7th Largest Bank Cannot Beat the TSX

CWB - Canadian Western Bank

Canadian Western Bank is a bank in Canada. It is a part of the CWB Financial group and was formed by the amalgamation of Bank of Alberta and Western & Pacific Bank of Canada. The bank provides specialized financial services in business and personal banking, and wealth management services to small and medium-sized companies.

The bank operates through an extensive network of branches, business offices, mobile relationship teams, and financial experts. Canadian Western Bank 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.

Canadian Western Bank offers a wide range of services including chequing and savings accounts, mortgages, loans and investment products in the personal banking segment through a network of 42 branches. It also provides wealth management and trust services at four of its locations.

Investment Data

Revenue Growth & Market Exposure

CWB is the seventh largest publicly traded Schedule 1 bank in Canada in terms of market capitalization. The bank provides a full suite of financial solutions and personal services to the targeted segments within Canada’s commercial banking industry. Interest income accounts for the major portion of the bank’s revenue (92%), followed by wealth management, credit related fees and retail services fees. The bank’s net interest income has grown by 45% in the last five years.

Canadian Western Bank has a customer-oriented approach and focuses on meeting the financial needs of business owners. Its loan portfolio comprises of general commercial loans (29%), personal loans and mortgages (20%), equipment financing and leasing (18%), commercial mortgages (18%), and real estate project loans (15%). Personal deposits account for 63% of total deposits while business and government deposits constitute the rest.

Canadian Western Bank has a large footprint extending from coast to coast throughout Canada. It has a long established history of more than 44 years in equipment leasing and is an industry leader in small and mid-sized equipment leasing. The bank also provides specialized financing solutions in health care, golf, transportation, real estate, etc. In its most recent quarter, Canadian Western Bank registered a 10% loan growth and higher net interest margin on an annual basis. The bank also witnessed a good rate of growth in the deposits raised in branches.

Canadian Western Bank continues to execute its balanced growth strategy diversifying by geographies, industries as well as its funding sources. It is undertaking various transformational initiatives to enhance its business infrastructure. The bank is also focusing on increasing its non-interest income by growing its banking and leasing fee income, wealth management and trust services.

Dividends

Canadian Western Bank is a Canadian Dividend Aristocrat, with 27 straight years of dividend increases. It has compounded its dividend growth by over 9% per annum over the last decade. The bank has a very reasonable payout ratio of 38% which it is further targeting to lower in the near future. Its average annual yield stands at 3.8% and it last raised its dividend by 8% on an annual basis.

Canadian Western Bank is focusing on becoming the partner of choice for business owners across the nation through a re-launch of its brand and adopting a new marketing approach in the third quarter. The bank has a strong balance sheet and a sound track record of dividend growth and consistent profitability.

CWB Financials
Source: CWB Investor Presentation

Canadian Western Bank’s EPS has grown by 9% in the last five years. The bank is now targeting to strengthen its relationships with successful business owners in the country, through its balanced growth strategy. It is anticipating future growth to come from its investment in core technology and business transformation.

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 is targeting 7%-12% EPS growth and a payout ratio of 30% over the medium term.

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 a strong reputation for providing proactive and personalized services. The bank is expecting to drive strong growth over the medium term through expanding its geographic footprint, increasing diversification across businesses, initiatives to enhance the client experience and ongoing investment in its core technology. An estimated EPS growth of 7%-12% and a reasonable payout ratio of 30% should enable the company to continue its dividend payment streak in the future.

CWB cannot outperform the Canadian TSX and significantly lags behind the S&P500 index. You definitely have to make a choice as the S&P 500 ETF can pay half the yield of CWB and provide more return in the long term. I plan to stick with the big 6 banks for now until there is a compelling added benefit from the other banks or I continue to add to Vanguard S&P 500 Index ETF (In Canadian dollars).

CWB vs Indexes

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.
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