CWB Is Not Just About Oil

CWB Financial Group is a diversified financial services organization and a Schedule 1 bank in Canada. It is a leading regional bank providing specialized financial services in business and personal banking, and wealth management services to small and medium-sized companies. CWB also offers equipment financing and trust services across Canada.

CWB operates through an extensive network of branches focusing on banking, lending, wealth, and trust services. It has a huge presence in western parts of Canada with a strong focus on general commercial, equipment financing, and construction and real estate project financing. 

CWB provides a full suite of financial solutions and personal services to the targeted segments within Canada’s commercial banking industry

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Key Investment Data

 

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Revenue Growth & Market Exposure

Canadian Western Bank has a customer-oriented approach and a strong focus on meeting the financial needs of business owners. It has a large footprint extending from coast to coast throughout Canada. Its loan portfolio comprises general commercial loans (33%), personal loans and mortgages (19%), equipment financing and leasing (17%), commercial mortgages (20%), and real estate project loans (10%). 

CWB’s exposure to oil and gas production loans represents just 1% of total loans. A diversified platform provides significant growth opportunities and increased resilience to regional fluctuations. 

It has a long established history of more than 45 years in equipment leasing and is an industry leader in small and mid-sized equipment leasing. The Group also provides specialized financing solutions in health care, hospitality, transportation, real estate, etc. CWB’s exposure within these industries is well-diversified and supported by high-quality and resilient borrowers. 

Canadian Western Bank continues to execute its balanced growth strategy which is diversified by geographies, industries as well as funding sources. It is focusing on achieving a 30-30-30 diversification milestone for BC, AB, and ON. It is undertaking various transformational initiatives to enhance business infrastructure. CWB is focusing on increasing its non-interest income by growing its banking and leasing fee income, wealth management, and trust services. 

CWB witnessed momentum in branch-raised deposit and loan growth across the country in its last quarter. The bank is growing its market share in Ontario and has plans to open its second full-service banking center in FY’22. CWB has a reputation as a secured lender and disciplined underwriter with a proven history of low write-offs through economic cycles. 

CWB launched a digital banking platform for small and mid-sized business owners. Its continuous efforts on digital client experience should also support future growth. CWB is estimating to deliver high single-digit loan growth in FY’21.

Dividends

Canadian Western Bank is a Canadian Dividend Aristocrat, with 28 straight years of dividend increases. It has compounded its dividend growth by over 10% per annum over the last decade. The bank has a very reasonable payout ratio of 36% and an average annual yield of more than 3%. It last raised its dividend by 3.5% in 2020.

Canadian Western Bank has a strong balance sheet and a sound track record of dividend growth and consistent profitability. Its EPS has grown by 5%+ CAGR in the last three years. CWB is well-positioned to drive value creation for its shareholders through varied capital deployment options in line with its balanced growth strategy. 

The bank has also consolidated its equipment financing and leasing businesses under common leadership. CWB’s overall credit quality remains strong with very low write-offs due to a secured lending portfolio, disciplined underwriting practices, and effective loan management. It continues to benefit from a diversified funding mix and consistent growth in branch-raised deposits.

CWB had $36 billion in assets at the end of the second quarter of 2021. The bank has strong capital levels and an upside with a successful AIRB transition which is further expected to improve capital ratios. The CET1 capital ratio declined from last year as a result of the wealth acquisition. 

CWB is estimating to deliver mid-teens AEPS growth on a full-year basis in FY 2021 and an efficiency ratio of 48%-49%, driven by stronger net interest income.

Canadian Western Bank (CWB) historical yield
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Competition

The financial services marketplace faces intense competition and Canadian Western Bank’s performance is affected by the level of competition in all different market segments.

Laurentian Bank, National Bank, and VersaBank are Canadian Western Banks’ top competitors. 

National Bank is the leading bank based out of Quebec and ranks amongst Canada’s six largest commercial banks. VersaBank is a leading chartered bank in Canada, while Laurentian Bank is a leading Canadian bank, providing a broad range of advice-based solutions and services to its clients. 

In addition, Canadian Western Bank also suffers from competition from non-financial institutions offering banking products and services through electronic and internet-based financial solutions.

Bottom Line

CWB has an impeccable reputation for providing proactive and personalized services. The bank’s investment in capabilities and product offering should create growth opportunities in the future, as the near-term economic outlook improves. 

CWB should also expect an uptick in its equipment leasing business once the economy rebounds. The wealth acquisition further paved the way for CWB to become a leader in the Canadian private wealth industry. CWB is well-positioned to gain on the back of its digital transformation, and growing full-service relationships and lower-cost branch-raised deposits across Canada. 

It is also focusing on increasing its market share within targeted industries across its growing geographic footprint.

Canadian Western Bank (CWB) historical PE
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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.