resources, securities,
securities purchased under resale agreements, loans and
derivative financial instruments. Financial instrument liabilities
include deposits, securities sold under repurchase agreements,
derivative financial instruments and subordinated debentures.
3. CASH RESOURCES
Cash resources have been designated as available–for–sale and
are reported on the consolidated balance sheets at fair value with
changes in fair value reported in other comprehensive income, net
of income taxes.
4. SECURITIES
The use of financial instruments exposes the Bank to credit,
liquidity and market risk. A discussion of how these are managed
can be found in the Risk Management section of the 2011
Annual Report.
Income and expenses are classified as to source, either securities
or loans for income, and deposits or subordinated debentures
for expense. Gains on the sale of securities, net, and fair value
changes in certain derivatives are classified to other income.
Included in deposits with regulated financial institutions
are available–for–sale financial instruments reported on the
consolidated balance sheets at the fair value of $233,964
(2010 – $168,998), which is $815 (2010 – $2,104) higher than
amortized cost.
Securities have been designated as available–for–sale, are
accounted for at settlement date and recorded on the consolidated
balance sheets at fair value with changes in fair value recorded in
other comprehensive income, net of income taxes.
Securities are purchased with the original intention to hold
the instrument to maturity or until market conditions render
alternative investments more attractive. If an impairment in value
is other than temporary, any write–down to net realizable value
is reported in the consolidated statements of income. 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
statements of income.
The analysis of securities at carrying value, by type and maturity, is as follows:
Maturities
Within
1 Year
1 to
3 Years
3 to
5 Years
Over 5
Years
2011
Total
Carrying
Value
2010
Total
Carrying
Value
Securities issued or guaranteed by
Canada
A province or municipality
Other debt securities
Equity securities
Preferred shares
Common shares
Total
$
409,806
$
117,262
$
117,288
$
–
$
644,356
$
564,694
148,638
105,160
58,838
171,493
171,280
16,109
18,057
264,434
196,417
–
–
–
1,275
10,783
18,222
100,642
380,031
303,545
497,130
100,642
88,478
256,544
511,228
89,243
$
681,661
$
612,027
$
501,094
$
130,922
$ 1,925,704
$
1,510,187
CWB Group 2011 Annual Report • SHAREDVISION
91
The analysis of unrealized gains and losses on securities reflected on the balance sheet is as follows:
2011
2010
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
Securities issued or
guaranteed by
Canada
A province or
municipality
Other debt securities
Equity securities
Preferred shares
Common shares
$
645,001 $
25 $
670 $ 644,356
$
564,833
$
69
$
208
$
564,694
380,510
301,718
522
2,087
490,218
103,637
10,448
5,718
1,001
260
3,536
8,713
380,031
303,545
497,130
100,642
87,755
253,132
492,897
81,574
737
3,493
20,614
9,305
14
81
88,478
256,544
2,283
1,636
511,228
89,243
Total
$ 1,921,084 $
18,800 $
14,180 $ 1,925,704
$ 1,480,191
$
34,218
$
4,222
$
1,510,187
The securities portfolio is primarily comprised of high quality debt
instruments, preferred shares and common shares that are not
held for trading purposes and, where applicable, are typically
held until maturity. Fluctuations in value are generally attributed
to changes in interest rates, market spreads and shifts in the
interest rate curve. Unrealized losses at year end are considered to
be temporary in nature. Volatility in equity markets also leads to
fluctuations in value, particularly for common shares.
5. SECURITIES PURCHASED UNDER RESALE AGREEMENTS AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities purchased under resale agreements 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. The difference between the
cost of the purchase and the predetermined proceeds to be received
on a resale agreement is recorded as securities interest income.
Securities sold under repurchase agreements represent a sale
of Government of Canada securities by the Bank effected with
a simultaneous agreement to buy them back at a specified price
on a future date, which is generally short term. The difference
between the proceeds of the sale and the predetermined cost to be
paid on a resale agreement is recorded as deposit interest expense.
Securities purchased under resale agreements have been
designated as available-for-sale and are reported on the
consolidated balance sheets at fair value with changes in fair value
reported in other comprehensive income, net of income taxes.
Interest earned or paid is recorded in interest income or expense
as earned.
6. LOANS
Loans, including leases, are recorded at amortized cost and are
stated net of unearned income, unamortized premiums and an
allowance for credit losses (Note 7).
Interest income is recorded using the effective interest method,
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 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 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 to the carrying value of the loan. Impaired loans are
returned to performing status when the timely collection of both
principal and interest is reasonably assured, 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. Premiums paid on the
acquisition of loan portfolios are amortized to interest income over
the expected term of the loans.
92
SHAREDVISION • CWB Group 2011 Annual Report
Outstanding gross loans and impaired loans, net of allowances for credit losses, by loan type, are as follows:
2011
Gross
Net
Gross
Impaired
Specific
Impaired
Amount
Amount
Allowance
$ 2,018,627 $
24,983 $
1,173 $
Loans
23,810 $
2010
Gross
Impaired
Amount
Gross
Amount
Net
Specific
Impaired
Allowance
1,793,181 $
24,534 $
1,288 $
Consumer and personal
Real estate (1)
Equipment financing
Commercial
Total (2)
General allowance (3)
Net impaired loans after
general allowance
4,730,693
2,412,864
3,129,767
46,638
15,325
10,041
2,516
5,321
1,369
44,122
10,004
4,124,235
1,943,716
8,672
2,713,973
82,799
27,918
7,956
$ 12,291,951 $
96,987 $
10,379
86,608 $ 10,575,105 $
143,207 $
4,880
10,215
2,655
19,038
(60,429)
$
26,179
Loans
23,246
77,919
17,703
5,301
124,169
(59,603)
$
64,566
(1) Multi-family residential mortgages are presented as real estate loans in this table.
(2) Gross impaired loans include foreclosed assets with a carrying value of $3,241 (2010 – $867) which are held for sale.
(3) The general allowance for credit risk is not allocated by loan type.
Outstanding impaired loans, net of allowance for credit losses, by provincial location of security, are as follows:
2011
Specific
Allowance
5,157
1,417
785
309
2,711
Gross
Impaired
Amount
$
53,674
$
35,738
2,771
934
3,870
96,987
$
Net
Impaired
Loans
$
48,517
$
34,321
1,986
625
1,159
86,608
(60,429)
Gross
Impaired
Amount
98,973
38,543
2,109
329
3,253
2010
Specific
Allowance
$
14,515
$
1,259
1,114
233
1,917
19,038
Net
Impaired
Loans
84,458
37,284
995
96
1,336
124,169
(59,603)
$
10,379
$
143,207
$
$
26,179
$
64,566
Alberta
British Columbia
Saskatchewan
Manitoba
Other
Total
General allowance (1)
Net impaired loans after
general allowance
(1) The general allowance for credit risk is not allocated by province.
During the year, interest recognized as income on impaired loans totaled $2,620 (2010 – $3,392).
Gross impaired loans exclude certain past due loans where payment of interest or principal is contractually in arrears, which are not classified
as impaired. Details of such past due loans that have not been included in the gross impaired amount are as follows:
As at October 31, 2011
Residential mortgages
Other loans
As at October 31, 2010
Residential mortgages
Other loans (1)
(1) Amounts at October 31, 2010 did not include National Leasing.
1 - 30 days
31 - 60 days
61 - 90 days
$
$
$
$
9,464
14,506
23,970
5,762
17,877
23,639
$
$
$
$
6,574
9,850
16,424
7,933
33,938
41,871
$
$
$
$
349
1,447
1,796
3,912
5,731
9,643
$
$
$
$
More than
90 days
242
110
352
–
4
4
Total
16,629
25,913
42,542
17,607
57,550
75,157
$
$
$
$
CWB Group 2011 Annual Report • SHAREDVISION
93
The composition of the Bank’s loan portfolio by geographic region and industry sector is as follows:
OCTOBER 31, 2011
($ millions)
Loans to Individuals
British
Columbia
Alberta Saskatchewan
Manitoba
Other
Total(1)
Composition
Percentage
Residential mortgages (2)
Other loans
$
Loans to Businesses
Commercial
Construction and real estate (3)
Equipment financing
Energy
Total Loans
Composition Percentage
OCTOBER 31, 2010
($ millions)
Loans to Individuals
Residential mortgages (2)
Other loans
$
$
Loans to Businesses
Commercial
Construction and real estate (3)
Equipment financing
Energy
Total Loans
Composition Percentage
$
1,325
72
1,397
905
1,450
378
–
2,733
4,130
$
$
1,138
112
1,250
1,625
1,646
821
363
4,455
5,705
$
$
180
12
192
125
240
150
–
515
707
$
$
71
3
74
103
71
72
–
246
320
$
$
$
295
1
296
347
158
629
–
1,134
1,430
$
3,009
200
3,209
3,105
3,565
2,050
363
9,083
12,292
33%
46%
6%
3%
12%
100%
1,046
66
1,112
753
1,272
329
–
2,354
3,466
$
$
1,040
104
1,144
1,447
1,517
710
265
3,939
5,083
$
$
145
14
159
111
223
118
–
452
611
$
$
68
3
71
95
70
58
–
223
294
$
181
1
182
291
184
464
–
939
$ 1,121
$
$
2,480
188
2,668
2,697
3,266
1,679
265
7,907
10,575
33%
48%
6%
3%
10%
100%
(1) This table does not include an allocation of the allowance for credit losses or deferred revenue and premiums.
(2) Includes single- and multi-unit residential mortgages and project (interim) mortgages on residential property.
(3)
Includes commercial term mortgages and project (interim) mortgages for non-residential property.
24%
2
26
25
29
17
3
74
100%
23%
2
25
26
31
16
2
75
100%
7. ALLOWANCE FOR CREDIT LOSSES
An allowance for credit losses is maintained, which, in management’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 outstanding loan balance.
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.
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 losses inherent in the portfolio that are not
presently identifiable by management of the Bank on an
Actual write-offs, net of recoveries, are deducted from the
allowance for credit losses. The provision for credit losses in the
consolidated statements 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.
94
SHAREDVISION • CWB Group 2011 Annual Report
The following table shows the changes in the allowance for credit losses during the year:
2011
General
Allowance
for Credit
Losses
Specific
Allowance
Balance at beginning of year
$
19,038
$
59,603
$
Provision for credit losses
Write-offs
Recoveries
Acquisition of subsidiary
21,353
(32,074)
2,062
–
826
–
–
–
$
Total
78,641
22,179
(32,074)
2,062
–
Balance at end of year
$
10,379
$
60,429
$
70,808
$
2010
General
Allowance
for Credit
Losses
61,153
(5,722)
–
–
4,172
59,603
Specific
Allowance
14,306
26,135
(24,599)
600
2,596
19,038
$
$
Total
75,459
20,413
(24,599)
600
6,768
78,641
$
$
8. SECURITIZATION
As a result of the acquisition of National Leasing Group Inc.
(National Leasing) on February 1, 2010 (see Note 34), the Bank
participates in securitization activities. Securitization consists of the
transfer of equipment leases to an independent trust or other third
party, which buys the leases and may issue securities to investors.
Securitizations are accounted for as sales as the Bank surrenders
control of the transferred assets and receives consideration other
than beneficial interests in the transferred assets.
When the Bank has an entitlement to participate in future cash
flows, the retained interests, net of estimated servicing costs, are
classified by the Bank as available-for-sale and included in other
assets. When the Bank has received the full proceeds in cash, a
reserve for estimated credit and prepayment losses and a reserve
for future servicing costs are included in other liabilities. The
retained interests represent the maximum exposure to losses on
the securitized assets. On a quarterly basis, the fair value of the
retained interests in securitized assets is reviewed for impairment.
Fair value is subject to credit, prepayment and interest rate risks.
Cash flows received from securitization activities were as follows:
Gains on the sale of leases and servicing revenues are reported in
other income – securitization revenue. In determining the gain, the
carrying amount of the leases sold is allocated between the assets
sold and the retained interests based on their relative fair value
at the date of transfer. The Bank estimates fair value based on the
present value of future expected cash flows using management’s
best estimates of the key assumptions - credit losses, prepayment
speeds and discount rates commensurate with the risks involved.
There have been no securitizations during 2011 or 2010.
The leases are sold on a fully serviced basis. Accordingly, upon
each securitization a servicing liability is recorded to recognize the
potential reduction in cash flows receivable as if an amount was
paid by the securitizor to a replacement servicer. The estimated
fees that would otherwise be payable to a replacement servicer
form the basis of determination of the fair value of the servicing
liability that is charged against the gain at the time of recognition
of the sale of securitized assets.
Proceeds from new securitizations
Cash flow received from retained interests
Losses reimbursed to securitizor
Early termination option payments
Total
For the
For the nine
year ended
months ended
October 31, 2011
October 31, 2010
$
–
$
8,326
(1,162)
–
$
7,164
$
–
8,300
(2,520)
(13,141)
(7,361)
CWB Group 2011 Annual Report • SHAREDVISION
95
The following table presents information about off-balance sheet gross impaired leases and net write-offs for securitized assets
as at October 31, 2011, which are not included in Note 6 – Loans and Note 7 – Allowance for Credit Losses:
Equipment financing securitization
As at October 31, 2011
As at October 31, 2010
Gross
Leases
Gross
Impaired
Leases
Write-offs,
Net of
Recoveries
$
$
91,293
199,097
$
$
562
1,143
$
$
1,280
2,306
As at October 31, 2011, key economic assumptions and the sensitivity of the current fair value (FV) of residual cash flows to immediate
10% and 20% adverse changes in those assumptions are as follows:
Fair value of retained interests
Weighted-average life (in years)
Annual prepayment rate
Expected credit losses
Residual cash flows discount rate
Key Economic
Impact on
FV of 10%
Assumptions Adverse Change
$
Impact on
FV of 20%
Adverse Change
5,899
0.88
7.50%
1.90%
3.08%
$
$
42
41
16
85
82
32
These sensitivities are hypothetical and should be used with
caution. Changes in fair value based on a 10% or 20% variation
in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair value
may not be linear. Also, in the above table, the effect of a variation
in a particular assumption on the fair value of the retained interests
is calculated without changing any other assumption. In reality,
changes in one factor may result in changes in another, which
might magnify or counteract the sensitivities.
9. PROPERTY 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 – three to ten years, and leasehold
improvements – term of the lease. Gains and losses on disposal
are recorded in other income in the year of disposal. Land, buildings
Land
Buildings
Computer equipment
Leasehold improvements
Office equipment and furniture
Total
and equipment, if no longer in use or considered impaired, are
written down to fair value.
Operating leases primarily comprise branch and office premises
and are not capitalized. Total costs, including free rent periods and
step-rent increases, are expensed on a straight-line basis over the
lease term.
Accumulated
Depreciation and
Amortization
–
$
4,975
39,240
22,122
17,898
84,235
$
Cost
4,265
19,174
55,075
50,050
28,345
156,909
2011
Net Book
Value
4,265
14,199
15,835
27,928
10,447
72,674
$
$
2010
Net Book
Value
4,265
14,206
13,009
25,329
9,169
65,978
$
$
$
$
Depreciation and amortization for the year amounted to $12,345 (2010 – $10,033).
96
SHAREDVISION • CWB Group 2011 Annual Report
10. GOODWILL AND INTANGIBLE ASSETS
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 consolidated
statements of income over their expected lives not exceeding
15 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 consolidated statements of income in
the period of impairment.
Goodwill
Identifiable intangible assets
Customer relationships
Non-competition agreements
Trademarks
Others
Total
Accumulated
Cost
Amortization
2011
Net Book
Value
$
37,852
$
–
$
37,852
$
37,668
5,731
2,206
5,578
51,183
7,856
2,726
–
3,181
13,763
29,812
3,005
2,206
2,397
37,420
$
89,035
$
13,763
$
75,272
$
2010
Net Book
Value
37,723
32,506
4,137
2,206
4,571
43,420
81,143
Amortization of customer relationships and other intangible assets
for the year amounted to $6,000 (2010 – $4,067). The trademarks
have an indefinite life and are not subject to amortization. Goodwill
includes $34,598 (2010 – $34,469) related to the banking and
trust segment and $3,254 (2010 – $3,254) related to the insurance
segment. During 2011, goodwill increased $129 due to the
contingent consideration settlement related to Adroit Investment
Management Ltd. There were no writedowns of goodwill or
intangible assets due to impairment.
11. INSURANCE RELATED OTHER ASSETS
Instalment premiums receivable
Deferred policy acquisition costs
Recoverable on unpaid claims
Reinsurers’ share of unpaid claims and adjustment expenses
Due from reinsurers
Total
12. DERIVATIVE FINANCIAL INSTRUMENTS
$
$
2011
31,361
11,011
6,196
6,153
2,013
$
56,734
$
2010
29,391
10,510
6,326
10,949
2,476
59,652
Interest rate, foreign exchange and equity contracts such as
futures, options, swaps, floors and rate locks 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 primarily used to
reduce the impact of fluctuating interest rates. Equity contracts
are used to economically offset the return paid on 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.
Designated Hedges
The Bank designates certain derivative financial instruments as
either a hedge of the fair value of recognized assets or liabilities
or firm commitments (fair value hedges), or a hedge of highly
probable future cash flows attributable to a recognized asset
or liability or a forecasted transaction (cash flow hedges). 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. If a
hedging transaction becomes ineffective or if the derivative is not
designated as a cash flow hedge, any subsequent change in the
fair value of the hedging instrument is recognized in earnings.
As at October 31, 2011 and October 31, 2010, the Bank had no
derivative financial instruments outstanding that were designated
as a fair value or cash flow hedge.
Interest income received or interest expense paid on derivative
financial instruments is accounted for on the accrual basis and
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
CWB Group 2011 Annual Report • SHAREDVISION
97
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.
Embedded Derivatives
Certain derivatives embedded in other financial instruments,
such as the return on fixed term deposits that are linked to a stock
index, are treated as separate derivatives when their economic
characteristics and risk are not closely related to those of the host
contract and the combined contract is not carried at fair value.
Embedded derivatives identified have been separated from the
host contract and are recorded at fair value.
Fair Value
Derivative financial instruments are recorded on the balance sheet
at fair value as either other assets or other liabilities with changes in
fair value related to the effective portion of cash flow interest rate
hedges recorded in other comprehensive income, net of income
taxes. Changes in fair value related to the ineffective portion of a
designated hedge, a derivative not designated as a hedge and all
other derivative financial instruments are reported in other income
on the consolidated statements of income.
Use of Derivatives
The Bank enters into derivative financial instruments for risk
management purposes. Derivative financial instruments are
financial contracts whose value is derived from an underlying
interest rate, foreign exchange rate, equity or commodity
instrument or index.
Derivative financial instruments primarily used by the Bank include:
• interest rate swaps, which are agreements where two
counterparties exchange a series of payments based on different
interest rates applied to a notional amount;
• equity swap contracts, which are agreements where one
counterparty agrees to pay or receive from the other cash flows
based on changes in the value of an equity index as well as a
designated interest rate applied to a notional amount; and
• foreign exchange forwards and futures, which are contractual
obligations to exchange one currency for another at a specified
price for settlement at a predetermined future date.
Interest rate swaps and other instruments are used as hedging
devices to control interest rate risk. The Bank enters into these
interest rate derivative instruments only 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 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. The Asset Liability Committee (ALCO) of the Bank
establishes and monitors approved counterparties (including an
assessment of credit worthiness) and maximum notional limits.
Approved counterparties are limited to rated financial institutions
or their associated parent/affiliate with a minimum rating of
A high or equivalent.
Foreign exchange transactions are undertaken only for the
purposes of meeting the 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 financial position.
The following table summarizes the derivative 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 sheets. 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 within the Capital
Management section of Management’s Discussion and Analysis.
Replace-
ment
2011
Future
Credit
Credit
Risk-
Risk Weighted
Cost
Exposure Equivalent
Balance
Notional
Amount
Notional
Amount
Replace-
ment
Cost
2010
Future
Credit
Credit
Risk-
Risk Weighted
Exposure
Equivalent
Balance
Interest rate swaps
$ 19,400
$
–
$
97
$
97
$
19
$ 47,550
$
–
$
234
$
234
$
49
Foreign exchange
contracts
Equity contracts
6,384
–
Total
$ 25,784
$
62
–
62
64
–
126
–
$
161
$
223
$
53
–
72
57,032
500
132
2
$ 105,082
$
134
$
570
30
834
$
702
32
968
181
6
$
236
98
SHAREDVISION • CWB Group 2011 Annual Report
The following table shows the derivative financial instruments split between those contracts that have a positive fair value (favourable
contracts) and those that have a negative fair value (unfavourable contracts).
2011
2010
Favourable Contracts
Unfavourable Contracts
Favourable Contracts
Unfavourable Contracts
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Interest rate swaps not
designated as hedges
$
–
$
Foreign exchange contracts
3,189
Equity contracts
Embedded derivatives in
equity linked deposits
Other forecasted transactions
–
–
–
Total
$
3,189
$
–
–
–
–
–
–
$ 19,400
$
(420)
$
–
$
–
$
47,550
$
3,195
(16)
–
–
–
–
–
51,739
500
n/a
–
132
2
–
–
5,293
–
n/a
–
(930)
(59)
–
(3)
–
$ 22,595
$
(436)
$
52,239
$
134
$
52,843
$
(992)
The aggregate contractual or notional amount of the derivative
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 derivative financial instruments on hand during the year are set out in the following table:
Favourable derivative financial instruments (assets)
Unfavourable derivative financial instruments (liabilities)
2011
192
722
$
$
2010
625
1,168
$
$
The following table summarizes maturities of derivative financial instruments and weighted average interest rates paid and received
on contracts.
2011
Maturity
2010
Maturity
1 Year or Less
More than 1 Year
1 Year or Less
More than 1 Year
Contractual
Contractual
Contractual
Notional
Amount
Interest
Notional
Interest
Rate
Amount
Rate
Notional
Amount
Interest
Rate
Notional
Amount
Contractual
Interest
Rate
Interest rate swaps not
designated as hedges (1)
Foreign exchange contracts (2)
Equity contracts
Total
$
–
6,384
–
$ 6,384
–
$ 19,400
3.39% $
750
4.19% $ 46,800
2.73%
–
–
$ 19,400
57,032
500
$ 58,282
–
–
$ 46,800
(1) The Bank pays interest at a fixed contractual rate and receives interest on the one-month (30-day) Canadian Bankers’ Acceptance rate. Interest rate swaps not designated as hedges mature between
November 2012 and April 2014.
(2) The contractual interest rate is not meaningful for foreign exchange contracts. Foreign exchange contracts mature between November 2011 and April 2012.
During the year, no net unrealized after tax gains (2010 – $17)
were recorded in other comprehensive income for changes in
fair value of the effective portion of derivatives designated as
cash flow hedges, and no amounts (2010 – nil) were recorded in
other income for changes in fair value of the ineffective portion of
derivatives classified as cash flow hedges. Amounts accumulated
in other comprehensive income are reclassified to net income
in the same period that interest on certain floating rate loans
(i.e. the hedged items) affects income. During the year, no amounts
(2010 – net gains after tax of $1,613) were reclassified
to net income.
CWB Group 2011 Annual Report • SHAREDVISION
99
13. OTHER ASSETS
Accrued interest receivable
Accounts receivable
Future income tax asset
Retained interests
Prepaid expenses
Financing costs (1)
Income taxes receivable
Other
Total
(1) Amortization for the year amounted to $1,403 (2010 – $1,374).
14. DEPOSITS
Deposits are accounted for on an amortized cost basis. Costs relating
to the issuance of fixed term deposits are amortized over the expected
life of the deposit using the effective interest method.
$
(Note 25)
(Note 8)
2011
40,665
27,917
18,121
5,899
4,898
4,685
3,902
2,086
$
2010
39,566
46,477
14,758
6,418
7,536
2,910
293
4,277
$
108,173
$
122,235
Payable on demand
Payable after notice
Payable on a fixed date
Deposit from CWB Capital Trust (1)
Total
Payable on demand
Payable after notice
Payable on a fixed date
Deposit from CWB Capital Trust (1)
Total
Business and
Financial
Individuals
Government
Institutions
2011
Total
$
30,440
$
552,827
$
2,086,231
6,229,158
–
1,321,359
2,166,674
105,000
–
–
8,000
–
$
583,267
3,407,590
8,403,832
105,000
$ 8,345,829
$
4,145,860
$
8,000
$ 12,499,689
Individuals
Business and
Government
Financial
Institutions
$
23,308
$
507,300
$
1,840,026
5,462,231
–
7,325,565
$
1,159,573
1,713,329
105,000
3,485,202
$
$
–
–
2,000
–
2,000
2010
Total
$
530,608
2,999,599
7,177,560
105,000
10,812,767
$
(1) The senior deposit note of $105 million from CWB Capital Trust is reflected as a Business and Government deposit payable on a fixed date. This senior deposit note bears interest at an annual rate of
6.199% until December 31, 2016 and, thereafter, at the CDOR 180-day Bankers’ Acceptance rate plus 2.55%. This note is redeemable at the Bank’s option, in whole or in part, on and after December 31, 2011,
or earlier in certain specified circumstances, both subject to the approval of OSFI. Each one thousand dollars of CWB Capital Trust Capital Securities Series 1 (WesTS) principal is convertible at any time into 40
non-cumulative redeemable CWB First Preferred Shares Series 1 of the Bank at the option of CWB Capital Trust. CWB Capital Trust will exercise this conversion right in circumstances in which holders of WesTS
exercise their holder exchange rights. See Note 15 for more information on WesTS and CWB Capital Trust.
15. CAPITAL TRUST SECURITIES
In 2006, the Bank arranged for the issuance of innovative capital
instruments, CWB Capital Trust Capital Securities Series 1 (WesTS),
through Canadian Western Bank Capital Trust (CWB Capital Trust), a
special purpose entity. CWB Capital Trust, an open-end trust, issued
non-voting WesTS and the proceeds were used to purchase a senior
deposit note from CWB.
CICA Accounting Guideline (AcG-15) provides a framework for
identifying Variable Interest Entities (VIEs) and requires the
consolidation of a VIE if the Bank is the primary beneficiary of the
VIE. The only special purpose entity in which the Bank participates
is CWB Capital Trust. Although CWB owns the unit holder’s equity
and voting control of CWB Capital Trust through Special Trust
Securities, the Bank is not exposed to the majority of CWB Capital
Trust losses and is, therefore, not the primary beneficiary under
AcG-15. Accordingly, CWB does not consolidate CWB Capital Trust
and the WesTS issued by CWB Capital Trust are not reported on the
consolidated balance sheets, but the senior deposit note is reported
in deposits (see Note 14) and interest expense is recognized on the
senior deposit note.
Holders of WesTS are eligible to receive semi-annual non-cumulative
fixed cash distributions. No cash distributions will be payable by
CWB Capital Trust on WesTS if CWB fails to declare regular dividends
on its preferred shares or, if no preferred shares are outstanding,
on its common shares. In this case, the net distributable funds of
100 SHAREDVISION • CWB Group 2011 Annual Report
CWB Capital Trust will be distributed to the Bank as holder of the
residual interest in CWB Capital Trust.
Should CWB Capital Trust fail to pay the semi-annual distributions
in full, CWB has contractually agreed not to declare dividends of
any kind on any of the preferred or common shares for a specified
period of time.
The following information presents the outstanding WesTS:
Issuance date ......................................................... August 31, 2006
Distribution dates ................................................. June 30, December 31
Annual yield............................................................ 6.199%
Earliest date redeemable
at the option of the issuer................................... December 31, 2011
Earliest date exchangeable
at the option of the holder ................................. Anytime
Trust capital securities outstanding ................ 105,000
Principal amount ................................................... $105,000
The significant terms and conditions of the WesTS are:
1) Subject to the approval of OSFI, CWB Capital Trust may, in whole
(but not in part), on the redemption date specified above, and
on any distribution date thereafter, redeem the WesTS without
the consent of the holders.
2) Subject to the approval of OSFI, upon occurrence of a special
event as defined, prior to the redemption date specified above,
CWB Capital Trust may redeem all, but not part, of the WesTS
without the consent of the holders.
3) The WesTS may be redeemed for cash equivalent to (i) the early
redemption price if the redemption occurs prior to December 31,
2016 or (ii) the redemption price if the redemption occurs on or
after December 31, 2016. Redemption price refers to an amount
equal to one thousand dollars plus the unpaid distributions to
the redemption date. Early redemption price refers to an amount
equal to the greater of (i) the redemption price and (ii) the price
calculated to provide an annual yield, equal to the yield on a
Government of Canada bond issued on the redemption date
with a maturity date of December 31, 2016, plus 0.50%.
4) Holders of WesTS may, at any time, exchange each one
thousand dollars of principal for 40 First Preferred Shares
Series 1 of the Bank. CWB’s First Preferred Shares Series 1 pay
semi-annual non-cumulative cash dividends with an annual
yield of 4.00% and will be redeemable at the option of the
Bank, with OSFI approval, on or after December 31, 2011, but
not at the option of the holders. This exchange right will be
effected through the conversion by CWB Capital Trust of the
corresponding amount of the deposit note of the Bank.
The WesTS exchanged for the Bank’s First Preferred Shares
Series 1 will be cancelled by CWB Capital Trust.
5) Each WesTS will be exchanged automatically without the
consent of the holders for 40 non-cumulative redeemable CWB
First Preferred Shares Series 2 upon occurrence of any one of
the following events: (i) proceedings are commenced for the
winding up of the Bank, (ii) OSFI takes control of the Bank, (iii)
the Bank has a Tier 1 capital ratio of less than 5% or Total capital
ratio of less than 8%, or (iv) OSFI has directed the Bank to
increase its capital or provide additional liquidity and the Bank
elects such automatic exchange or the Bank fails to comply
with such direction. Following the occurrence of an automatic
exchange, the Bank would hold all of the Special Trust Securities
and all of the WesTS, and the primary asset of CWB Capital Trust
would continue to be the senior deposit note. The Bank’s First
Preferred Shares Series 2 pay semi-annual non-cumulative
cash dividends with an annual yield of 5.25% and will be
redeemable at the option of the Bank, with OSFI approval,
on or after December 31, 2011, but not at the option of
the holders.
6) For regulatory capital purposes, WesTS are included in Tier
1 capital to a maximum of 15% of net Tier 1 capital with the
remainder included in Tier 2 capital. All of the outstanding
WesTS amounts are currently included in Tier 1 capital.
7) The non-cumulative cash distribution on the WesTS will be
6.199% paid semi-annually until December 31, 2016 and,
thereafter, at CDOR 180-day Bankers’ Acceptance rate
plus 2.55%.
16. INSURANCE RELATED OTHER LIABILITIES
Unpaid claims and adjustment expenses
Unearned premiums
Due to insurance companies and policyholders
Unearned commissions
Total
(Note 22)
$
76,892
$
2011
69,584
2,087
567
2010
80,086
66,444
2,305
561
$
149,130
$
149,396
CWB Group 2011 Annual Report • SHAREDVISION
101
17. OTHER LIABILITIES
Accrued interest payable
Accounts payable
Acquisition contingent consideration
Future income tax liability
Leasehold inducements
Deferred revenue
Income taxes payable
Total
18. SUBORDINATED DEBENTURES
(Note 25)
2011
$
101,557
$
88,420
30,870
9,767
3,297
2,708
1,609
2010
97,929
82,712
31,155
17,549
2,446
3,437
637
$
238,228
$
235,865
Financing costs relating to the issuance of subordinated debentures
are amortized over the expected life of the related subordinated
debenture using the effective interest method.
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.
Interest
Rate
4.389% (1)
5.070% (2)
5.571% (3)
5.950% (4)
5.426% (5)
Total
Maturity
Date
Earliest Date
Redeemable
by CWB at Par
2011
November 30, 2020
November 30, 2015
$
300,000
$
March 21, 2017
March 21, 2022
June 27, 2018
March 22, 2012
March 22, 2017
June 28, 2013
November 21, 2015
November 22, 2010
120,000
75,000
50,000
–
2010
–
120,000
75,000
50,000
70,000
$
545,000
$
315,000
(1) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 193 basis points.
(2) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 155 basis points. Of the $125,000 debentures issued, $5,000 are held by Canadian Direct Insurance Incorporated, a wholly owned subsidiary, and have been eliminated on
consolidation.
(3) These conventional debentures have a 15-year term with a fixed interest rate for the first 10 years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 180 basis points.
(4) These conventional debentures have a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate will be reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 302 basis points.
(5) These conventional debentures had a 10-year term with a fixed interest rate for the first five years. Thereafter, the interest rate would have reset quarterly at the Canadian dollar CDOR 90-day Bankers’
Acceptance rate plus 180 basis points. On November 22, 2010, these conventional debentures were redeemed by the Bank.
102 SHAREDVISION • CWB Group 2011 Annual Report
19. 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; and
Issued and fully paid:
Preferred Shares – Series 3
Outstanding at beginning and end of year
Common Shares
Outstanding at beginning of year
Issued on exercise of warrants
Issued on exercise or exchange of options
Issued under dividend reinvestment plan
Transferred from contributed surplus on
exercise or exchange of options
Issued on acquisition of subsidiary
Outstanding at end of year
Share Capital
(Note 34)
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. In addition, should CWB Capital Trust fail to
pay the semi-annual distributions in full on the CWB Capital Trust
Securities Series 1 (see Note 15), the Bank has contractually agreed
to not declare dividends on any of its common and preferred
shares for a specified period of time. These limitations do not
restrict the current level of dividends.
a) Preferred Shares
During 2009, the Bank issued 8.4 million preferred units at $25.00
per unit, for total proceeds of $209.8 million. The preferred units
issued by way of the private placement and the public offering
each consist of one Non-Cumulative 5-Year Rate Reset Preferred
Share, Series 3 (Series 3 Preferred Shares) in the capital of the Bank
with an issue price of $25.00 per share and 1.7857 and 1.7800
common share purchase warrants, respectively. Each warrant was
exercisable at a price of $14.00 to purchase one common share in
the capital of the Bank until March 3, 2014. As at October 31, 2011,
no warrants remain outstanding (2010 – 13,471,611).
Holders of the Series 3 Preferred Shares are entitled to receive
non-cumulative quarterly fixed dividends for the initial
five-year period ending April 30, 2014 of 7.25% per annum,
payable quarterly, as and when declared by the Board of
Directors. The dividend rate on Series 3 Preferred Shares will
reset May 1, 2014 and every five years thereafter at a level of
500 basis points over the then current five-year Government
of Canada bond yield. On April 30, 2014, and every five years
• 25,000,000 first preferred shares without nominal or par value,
issuable in series, of which, 4,200,000 first preferred shares
Series 1 and 4,200,000 first preferred shares Series 2 have been
reserved (see Note 15). In addition, 8,390,000 first preferred
shares Series 3 have been issued and are convertible to first
preferred shares Series 4 as noted below.
2011
Number of
Shares
Amount
2010
Number of
Shares
Amount
8,390,000
$
209,750
8,390,000
$
209,750
66,641,362
8,265,424
341,541
213,654
–
–
279,352
115,716
2,996
5,941
4,009
–
75,461,981
408,014
63,903,460
226,480
23,068
524,151
125,595
–
2,065,088
66,641,362
323
3,864
2,922
3,181
42,582
279,352
$
617,764
$
489,102
thereafter, holders of Series 3 Preferred Shares will, subject to
certain conditions, have the option to convert their shares to
Non-Cumulative Floating Rate Preferred Shares, Series 4 (Series 4
Preferred Shares). Holders of the Series 4 Preferred Shares will be
entitled to a floating quarterly dividend rate equal to the 90-day
Canadian treasury bill rate plus 500 basis points, as and when
declared by the Board of Directors.
The Series 3 Preferred Shares are not redeemable prior to April
30, 2014. Subject to the provisions of the Bank Act, the prior
consent of OSFI and the provisions described in the prospectus
for the public offering, on April 30, 2014 and on April 30 every five
years thereafter, the Bank may redeem all or any part of the then
outstanding Series 3 Preferred Shares at the Bank’s option without
the consent of the holder, by the payment of an amount in cash for
each such share so redeemed of $25.00 together with all declared
and unpaid dividends to the date fixed for redemption.
Subject to the provisions of the Bank Act, the prior consent of
OSFI and the provisions described in the prospectus for the public
offering, on not more than 60 nor less than 30 days’ notice, the
Bank may redeem all or any part of the then outstanding Series
4 Preferred Shares at the Bank’s option without the consent of
the holder by the payment of an amount in cash for each such
share so redeemed of: (i) $25.00 together with all declared and
unpaid dividends to the date fixed for redemption in the case
of redemptions on April 30, 2019 and on April 30 every five
years thereafter; or (ii) $25.50 together with all declared and
unpaid dividends to the date fixed for redemption in the case of
redemptions on any other date on or after April 30, 2014.
CWB Group 2011 Annual Report • SHAREDVISION
103
b) Warrants to Purchase Common Shares
Each warrant was exercisable at a price of $14.00 to purchase one
common share in the capital of the Bank until March 3, 2014.
Number of Warrants
Outstanding at beginning of year
Exercised
Purchased and cancelled
Purchased and cancelled under Normal Course Issuer Bids
Outstanding at end of year
During 2011, holders of the Bank’s common share purchase
warrants approved a resolution to amend the terms of the
warrant indenture, which allowed the Bank to redeem all of the
outstanding warrants. The Bank immediately redeemed for cash
4,206,187 warrants for an aggregate cost of $72,461, which was
charged to retained earnings.
The Bank received approval from the Toronto Stock Exchange on
January 18, 2011 to institute a Normal Course Issuer Bid (NCIB)
to purchase and cancel up to 1,029,108 of its warrants. The NCIB
commenced January 20, 2011 and was extinguished on August
19, 2011 in conjunction with the warrant redemption discussed
above. During 2011, the Bank purchased and cancelled 1,000,000
warrants at an aggregate cost of $15,985, which was charged to
retained earnings.
The Bank received approval from the Toronto Stock Exchange on
January 18, 2010 and subsequently amended on September 30,
2010 to institute a NCIB to purchase and cancel up to 1,469,677
of its warrants. The NCIB commenced January 20, 2010 and was
completed in October 2010. During 2010, the Bank purchased
and cancelled 1,469,677 warrants fulfilling all available purchases
under this NCIB at an aggregate cost of $16,453, which was
charged to retained earnings.
20. STOCK BASED COMPENSATION
a) Stock Options
Stock options are accounted for using the fair value based
method. The estimated value is recognized over the applicable
vesting period as an increase to both salary expense and
contributed surplus. When options are exercised, the proceeds
received and the applicable amount, if any, in contributed surplus
are credited to capital stock.
104 SHAREDVISION • CWB Group 2011 Annual Report
2011
13,471,611
(8,265,424)
(4,206,187)
(1,000,000)
–
2010
14,964,356
(23,068)
–
(1,469,677)
13,471,611
c) Dividend Reinvestment Plan
Under the dividend reinvestment plan (plan), the Bank provides
holders of the Bank’s common shares and holders of any other
class of shares deemed eligible by the Bank’s Board of Directors
with the opportunity to direct cash dividends paid on any class
of their eligible shares towards the purchase of additional
common shares. Currently, the Board of Directors has deemed
that the holders of the Bank’s Series 3 Preferred Shares are also
eligible to participate in the plan. The plan is only open
to shareholders residing in Canada.
At the option of the Bank, the common shares may be issued
from the Bank’s treasury at an average market price based on the
closing prices of a board lot of common shares on the Toronto
Stock Exchange for the five trading days immediately preceding
the dividend payment date, with a discount of between 0% to 5%
at the Bank’s discretion. The Bank also has the option to fund the
plan through the open market at market prices. During the year,
213,654 (2010 – 125,595) common shares were issued under the
plan from the Bank’s treasury at a 2% (2010 – 2%) discount.
d) Common Share Normal Course Issuer Bid
On October 31, 2011, the Bank received approval from the Toronto
Stock Exchange to institute a NCIB to purchase and cancel up to
2,261,434 of its common shares. The NCIB commenced November
2, 2011 and will expire November 1, 2012. No common shares
have been purchased under this NCIB as at October 31, 2011.
The Bank has authorized 4,982,778 common shares (2010 –
5,324,319) for issuance under the share incentive plan. Of the
amount authorized, options exercisable into 3,542,072 shares
(2010 – 3,834,433) 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 date. All options expire within
five to seven years of date of grant. Outstanding options expire
from December 2011 to June 2016.
The details of, and changes in, the issued and outstanding options follow:
Options
Balance at beginning of year
Granted
Exercised or exchanged
Forfeited
Balance at end of year
Exercisable at end of year
2011
2010
Weighted
Average
Exercise
Price
19.93
30.10
22.13
23.68
21.36
26.45
Number
of Options
3,834,433
$
729,314
(943,399)
(78,276)
3,542,072
687,570
$
$
Weighted
Average
Exercise
Price
18.66
22.67
16.24
21.04
19.93
22.84
Number
of Options
4,394,605
$
632,386
(1,085,435)
(107,123)
3,834,433
1,109,850
$
$
Further details relating to stock options outstanding and exercisable follow:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Number of
Contractual
Options
909,100
737,840
983,683
911,449
3,542,072
Life (years)
2.1
2.1
2.5
3.3
2.5
$
$
Weighted
Average
Exercise
Price
11.72
18.83
23.87
30.32
21.36
Weighted
Average
Exercise
Price
–
21.46
25.88
31.13
26.45
Number
of Options
–
$
132,790
367,500
187,280
687,570
$
Range of Exercise Prices
$8.58 to $11.76
$16.89 to $21.46
$22.09 to $26.38
$28.11 to $31.18
Total
The terms of the share incentive plan allow the holders of vested
options a cashless settlement alternative whereby the option
holder can either (a) elect to receive shares by delivering cash
to the Bank in the amount of the option exercise price or (b)
elect to receive the number of shares equivalent to the excess
of the market value of the shares under option, determined at
the exercise date, over the exercise price. Of the 943,399 (2010
– 1,085,435) options exercised or exchanged, option holders
exchanged the rights to 810,899 (2010 – 842,025) options and
received 209,041 (2010 – 280,741) shares in return under the
cashless settlement alternative. Salary expense of $4,602 (2010
– $5,106) was recognized relating to the estimated fair value of
options granted. 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 2.1%
(2010 – 2.6%), (ii) expected option life of 4.0 (2010 – 4.0) years,
(iii) expected volatility of 36% (2010 – 44%), and (iv) expected
dividends of 1.8% (2010 – 2.1%). The weighted average fair
value of options granted was estimated at $7.69 (2010 – $7.36)
per share.
During the year, $4,009 (2010 – $3,181) was transferred from
contributed surplus to share capital, representing the estimated
fair value recognized for 943,399 (2010 – 1,085,435) options
exercised during the year.
CWB Group 2011 Annual Report • SHAREDVISION
105
b) Restricted Share Units
Under the Restricted Share Unit (RSU) plan, certain employees are
eligible to receive an award in the form of RSUs. Each RSU entitles
the holder to receive the cash equivalent of the market value of
the Bank’s common shares at the vesting date and an amount
equivalent to the dividends paid on the common shares during
the vesting period. RSUs vest on each anniversary of the grant in
equal one-third instalments over a vesting period of three years.
Salary expense is recognized evenly over the vesting period
except where the employee is eligible to retire prior to the vesting
date, in which case the expense is recognized between the grant
date and the date the employee is eligible to retire.
During the year, salary expense of $8,351 (2010 – $4,628) was
recognized related to RSUs. As at October 31, 2011, the liability for
the RSUs held under this plan was $8,922 (2010 – $6,335). At the
end of each period, the liability and salary expense are adjusted to
reflect changes in the market value of the Bank’s common shares.
Number of RSUs
Balance at beginning of year
Granted
Vested and paid out
Forfeited
Balance at end of year
c) Deferred Share Units
2011
469,941
259,820
(183,573)
(10,419)
535,769
2010
285,197
287,591
(92,997)
(9,850)
469,941
Under the Deferred Share Unit (DSU) plan, non-employee directors
receive at least 50% of their annual retainer in DSUs. The DSUs are
not redeemable until the individual is no longer a director and
must be redeemed for cash. Common share dividend equivalents
accrue to the directors in the form of additional units. The expense
related to the DSUs is recorded in the period the award is earned
by the director.
During the year, non-interest expenses “other expenses” included
$1,048 (2010 – $358) related to the DSUs. As at October 31, 2011,
the liability for DSUs held under this plan was $1,467 (2010 – $610).
At the end of each period, the liability and expense are adjusted
to reflect changes in the market value of the Bank’s common
shares. As at October 31, 2011, 51,463 DSUs were outstanding
(2010 – 24,046).
21. 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 sheets. 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
2011
2010
$
276,323
4,101,250
$
4,377,573
$
$
261,438
3,375,690
3,637,128
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 $1,590,678
(2010 – $1,468,325) and recently authorized but unfunded loan
commitments of $2,510,572 (2010 – $1,907,365). 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
106 SHAREDVISION • CWB Group 2011 Annual Report
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. 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. Minimum future
lease commitments for each of the five succeeding years and thereafter are as follows:
2012
2013
2014
2015
2016
2017 and thereafter
Total
c) Guarantees
$
$
10,932
11,049
10,711
10,721
7,859
23,745
75,017
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 predetermined
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.
22. INSURANCE OPERATIONS
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
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 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 $12,996 (2010 – $13,153), and the balance
outstanding was $2,933 (2010 – $2,927).
No amounts are reflected in the consolidated financial
statements related to these guarantees and indemnifications.
d) Legal and Regulatory Proceedings
In the ordinary course of business, the Bank and its
subsidiaries are party to legal and regulatory proceedings.
Based on current knowledge, the Bank does not expect the
outcome of any of these proceedings to have a material effect
on the consolidated financial position or results of operations.
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. If the unearned premiums are not
sufficient to pay expected claims and expenses (including
policy maintenance expenses and unamortized policy
acquisition costs), a premium deficiency is said to exist.
CWB Group 2011 Annual Report • SHAREDVISION
107
Anticipated investment income is considered in determining
whether a premium deficiency exists. Premium deficiencies
are recognized by writing down the deferred policy acquisition
cost asset.
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.
The provisions are periodically reviewed and evaluated in 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 expense are recorded in insurance related other
assets and are estimated in a manner consistent with the
liabilities associated with the reinsured policies.
a) Insurance Revenues, Net
Insurance revenues, net, reported in other income on the
consolidated statements of income are presented net of claims,
adjustment expenses and policy acquisition costs.
Net earned premiums
Commissions and processing fees
Net claims and adjustment expenses
Policy acquisition costs
Insurance revenues, net
2011
$
117,632
$
1,869
(74,734)
(24,517)
$
20,250
$
2010
111,368
2,347
(68,641)
(23,358)
21,716
b) Unpaid Claims and Adjustment Expenses
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,
quality of the data used for projection purposes, existing claims
management practices, including claims handling and settlement
practices, 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.
Consequently, the establishment of the provision for unpaid
claims and adjustment expenses relies on the judgment 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.
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.
108 SHAREDVISION • CWB Group 2011 Annual Report
The results of this comparison and the changes in the provision for unpaid claims and adjustment expenses follow:
Unpaid claims and adjustment expenses, net, beginning of year
Claims incurred
In the current year
In prior periods
Claims paid during the year
Unpaid claims and adjustment expenses, net, end of year
Reinsurers’ share of unpaid claims and adjustment expenses
Recoverable on unpaid claims
2011
$
62,811
$
75,694
(960)
(73,002)
64,543
6,153
6,196
Unpaid claims and adjustment expenses, net, end of year
$
76,892
$
2010
63,281
70,098
(1,457)
(69,111)
62,811
10,949
6,326
80,086
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 all cash flow periods and all lines of business
was 2.76% (2010 – 2.96%). However, that rate was reduced
by a 0.75% (2010 – 1.00%) 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 of
$790 (2010 – $901) in unpaid claims and adjustment expenses
and related reinsurance recoveries.
Policy balances, included in insurance related other assets and other liabilities, analyzed by major lines of business are as follows:
Unpaid claims and adjustment expenses
Reinsurers’ share of unpaid claims and adjustment expenses
Unearned premiums
c) Underwriting Policy and Reinsurance Ceded
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 $300,000 (2010 – $200,000)
is obtained to protect against certain catastrophic losses.
Retention on catastrophic events and property and liability
risks is generally $2,000 (2010 – $1,000). For the British
Columbia automobile insurance product, retentions are
further reduced by the underlying mandatory coverage
provided by the provincially governed Crown corporation.
Reinsurance coverage is diversified across many reinsurers
in order to spread risk and reduce reinsurer concentration
Premiums earned reduced by
Claims incurred reduced by
2011
Automobile
$
$
63,371
6,132
47,922
Home
13,521
21
21,662
2010
Automobile
$
$
65,486
9,967
46,622
Home
14,600
982
19,822
risk in the event of a very large loss, such as an earthquake.
The reinsurers selected to participate in the program have a
minimum rating of A- from Standard & Poor’s or A.M. Best. In
addition, reinsurance treaties have a special termination clause
allowing the Bank to change a reinsurer during the term of the
agreement if their rating falls below the specified level.
At October 31, 2011, $6,153 (2010 – $10,949) of unpaid claims
and adjustment expenses were recorded as recoverable from
reinsurers. Failure of a reinsurer to honour its obligation could
result in losses. The financial condition of reinsurers is regularly
evaluated to minimize the exposure to significant losses from
reinsurer insolvency.
The amounts shown in other income are net of the
following amounts relating to reinsurance ceded to other
insurance companies.
$
2011
8,898
102
$
2010
8,947
5,723
CWB Group 2011 Annual Report • SHAREDVISION
109
23. DISCLOSURES ON RATE REGULATION
Canadian Direct Insurance Incorporated (Canadian Direct), a
wholly owned subsidiary, is licensed under insurance legislation
in the provinces in which it conducts business. Automobile
insurance is a compulsory product and is subject to different
regulations across the provinces in Canada, including those with
respect to rate setting. Rate setting mechanisms vary across the
provinces, but they generally fall under three categories: “use and
file”, “file and use” and “file and approve”. Under “use and file”,
rates are filed following use. Under “file and use”, insurers file
their rates with the relevant authorities and wait for a prescribed
period of time and then implement the proposed rates. Under “file
and approve”, insurers must wait for specific approval of
filed rates before they may be used.
The authorities that regulate automobile insurance rates, in the
provinces in which Canadian Direct is writing that business, are
listed below. Automobile direct written premiums in Alberta
totaled $40,800 in 2011 (2010 – $39,500) and represented 49%
(2010 – 49%) of direct automobile premiums written.
Province
Alberta
Rate Filing
File and approve or
File and use
Regulatory Authority
Alberta Automobile Insurance Rate Board
While regulatory authorities generally approve rates and rate
adjustments prospectively, in some circumstances retroactive rate
adjustments in respect of historical results may be required, which
could result in a regulatory asset or liability for the Bank. As at
October 31, 2011, the Bank had no such regulatory asset or liability.
24. EMPLOYEE FUTURE BENEFITS
All employee future benefits are accounted for on an accrual basis.
The Bank’s contributions to the group retirement savings plan and
employee share purchase plan totaled $10,217 (2010 – $8,864).
25. 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
and liabilities are expected to be realized in the normal course
of operations.
The provision for income taxes consists of the following:
Consolidated statements of income
Current
Future
Shareholders’ equity
Future income tax expense related to:
Unrealized gains (losses) on available-for-sale securities
Gains (losses) on derivatives designated as cash flow hedges
Total
2011
2010
$
$
60,397
(3,449)
56,948
(7,697)
–
(7,697)
49,251
$
$
63,493
(16,149)
47,344
2,159
(636)
1,523
48,867
110
SHAREDVISION • CWB Group 2011 Annual Report
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 reported in the consolidated statements of income follows:
Combined Canadian federal and provincial income
taxes and statutory tax rate
Increase (decrease) arising from:
Tax-exempt income
Stock-based compensation
Resolution of outstanding issues
Other
2011
2010
$
63,816
27.1% $
60,327
28.6%
(8,849)
1,236
–
745
(3.7)
0.5
–
0.3
Provision for income taxes and effective tax rate
$
56,948
24.2% $
Future income tax balances are comprised of the following:
Net future income tax assets
Allowance for credit losses
Deferred loan fees
Deferred deposit broker commission
Leasing income
Other temporary differences
Net future income tax liabilities
Intangible assets
Leasing income
Other temporary differences
The Bank has approximately $11,140 (2010 – $11,140) of capital
losses that 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.
$
$
$
$
(9,480)
1,451
(7,488)
2,534
47,344
2011
13,659
4,556
(3,843)
967
2,782
18,121
9,736
–
31
9,767
$
$
$
$
(4.5)
0.7
(3.6)
1.2
22.4%
2010
14,240
4,365
(3,688)
(2,800)
2,641
14,758
11,459
5,733
357
17,549
CWB Group 2011 Annual Report • SHAREDVISION
111
26. 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
The calculation of earnings per common share follows:
Numerator
Net income available to common shareholders
Denominator
of warrants on common shares or in-the-money stock options
would be used to purchase the Bank’s common shares at the
average market price during the year.
2011
2010
$
162,941
$
148,413
Weighted average of common shares outstanding – basic
72,205,180
65,756,653
Dilutive instruments:
Warrants
Stock options (1)
Weighted average number of common shares outstanding – diluted
Earnings per Common Share
Basic
Diluted
3,328,444
1,171,801
76,705,425
5,796,819
775,360
72,328,832
$
$
2.26
2.12
2.26
2.05
(1) At October 31, 2011, the denominator excludes 911,449 (2010 – 832,830) employee stock options with an average adjusted exercise price of $30.32 (2010 – $27.23) where the exercise price, adjusted for
unrecognized stock-based compensation, is greater than the average market price.
27. ASSETS UNDER ADMINISTRATION AND MANAGEMENT
Assets under administration of $9,369,589 (2010 – $8,530,716)
and assets under management of $816,219 (2010 – $795,467)
represent the fair value of assets held for personal, corporate and
institutional clients as well as third party leases and residential
mortgages subject to service agreements. The assets are kept
separate from the Bank’s own assets. Assets under administration
and management are not reflected in the consolidated balance
sheets and relate to the banking and trust segment.
28. 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 types of loans is $111,474
(2010 – $107,160). The Bank offers deposits, primarily fixed term
deposits to its officers, employees and their immediate family at
preferred rates. The total amount outstanding for these types of
deposits is $187,733 (2010 – $162,805).
112
SHAREDVISION • CWB Group 2011 Annual Report
29. INTEREST RATE SENSITIVITY
The Bank is exposed to interest rate risk as a result of a difference,
or gap, between the maturity or repricing behaviour of interest
sensitive assets and liabilities. The interest rate gap is managed
by forecasting core balance trends. The repricing profile of these
assets and liabilities has been incorporated in the table following
showing the gap position at October 31 for select time intervals.
Figures in brackets represent an excess of liabilities over assets or
a negative gap position.
ASSET LIABILITY GAP
POSITIONS
($ millions)
Floating Rate
and Within
1 to 3
3 Months
October 31, 2011
1 Month
Months
to 1 Year
Total
Within
1 Year
Non-
1 Year to More than
Interest
5 Years
5 Years
Sensitive
Total
Assets
Cash resources and securities
Loans
Other assets (2)
Derivative financial instruments (1)
Total
Liabilities and Equity
Deposits
Other liabilities (2)
Debentures (3)
Shareholders’ equity
Derivative financial instruments (1)
Total
Interest Rate Sensitive Gap
Cumulative Gap
Cumulative Gap as a
$
$
$
267
$
5,639
–
20
540
575
–
–
$
389
$ 1,196
$
804
$
1,417
7,631
4,548
–
–
–
20
–
–
5,926
1,115
1,806
8,847
5,352
134
84
–
–
218
4,508
1,273
2,972
8,753
3,665
105
3
–
–
–
4,511
1,415
1,415
6
–
–
–
26
120
–
–
35
120
–
–
1,279
3,118
8,908
$
$
(164)
$ (1,312)
1,251
$
(61)
$
$
(61)
(61)
$
$
34
350
–
20
4,069
1,283
1,222
8
75
–
–
188
30
1,252
$
$
Percentage of Total Assets
9.6%
8.5%
(0.4)%
(0.4)%
8.3%
8.5%
October 31, 2010
Total assets
Total liabilities and equity
Interest Rate Sensitive Gap
Cumulative Gap
Cumulative Gap as a
$
5,498
4,496
1,002
1,002
$
$
$
$
$
719
912
(193)
809
$
1,420
$
7,637
$
4,593
2,039
7,447
$
$
(619)
190
$
$
190
190
$
$
3,698
895
1,085
$
$
$
232
187
45
1,130
Percentage of Total Assets
7.8%
6.3%
1.5%
1.5%
8.5%
8.8%
$
$
$
$
$
$
104
(42)
313
6
381
$ 2,238
12,221
313
26
14,798
(23)
356
–
1,294
6
1,633
(1,252)
–
–
12,500
433
545
1,294
26
14,798
–
–
–
$
$
345
$ 12,807
1,475
(1,130)
–
–
$
$
12,807
–
–
–
(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 Group 2011 Annual Report • SHAREDVISION
113
The effective, weighted average interest rates for each class of financial asset and liability are shown below:
WEIGHTED AVERAGE EFFECTIVE INTEREST RATES
(%)
October 31, 2011
Total assets
Total liabilities
Interest Rate Sensitive Gap
October 31, 2010
Total assets
Total liabilities
Interest Rate Sensitive Gap
Floating Rate
and Within
1 to 3
3 Months
1 Month
Months
to 1 Year
4.0%
1.2
2.8%
3.9%
1.2
2.7%
2.4%
1.9
0.5%
2.8%
2.0
0.8%
4.6%
2.5
2.1%
4.9%
2.6
2.3%
Total
Within
1 Year
3.9%
1.7
2.2%
4.0%
1.7
2.3%
1 Year to
More than
5 Years
5 Years
Total
5.2%
2.8
2.4%
5.5%
3.2
2.3%
5.1%
5.8
(0.7)%
5.2%
5.8
(0.6)%
4.4%
2.1
2.3%
4.6%
2.3
2.3%
Based on the current interest rate gap position, it is estimated
that a one-percentage point increase in all interest rates
would increase net interest income by approximately 3.0% or
$11,024 (October 31, 2010 – 2.3% or $7,372) and decrease other
comprehensive income $9,017 (October 31, 2010 – $9,796) net
of tax, respectively, over the following twelve months. A one-
percentage point decrease in all interest rates would decrease net
interest income by approximately 3.7% or $13,436 (October 31,
2010 – 1.5% or $4,703) and increase other comprehensive income
$9,017 (October 31, 2010 – $9,796) net of tax.
30. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument on initial recognition is
normally the transaction price (i.e. the value of the consideration
given or received). Subsequent to initial recognition, financial
instruments measured at fair value that are quoted in active
markets are based on bid prices for financial assets and offer
prices for financial liabilities. For certain securities and derivative
financial instruments where an active market does not exist, fair
values are determined using valuation techniques that refer to
observable market data, including discounted cash flow analysis,
option pricing models and other valuation techniques commonly
used by market participants.
The fair value of financial assets recorded on the consolidated
balance sheets at fair value (cash, securities, securities purchased
under resale agreements, retained interest in securitized assets
and derivatives) was determined using published market prices
quoted in active markets (referred to as Level 1) and estimated
using a valuation technique based on observable market data
(referred to as Level 2). The fair value of liabilities recorded on
the consolidated balance sheets at fair value (derivatives) was
determined using a valuation technique based on observable
market data. There were no financial instruments measured
using unobservable market data (referred to as Level 3).
Financial Assets
Cash resources
Securities
Retained interest in securitized assets
October 31, 2011
October 31, 2010
Financial Liabilities
Derivative related
October 31, 2011
October 31, 2010
Fair Value
Level 1
Level 2
Level 3
Valuation Technique
$
312,335
1,925,704
7,767
$ 2,245,806
1,885,922
$
$
272,704
1,925,704
–
$ 2,198,408
1,691,330
$
$
$
$
436
436
992
$
$
$
–
–
–
$
$
$
$
$
$
39,631
–
7,767
47,398
194,592
436
436
992
$
$
$
$
$
$
–
–
–
–
–
–
–
–
114
SHAREDVISION • CWB Group 2011 Annual Report
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.
Several of the Bank’s significant financial instruments, such as
loans and deposits, 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 loans, deposits and subordinated debentures are 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 table below sets out the fair values of financial instruments
(including derivatives) 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.
2011
2010
Book Value
Fair Value
Fair Value
Over (Under)
Book Value
Book Value
Fair Value
(Note 3) $
(Note 4)
312,335 $
312,335 $
1,925,704
1,925,704
$
–
–
187,944
1,510,187
$
187,944
1,510,187
$
–
12,262,982
120,038
–
12,514,774
314,717
545,000
436
–
12,325,365
120,038
–
12,579,770
314,717
566,917
436
–
62,383
–
–
64,996
–
21,917
–
177,954
10,550,380
142,524
134
10,826,670
302,479
315,000
992
177,954
10,583,395
142,524
134
10,883,873
302,479
320,056
992
Fair Value
Over (Under)
Book Value
–
–
–
33,015
–
–
57,203
–
5,056
–
Assets
Cash resources
Securities
Securities purchased under
resale agreements
Loans (1)
Other assets (2)
Derivative related
Liabilities
Deposits (1)
Other liabilities (3)
Subordinated debentures
Derivative related
(1) Loans and deposits exclude deferred premiums and deferred revenue, which are not financial instruments.
(2) Other assets exclude property and equipment, goodwill and other intangible assets, reinsurers’ share of unpaid claims and adjustment expenses, future income tax asset, prepaid and deferred
expenses, financing costs and other items that are not financial instruments.
(3) Other liabilities exclude future income tax liability, deferred revenue, unearned insurance premiums and other items that are not financial instruments.
(4) For further information on interest rates associated with financial assets and liabilities, including derivative instruments, refer to Note 29.
The methods and assumptions used to estimate the fair values of
financial instruments are as follows:
• cash resources and securities are reported on the consolidated
balance sheets at the fair value disclosed in Notes 3 and 4.
These values are based on quoted market prices, if available.
Where a quoted market price is not readily available, other
valuation techniques are based on observable market rates
used to estimate fair value;
• loans reflect changes in the general level of interest rates that
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; other assets and other liabilities,
with the exception of derivative financial instruments, are
assumed to approximate their carrying value, due to their
short-term nature;
• for derivative financial instruments where an active
market does not exist, fair values are determined using
valuation techniques that refer to observable market data,
including discounted cash flow analysis, option pricing
models and other valuation techniques commonly used by
market participants;
• 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 judgment and, as such, may not be reflective of
future fair values.
CWB Group 2011 Annual Report • SHAREDVISION
115
31. RISK MANAGEMENT
As part of the Bank’s risk management practices, the risks that
are significant to the business are identified, monitored and
controlled. The most significant risks include credit risk, liquidity
risk, market risk, insurance risk, operational risk, and regulatory
and legal risk. The nature of these risks and how they are managed
is provided in the Risk Management section of the Management
Discussion and Analysis (MD&A).
As permitted by the CICA, certain of the risk management
disclosure related to risks inherent with financial instruments is
32. CAPITAL MANAGEMENT
Capital funds are managed in accordance with policies and
plans that are regularly reviewed and approved by the Board
of Directors and take into account forecasted capital needs and
markets. The goal is to maintain adequate regulatory capital to
be considered well capitalized, protect customer deposits and
provide capacity for internally generated growth and strategic
opportunities that do not otherwise require accessing the
public capital markets, all while providing a satisfactory return
for shareholders.
The Bank has a share incentive plan that is provided 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 20 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.
Significant capital transactions during 2011 include the
redemption of $70,000 and issue of $300,000 of conventional
subordinated debentures, which qualify as Tier 2 regulatory
capital. In addition, proceeds from the 2011 exercise of warrants
by the holders, net of warrants purchased and cancelled under
the NCIBs and the cash redemption of all remaining outstanding
warrants (see Note 19), increased Tier 1 regulatory capital by
$27,270.
Basel II Capital Adequacy Accord
Regulatory capital and capital ratios are calculated in accordance
with the requirements of OSFI, and capital is managed and
reported in accordance with the requirements of the Basel
II Capital Adequacy Accord (Basel II). 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, which is commonly
included in the MD&A. The relevant MD&A sections are identified
by shading within boxes and the content forms an integral part of
these audited consolidated financial statements.
Information on specific measures of risk, including the allowance
for credit losses, derivative financial instruments, interest rate
sensitivity, fair value of financial instruments and liability for
unpaid claims are included elsewhere in these notes to the
consolidated financial statements.
referred to as Basel II. Based on the deemed credit risk of each
type of asset, a weighting of 0% to 150% is assigned. As an
example, a loan that is fully insured by the Canada Mortgage and
Housing Corporation (CMHC) 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 Canadian financial institutions. Off-balance
sheet assets, such as the notional amount of derivatives and
some credit commitments, are included in the calculation of risk-
weighted assets and both the credit risk equivalent and the risk-
weighted calculations are prescribed by OSFI. As Canadian Direct
Insurance (CDI) is subject to separate OSFI capital requirements
specific to insurance companies, the Bank’s investment in CDI is
deducted from total capital and CDI’s assets are excluded from the
calculation of risk-weighted assets.
Current regulatory guidelines require banks to maintain a
minimum ratio of capital to risk-weighted assets and off-balance
sheet items of 8%, of which 4% must be core capital (Tier 1)
and the remainder supplementary capital (Tier 2). However,
OSFI has established 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 of common
shareholders’ equity and innovative capital (to a regulatory
maximum of 15% of net Tier 1 capital), while Tier 2 capital includes
subordinated debentures (to the regulatory maximum amount of
50% of net Tier 1 capital), the inclusion of the general allowance
for credit losses (to the regulatory maximum) and any innovative
capital not included in Tier 1.
116
SHAREDVISION • CWB Group 2011 Annual Report
During the year, the Bank complied with all internal and external
capital requirements.
CAPITAL STRUCTURE AND REGULATORY RATIOS AT YEAR END
($ thousands)
Tier 1 Capital
Retained earnings
Common shares
Preferred shares
Contributed surplus
Innovative capital instrument (1)
Non-controlling interest in subsidiary
Less goodwill of subsidiaries
Less securitization
Total
Tier 2 Capital
General allowance for credit losses (Tier 2A) (2)
Accumulated unrealized gains on available-for-sale equity securities, net of tax (3)
Subordinated debentures (Tier 2B) (4)
Total
Less investment in insurance subsidiary
Less securitization
Total Regulatory Capital
Regulatory Capital to Risk-Weighted Assets
Tier 1 capital
Tier 2 capital
Less investment in insurance subsidiary and securitization
Total Regulatory Capital Adequacy Ratio
Assets to Regulatory Capital Multiple (5)
2011
2010
$
650,028
$
614,710
408,014
209,750
21,884
105,000
225
(37,852)
(6,583)
279,352
209,750
21,291
105,000
180
(37,723)
(8,880)
1,350,466
1,183,680
60,429
1,509
545,000
606,938
(80,941)
(6,583)
59,603
16,119
315,000
390,722
(68,993)
(8,880)
$ 1,869,880
$
1,496,529
11.1%
5.0
(0.7)
15.4%
7.9
11.3%
3.7
(0.7)
14.3%
8.5
(1) The innovative capital instrument consists of CWB’s WesTS and may be included in Tier 1 capital to a maximum of 15% of net Tier 1 capital. Any excess innovative capital outstanding is included
in Tier 2B capital.
(2) Banks are allowed to include their general allowance for credit losses up to a prescribed percentage of risk-weighted assets in Tier 2A capital. At October 31, 2011, the Bank’s general allowance represented
0.50% (2010 – 0.57%) of risk-weighted assets.
(3) Accumulated other comprehensive income related to unrealized losses on certain available-for-sale equity securities, net of tax, reduces Tier 1 capital, while unrealized gains on certain available-for-sale
equity securities, net of tax, increases Tier 2 capital.
(4) Tier 2B capital may be included in Tier 2 capital to a maximum of 50% of net Tier 1 capital. Any excess Tier 2B capital is included in capital as net Tier 1 capital increases. At October 31, 2011 and 2010, all
subordinated debentures are included in Tier 2B capital.
(5) Total assets plus off-balance sheet credit instruments, such as letters of credit and guarantees, less goodwill divided by regulatory capital.
CWB Group 2011 Annual Report • SHAREDVISION
117
33. 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.
The banking and trust segment provides banking, including
equipment leases from National Leasing, as well as trust and
wealth management services to personal clients, small to
medium-sized commercial business clients and institutional
clients primarily in Western Canada. The insurance segment
provides home and auto insurance to individuals in British
Columbia and Alberta.
Net interest income (teb) (1)
$
Less teb adjustment
Net interest income per financial
statements
Other income (2)
Total revenues
Provision for credit losses
Non-interest expenses (3)
Income taxes
Non-controlling interest in
subsidiary
Net income (4)
Total average assets ($ millions) (5)
$
$
Banking and Trust
Insurance
2011
376,781
10,025
366,756
85,706
452,462
22,179
210,193
53,823
228
166,039
13,398
$
$
$
2010
321,640
10,285
311,355
83,393
394,748
20,413
179,734
43,153
215
151,233
11,792
$
$
$
2011
7,902
1,034
6,868
20,625
27,493
–
12,258
3,125
–
12,110
235
$
$
$
2010
7,024
901
6,123
22,202
28,325
–
11,746
4,191
–
12,388
215
Total
2011
$
384,683
$
11,059
373,624
106,331
479,955
22,179
222,451
56,948
228
178,149
13,633
$
$
$
$
2010
328,664
11,186
317,478
105,595
423,073
20,413
191,480
47,344
215
163,621
12,007
(1) Taxable Equivalent Basis (teb) – Most banks analyze revenue on a taxable equivalent basis to permit measurement and comparison of net interest income. Net interest income (as presented in the
consolidated statements of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends 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. The taxable equivalent basis does not have a standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other
banks.
(2) Other income for the insurance segment is presented net of claims, adjustment costs and policy acquisition costs (see Note 22) and also includes the gain on the sale of securities.
(3) Amortization of intangible assets of $5,875 (2010 – $3,817) is included in the banking and trust segment and $125 (2010 – $250) in the insurance segment. Amortization of property and equipment total
$10,383 (2010 – $8,450) for the banking and trust segment and $1,962 (2010 – $1,583) for the insurance segment while additions amounted to $17,518 (2010 – $19,274) for the banking and trust segment
and $1,523 (2010 – $1,816) for the insurance segment. Goodwill of $34,598 (2010 – $34,469) is allocated to the banking and trust segment and $3,254 (2010 – $3,254) to the insurance segment.
(4) Transactions between the segments are reported at the exchange amount, which approximates fair market value.
(5) Assets are disclosed on an average daily balance basis as this measure is most relevant to a financial institution and is the measure reviewed by management.
118
SHAREDVISION • CWB Group 2011 Annual Report
34. ACQUISITION OF SUBSIDIARY
On February 1, 2010, the Bank acquired 100% of the outstanding
common shares of National Leasing in exchange for $52,826
in cash, 2,065,088 common shares of the Bank ($42,582) and
estimated contingent consideration for a total cost of $126,618.
Both the Bank and the vendors have the option to trigger the
payment of the contingent consideration no earlier than November
1, 2012. The final amount of the contingent consideration is not
yet determinable and, under Canadian GAAP, any change will be
recognized as an adjustment to goodwill in the period in which the
contingency is resolved.
National Leasing is a commercial equipment leasing company
for small to mid-size transactions headquartered in Winnipeg,
Manitoba.
Details of the fair values of assets and liabilities acquired are as follows:
Assets and Liabilities Acquired at Fair Value
Leases
Intangible assets
Goodwill
Retained interest in securitized assets
Long-term debt
Future income tax liabilities
Other items, net
Net assets acquired
$
$
322,512
40,708
27,937
19,109
(270,630)
(10,611)
(2,407)
126,618
Intangible assets include customer relationships, computer
software, non-competition agreements, lease administration
contracts and trademarks. The trademark, which has an estimated
value of $1,610, is not subject to amortization. National Leasing’s
financial results, the goodwill and other intangible assets related
to the acquisition are included in the banking and trust segment.
The total amount of goodwill and intangible assets are not
deductible for income tax purposes. The long-term debt was repaid
immediately after the acquisition.
CWB Group 2011 Annual Report • SHAREDVISION
119
35. SUBSIDIARIES AND AFFILIATE
CANADIAN WESTERN BANk SUBSIDIARIES(1)
(annexed in accordance with subsection 308 (3) of the Bank Act)
October 31, 2011
National Leasing Group Inc.
Canadian Western Trust Company
Canadian Direct Insurance Incorporated
Valiant Trust Company
Canadian Western Bank Leasing Inc.
Adroit Investment Management Ltd.
Canadian Western Financial Ltd.
Canadian Western Bank Capital Trust (3)
Address of
Head Office
1525 Buffalo Place
Winnipeg, Manitoba
Suite 3000, 10303 Jasper Avenue
Edmonton, Alberta
Suite 600, 750 Cambie Street
Vancouver, British Columbia
Suite 310, 606 4th St. S.W.
Calglary, Alberta
Suite 3000, 10303 Jasper Avenue
Edmonton, Alberta
Suite 1250, 10303 Jasper Avenue
Edmonton, Alberta
Suite 3000, 10303 Jasper Avenue
Edmonton, Alberta
Suite 3000, 10303 Jasper Avenue
Edmonton, Alberta
(1) The Bank owns 100% of the voting shares of each entity, with the exception of Adroit Investment Management Ltd. (76.25% ownership).
(2) The carrying value of voting shares is stated at the Bank’s equity in the subsidiaries.
(3)
In accordance with accounting standards, this entity is not consolidated as the Bank is not the primary beneficiary.
36. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform
to the current period’s presentation.
Carrying Value of
Voting Shares Owned
by the Bank(2)
$
159,216
96,610
84,330
15,083
10,109
6,756
1,621
1,000
120 SHAREDVISION • CWB Group 2011 Annual Report
Locations
Canadian Western Bank
Regional Offices
• British Columbia
2200, 666 Burrard Street
Vancouver
(604) 669.0081
Greg Sprung
• Northern Alberta
3000, 10303 Jasper Avenue
Edmonton
(780) 423.8888
Michael Halliwell
• Prairies
606 - 4 Street S.W.
Calgary
(403) 262.8700
Glen Eastwood
• Equipment Financing
300, 5222 - 130 Avenue S.E.
Calgary
(403) 257.8235
Jim Burke
Alberta
Edmonton
• Edmonton Main
11350 Jasper Avenue
(780) 424.4846
Mike McInnis
• 103 Street
10303 Jasper Avenue
(780) 423.8801
Gary Mitchell
• Old Strathcona
7933 - 104 Street
(780) 433.4286
Donna Austin
• South Edmonton Common
2142 - 99 Street
(780) 988.8607
Wayne Dosman
• West Point
17603 - 100 Avenue
(780) 484.7407
David Hardy
Calgary
• Calgary Main
606 - 4 Street S.W.
(403) 262.8700
Jeff Bowling
• Calgary Chinook
6606 MacLeod Trail S.W.
(403) 252.2299
Lew Christie
• Calgary Foothills
6127 Barlow Trail S.E.
(403) 269.9882
James Comstock
• Calgary Northeast
2810 - 32 Avenue N.E.
(403) 250.8838
June Lavigueur
• Calgary South Trail Crossing
300, 5222 - 130 Avenue S.E.
(403) 257.8235
Rick Vandergraaf
• Broker Buying Centre
285, 2880 Glenmore Trail S.E.
(403) 720.8960
David Miller
Grande Prairie
11226 - 100 Avenue
(780) 831.1888
Todd Kramer
Leduc
5407 Discovery Way
(780) 986.9858
George Bawden
Lethbridge
744 - 4 Avenue South
(403) 328.9199
Don Grummett
Medicine Hat
102, 1111 Kingsway Avenue S.E.
(403) 527.7321
Les Erickson
Red Deer
4822 - 51 Avenue
(403) 341.4000
Don Odell
Sherwood Park
251 Palisades Way
(780) 449.6699
Blair Zahara
St. Albert
300 - 700 St. Albert Trail
(780) 458.4001
Jeff Suggitt
British Columbia
Vancouver
• Kitsilano
3190 West Broadway
(604) 732.4262
Demetra Papaspyros
• Park Place
100, 666 Burrard Street
(604) 688.8711
Rob Berzins
• Vancouver Real Estate
2200, 666 Burrard Street
(604) 669.0081
Mario Furlan
• West Broadway
110, 1333 West Broadway
(604) 730.8818
Jules Mihalyi
Abbotsford
100, 2548 Clearbrook Road
(604) 855.4941
Hugh Ellis
Coquitlam
310, 101 Schoolhouse Street
(604) 540.8829
Ron Baker
Courtenay
200, 470 Puntledge Road
(250) 334.8888
Jason Zaichkowsky
Cranbrook
2nd Floor, Suite A
828 Baker Street
(250) 426.1140
Mike Eckersley
Kamloops
101, 1211 Summit Drive
(250) 828.1070
Joshua Knaak
Kelowna
• 1674 Bertram Street
(250) 862.8008
Bob Brown
• Kelowna Industrial
101, 1505 Harvey Avenue
(250) 860.0088
Jim Kruiper
Langley
100, 19915 - 64 Avenue
(604) 539.5088
Craig Martin
Nanaimo
101, 6475 Metral Drive
(250) 390.0088
Russ Burke
Prince George
300 Victoria Street
(250) 612.0123
David Duck
Designed by Vision Creative Inc. www.visioncreativeinc.com
Richmond
4991 No. 3 Road
(604) 238.2800
Michael Yeung
Surrey
• Panorama Ridge
103, 15230 Highway 10
(604) 575.3783
Greg Noga
• Strawberry Hill
1, 7548 - 120 Street
(604) 591.1898
Bob Duffield
Victoria
1201 Douglas Street
(250) 383.1206
Bob Granger
Saskatchewan
Regina
100, 1881 Scarth Street
The Hill Center Tower II
(306) 757.8888
Kelly Dennis
Saskatoon
• City Centre
244 - 2 Avenue
(306) 477.8888
Ron Kowalenko
• North Landing
101, 2803 Faithfull Avenue
(306) 244.8008
Dwayne Demeester
Yorkton
45, 277 Broadway Street East
(306) 782.1002
Barb Apps
Manitoba
Winnipeg
• Winnipeg
230 Portage Avenue
(204) 956.4669
Robert Bean
• Winnipeg Business Centre
1525 Buffalo Place
(204) 452.0933
Christopher Voogt
Canadian Direct Financial
• Edmonton
2200, 10303 Jasper Avenue
(780) 441.2249
www.canadiandirectfinancial.com
Canadian Western Trust
• Calgary
310, 606-4 Street S.W.
(403) 717.3145
• Edmonton
3000, 10303 Jasper Avenue
(780) 969.8332
• Toronto
1800, 130 King Street West
(416) 360.1301
• Vancouver
600, 750 Cambie Street
(604) 685.2081
Optimum Mortgage
• Edmonton
3000, 10303 Jasper Avenue
(780) 423.9748
(Representation across Western Canada
and in Ontario)
Canadian Direct Insurance
• Edmonton
500, 10115 - 100A Street
(780) 413.5933
• Vancouver
600, 750 Cambie Street
(604) 699.3678
Valiant Trust
• Calgary
310, 606-4 Street S.W.
(403) 233.2801
• Edmonton
3000, 10303 Jasper Avenue
(780) 441.2267
• Toronto
710, 130 King Street West
(416) 360.1481
• Vancouver
600, 750 Cambie Street
(604) 699.4880
Adroit Investment Management
• Edmonton
1250, 10303 Jasper Avenue
(780) 429.3500
National Leasing
• Winnipeg
1525 Buffalo Place
(204) 954.9000
(Representation across all provinces and
territories in Canada)
Canadian Western Financial
• Edmonton
3000, 10303 Jasper Avenue
(780) 423.8888