Canadian Western Bank-good second quarter,bad second quarter report
On June 1,Canadian Western Bank released it's second quarter report.It's stock barely moved on the results of this underrated report.This blog believes that is because the quarterly report covers up the important points and downplays it's quite good results.It is true that this is only a quarter but it has also made a number of transactions in 2016 that will augur well for the whole year.But first CWB needs to hire someone to write their quarterly reports.They absolutely need a Quarterly Highlights section that tells people that don't work in banks what has happened in the last quarter.
Second Quarter Highlights
The second quarter report is full of statements like this "the second quarter saw strong earnings growth,positive loan growth and strong growth of branch-based deposits while loan impairments and provision for credit losses were consistent with expectations".But I suggest something more impactful like this:
(1) shareholder's net income was up 15% from 2016 to $97 million
(2) added a new branch to have 42 branches
(3) 42% increase in Ontario business
(4)diluted earnings per share of $.54 up 35% from 2016 adjusted cash earnings per share of $.59 up 44% from 2016
(5)loan growth of 5% and deposits of 9% and provisions for credit losses was 12% lower than 2016
(7) R.O.E (return on equity) was 10.17% or 270 basis points higher because of the reduction in energy related provisions
Improvements
Of course, one of the big changes is the improvement in the price of oil since the second quarter of 2016.The price of oil (WTI) is generally expected to be around $54 a barrel on average for 2017.So it should be higher in the second half of 2017.But there are changes in the structure of CWB that have improved as well.Loans and mortgages are up by 21% over 2016;and Ontario business in the first quarter of 2017 has increased by about 42%.A strong performance by CWB Optimum Mortgage has caused commercial loans to increase by 10%.Motive Financial has been launched which is an on-line banking venture.In addition, impaired loans (principally in Alberta) have improved by at least 25%.They made two new acquisitions in 2016,CWB Maximum and CWB Franchise Finance, and they were instrumental in helping to increase commercial loans and Ontario exposure.So this strategy has worked out well.
Conclusion
An adverse impact from the price of oil has caused CWB to make some innovative and effective changes.First it has added a new branch to bring their total to 42.They made two acquistions in 2016 and both have been successful;CWB Maximum and CWB Franchise Finance have added commercial loans and Ontario exposure.A strong performance by CWB Optimum Mortgage has increased commercial loans by 10%.Lastly their new and awkward sounding Motive Financial (I prefer Grapefruit) has started an online banking service which is sure to increase revenues in 2017.
Net income and e.p.s. will still fluctuate with the price of oil and impaired loans in Alberta.And the price of oil should (on average) rise slightly in the second half.But these structural changes will stabilize the share price.The Canadian Western Bank has a target growth of e.p.s. of 7 to 12% over the next 3 to 5 years.This will move adjusted cash earnings per share above the expected $2.50 to $2.90 per share for 2017.This blog doe not expect a dividend increase in 2017 or early 2018 but the share price should be edging towards $30 in early 2018. check Blogdaleupsome business forecasts ; use Blogdaleupsome bank forecasts
The second quarter report is full of statements like this "the second quarter saw strong earnings growth,positive loan growth and strong growth of branch-based deposits while loan impairments and provision for credit losses were consistent with expectations".But I suggest something more impactful like this:
(1) shareholder's net income was up 15% from 2016 to $97 million
(2) added a new branch to have 42 branches
(3) 42% increase in Ontario business
(4)diluted earnings per share of $.54 up 35% from 2016 adjusted cash earnings per share of $.59 up 44% from 2016
(5)loan growth of 5% and deposits of 9% and provisions for credit losses was 12% lower than 2016
(7) R.O.E (return on equity) was 10.17% or 270 basis points higher because of the reduction in energy related provisions
Improvements
Of course, one of the big changes is the improvement in the price of oil since the second quarter of 2016.The price of oil (WTI) is generally expected to be around $54 a barrel on average for 2017.So it should be higher in the second half of 2017.But there are changes in the structure of CWB that have improved as well.Loans and mortgages are up by 21% over 2016;and Ontario business in the first quarter of 2017 has increased by about 42%.A strong performance by CWB Optimum Mortgage has caused commercial loans to increase by 10%.Motive Financial has been launched which is an on-line banking venture.In addition, impaired loans (principally in Alberta) have improved by at least 25%.They made two new acquisitions in 2016,CWB Maximum and CWB Franchise Finance, and they were instrumental in helping to increase commercial loans and Ontario exposure.So this strategy has worked out well.
Conclusion
An adverse impact from the price of oil has caused CWB to make some innovative and effective changes.First it has added a new branch to bring their total to 42.They made two acquistions in 2016 and both have been successful;CWB Maximum and CWB Franchise Finance have added commercial loans and Ontario exposure.A strong performance by CWB Optimum Mortgage has increased commercial loans by 10%.Lastly their new and awkward sounding Motive Financial (I prefer Grapefruit) has started an online banking service which is sure to increase revenues in 2017.
Net income and e.p.s. will still fluctuate with the price of oil and impaired loans in Alberta.And the price of oil should (on average) rise slightly in the second half.But these structural changes will stabilize the share price.The Canadian Western Bank has a target growth of e.p.s. of 7 to 12% over the next 3 to 5 years.This will move adjusted cash earnings per share above the expected $2.50 to $2.90 per share for 2017.This blog doe not expect a dividend increase in 2017 or early 2018 but the share price should be edging towards $30 in early 2018. check Blogdaleupsome business forecasts ; use Blogdaleupsome bank forecasts
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