Canadian Western Bank’s Profit Drops 17% As Provisions for Credit Losses Spike Over 400%
Canadian Western Bank (TSX: CWB) has released its fourth-quarter and fiscal year 2024 financial results, revealing mixed performance characterized by revenue growth, heightened credit provisions, and operational challenges.
For fiscal 2024, CWB reported common shareholders’ net income of $268 million, a decline of 17% compared to $324 million in 2023. This translated to diluted earnings per share of $2.76, down 18%, and adjusted earnings per share of $3.01, a 16% drop from $3.58 the prior year.
Annual revenue rose 6% year-over-year to $1.18 billion, bolstered by a 6% increase in net interest income to $1.04 billion and an 8% gain in non-interest income, which reached $141.9 million. These gains were supported by improved net interest margins, which rose 11 basis points year-over-year to 2.45%, reflecting increased yields on fixed-term assets. However, these benefits were offset by higher provisioning for credit losses and slower loan growth.
The results underscore a bank grappling with both internal and external pressures, set against the backdrop of its impending acquisition by National Bank of Canada (TSX: NA). While operational efficiencies and revenue generation remain strengths, rising credit costs and slowing loan growth have pressured profitability, raising questions about CWB’s long-term value creation amidst its transitional phase.
The fourth-quarter performance mirrored these dynamics. CWB’s net income attributable to common shareholders fell to $62 million, representing a 19% decline compared to $76.8 million in the same quarter last year. On a sequential basis, however, net income rose 50% from $41.4 million in Q3 2024, aided by a 16 basis point reduction in provisions for credit losses.
Earnings per share came in 21% lower on a year over year basis, falling to $0.63 per share. Adjusted earnings per share dropped to $0.67, down 29% from $0.94 in Q4 2023, while showing a modest 12% improvement from $0.60 in the previous quarter.
Total quarterly revenue increased 6% year-over-year to $309.5 million but was partially offset by a 12% rise in adjusted non-interest expenses.
The most significant drag on CWB’s performance was its provision for credit losses, which soared to 43 basis points as a percentage of average loans in Q4, up from just 11 basis points in the same period last year. While this represented an improvement from 59 basis points in Q3 2024, it remained far above historical averages. For the full year, credit provisions surged to 37 basis points, compared to an exceptionally low seven basis points in fiscal 2023. Management attributed this rise to broader economic conditions and specific impairments, including two significant loans that impacted results earlier in the fiscal year.
Loan growth remained tepid, with total loans rising just 1% year-over-year to $37.6 billion. The increase failed to match inflation or the pace of growth in prior years, signaling potential headwinds in CWB’s ability to expand its lending book. Personal loans declined slightly from $7.1 billion in 2023 to $7 billion in 2024, while business loans rose marginally to $30.6 billion. Deposit growth was also muted, holding steady at $33.4 billion, reflecting the bank’s ongoing reliance on higher-cost funding sources. Notably, deposit costs continued to rise, narrowing the benefits of improved asset yields on the net interest margin.
Non-interest income provided a bright spot, growing 13% year-over-year in Q4 to $40.2 million, driven by gains in wealth management fees and securities sales. Wealth management services, a critical area of diversification for CWB, delivered 8% growth, highlighting the bank’s success in expanding this segment despite broader economic volatility. These gains, however, were insufficient to offset the impact of higher credit provisions and increased expenses.
CWB’s efficiency ratio, which measures non-interest expenses as a percentage of revenue, deteriorated in the fourth quarter to 53.7%, up from 51% in Q4 2023 and 52.2% in the previous quarter. This reflects higher costs associated with the bank’s transition to its impending acquisition by National Bank. Integration expenses and technology investments were primary contributors, along with increased employee compensation costs. For the full year, adjusted non-interest expenses rose 5% to $614.1 million, further constraining profitability.
Dividend payments remained a priority for CWB, with the board declaring a cash dividend of $0.36 per share, representing a 6% increase from the same period last year.
The acquisition by National Bank looms large over CWB’s results and future outlook. Set to close in 2025, the transaction involves an exchange of 0.450 NBC shares for each CWB share, a deal that has received shareholder and regulatory approvals except for final clearance from the Office of the Superintendent of Financial Institutions and the federal Minister of Finance.
“As we progress toward closing the National Bank transaction, our teams have remained focused on delivering a differentiated experience for business owners and their families. We are well-positioned to deliver prudent growth and solid financial performance,” noted CEO Chris Fowler.
Looking ahead, the bank projects steady revenue growth, driven by further expansion in net interest margins and disciplined expense management. Management expects credit losses to gradually decline as macroeconomic conditions improve and default rates stabilize. However, the muted growth in loans and deposits, coupled with heightened credit risks, raises concerns about the bank’s ability to maintain its current trajectory.
Canadian Western Bank last traded at $56.74 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
