Second Quarter Highlights
Total loans reached $25 billion for the first time in the second quarter.This was achieved by 12% loan growth over the second quarter in 2017.And the CEO expects 2018 to have double digit loan expansion.Once again their growth in Ontario has been a significant part of this loan expansion.Shareholder's net income for Q2 was at $62 million which is up 11% over 2017;and for 9 months was $2.23 per share.Consequently adjusted earnings per share is on track to hit $3.00 per sharefor 2018.CWB tells us that their acquisition of ECN Capital assets contributed $.04 per share to total earnings.And that there was a significant contribution for their expansion into Ontario.
Safety Concerns
CWB is not only a bank with good growth but it is safe for investors also.It has very strong Basel III capital ratios.All capital ratios are at the upper limit of requirements.Also it's provision for loss income is up by $111 million or 10%.On the other hand, impaired loans now make up only .53% of assets compared to .74% in 2017.The dividend has been raised but the payout ratio remains in the 30-36% area which is considered very safe.And it's price/earnings ratio is at 12 which is quite conservative for Canadian banks which on average is higher.
Recommendations for Price Improvement
It could be that CWB is suffering from the new kid on the block syndrome.It is growing faster than most of the established banks in Canada.After their strong second quarter results this blog thought CWB would be trading at $40 to $41 per share.It is in effect, catching up.So it is possible that the other banks are selling off their stake in Canadian Western Bank to slow their growth.And there may be more selling to come but CWB must keep making improvements.With that in mind CWB must continue it's expansion into Ontario and even add another branch here.This blog would like to see a separate identity called Canadian Western Trust (CWT) which would contain many of it's divisions such as CWB Maxium,CWB Optimum Mortgage,CWB National Leasing and CWB Franchise Finance.And their online divisions put together and called Mango or some such thing.Lastly in order to get more attention it could buy a small mutual fund dealer at today's cheap prices.These moves might reduce their loan growth and earnings growth which is substantial but raise their stock price.Unfortunately until retail investors join it will be a tough ride to get to $35 per share by January.
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