CWB reports exceptional first quarter financial performance

    
                     Record earnings and total revenues
           Dividends declared on both common and preferred shares
    

EDMONTON, March 4 /CNW/ - Canadian Western Bank (CWB on TSX) today announced an exceptional first quarter financial performance highlighted by record earnings and total revenues and the Bank's 87th consecutive profitable quarter. First quarter net income of $40.0 million increased 56% compared to the same quarter last year. The increase reflects a 57 basis point recovery in net interest margin, on a taxable equivalent basis (teb - see definition following Financial Highlights table), to more normal historical levels and very strong other income. Diluted earnings per common share increased 30% to a record $0.52 and include the net impact of the preferred units issued in March 2009. Compared to the prior quarter, the combined positive impact of a 22 basis point recovery in net interest margin (teb), a 19% increase in other income and lower non-interest expenses led to growth in net income and diluted earnings per common share of 32% and 33%, respectively.

    
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    First Quarter Highlights:
    (three months ended January 31, 2010 compared with three months ended
    January 31, 2009 unless otherwise noted)
    -------------------------------------------------------------------------
    -   Record net income of $40.0 million, up 56%.

    -   Record diluted earnings per common share of $0.52, up 30%, which
        includes the net impact of the preferred units issued in March 2009.

    -   Record return on common shareholders' equity of 18.0%, up 330 basis
        points. Total shareholders' equity surpassed the $1 billion
        milestone.

    -   Record quarterly total revenues (teb) surpassed the $100 million
        milestone to reach $100.7 million, up 31%.

    -   Net interest margin (teb) of 2.56%, up 57 basis points compared to
        last year and up 22 basis points from the prior quarter.

    -   Tier 1 capital ratio of 11.6% and total capital ratio of 15.1%, up
        from 8.7% and 13.0% respectively.

    -   Record quarterly earnings contribution from Canadian Direct
        Insurance.

    -   Announced the acquisition of National Leasing Group Inc. (National
        Leasing), completed February 1, 2010.
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On March 3, 2010, CWB's Board of Directors declared a cash dividend of $0.11 per common share, payable on April 1, 2010 to shareholders of record on March 18, 2010. This quarterly dividend is unchanged from both the previous quarter and one year ago. The Board of Directors also declared a cash dividend of $0.453125 per Series 3 Preferred Share payable on April 30, 2010 to shareholders of record on April 21, 2010.

Record banking and trust earnings of $36.7 million were up 48% compared to the same quarter last year as the positive earnings impact from the strong recovery in net interest margin and 3% loan growth helped push this segment's total revenues (teb) up 27% to reach $93.2 million. Quarterly net income from insurance operations was a record $3.3 million, up $2.5 million compared to a year earlier reflecting a positive $1.9 million before tax contribution from the Alberta risk sharing pools and solid results in the core underwriting business.

"The first quarter included record performance from both business segments that resulted from a combination of positive circumstances," said Larry Pollock, President and CEO of CWB. "Margins recovered more quickly than we expected and Canadian Direct posted a very strong contribution. High gains on securities sales further increased earnings reflecting both our investment strategies and favourable capital market conditions. While it will be very difficult to duplicate these exceptional results through the remaining three quarters, fiscal 2010 is so far shaping up to be a great year for CWB."

"The real benefit of strategies implemented in fiscal 2009 to help mitigate margin compression, together with lower deposit costs, is now clearly evident. Although we expect net interest margin will be stable from here on, absent meaningful increases in the prime rate, this recovery will positively impact our results for the rest of the year."

"Overall loan growth continues to be impacted by the recessionary slowdown and an atmosphere of uncertainty, particularly in the equipment financing and real estate construction portfolios," continued Pollock. "While there are many positive indicators, we expect ongoing challenges until there is a sustained and clear recovery in global economies. We have exceptional growth potential, but our near-term focus will remain concentrated on maintaining our sound credit quality as we progress through the bottom of the current credit cycle."

"Perhaps the most significant highlight this quarter was our announced acquisition of National Leasing, which we completed on February 1st. This company, with its seasoned management and dedicated employees, is an excellent fit with the CWB Group. National Leasing immediately adds about $390 million of balance sheet assets and should be accretive right out of the gate. But that's just the beginning; we believe this acquisition represents a meaningful step in taking CWB to another level of profitability and growth," Pollock added.

    
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    Financial Highlights
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                                 For the three months ended
    (unaudited)           -------------------------------------- Change from
    ($ thousands, except   January 31   October 31   January 31   January 31
     per share amounts)          2010         2009         2009         2009
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    Results of Operations
      Net interest income
       (teb - see below)  $    74,306  $    68,012  $    54,596          36%
      Less teb adjustment       2,563        2,397        1,586           62
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      Net interest income
       per financial
       statements              71,743       65,615       53,010           35
      Other income             26,366       22,087       22,351           18
      Total revenues (teb)    100,672       90,099       76,947           31
      Total revenues           98,109       87,702       75,361           30
      Net income               40,035       30,357       25,619           56
      Earnings per
       common share
        Basic(1)                 0.57         0.42         0.40           43
        Diluted(2)               0.52         0.39         0.40           30
      Return on common
       shareholders'
       equity(3)                18.0%        13.7%        14.7%     330 bp(4)
      Return on assets(5)        1.25         0.91         0.93           32
      Efficiency
       ratio(6) (teb)            40.0         46.1         47.3         (730)
      Efficiency ratio           41.0         47.4         48.3         (730)
      Net interest
       margin (teb)(7)           2.56         2.34         1.99           57
      Net interest margin        2.47         2.25         1.93           54
      Provision for credit
       losses as a
       percentage of
       average loans             0.16         0.15         0.15            1
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    Per Common Share
      Cash dividends      $      0.11  $      0.11  $      0.11           -%
      Book value                12.67        12.16        11.10           14
      Closing market value      20.56        21.38        11.93           72
      Common shares
       outstanding
       (thousands)             63,977       63,903       63,468            1
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    Balance Sheet and
     Off-Balance Sheet
     Summary
      Assets              $11,641,634  $11,635,872  $10,907,072            7
      Loans                 9,282,180    9,236,193    8,993,453            3
      Deposits             10,003,921    9,617,238    9,523,097            5
      Subordinated
       debentures             315,000      375,000      375,000          (16)
      Shareholders'
       equity               1,020,642      986,499      704,603           45
      Assets under
       administration       5,461,921    5,467,447    4,141,064           32
      Assets under
       management             880,786      878,095      809,500            9
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    Capital Adequacy(8)
      Tangible common
       equity to risk-
       weighted assets(9)        8.4%         8.0%         7.5%           90
      Tier 1 ratio               11.6         11.3          8.7          290
      Total ratio                15.1         15.4         13.0          210
    -------------------------------------------------------------------------

    (1) Basic earnings per share is calculated as net income less preferred
        share dividends divided by the average number of common shares
        outstanding.
    (2) Diluted earnings per share is calculated as net income less preferred
        share dividends divided by the average number of common shares
        outstanding adjusted for the dilutive effects of stock options and
        warrants.
    (3) Return on common shareholders' equity is calculated as annualized net
        income after preferred share dividends divided by average common
        shareholders' equity.
    (4) bp - basis point change.
    (5) Return on assets is calculated as annualized net income after
        preferred share dividends divided by average total assets.
    (6) Efficiency ratio is calculated as non-interest expenses divided by
        total revenues.
    (7) Net interest margin is calculated as annualized net interest income
        divided by average total assets.
    (8) Capital adequacy is calculated in accordance with guidelines issued
        by the Office of the Superintendent of Financial Institutions Canada
        (OSFI).
    (9) Tangible common equity to risk-weighted assets is calculated as
        shareholders' equity less subsidiary goodwill divided by risk-
        weighted assets, calculated in accordance with guidelines issued by
        OSFI.
    

Taxable Equivalent Basis (teb)

Most banks analyze revenues on a taxable equivalent basis to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends received is significantly lower than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they would have been had the tax-exempt securities been taxed at the statutory rate. The taxable equivalent basis does not have a standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other banks. Total revenues, net interest income and income taxes are discussed on a taxable equivalent basis throughout this quarterly report to shareholders.

Non-GAAP Measures

Taxable equivalent basis, return on common shareholders' equity, return on assets, efficiency ratio, net interest margin, provisions for credit losses as a percentage of average loans and tangible common equity to risk-weighted assets do not have standardized meanings prescribed by generally accepted accounting principles (GAAP) and therefore may not be comparable to similar measures presented by other financial institutions.

    
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    Message to Shareholders
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Canadian Western Bank (CWB or the Bank) is pleased to report exceptional financial performance for its 87th consecutive profitable quarter, a period spanning nearly 22 years. Highlights for the first quarter included the achievement of record earnings and total revenues and the announcement of CWB's acquisition of National Leasing Group Inc. (National Leasing), completed on February 1, 2010.

First quarter net income of $40.0 million was up 56% ($14.4 million) compared to the prior year, while diluted earnings per common share increased 30% ($0.12) to a record $0.52. Lower percentage growth for diluted earnings per common share compared to net income reflects the net impact of the preferred units issued in March 2009. The quarterly net interest margin (teb) of 2.56% represented a return to more normal historical levels and led to record total revenues, on a taxable equivalent basis (teb - see definition following Financial Highlights table), of $100.7 million, a 31% ($23.7 million) increase. Other income was up 18% ($4.0 million) and included a record $3.3 million quarterly earnings contribution from Canadian Direct Insurance. Compared to the previous quarter, net income and diluted earnings per common share increased 32% and 33% respectively and include the combined positive impact of an improved net interest margin, higher other income and slightly lower non-interest expenses.

The Bank's very strong Tier 1 and total capital ratios at January 31, 2010 of 11.6% and 15.1%, respectively, remained well above our internal target thresholds and continued to build from prior quarters with the ongoing retention of earnings. The combination of CWB's very strong balance sheet and capital position continue to provide us with flexibility to deploy capital and pursue strategic growth opportunities for the long-term benefit of CWB shareholders. The completed acquisition of National Leasing is expected to have a modest negative impact on capital adequacy ratios. We will report National Leasing's financial performance as a component of the banking and trust segment beginning with our second quarter results.

Return on equity of 18.0% was up 330 basis points compared to the same quarter last year and 430 basis points from the prior quarter. Quarterly return on assets of 1.25% represented a 32 basis point improvement from a year earlier and was up 34 basis points compared to last quarter. Compared to the first quarter last year, profitability ratios benefited from the strong recovery in net interest margin and higher other income, partially offset by the net impact from the preferred units issued in March 2009. The higher profitability ratios compared to the previous quarter reflect the factors already noted excluding the impact of preferred share dividends.

Dividends

On March 3, 2010, CWB's Board of Directors declared a cash dividend of $0.11 per common share, payable on April 1, 2010 to shareholders of record on March 18, 2010. This quarterly dividend is unchanged from both the previous quarter and one year ago. The Board of Directors also declared a cash dividend of $0.453125 per Series 3 Preferred Share payable on April 30, 2010 to shareholders of record on April 21, 2010.

Loan Growth

Total loans grew $46 million in the quarter and $289 million (3%) over the past year reflecting the realities of significantly moderated economic activity and a cautious outlook regarding the timing and strength of the economic recovery. Lingering recessionary effects continue to impact new deal flow, particularly in the equipment financing and real estate construction portfolios. Slow loan growth also reflects both expected and unexpected repayments on existing loans. Consistent with fiscal 2009, some customers across each lending sector have prudently scaled back their operations and directed cash flows towards the repayment of debt. That being said, our acquisition of National Leasing will increase loans and the existing pipeline for new lending opportunities is encouraging. While our 2010 target for double-digit loan growth is aggressive in the current environment, our past results demonstrate that it is still an achievable objective.

Credit Quality

Overall credit quality continues to remain satisfactory and within expectations considering ongoing economic challenges. The dollar level of gross impaired loans was $146.4 million compared to $137.9 million last quarter. The dollar level of loans classified as impaired during the quarter of $45.7 million was largely offset by $30.7 million of impaired accounts that were paid down or resolved. Our proactive management and secured lending practices have assisted in the early identification and resolution of problem loans and we will remain diligent in this regard. The quarterly provision for credit losses of $3.7 million represented 16 basis points of average loans and was within our targeted range for the year of 15 to 20 basis points. While the level of gross impaired loans will continue to fluctuate as we progress through the bottom of the credit cycle, based on our present view of credit quality, actual losses are expected to remain within the Bank's range of acceptable levels.

Branch Deposit Growth

Deposits raised through our branch network and Canadian Western Trust Company were up 10% compared to a year earlier, but down 1% from last quarter. The demand and notice component within branch-raised deposits, which are typically lower cost, grew 37% in the last twelve months and were up 3% in the quarter. The significant growth in demand and notice deposits supports our strategies to further enhance and diversify the Bank's core funding sources and largely reflects CWT's appointment last year as trustee for a major Canadian investment dealer. In addition to the benefits of diversification, our success in shifting the deposit mix toward lower cost demand and notice deposits will provide an improved funding base and continue to support net interest margin.

Net Interest Margin

Compared to a year earlier, lower deposit costs, an improved deposit and securities mix, higher loan prepayment fees and more favourable spreads on both new and renewed loans all contributed toward a 57 basis point recovery in net interest margin (teb) to 2.56%. Net interest margin (teb) was up 22 basis points over the prior quarter mainly reflecting the maturities of higher cost one-year term deposits that were raised through the broker deposit network in the first quarter last year to increase liquidity during the peak of the global financial crisis. The current quarter net interest margin was more typical of spreads achieved prior to the crisis and edged closer to CWB's historical average much sooner in 2010 than initially anticipated. Further material improvements in margins for fiscal 2010 are unlikely without meaningful increases in the prime rate. Our acquisition of National Leasing is expected to have a positive impact on net interest margin, but we are also mindful of competitive influences in all of our markets that may work against further significant expansion.

Trust and Wealth Management Services

Our trust and wealth management businesses represent an important part of our overall strategy and continue to provide opportunities for earnings growth, geographic expansion, income diversification and brand awareness. Canadian Western Trust Company, which includes our Optimum Mortgage business, continued to post very strong financial performance and we are optimistic about opportunities to grow the contributions from these sources. We are also very positive about the future earnings potential of Valiant Trust Company, which is actively adding new client relationships through its strong marketing efforts and was recently approved as a federal deposit-taking institution. Adroit Investment Management Ltd. continued to grow its assets under management and we will look to further expand our presence in wealth management through both organic growth and acquisitions.

Insurance

Canadian Direct Insurance Incorporated (Canadian Direct) started the year with record net income of $3.3 million. Strong results included a $1.9 million before tax contribution from Canadian Direct's share of the Alberta risk sharing pools (the Pools) and solid performance in the home lines of business that reflect improved pricing and favourable weather conditions. The Pools' results included a $1.5 million before tax decrease in unpaid claims reserves as a result of a December 2009 decision by the Supreme Court of Canada that denied leave to appeal the cap on minor injuries suffered in an automobile accident.

Outlook

CWB's first quarter results represent an exceptional start for fiscal 2010. Net interest margin recovered significantly from the trough level experienced in the second quarter of 2009 and, given a normal operating environment, we expect margin will remain relatively stable for the remainder of the year. First quarter other income included a very strong contribution from the insurance segment and was further augmented by a high level of securities gains that is unlikely to be sustained going forward. Meeting our target for double-digit loan growth will be challenging until we enter a period of sustained economic growth, but we are very positive about our position to capitalize on growth opportunities once the economic recovery takes hold. We are also very confident about the benefits of our proven business plan and core geographic position in Western Canada. All of our subsidiaries have excellent growth prospects and the acquisition of National Leasing represents an important step in further broadening our product lines and enhancing geographic diversification. We expect economic challenges in our markets to persist, particularly in areas related to natural gas exploration in Alberta, but our solid balance sheet and strong capital base ensure that we are very well positioned to manage through any ongoing challenges. We are also ready to capitalize on other strategic opportunities, including further acquisitions, that support our commitment to create value and growth for shareholders over the long-term.

We look forward to reporting our fiscal 2010 second quarter results on June 3, 2010.

    
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    Q1 Results Conference Call

    CWB's first quarter results conference call is scheduled for Thursday,
    March 4, 2010 at 2:00 p.m. ET (12:00 p.m. MT). The Bank's executives will
    comment on financial results and respond to questions from analysts and
    institutional investors.

    The conference call may be accessed on a listen-only basis by dialing
    647-427-7450 or toll-free 1-888-231-8191. The call will also be webcast
    live on the Bank's website, www.cwbankgroup.com. The webcast will be
    archived on the Bank's website for 60 days.

    A replay of the conference call will be available until March 18, 2010 by
    dialing 416-849-0833 (Toronto) or 1-800-642-1687 (toll-free) and entering
    passcode 56178290.
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About Canadian Western Bank Group

Canadian Western Bank offers a full range of business and personal banking services across the four western provinces and is the largest Canadian bank headquartered in Western Canada. The Bank, along with its operating subsidiaries, Canadian Western Trust Company, Valiant Trust Company, Canadian Direct Insurance Incorporated, National Leasing Group Inc., Adroit Investment Management Ltd. and Canadian Western Financial Ltd., collectively offer a diversified range of financial services across Canada and are together known as Canadian Western Bank Group. The common shares of Canadian Western Bank are listed on the Toronto Stock Exchange under the trading symbol 'CWB'. Refer to www.cwbankgroup.com for additional information.

    
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    Management's Discussion and Analysis
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This management's discussion and analysis (MD&A) should be read in conjunction with Canadian Western Bank's (CWB or the Bank) unaudited interim consolidated financial statements for the period ended January 31, 2010, as well as the audited consolidated financial statements and MD&A for the year ended October 31, 2009, available on SEDAR at www.sedar.com and the Bank's website at www.cwbankgroup.com. Except as discussed below, the factors discussed and referred to in the MD&A for fiscal 2009 remain substantially unchanged.

Overview

CWB recorded exceptional first quarter results reflecting record financial performance from both business segments. First quarter net income from banking and trust operations of $36.7 million was up 48% ($11.9 million) compared to one year ago despite ongoing economic challenges and uncertainty regarding both the timing and strength of the recovery. The positive revenue contributions from a strong recovery in net interest margin, 3% loan growth and slightly higher other income offset the impact of 11% ($3.7 million) higher non-interest expenses and a $0.3 million increase in the quarterly provision for credit losses. Canadian Direct Insurance Incorporated (Canadian Direct) posted record quarterly net income of $3.3 million, up $2.5 million from a year earlier. Insurance segment results included a $1.9 million before tax ($1.3 million after tax) earnings contribution from Canadian Direct's share of the Alberta risk sharing pools and solid results in the core underwriting business. Consolidated net income increased 56% ($14.4 million) from a year earlier to $40.0 million. First quarter earnings per diluted common share of $0.52 ($0.57 basic) grew 30% over the prior year and includes the net impact from the preferred units issued in March 2009.

Compared to the previous quarter, consolidated net income was up 32% ($9.7 million) reflecting the combined impact of the recovery in net interest margin, a $4.3 million increase in other income - including $2.4 million higher gains on sale of securities - $1.3 million lower non-interest expenses and modest loan growth. Diluted earnings per common share increased 33% ($0.13) over the prior quarter.

First quarter return on equity was a record 18.0%, a significant increase from 14.7% a year earlier. Return on assets was 1.25%, up from 0.93% last year. Compared to the same quarter in 2009, improved profitability ratios were positively impacted by very strong growth in net interest income due to the recovery in net interest margin and strong other income. These factors were partially offset by the net impact from CWB's preferred unit offerings completed in March 2009 and increased non-interest expenses. Compared to the prior quarter, return on equity was up 430 basis points, while return on assets increased 34 basis points.

Total Revenues (teb)

Total revenues, on a taxable equivalent basis (teb - see definition following Financial Highlights table), comprising both net interest income and other income, reached $100.7 million for the quarter, up 31% ($23.7 million) compared to a year earlier. Record quarterly total revenues reflect the positive impact of a strong recovery in net interest margin and an 18% ($4.3 million) increase in other income. Compared to last quarter, total revenues were up 12% ($10.6 million) including a $6.3 million increase in net interest income and $4.0 million higher other income.

Net Interest Income (teb)

Quarterly net interest income of $74.3 million was up 36% ($19.7 million) compared to the same period last year driven by a 57 basis point recovery in net interest margin to 2.56% and 3% loan growth. The recovery in net interest margin compared to the same quarter in 2009 reflects lower deposit costs, an improved deposit and securities mix, higher loan prepayment fees and more favourable spreads on both new and renewed loans. Given the Bank's current position and anticipated competitive influences going forward, management expects that a further material increase in margin from current levels is unlikely without meaningful increases to the prime lending interest rate.

Net interest income was up 9% ($6.3 million) compared to the previous quarter reflecting a 22 basis point increase in net interest margin and modest loan growth. The improved net interest margin compared to the prior quarter mainly reflects the maturity of high cost one-year term deposits raised through the broker deposit network during the peak of the global financial crisis.

Note 13 to the unaudited interim consolidated financial statements summarizes the Bank's exposure to interest rate risk as at January 31, 2010. The estimated sensitivity of net interest income to a change in interest rates is presented in the table below. The amounts represent the estimated change in net interest income over the time periods shown resulting from a one-percentage point change in interest rates. The estimates are based on a number of assumptions and factors, which include:

    
    -   a constant structure in the interest sensitive asset liability
        portfolio;
    -   floor levels for various deposit liabilities;
    -   prime rate decreases limited to 0.25% due to the historical low
        levels of interest rates;
    -   interest rate changes affecting interest sensitive assets and
        liabilities by proportionally the same amount and applied at the
        appropriate re-pricing dates; and
    -   no early redemptions.

                                       --------------------------------------
                                        January 31   October 31   January 31
    ($ thousands)                             2010         2009       2009(1)
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    Impact of 1% increase in
     interest rates
      1 year                           $    (2,066) $    (6,574) $    12,394
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      1 year percentage change              (0.8)%       (2.5)%         5.8%
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    Impact of 1% decrease in
     interest rates
      1 year                           $     8,532  $    10,241  $   (18,144)
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      1 year percentage change                3.2%         3.8%       (8.5)%
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    1)  Methodology for the calculation of interest sensitivity at
        January 31, 2009 does not include a minimum interest rate level for
        certain deposit accounts that were included in the calculation for
        the subsequent periods shown.
    

As at January 31, 2010, a one-percentage point increase in interest rates would decrease net interest income by 0.8% over the following twelve months; this compares to January 31, 2009 when a one-percentage point increase in interest rates would have increased net interest income by 5.8% over the following twelve months. During 2009, to better manage interest rate sensitivity against falling interest rates, many prime-based loans were negotiated with a floor rate and a corresponding minimum interest rate level. Should the prime rate decrease further, the rate on these loans would remain fixed. However, when the prime rate increases, the rate on these loans only begins to go up once the floor rate is passed. In modeling the effects of a one-percentage point increase in interest rates, not all loans would increase by the full 1%, whereas, it is assumed that all liabilities increase by the full amount. The result is a decrease in net income when interest rates rise by one-percentage point, however, this effect is diminished on further increases in interest rates beyond the floor level.

As at January 31, 2010, a one-percentage point decrease in interest rates would increase net interest income by 3.2% over the following twelve months; this compares to January 31, 2009 when a one-percentage point decrease in interest rates would have decreased net interest income by 8.5% over the following twelve months. When modeling a one-percentage point decrease, the rates on prime-based loans with a negotiated floor rate do not decrease, whereas, the remainder of prime-based loans decrease by only 0.25%. Many liabilities are subject to the full one-percentage point decrease and thereby cause net interest income to rise on a decrease in rates.

Based on the interest rate gap position at January 31, 2010, it is estimated that a one-percentage point increase in all interest rates would decrease other comprehensive income by $16.1 million, net of tax (October 31, 2009 - $21.4 million); it is estimated that a one-percentage point decrease in all interest rates at January 31, 2010 would increase other comprehensive income by a similar amount.

It is management's intention to continue to manage the asset liability structure and interest rate sensitivity through pricing and product policies, as well as through the use of interest rate swaps or other appropriate hedging techniques.

Other Income

First quarter other income of $26.4 million was up 18% ($4.0 million) from a year earlier reflecting growth across almost all areas. Quarterly net insurance revenues increased 168% ($3.6 million) over the same period last year reflecting a positive $1.9 million before tax contribution from Canadian Direct's share of the Alberta risk sharing pools (the Pools) and favourable claims experience in the core product lines. The Pools' results in the quarter included a $1.5 million before tax decrease in unpaid claims reserves specifically related to a December 2009 decision by the Supreme Court of Canada that denied leave to appeal the earlier ruling regarding the cap on minor injuries suffered in an automobile accident. Credit related fee income was up 27% ($1.5 million) while trust and wealth management services revenues and retail services fee income increased 14% ($0.6 million) and 9% ($0.2 million) respectively. Gains on sale of securities of $6.5 million continued to provide a significant source of other income, but were down from $8.1 million realized in the same quarter last year. Compared to the previous quarter, other income was up 19% ($4.3 million) reflecting a $2.4 million increase in gains on sale of securities, an 18% ($1.1 million) increase in credit related fee income and 13% ($0.7 million) higher net insurance revenues.

Credit Quality

Overall credit quality remained satisfactory and within current expectations. The Bank's primary markets continue to be materially impacted by global economic factors, particularly as they relate to demand for commodities. Despite these challenges, management believes that Western Canada is positioned to benefit significantly once major global economies commence a sustained period of economic growth.

    
                                 For the three months ended
                          -------------------------------------- Change from
    (unaudited)            January 31   October 31   January 31   January 31
    ($ thousands)                2010         2009         2009         2009
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    Gross impaired loans,
     beginning of period  $   137,944  $   105,229  $    91,635          51%
      New formations           45,745       70,612       33,028           39
      Reductions, impaired
       accounts paid down
       or returned to
       performing status      (30,682)     (35,733)     (12,414)         147
      Write-offs               (6,605)      (2,164)      (4,464)          48
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    Total(3)              $   146,402  $   137,944  $   107,785          36%
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    Balance of the ten
     largest impaired
     accounts             $    79,513  $    76,101  $    70,485          13%
    Total number of
     accounts classified
     as impaired                  234          224          176           33
    Total number of
     accounts classified
     as impaired under
     $1 million                   209          199          158           32
    Gross impaired loans
     as a percentage of
     total loans(1)             1.57%        1.49%        1.19%      38 bp(2)


    (1) Total loans do not include an allocation for credit losses or
        deferred revenue and premiums.
    (2) bp - basis point change.
    (3) Gross impaired loans includes foreclosed assets held for sale with a
        carrying value of $nil (October 31, 2009 - $nil and January 31, 2009
        - $901).
    

Gross impaired loans at January 31, 2010 were $146.4 million, compared to $137.9 million last quarter and $107.8 million a year earlier. Two large accounts with a combined balance of $32.4 million became impaired in the fourth quarter of fiscal 2009 and represent the majority of the net increase in gross impaired loans compared to a year earlier. The ten largest accounts classified as impaired measured by dollars outstanding represented approximately 54% of the total gross impaired loans at quarter end, compared to 55% in the prior quarter and 65% a year earlier. As in prior quarters, slow foreclosure processes on residential real estate in the western provinces lengthens the timeframe required to resolve certain impaired accounts.

Gross impaired loans represented 1.57% of total loans at quarter end, compared to 1.49% last quarter and 1.19% one year ago. The first quarter net new specific allowance for credit losses as a percentage of average loans was 25 basis points; this compares to the Bank's average over the past ten fiscal years of 13 basis points (including fiscal 2006 when recoveries exceeded losses). It is expected that the level of impaired loans will continue to experience considerable fluctuations as progress through the bottom of the current cycle continues. However, actual losses are expected to remain within acceptable levels. The dollar level of gross impaired loans fluctuates as loans become impaired and are subsequently resolved and does not directly reflect the dollar value of expected write-offs given the tangible security held against the Bank's lending positions. The Bank establishes its current estimates of expected write-offs through detailed analyses of both the overall quality and ultimate marketability of the security held against impaired accounts. In consideration of current credit quality and the loan portfolio as at January 31, 2010, management expects the fiscal 2010 provisions for credit losses will remain in a range of 15 to 20 basis points of average loans, consistent with the target range established for fiscal 2010. The addition of National Leasing Group Inc (National Leasing) in the second quarter 2010 will affect the provisions for credit losses and will increase the actual range going forward given the nature of its loan portfolio. Note 16 to the unaudited interim consolidated financial statements summarizes the Bank's acquisition of National Leasing, completed February 1, 2010.

The Bank's long-standing strategy with respect to managing the allowance for credit losses has been to maintain consistent provisions to cover both identified and unidentified losses. The purpose of the general allowance for credit losses is to mitigate the timing impact of unidentified losses in the portfolio. Results in the first quarter are consistent with management's expectations that the level of the general allowance will fluctuate as specific losses are recognized and subsequently written-off. Based on results from ongoing stress-testing of the portfolio under various credit scenarios, the adequacy of the general allowance for credit losses is deemed sufficient in consideration of management's current expectations for credit quality and the secured nature of the existing loan portfolio.

The total allowance for credit losses (general and specific) represented 50% of gross impaired loans at quarter end, compared to 55% last quarter and 69% one year ago. The total allowance for credit losses (general and specific) was $72.6 million at January 31, 2010, compared to $75.5 million last quarter and $74.5 million a year earlier. The general allowance as a percentage of risk-weighted loans was 70 basis points, down from 73 basis points last quarter and 74 basis points one year ago.

Non-interest Expenses

Effective execution of CWB's strategic plan, focused on long-term and sustainable growth, will continue to require increased spending in certain areas. Significant expenditures relate to additional staff complement as well as expanded premises and technology upgrades. Spending in these areas is an integral part of the Bank's commitment to maximize shareholder value over the long-term and is expected to provide material benefits in future periods. A key technology highlight for the first quarter was the successful implementation of an integrated general ledger system that is expected to provide significant efficiencies going forward. In support of management's objective to enhance the Bank's market presence, two additional full-service banking branches are expected to open late in 2010.

First quarter non-interest expenses of $40.2 million increased 11% ($3.8 million) compared to last year. Within non-interest expenses, salary and benefit costs were up 11% ($2.6 million) with the increase mainly attributed to increased staff complement, additional stock-based compensation charges and annual salary increments. Premises and equipment expenses were up $1.0 million in the aggregate over the same quarter last year while other expenses increased $0.4 million. Non-interest expenses declined $1.3 million compared to the prior quarter mainly resulting from a decrease in salary expense related to restricted share units reflecting CWB's lower average share price in the quarter. Lower advertising expense compared to the prior quarter also contributed to the change in non-interest expenses and resulted from a planned delay in marketing initiatives.

The first quarter efficiency ratio (teb), which measures non-interest expenses as a percentage of total revenues (teb), was 40.0%, compared to 47.3% last year and 46.1% in the previous quarter. The significant improvement reflects the combined positive impact on total revenues due to a strong recovery in net interest margin, increased other income, including gains on sale of securities, and ongoing loan growth. The first quarter efficiency ratio (teb) was well within the fiscal 2010 target of 48% or better. While the Bank will continue to closely manage discretionary spending, the exceptional first quarter efficiency ratio (teb) is not considered a sustainable benchmark. Planned expenditures coupled with expectations for declining gains on sale of securities will likely lead to a higher efficiency ratio for the remainder of the year. That being said, the annual efficiency ratio (teb) is expected to be better than the fiscal 2010 target of 48%.

Income Taxes

The first quarter income tax rate (teb) was 29.3%, down 190 basis points from one year ago, while the tax rate before the teb adjustment was 25.9%, or 220 basis points lower. The decrease from last year reflects the 100 basis point decrease in the basic federal income tax rate effective July 31, 2009, and the 50 basis point decrease in BC's provincial tax rate effective January 1, 2010. CWB's expected income tax rate (teb) for fiscal 2010 is 28.8%, or 24.6% before the teb adjustment.

Comprehensive Income

Comprehensive income is comprised of net income and other comprehensive income (OCI), all net of income taxes, and totaled $42.7 million for the first quarter, compared to $30.8 million in the same period last year. As previously noted, first quarter net income was up 56% ($14.4 million) compared to one year ago. This increase was partly offset by lower OCI as a result of lower unrealized gains on derivative instruments designated as cash flow hedges, which reflects market value fluctuations related to changes in both market credit spreads and interest rates, as well as shifts in the interest rate curve.

Balance Sheet

Total assets were relatively unchanged from the prior quarter and increased 7% ($735 million) in the past year to reach $11,642 million.

Cash and Securities

Cash, securities and securities purchased under resale agreements totaled $2,170 million at January 31, 2010, compared to $2,189 million last quarter and $1,724 million one year ago. The unrealized gain recorded on the balance sheet at January 31, 2010 was $29.7 million, compared to $24.8 million last quarter and an unrealized loss of $13.2 million as at January 31, 2009. The change in unrealized gains and losses compared to January 31, 2009 is primarily attributed to a market value improvement in the Bank's preferred share portfolio; unrealized gains in this portfolio totaled $13.7 million as at January 31, 2010, compared to unrealized losses of $25.8 million one year ago. The cash and securities portfolio is mainly comprised of high quality debt instruments that are not held for trading purposes. Fluctuations in fair value are generally attributed to changes in interest rates, market credit spreads and shifts in the interest rate curve.

Realized gains on sale of securities in the first quarter were $6.5 million, compared to $4.1 million in the previous quarter and $8.1 million in the same quarter last year. Gains on sale of securities in both the current and prior periods mainly resulted from investment strategies and unusual market conditions that allowed the Bank to capitalize on opportunities to realize gains while maintaining relatively comparable yields on reinvestment in other high quality investment grade securities. While further gains on sale of securities are expected to occur, based on management's current view, the quarterly dollar amount of these gains is likely to reduce as the year progresses.

Treasury Management

High liquidity levels have been maintained since August 2007 in response to disruptions and related uncertainties in financial markets. Many of the foregoing uncertainties have now subsided and the Bank is now reducing liquidity to levels that are considered more normal. Compared to prior periods where liquidity levels were exceptionally high, this reduction has had a positive impact on net interest margin. Average liquidity balances, net of securities sold under repurchase agreements, were up compared to the same quarter last year, but lower than the previous quarter. High average cash and securities balances in the current period primarily reflect the anticipated settlement of the purchase of National Leasing. Comparatively slower loan growth also contributed to increased liquidity compared to both the Bank's internal target and a year earlier. Average liquidity is expected to decrease further in future periods, although elevated levels may be maintained compared to what would be held under more robust economic and market environments.

Loans

Total loans grew $46 million in the quarter and $289 million (3%) in the past twelve months to reach $9,282 million. The impact of ongoing economic uncertainty and both expected and unexpected repayments (payouts and pay downs) on existing loans continued to constrain growth. Measured by lending sector, personal and general commercial portfolios experienced strong growth for the quarter, while equipment financing and energy loans showed significant declines. Growth in real estate loans was relatively flat compared to the prior quarter. Year-over-year loan growth shows a similar sector trend. The equipment financing portfolio will benefit in the second quarter from the acquisition of National Leasing. On a pro forma basis, including the on-balance sheet assets of National Leasing, consolidated year-to-date loan growth as at February 1, 2010 would have been approximately 4%.

Looking forward, loan growth is expected to remain constrained as moderated economic activity in Western Canada continues, particularly in the Bank's real estate construction and equipment financing portfolios. Construction loans are relatively short in duration and there are now fewer quality lending opportunities in this area. The equipment financing portfolio also has a short duration with loans fully repaid over a period of three to five years. The substantial reduction in natural gas prices has had a significant negative impact on conventional exploration activity and continues to adversely affect cash flows for companies involved in oil and gas services, particularly in Alberta. On a more positive note, crude oil prices have remained relatively stable of late and exploration and production companies appear to be increasing their capital budgets tied to conventional oil exploration. There is also clear evidence supporting increased capital investment in both the Alberta oil sands and the shale gas deposits in BC. CWB continues to believe that Western Canada's resource-based economies are poised for a comparatively faster recovery than the rest of Canada once major global economies begin to expand. While management believes CWB's 2010 target for double-digit loan growth is still attainable, the absence of a sustained economic recovery will make the achievement of this goal a challenge.

Loans in the Bank's alternative mortgage business, Optimum Mortgage (Optimum), increased 10% in the quarter and 26% over the past twelve months to reach $615 million. Real estate values and residential sales activity in Western Canada continued to show good resilience. Optimum's newly established offering of higher ratio mortgages insured by either the Canada Mortgage and Housing Corporation or Genworth Financial Canada showed positive results and management expects insured mortgages will continue to become a larger component of this portfolio over time. For uninsured mortgages, which currently represent approximately 73% of Optimum's total portfolio, the Bank remains well secured via conventional residential first mortgages carrying a weighted average underwritten loan-to-value ratio at initiation of approximately 70%. The large majority of all Optimum mortgages carry a fixed interest rate with the principal amortized over 25 years or less. Management remains committed to grow this business over time as it continues to produce strong returns while maintaining an acceptable risk profile.

Deposits

Total branch deposits, including those raised by Canadian Western Trust Company (CWT), were up 10% ($536 million) compared to a year earlier, but down 1% ($30 million) from the previous quarter. The demand and notice component within branch deposits was up 37% ($876 million) compared to the same time last year and 3% ($97 million) from last quarter. The significant growth in demand and notice deposits supports management's objective to further enhance and diversify the Bank's core funding sources and primarily reflects CWT's appointment last year as trustee for a major Canadian investment dealer. The Internet-based division of the Bank named Canadian Direct Financial(TM) has shown good success and management is optimistic about its ongoing potential to provide a valued source of deposits.

Total deposits at quarter end were $10,004 million, up 4% ($387 million) from the previous quarter and 5% ($481 million) over the past year. Total branch deposits measured as a percentage of total deposits were 61% at January 31, 2010, compared to 64% in the previous quarter and 58% a year earlier. Compared to January 31, 2009, the increase in branch-raised deposits as a percentage of total deposits reflects very strong growth in the demand and notice component that more than offset a 2% ($92 million) increase in fixed rate term deposits raised through the deposit broker network. Demand and notice deposits represented 32% of total deposits at quarter end, compared to 33% in the previous quarter and 25% a year earlier.

Other Assets and Other Liabilities

Other assets at January 31, 2010 totaled $190 million, compared to $211 million last quarter and $190 million one year ago. Other liabilities at quarter end were $302 million, compared to $657 million the previous quarter and $304 million last year. The decrease in other liabilities compared to the prior quarter reflects the absence of securities sold under repurchase agreements which are sometimes used for short-term cash management purposes.

Off-Balance Sheet

Off-balance sheet items include trust assets under administration and assets under management. Trust assets under administration totaled $5,462 million at January 31, 2010, compared to $5,467 million last quarter and $4,141 million one year ago. Assets under management were $881 million at quarter end, compared to $878 million last quarter and $810 million one year ago. Other off-balance sheet items are comprised of standard industry credit instruments (guarantees, standby letters of credit and commitments to extend credit), and the non-consolidated variable interest entity. CWB does not utilize, nor does it have exposure to, collateralized debt obligations or credit default swaps. For additional information regarding other off-balance sheet items refer to Notes 14 and 20 to the audited consolidated financial statements on pages 82 and 88 respectively in the Bank's 2009 Annual Report.

Capital Management

At January 31, 2010, CWB's total capital adequacy ratio, which measures regulatory capital as a percentage of risk-weighted assets, was 15.1%, down from 15.4% at October 31, 2009, but up from 13.0% a year earlier. The lower total capital adequacy ratio compared to the prior quarter reflects the redemption of $60.0 million of subordinated debentures on November 20, 2009. The Tier 1 ratio at quarter end was 11.6%, compared to 11.3% last quarter and 8.7% at the same time last year. Compared to one year ago, CWB's Tier 1 capital increased with the issuance of $209.8 million preferred units and the retention of earnings, net of dividends. The higher Tier 1 ratio compared to the prior quarter reflects the retention of earnings, net of dividends, slightly offset by growth in risk weighted assets. The Bank's acquisition of National Leasing is expected to have a modest negative impact on the Bank's capital adequacy ratios.

CWB expects to remain very well capitalized. The ongoing retention of earnings will support capital requirements associated with the anticipated achievement of the 2010 minimum performance targets. The Bank's very strong capital ratios are currently above management's targeted thresholds and this position of strength provides considerable flexibility to pursue strategic growth opportunities. Management continues to evaluate alternatives to deploy capital for the long-term benefit of CWB shareholders, which includes the potential for further strategic acquisitions.

In the fall of 2009, the Office of the Superintendent of Financial Institutions Canada (OSFI) indicated to the Canadian financial institution industry that amendments would be forthcoming to the capital adequacy guidelines as a result of a global review of the adequacy of capital levels during the global financial crisis. In December 2009, the Basel Committee on Banking Supervision (the Committee) issued a Consultative Document entitled Strengthening the Resilience of the Banking Sector for comment by April 16, 2010. The document as written represents a substantial change to the current guideline and has a strong emphasis on the quality and characteristics of Tier 1 capital. The Committee did not provide any indication as to minimum regulatory capital levels as they expect significant feedback and will study the quantitative impact of the draft framework before calibrating the standards. The Committee's initial time line would result in new standards being issued by the end of 2010 to be phased in by the end of 2012. It is too early to predict the impact of the new standards on CWB's capital ratios. That being said, CWB has a very strong capital position and expects implementation of the final set of standards should be relatively easy to manage given the lack of complexity in the Bank's current composition of regulatory capital, including an already strong component of tangible common equity.

Further information relating to the Bank's capital position is provided in Note 15 to the quarterly financial statements as well as the audited consolidated financial statements and MD&A for the year ended October 31, 2009.

Book value per common share at January 31, 2010 was $12.67 compared to $12.16 last quarter and $11.10 one year ago.

Common shareholders received a quarterly cash dividend of $0.11 per common share on January 8, 2010. On March 3, 2010, the Board of Directors declared a quarterly cash dividend of $0.11 per common share payable on April 1, 2010 to shareholders of record on March 18, 2010. The Board of Directors also declared a cash dividend of $0.453125 per Series 3 Preferred Share payable on April 30, 2010 to shareholders of record on April 21, 2010.

Changes in Accounting Policies

There were no new significant accounting policies adopted during the quarter for purposes of presenting the Bank's financial statements under Canadian generally accepted accounting principles.

Future Accounting Changes

International Financial Reporting Standards

The CICA will transition Canadian GAAP for publicly accountable entities to International Financial Reporting Standards (IFRS). The Bank's consolidated financial statements will be prepared in accordance with IFRS for the fiscal year commencing November 1, 2011 and will include comparative information for the prior year.

During 2008, the Bank commenced a four stage project to identify and evaluate the impact of the transition to IFRS on the consolidated financial statements and develop a plan to complete the transition. The project plan includes the following phases - diagnostic, design and planning, solution development, and implementation. The diagnostic and the design and planning phases are complete, and the solution development phase is expected to be completed by the end of fiscal 2010. Further information on the Bank's transition plan is provided on pages 56 to 58 of the 2009 Annual Report.

The impact of the transition to IFRS on the Bank's consolidated financial statements for current standards is not yet determinable. CWB continues to monitor the International Accounting Standards Board's proposed changes to standards during Canada's transition to IFRS. These proposed changes may have a significant impact on the Bank's implementation plan and future financial statements.

Controls and Procedures

There were no changes in the Bank's internal controls over financial reporting that occurred during the quarter ended January 31, 2010 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

National Leasing was acquired subsequent to quarter end and the Bank's certifying officers have limited the scope of design of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR) to exclude the controls, policies and procedures of this entity.

Prior to its release, this quarterly report to shareholders was reviewed by the Audit Committee and, on the Audit Committee's recommendation, approved by the Board of Directors of Canadian Western Bank, consistent with prior quarters.

Updated Share Information

As at February 26, 2010, there were 66,054,037 common shares outstanding. Also outstanding were employee stock options, which are or will be exercisable for up to 4,640,104 common shares for maximum proceeds of $88.1 million and 14,935,968 warrants that are each exercisable until March 3, 2014 to purchase one common share in the Bank at a price of $14.00.

Dividend Reinvestment Plan

The Bank's common shares (TSX: CWB) and preferred shares (TSX: CWB.PR.A) are currently deemed eligible to participate in CWB's dividend reinvestment plan (the "Plan"). The Plan provides holders of the Bank's eligible shares the opportunity to direct cash dividends toward the purchase of common shares. Further details for the Plan are available on the Bank's website at http://www.cwbankgroup.com/investor_relations/drip.htm. At the current time, for the purposes of the Plan, the Bank has elected to issue common shares from treasury at a 2% discount from the average market price (as defined in the Plan).

Normal Course Issuer Bid

On January 18, 2010, CWB received approval from the Toronto Stock Exchange to initiate a Normal Course Issuer Bid (NCIB) and purchase, for cancellation, up to 748,058 of its warrants. The NCIB commenced January 20, 2010 and will expire January 19, 2011. From January 20 to January 31, 2010, the Bank purchased and cancelled 4,500 warrants that had an average purchase price per warrant of $7.33; the aggregate amount of the warrant purchases was charged to retained earnings. A copy of the NCIB news release is available on the Bank's website and on SEDAR at www.sedar.com.

    
    Summary of Quarterly Financial Information

                              2010                      2009
                          ------------ --------------------------------------
    ($ thousands)              Q1           Q4           Q3           Q2
    -------------------------------------------------------------------------
    Total revenues (teb)  $   100,672  $    90,099  $    85,538  $    75,382
    Total revenues             98,109       87,702       83,349       73,707
    Net income                 40,035       30,357       28,729       21,580
    Earnings per
     common share
      Basic                      0.57         0.42         0.39         0.30
      Diluted                    0.52         0.39         0.38         0.30
    Total assets
     ($ millions)              11,642       11,636       11,331       11,450
    -------------------------------------------------------------------------


                              2009                      2008
                          ------------ --------------------------------------
    ($ thousands)              Q1           Q4           Q3           Q2
    -------------------------------------------------------------------------
    Total revenues (teb)  $    76,947  $    74,059  $    76,375  $    73,754
    Total revenues             75,361       72,519       74,933       72,402
    Net income                 25,619       24,485       26,327       25,302
    Earnings per
     common share
      Basic                      0.40         0.39         0.42         0.40
      Diluted                    0.40         0.38         0.41         0.39
    Total assets
     ($ millions)              10,907       10,601       10,057       10,038
    -------------------------------------------------------------------------
    

The financial results for each of the last eight quarters are summarized above. In general, CWB's performance reflects a relatively consistent trend although the second quarter contains three fewer revenue earning days, or two fewer days in a leap year.

The Bank's quarterly financial results are subject to some fluctuation due to its exposure to property and casualty insurance. Insurance operations, which are primarily reflected in other income (refer to Results by Business Segment - Insurance), are subject to seasonal weather conditions, cyclical patterns of the industry and natural catastrophes. Mandatory participation in the Alberta auto risk sharing pools can also result in unpredictable quarterly fluctuations.

During the fourth quarter of 2008 and throughout fiscal 2009 the Bank's quarterly net interest income was negatively impacted by compression of the net interest margin that mainly resulted from consecutive reductions in the prime lending interest rate, coupled with significantly higher deposit costs and other spin-off effects of the global financial crisis. Gains on sale of securities, reflected in other income, were unusually high during the same period also mainly due to factors associated with the financial crisis, including a steep interest rate curve and wide credit spreads that allowed the Bank to capitalize on investment strategies. In the first quarter of fiscal 2010, net interest margin recovered to more typical levels achieved before the onset of the global financial crisis. Quarterly results can also fluctuate due to the recognition of periodic income tax items.

For details on variations between the prior quarters, refer to the summary of quarterly results section of the Bank's MD&A for the year ended October 31, 2009 and the individual quarterly reports to shareholders which are available on SEDAR at www.sedar.com and on CWB's website at www.cwbankgroup.com. The 2009 Annual Report and audited consolidated financial statements for the year ended October 31, 2009 are available on both SEDAR and the Bank's website.

Results by Business Segment

CWB operates in two business segments: 1) banking and trust, and 2) insurance. Segmented information is also provided in Note 14 of the unaudited interim consolidated financial statements.

Banking and trust

Operations of the banking and trust segment include commercial and retail banking services, as well as personal and corporate trust services provided through Canadian Western Trust Company (CWT) and Valiant Trust Company (Valiant). The banking and trust segment also includes wealth management services provided through Adroit Investment Management Ltd. (Adroit) and will include the operations of newly acquired National Leasing Group Inc. (National Leasing), effective February 1, 2010.

Record net income of $36.7 million increased 48% ($11.9 million) compared to the same quarter last year mainly driven by a 57 basis point recovery in net interest margin (teb) to 2.54%. The margin recovery combined with ongoing loan growth increased net interest income (teb) by 37% ($19.5 million) and marked a return to historical levels earned before the onset of the global financial crisis. First quarter other income grew 2% over a year earlier as strong fee-based income, including a 27% ($1.5 million) increase in credit related fee income, offset a $1.6 million reduction in gains on sale of securities. The quarterly provision for credit losses was up 10% ($0.3 million) over the prior year and represented 16 basis points of average loans. Lingering effects related to the recessionary economic climate continued to constrain loan growth. The strong recovery in net interest margin (teb) compared to a year earlier mainly resulted from much lower deposit costs, an improved deposit and securities mix, and more favourable spreads on both new and renewed loans. The quarterly efficiency ratio (teb), which measures non-interest expense as a percentage of total revenues (teb), was 40.4%, compared to 46.2% last year. Non-interest expenses increased 11% ($3.7 million) over the same quarter last year and the significant improvement in the efficiency ratio was entirely attributed to growth in revenues due to the factors already noted.

Compared to the prior quarter, earnings were up 34% ($9.2 million) reflecting the positive revenue impact of a 22 basis point recovery in net interest margin (teb), a 21% ($3.6 million) increase in other income and modest loan growth. Total revenues (teb) grew 12% ($9.8 million) and included $6.2 million higher net interest income (teb). Gains on sale of securities and credit related fee income were up $2.4 million and $1.1 million, respectively. Non-interest expense declined $1.4 million compared to last quarter and contributed to a 640 basis point improvement in the efficiency ratio (teb). The provision for credit losses increased $0.3 million over the prior quarter.

    
                                 For the three months ended
                          -------------------------------------- Change from
                           January 31   October 31   January 31   January 31
    ($ thousands)                2010         2009         2009         2009
    -------------------------------------------------------------------------
    Net interest income
     (teb)                $    72,619  $    66,387  $    53,101          37%
    Other income               20,616       17,019       20,218            2
    -------------------------------------------------------------------------
    Total revenues (teb)       93,235       83,406       73,319           27
    Provision for
     credit losses              3,713        3,393        3,369           10
    Non-interest expenses      37,627       38,997       33,910           11
    Provision for
     income taxes (teb)        15,129       13,490       11,151           36
    Non-controlling
     interest in
     subsidiary                    76           59           67           13
    -------------------------------------------------------------------------
    Net income            $    36,690  $    27,467  $    24,822          48%
    -------------------------------------------------------------------------
    Efficiency ratio (teb)      40.4%        46.8%        46.2%     (580) bp
    Efficiency ratio             41.4         48.0         47.2         (580)
    Net interest
     margin (teb)                2.54         2.32         1.97           57
    Net interest margin          2.46         2.24         1.91           55
    Average loans
     (millions)(1)        $     9,253  $     9,161  $     8,855           4%
    Average assets
     (millions)(1)             11,317       11,342       10,711            6
    -------------------------------------------------------------------------

    bp -  basis point change.
    teb - taxable equivalent basis, see definition following Financial
          Highlights table.

    (1) Assets are disclosed on an average daily balance basis.
    

Insurance

The insurance segment is comprised of the operations of Canadian Direct Insurance Incorporated (Canadian Direct or CDI), which provides auto and home insurance to individuals in BC and Alberta.

Canadian Direct reported record quarterly net income of $3.3 million representing a $2.5 million increase from a year ago. Strong results included a positive $1.9 million before tax ($1.3 million after tax) contribution from Canadian Direct's share of the Alberta auto risk sharing pools (the Pools), an 8% increase in net earned premiums and improved claims experience. Excluding the impact of the Pools on first quarter results for both years, net income was up $1.1 million. Growth in net earned premiums was mainly due to increased policies and higher average premiums per policy in the home product lines of business. Improved claims experience compared to the first quarter of 2009 mainly reflects a significant drop in the loss ratio for the BC home product line which was adversely impacted last year by severe storm activity. The Pools' results in the quarter included a $1.5 million decrease in unpaid claims reserves that were initially reserved in the fourth quarter of fiscal 2008. The favourable adjustment was specifically related to a December 2009 decision by the Supreme Court of Canada that denied leave to appeal the earlier ruling regarding the cap on minor injuries suffered in an automobile accident.

Net income increased $0.5 million compared to the prior quarter as the Pools' positive results more than offset the seasonal aspect of the business where the first quarter is typically affected by a combination of higher claims experience due to winter weather and slower new policy growth. Barring any severe weather or other catastrophe type events, the maintenance of sound underwriting practices and increased policy sales during the busier spring and summer seasons should support continued strong results through the remainder of fiscal 2010.

    
                                 For the three months ended
                          -------------------------------------- Change from
                           January 31   October 31   January 31   January 31
    ($ thousands)                2010         2009         2009         2009
    -------------------------------------------------------------------------
    Net interest income
     (teb)                $     1,687  $     1,625  $      1,495         13%
    -------------------------------------------------------------------------
    Other income (net)
      Net earned premiums      27,331       27,072        25,215           8
      Commissions and
       processing fees            618          697           654          (6)
      Net claims and
       adjustment expenses    (16,990)     (17,559)      (18,651)         (9)
      Policy acquisition
       costs                   (5,289)      (5,199)       (5,106)          4
    -------------------------------------------------------------------------
    Insurance
     revenue (net)              5,670        5,011         2,112         168
    Gains on sale
     of securities                 80           57            21         282
    -------------------------------------------------------------------------
    Total revenues
     (net) (teb)                7,437        6,693         3,628         105
    Non-interest expenses       2,621        2,576         2,495           5
    Provision for income
     taxes (teb)                1,471        1,227           336         338
    -------------------------------------------------------------------------
    Net income            $     3,345  $     2,890  $        797        320%
    -------------------------------------------------------------------------
    Policies outstanding
     (No.)                    177,272      175,662       168,642           5
    Gross written
     premiums             $    24,332  $    31,537  $     23,103           5
    Claims loss ratio(1)          62%          65%           74%  (1,200) bp
    Expense ratio(2)               27           26            28        (100)
    Combined ratio(3)              89           91           102      (1,300)
    Alberta auto risk
     sharing pools impact
     on net income
     before tax           $     1,913  $      (722) $       (158)        nm%
    Average total assets
     (millions)                   214          212           188          14
    -------------------------------------------------------------------------
    bp - basis point change.
    teb - taxable equivalent basis, see definition following Financial
          Highlights table.
    nm - not meaningful.

    (1) Net claims and adjustment expenses as a percentage of net earned
        premiums.
    (2) Policy acquisition costs and non-interest expenses net of commissions
        and processing fees as a percentage of net earned premiums.
    (3) Sum of the claims loss and expense ratios.
    

Fiscal 2010 Minimum Targets and Outlook

The minimum performance targets established for the 2010 fiscal year together with CWB's actual performance are presented in the table below:

    
                                                  ---------------------------
                                                      2010         2010
                                                    Minimum    Year-to-date
                                                    Targets   Performance(1)
    -------------------------------------------------------------------------
    Net income growth(2)                               12%          56%
    -------------------------------------------------------------------------
    Total revenue (teb) growth                         12%          31%
    -------------------------------------------------------------------------
    Loan growth                                        10%           3%
    -------------------------------------------------------------------------
    Provision for credit losses as a percentage
     of average loans                             0.15% - 0.20%    0.16%
    -------------------------------------------------------------------------
    Efficiency ratio (teb)                             48%         40.0%
    -------------------------------------------------------------------------
    Return on common equity(3)                         13%         18.0%
    -------------------------------------------------------------------------
    Return on assets(4)                               0.90%        1.25%
    -------------------------------------------------------------------------

    (1) 2010 year-to-date performance for earnings and revenue growth is the
        current year results over the same period in the prior year, loan
        growth is the increase over the past twelve months, and performance
        for ratio targets is the current year-to-date results annualized.
    (2) Net income, before preferred share dividends.
    (3) Return on common equity calculated as annualized net income after
        preferred share dividends divided by average common shareholders'
        equity.
    (4) Return on assets calculated as annualized net income after preferred
        share dividends divided by average total assets.
    

Lower deposit costs and a favourable shift in the deposit mix, together with strategies implemented in fiscal 2009 to help offset margin pressures, have resulted in a strong recovery in net interest margin to more normal historical levels in the first quarter. The Bank's record performance was additionally augmented by a continued high level of gains on sale of securities. Planned expenditures related to ongoing execution of CWB's strategic plan and the expected decline in the level of gains on sale of securities means that the efficiency ratio (teb) of 40.0% is not a sustainable new benchmark. That being said, exceptional first quarter results put the Bank in an excellent position to better the 48% annual target. Credit quality is sound despite an increase in gross impaired loans and management currently remains comfortable with the 2010 target range for provisions for credit losses. The acquisition of National Leasing will boost loan growth and the existing pipeline for new lending opportunities is encouraging. Management believes the achievement of double-digit loan growth for the year is still attainable, but will be challenging in the absence of a sustained economic recovery.

CWB is positioned early in the year to surpass its fiscal 2010 minimum targets, except for loan growth, by a considerable margin. The Bank intends to continue to build market share while maintaining its focus on high quality, secured loans that offer a fair and profitable return on investment. Deals will not be done for the sole purpose of increasing loan growth. Economic fundamentals in Western Canada are expected to remain favourable relative to the rest of Canada and management remains very confident about its proven business plan and future growth opportunities within the Bank's core geographic footprint. All of the Bank's subsidiaries also have excellent growth prospects and the economic recovery should lead to additional opportunities in this regard, particularly for National Leasing's niche market of commercial equipment leasing for small and mid-size transactions. The overall outlook for 2010 and beyond is positive.

This management's discussion and analysis is dated March 3, 2010.

Taxable Equivalent Basis (teb)

Most banks analyze revenue on a taxable equivalent basis to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends received is significantly lower than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they would have been had the tax-exempt securities been taxed at the statutory rate. The taxable equivalent basis does not have a standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other banks. Total revenues, net interest income and income taxes are discussed on a taxable equivalent basis throughout this quarterly report to shareholders.

Non-GAAP Measures

Taxable equivalent basis, return on common shareholders' equity, return on assets, efficiency ratio, net interest margin, tangible common equity to risk-weighted assets, Tier 1 and total capital adequacy ratios, average balances, claims loss ratio, expense ratio and combined ratio do not have standardized meanings prescribed by generally accepted accounting principles (GAAP) and therefore may not be comparable to similar measures presented by other financial institutions. The non-GAAP measures used in this MD&A are calculated as follows:

    
    -   taxable equivalent basis - described above;
    -   return on common shareholders' equity - net income less preferred
        share dividends divided by average shareholder's equity;
    -   return on assets - net income less preferred share dividends divided
        by average total assets;
    -   efficiency ratio - non-interest expenses divided by total revenues
        (net interest income plus other income);
    -   net interest margin - net interest income divided by average total
        assets;
    -   tangible common equity to risk-weighted assets - shareholders' equity
        less subsidiary goodwill divided by risk-weighted assets, calculated
        in accordance with guidelines issued by the Office of the
        Superintendent of Financial Institutions Canada (OSFI);
    -   Tier 1 and total capital adequacy ratios - in accordance with
        guidelines issued by OSFI;
    -   average balances - average daily balances;
    -   claims loss ratio - net insurance claims and adjustment expenses as a
        percentage of net earned premiums;
    -   expense ratio - policy acquisition costs and non-interest expenses
        net of commissions and processing fees as a percentage of net earned
        premiums; and
    -   combined ratio - sum of the claims loss and expense ratios.
    

Forward-looking Statements

From time to time, Canadian Western Bank (the Bank) makes written and verbal forward-looking statements. Statements of this type are included in the Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as press releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about the Bank's objectives and strategies, targeted and expected financial results and the outlook for the Bank's businesses or for the Canadian economy. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate", "may increase", "may impact" and other similar expressions, or future or conditional verbs such as "will", "should", "would" and "could".

By their very nature, forward-looking statements involve numerous assumptions. A variety of factors, many of which are beyond the Bank's control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada including the volatility and lack of liquidity in financial markets, fluctuations in interest rates and currency values, changes in monetary policy, changes in economic and political conditions, regulatory and legal developments, the level of competition in the Bank's markets, the occurrence of weather-related and other natural catastrophes, changes in accounting standards and policies, the accuracy of and completeness of information the Bank receives about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of the Bank's business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and management's ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors.

These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause the Bank's actual results to differ materially from the expectations expressed in such forward looking statements. Unless required by securities law, the Bank does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by it or on its behalf.

Assumptions about the performance of the Canadian economy in 2010 and how it will affect CWB's businesses are material factors the Bank considers when setting its objectives. In setting minimum performance targets for fiscal 2010, management's expectations assumed: moderate economic growth in Canada aided by positive relative performance in the four western provinces; stable or slightly higher energy and commodity prices; sound credit quality with actual losses remaining within the Bank's range of acceptable levels; modest inflationary pressures; and, an improved net interest margin resulting from lower deposit costs, a stable prime lending interest rate, favourable yields on both new lending facilities and renewed accounts and relatively stable investment returns reflecting high quality assets held in the securities portfolio, partially offset by a reduction in the level of gains on the sale of securities compared to fiscal 2009.

    
    -------------------------------------------------------------------------
    Consolidated Statements of Income
    -------------------------------------------------------------------------

                                     For the three months ended
    (unaudited)           -------------------------------------- Change from
    ($ thousands, except   January 31   October 31   January 31   January 31
     per share amounts)          2010         2009         2009         2009
    -------------------------------------------------------------------------
    Interest Income
      Loans               $   116,841  $   116,042  $   119,268         (2)%
      Securities               10,938       11,411       11,212         (2)
      Deposits with
       regulated financial
       institutions             2,104        2,393        3,537        (41)
    -------------------------------------------------------------------------
                              129,883      129,846      134,017         (3)
    -------------------------------------------------------------------------
    Interest Expense
      Deposits                 53,570       58,963       75,740        (29)
      Subordinated
       debentures               4,570        5,268        5,267        (13)
    -------------------------------------------------------------------------
                               58,140       64,231       81,007        (28)
    -------------------------------------------------------------------------
    Net Interest Income        71,743       65,615       53,010         35
    Provision for Credit
     Losses (Note 5)            3,713        3,393        3,369         10
    -------------------------------------------------------------------------
    Net Interest Income
     after Provision for
     Credit Losses             68,030       62,222       49,641         37
    -------------------------------------------------------------------------
    Other Income
      Credit related            7,278        6,150        5,743         27
      Insurance, net
       (Note 2)                 5,670        5,011        2,112        168
      Trust and wealth
       management services      4,470        4,139        3,913         14
      Retail services           2,016        1,865        1,844          9
      Gains on sale of
       securities               6,497        4,103        8,143        (20)
      Foreign exchange
       gains                      435          647          555        (22)
      Other                         -          172           41       (100)
    -------------------------------------------------------------------------
                               26,366       22,087       22,351         18
    -------------------------------------------------------------------------
    Net Interest and Other
     Income                    94,396       84,309       71,992         31
    -------------------------------------------------------------------------
    Non-Interest Expenses
      Salaries and
       employee benefits       26,390       26,704       23,837         11
      Premises and
       equipment                7,028        6,996        6,028         17
      Other expenses            6,520        7,373        6,149          6
      Provincial capital
       taxes                      310          500          391        (21)
    -------------------------------------------------------------------------
                               40,248       41,573       36,405         11
    Net Income before
     Income Taxes and
     Non-Controlling
     Interest in
     Subsidiary                54,148       42,736       35,587         52
    Income Taxes               14,037       12,320        9,901         42
    -------------------------------------------------------------------------
                               40,111       30,416       25,686         56
    Non-Controlling
     Interest in
     Subsidiary                    76           59           67         13
    -------------------------------------------------------------------------
    Net Income            $    40,035  $    30,357  $    25,619         56 %
    -------------------------------------------------------------------------

    Preferred share
     dividends (Note 9)   $     3,802  $     3,802  $         -         nm %
    Net income available
     to common
     shareholders         $    36,233  $    26,555  $    25,619         41
    -------------------------------------------------------------------------
    Average number of
     common shares
     (in thousands)            63,925       63,828       63,465          1
    Average number of
     diluted common shares
     (in thousands)            70,090       68,683       63,667         10
    -------------------------------------------------------------------------
    Earnings Per Common
     Share
      Basic               $      0.57  $      0.42  $      0.40         43
      Diluted             $      0.52  $      0.39  $      0.40         30
    -------------------------------------------------------------------------
    nm - not meaningful.

    The accompanying notes are an integral part of the interim consolidated
    financial statements.



    -------------------------------------------------------------------------
    Consolidated Balance Sheets
    -------------------------------------------------------------------------

                                As at        As at        As at  Change from
    (unaudited)            January 31   October 31   January 31   January 31
    ($ thousands)                2010         2009         2009         2009
    -------------------------------------------------------------------------
    Assets
    Cash Resources
      Cash and non-
       interest bearing
       deposits with
       financial
       institutions       $    18,728  $    17,447  $    31,984        (41)%
      Interest bearing
       deposits with
       regulated financial
       institutions
       (Note 3)               266,158      266,980      430,594        (38)
      Cheques and other
       items in transit         9,280       12,677        7,461         24
    -------------------------------------------------------------------------
                              294,166      297,104      470,039        (37)
    -------------------------------------------------------------------------
    Securities (Note 3)
      Issued or
       guaranteed by
       Canada                 930,048      854,457      338,844        174
      Issued or
       guaranteed by
       a province or
       municipality            96,999      253,143      455,759        (79)
      Other securities        828,737      783,809      444,166         87
    -------------------------------------------------------------------------
                            1,855,784    1,891,409    1,238,769         50
    -------------------------------------------------------------------------
    Securities Purchased
     Under Resale
     Agreements                20,000            -       15,000         33
    -------------------------------------------------------------------------
    Loans (Notes 4 and 6)
      Residential
       mortgages            2,308,916    2,282,475    2,233,841          3
      Other loans           7,045,834    7,029,177    6,834,088          3
    -------------------------------------------------------------------------
                            9,354,750    9,311,652    9,067,929          3
       Allowance for
        credit losses
        (Note 5)              (72,570)     (75,459)     (74,476)        (3)
    -------------------------------------------------------------------------
                            9,282,180    9,236,193    8,993,453          3
    -------------------------------------------------------------------------
    Other
      Land, buildings and
       equipment               41,248       39,252       31,195         32
      Goodwill                  9,360        9,360        9,360          -
      Other intangible
       assets                   6,152        6,465        7,412        (17)
      Insurance related        56,583       55,932       52,011          9
      Derivative related
       (Note 7)                   802        2,334       12,852        (94)
      Other assets             75,359       97,823       76,981         (2)
    -------------------------------------------------------------------------
                              189,504      211,166      189,811          -
    -------------------------------------------------------------------------
    Total Assets          $11,641,634  $11,635,872  $10,907,072          7 %
    -------------------------------------------------------------------------

    Liabilities and
     Shareholders' Equity
    Deposits
      Payable on demand   $   399,888  $   359,176  $   362,394         10 %
      Payable after notice  2,820,033    2,778,601    1,982,001         42
      Payable on a fixed
       date                 6,679,000    6,374,461    7,073,702         (6)
      Deposit from
       Canadian Western
       Bank Capital Trust     105,000      105,000      105,000          -
    -------------------------------------------------------------------------
                           10,003,921    9,617,238    9,523,097          5
    -------------------------------------------------------------------------
    Other
      Cheques and other
       items in transit        33,498       41,964       30,432         10
      Insurance related       137,424      145,509      135,565          1
      Derivative related
       (Note 7)                    64           74           97        (34)
      Securities sold
       under repurchase
       agreements                   -      300,242            -          -
      Other liabilities       131,085      169,346      138,278         (5)
    -------------------------------------------------------------------------
                              302,071      657,135      304,372         (1)
    -------------------------------------------------------------------------
    Subordinated Debentures
      Conventional (Note 8)   315,000      375,000      375,000        (16)
    -------------------------------------------------------------------------
    Shareholders' Equity
      Preferred shares
       (Note 9)               209,750      209,750            -         nm
      Common shares
       (Note 9)               227,716      226,480      222,010          3
      Contributed surplus      20,442       19,366       15,759         30
      Retained earnings       540,951      511,784      466,841         16
      Accumulated other
       comprehensive
       income (loss)           21,783       19,119           (7)        nm
    -------------------------------------------------------------------------
                            1,020,642      986,499      704,603         45
    -------------------------------------------------------------------------
    Total Liabilities and
     Shareholders' Equity $11,641,634  $11,635,872  $10,907,072          7 %
    -------------------------------------------------------------------------
    Contingent Liabilities
     and Commitments
     (Note 11)

    nm - not meaningful.

    The accompanying notes are an integral part of the interim consolidated
    financial statements.



    -------------------------------------------------------------------------
    Consolidated Statements of Changes in Shareholders' Equity
    -------------------------------------------------------------------------

                                                  For the three months ended
                                                -----------------------------
    (unaudited)                                      January 31   January 31
    ($ thousands)                                          2010         2009
    -------------------------------------------------------------------------
    Retained Earnings
    Balance at beginning of period                  $   511,784  $   448,203
      Net income                                         40,035       25,619
      Dividends - Preferred shares                       (3,802)           -
                - Common shares                          (7,033)      (6,981)
      Warrants purchased under normal course
       issuer bid                                           (33)           -
    -------------------------------------------------------------------------
    Balance at end of period                            540,951      466,841
    -------------------------------------------------------------------------
    Accumulated Other Comprehensive Income (Loss)
    Balance at beginning of period                       19,119       (5,203)
      Other comprehensive income                          2,664        5,196
    -------------------------------------------------------------------------
    Balance at end of period                             21,783           (7)
    -------------------------------------------------------------------------
    Total retained earnings and accumulated
     other comprehensive income (loss)                  562,734      466,834
    -------------------------------------------------------------------------
    Preferred Shares (Note 9)
    Balance at beginning of period                      209,750            -
      Issued during the period                                -            -
    -------------------------------------------------------------------------
    Balance at end of period                            209,750            -
    -------------------------------------------------------------------------
    Common Shares (Note 9)
    Balance at beginning of period                      226,480      221,914
      Issued under dividend reinvestment plan               758            -
      Issued on exercise of options                         304           60
      Transferred from contributed surplus on
       exercise or exchange of options                      130           36
      Issued on exercise of warrants                         44            -
    -------------------------------------------------------------------------
    Balance at end of period                            227,716      222,010
    -------------------------------------------------------------------------
    Contributed Surplus
    Balance at beginning of period                       19,366       14,234
      Amortization of fair value of options               1,206        1,561
      Transferred to common shares on exercise
       or exchange of options                              (130)         (36)
    -------------------------------------------------------------------------
    Balance at end of period                             20,442       15,759
    -------------------------------------------------------------------------
    Total Shareholders' Equity                      $ 1,020,642  $   704,603
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
    Consolidated Statements of Comprehensive Income
    -------------------------------------------------------------------------

                                                  For the three months ended
                                                -----------------------------
    (unaudited)                                      January 31   January 31
    ($ thousands)                                          2010         2009
    -------------------------------------------------------------------------
    Net Income                                      $    40,035  $    25,619
    -------------------------------------------------------------------------
    Other Comprehensive Income, net of tax
      Available-for-sale securities:
        Gains from change in fair value(1)                8,634        9,020
        Reclassification to other income(2)              (4,909)      (5,750)
    -------------------------------------------------------------------------
                                                          3,725        3,270
    -------------------------------------------------------------------------
      Derivatives designated as cash flow hedges:
        Gains from change in fair value(3)                  783        3,436
        Reclassification to net interest income(4)       (1,844)      (1,510)
    -------------------------------------------------------------------------
                                                         (1,061)       1,926
    -------------------------------------------------------------------------
                                                          2,664        5,196
    -------------------------------------------------------------------------
    Comprehensive Income for the Period             $    42,699  $    30,815
    -------------------------------------------------------------------------
    (1) Net of income tax expense of $2,793 (2009 - tax expense - $3,753).
    (2) Net of income tax benefit of $1,588 (2009 - tax benefit - $2,393).
    (3) Net of income tax expense of $336 (2009 - tax expense - $1,550).
    (4) Net of income tax benefit of $791 (2009 - tax benefit - $681).

    The accompanying notes are an integral part of the interim consolidated
    financial statements.



    -------------------------------------------------------------------------
    Consolidated Statements of Cash Flow
    -------------------------------------------------------------------------

                                                  For the three months ended
                                                -----------------------------
    (unaudited)                                      January 31   January 31
    ($ thousands)                                          2010         2009
    -------------------------------------------------------------------------
    Cash Flows from Operating Activities
      Net income                                    $    40,035  $    25,619
      Adjustments to determine net cash flows
        Provision for credit losses                       3,713        3,369
        Depreciation and amortization                     2,379        2,126
        Amortization of fair value of employee
         stock options                                    1,206        1,561
        Future income taxes, net                             40       (1,625)
        Gain on sale of securities, net                  (6,497)      (8,143)
        Accrued interest receivable and payable, net    (12,725)      11,800
        Current income taxes payable, net               (14,074)      (3,978)
        Other items, net                                  7,224       (7,562)
    -------------------------------------------------------------------------
                                                         21,301       23,167
    -------------------------------------------------------------------------
    Cash Flows from Financing Activities
      Deposits, net                                     386,683      277,378
      Securities sold under repurchase
       agreements, net                                 (300,242)           -
      Debentures redeemed                               (60,000)           -
      Dividends                                         (10,835)      (6,981)
      Common shares issued (Note 9)                       1,107           60
      Warrants purchased under normal course
       issuer bid (Note 9)                                  (33)           -
    -------------------------------------------------------------------------
                                                         16,680      270,457
    -------------------------------------------------------------------------
    Cash Flows from Investing Activities
      Interest bearing deposits with regulated
       financial institutions, net                          122       39,200
      Securities, purchased                          (1,380,990)    (739,636)
      Securities, sale proceeds                       2,041,717      627,894
      Securities, matured                              (618,718)     107,326
      Securities purchased under resale
       agreements, net                                  (20,000)      62,000
      Loans, net                                        (49,700)    (372,753)
      Land, buildings and equipment                      (4,062)      (1,105)
      Business acquisitions                                   -       (6,481)
    -------------------------------------------------------------------------
                                                        (31,631)    (283,555)
    -------------------------------------------------------------------------
    Change in Cash and Cash Equivalents                   6,350       10,069
    Cash and Cash Equivalents at Beginning of Period    (11,840)      (1,056)
    -------------------------------------------------------------------------
    Cash and Cash Equivalents at End of Period*   $    (5,490) $     9,013
    -------------------------------------------------------------------------
    * Represented by:
      Cash and non-interest bearing deposits with
       financial institutions                       $    18,728  $    31,984
      Cheques and other items in transit
       (included in Cash Resources)                       9,280        7,461
      Cheques and other items in transit
       (included in Other Liabilities)                  (33,498)     (30,432)
    -------------------------------------------------------------------------
    Cash and Cash Equivalents at End of Period      $    (5,490) $     9,013
    -------------------------------------------------------------------------

    Supplemental Disclosure of Cash Flow Information
      Amount of interest paid in the period         $    78,367  $    70,216
      Amount of income taxes paid in the period          28,071       15,504
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of the interim consolidated
    financial statements.



    -------------------------------------------------------------------------
    Notes to Interim Consolidated Financial Statements
    -------------------------------------------------------------------------

        (unaudited)
        ($ thousands, except per share amounts)

    1.  Summary of Significant Accounting Policies

        Basis of Presentation

        These unaudited interim consolidated financial statements have been
        prepared in accordance with Canadian generally accepted accounting
        principles (GAAP), including the accounting requirements of the
        Office of the Superintendent of Financial Institutions Canada (OSFI),
        using the same accounting policies as the audited consolidated
        financial statements for the year ended October 31, 2009. Under
        Canadian GAAP, additional disclosures are required in annual
        financial statements and accordingly, these unaudited interim
        consolidated financial statements should be read in conjunction with
        the audited consolidated financial statements for the year ended
        October 31, 2009 as set out on pages 66 to 100 of the Bank's 2009
        Annual Report. As at January 31, 2010, securities purchased under
        reverse resale agreements as reported on the consolidated balance
        sheet are now identified as securities sold under repurchase
        agreements.

    2.  Insurance Revenues, Net

        Insurance revenues, net, as reported in other income on the
        consolidated statement of income is presented net of net claims and
        adjustment expenses and policy acquisition costs.

                                                  For the three months ended
                                       --------------------------------------
                                        January 31   October 31   January 31
                                              2010         2009         2009
        ---------------------------------------------------------------------
        Net earned premiums            $    27,331  $    27,072  $    25,215
        Commissions and processing fees        618          697          654
        Net claims and adjustment
         expenses                          (16,990)     (17,559)     (18,651)
        Policy acquisition costs            (5,289)      (5,199)      (5,106)
        ---------------------------------------------------------------------
        Total, net                     $     5,670  $     5,011  $     2,112
        ---------------------------------------------------------------------

    3.  Securities

        Net unrealized gains (losses) reflected on the balance sheet follow:

                                             As at        As at        As at
                                        January 31   October 31   January 31
                                              2010         2009         2009
        ---------------------------------------------------------------------
        Interest bearing deposits
         with regulated financial
         institutions                  $     6,689  $     7,390  $     6,540
        Securities
          Issued or guaranteed by
           Canada                              901        1,594        2,452
          Issued or guaranteed by a
           province or municipality          1,250        2,547        7,112
          Other securities                  20,887       13,266      (29,288)
        ---------------------------------------------------------------------
        Unrealized gain (losses), net  $    29,727  $    24,797  $   (13,184)
        ---------------------------------------------------------------------

        The securities portfolio is primarily comprised of high quality debt
        instruments and preferred shares that are not held for trading
        purposes and, where applicable, are typically held until maturity.
        Fluctuations in value are generally attributed to changes in market
        credit spreads, interest rates and shifts in the interest rate curve.
        Unrealized losses are considered to be other than permanent in
        nature.

    4.  Loans

        The composition of the Bank's loan portfolio by geographic region and
        industry sector follow:

                   British              Saskat-
    ($ millions)  Columbia   Alberta    chewan   Manitoba    Other     Total
    -------------------------------------------------------------------------
    Loans to
     Individuals
      Residential
       mortga-
       ges(2)     $    982  $  1,023  $    119  $     97  $     88  $  2,309
      Other loans       64       101        15         3         1       184
    -------------------------------------------------------------------------
                     1,046     1,124       134       100        89     2,493
    -------------------------------------------------------------------------
    Loans to
     Businesses
      Commercial       779     1,344        88        85       311     2,607
      Construction
       and real
       estate(3)     1,134     1,422       165        71       176     2,968
      Equipment
       financing       301       682        48        15       129     1,175
      Energy             -       112         -         -        -       112
    -------------------------------------------------------------------------
                     2,214     3,560       301       171       616     6,862
    -------------------------------------------------------------------------
    Total
     Loans(1)     $  3,260  $  4,684  $    435  $    271  $    705  $  9,355
    -------------------------------------------------------------------------
    Composition
     Percentage
      January 31,
       2010            35%       50%        5%        3%        7%      100%
      October 31,
       2009            35%       50%        5%        3%        7%      100%
      January 31,
       2009            36%       52%        4%        2%        6%      100%
    -------------------------------------------------------------------------


                   January   October   January
                   31 2010   31 2009   31 2009
                   Composi-  Composi-  Composi-
                      tion      tion      tion
                    Percen-   Percen-   Percen-
    ($ millions)      tage      tage      tage
    -------------------------------------------
    Loans to
     Individuals
      Residential
       mortga-
       ges(2)          25%       25%       24%
      Other loans        2         2         4
    -------------------------------------------
                        27        27        28
    -------------------------------------------
    Loans to
     Businesses
      Commercial        28        27        27
      Construction
       and real
       estate(3)        32        31        29
      Equipment
       financing        12        13        14
      Energy             1         2         2
    -------------------------------------------
                        73        73        72
    -------------------------------------------
    Total
     Loans(1)         100%      100%      100%
    -------------------------------------------
    Composition
     Percentage
      January 31,
       2010
      October 31,
       2009
      January 31,
       2009
    -------------------------------------------
    (1) This table does not include an allocation for credit losses or
        deferred revenue and premiums.
    (2) Includes single- and multi-unit residential mortgages and project
        (interim) mortgages on residential property.
    (3) Includes commercial term mortgages and project (interim) mortgages
        for non-residential property.


    5.  Allowance for Credit Losses

        The following table shows the changes in the allowance for credit
        losses:

                    For the three months ended    For the three months ended
                         January 31, 2010              October 31, 2009
                  -----------------------------------------------------------
                             General                       General
                           Allowance                     Allowance
                                 for                           for
                   Specific   Credit             Specific   Credit
                  Allowance   Losses     Total  Allowance   Losses     Total
    -------------------------------------------------------------------------
    Balance at
     beginning
     of period    $ 14,306  $ 61,153  $ 75,459  $ 12,998  $ 61,216  $ 74,214
    Provision for
     credit losses   5,827    (2,114)    3,713     3,456       (63)    3,393
    Write-offs      (6,605)        -    (6,605)   (2,164)        -    (2,164)
    Recoveries           3         -         3        16         -        16
    -------------------------------------------------------------------------
    Balance at
     end of
     period       $ 13,531  $ 59,039  $ 72,570  $ 14,306  $ 61,153  $ 75,459
    -------------------------------------------------------------------------


                                                  For the three months ended
                                                        January 31, 2009
                                                -----------------------------
                                                           General
                                                         Allowance
                                                               for
                                                 Specific   Credit
                                                Allowance   Losses     Total
    -------------------------------------------------------------------------
    Balance at
     beginning
     of period                                  $ 15,011  $ 60,527  $ 75,538
    Provision for
     credit losses                                 2,974       395     3,369
    Write-offs                                    (4,464)        -    (4,464)
    Recoveries                                        33         -        33
    -------------------------------------------------------------------------
    Balance at
     end of
     period                                     $ 13,554  $ 60,922  $ 74,476
    -------------------------------------------------------------------------

    6.  Impaired and Past Due Loans

        Outstanding gross loans and impaired loans, net of allowances for
        credit losses, by loan type, are as follows:

                                          As at January 31, 2010
                          ---------------------------------------------------
                                             Gross                       Net
                                Gross     Impaired     Specific     Impaired
                               Amount       Amount    Allowance        Loans
        ---------------------------------------------------------------------
        Consumer and
         personal         $ 1,533,375  $    19,128  $     1,115  $    18,013
        Real estate(1)      3,944,058       79,143        3,220       75,923
        Equipment
         financing          1,284,931       18,233        2,954       15,279
        Commercial          2,592,386       29,898        6,242       23,656
        ---------------------------------------------------------------------
        Total(3)          $ 9,354,750  $   146,402  $    13,531      132,871
        --------------------------------------------------------
        General
         allowance(2)                                                (59,039)
        ---------------------------------------------------------------------
        Net impaired loans
         after general
         allowance                                               $    73,832
        ---------------------------------------------------------------------


                                           As at October 31, 2009
                          ---------------------------------------------------
                                             Gross                       Net
                                Gross     Impaired     Specific     Impaired
                               Amount       Amount    Allowance        Loans
        ---------------------------------------------------------------------
        Consumer and
         personal         $ 1,452,682  $    14,805  $     1,207  $    13,598
        Real estate(1)      3,909,991       76,643        5,611       71,032
        Equipment
         financing          1,412,344       26,408        6,196       20,212
        Commercial          2,536,635       20,088        1,292       18,796
        ---------------------------------------------------------------------
        Total(3)          $ 9,311,652  $   137,944  $    14,306      123,638
        --------------------------------------------------------
        General
         allowance(2)                                                (61,153)
        ---------------------------------------------------------------------
        Net impaired loans
         after general
         allowance                                               $    62,485
        ---------------------------------------------------------------------


                                          As at January 31, 2009
                          ---------------------------------------------------
                                             Gross                       Net
                                Gross     Impaired     Specific     Impaired
                               Amount       Amount    Allowance        Loans
        ---------------------------------------------------------------------
        Consumer and
         personal         $ 1,323,201  $    12,700  $       534  $    12,166
        Real estate(1)      3,864,064       75,092        4,697       70,395
        Equipment
         financing          1,416,287       16,115        5,963       10,152
        Commercial          2,464,377        3,878        2,360        1,518
        ---------------------------------------------------------------------
        Total             $ 9,067,929  $   107,785  $    13,554       94,231
        --------------------------------------------------------
        General
         allowance(2)                                                (60,922)
        ---------------------------------------------------------------------
        Net impaired loans
         after general
         allowance                                               $    33,309
        ---------------------------------------------------------------------

        (1) Multi-family residential mortgages are included in real estate
            loans.
        (2) The general allowance for credit risk is not allocated by loan
            type.
        (3) Gross impaired loans includes foreclosed assets with a carrying
            value of $nil (October 31, 2009 - $nil and January 31, 2009 -
            $901) which are held for sale.


        Outstanding impaired loans, net of allowance for credit losses, by
        provincial location of security, are as follows:

                     As at January 31, 2010         As at October 31, 2009
                  -----------------------------------------------------------
                     Gross                 Net     Gross                 Net
                  Impaired  Specific  Impaired  Impaired  Specific  Impaired
                    Amount Allowance     Loans    Amount Allowance     Loans
        ---------------------------------------------------------------------
        Alberta   $ 85,873  $  9,774  $ 76,099  $ 74,847  $  7,651  $ 67,196
        British
         Columbia   33,623     2,058    31,565    37,655     5,000    32,655
        Saskatche-
         wan         1,570       645       925     1,632       609     1,023
        Manitoba       684        29       655       337        23       314
        Other(2)    24,652     1,025    23,627    23,473     1,023    22,450
        ---------------------------------------------------------------------
        Total     $146,402  $ 13,531   132,871  $137,944  $ 14,306   123,638
        -----------------------------          --------------------
        General
         allow-
         ance(1)                       (59,039)                      (61,153)
        ---------------------------------------------------------------------
        Net
         impaired
         loans
         after
         general
         allow-
         ance                         $ 73,832                       $ 62,485
        ---------------------------------------------------------------------

                                                    As at January 31, 2009
                                               ------------------------------
                                                   Gross                 Net
                                                Impaired  Specific  Impaired
                                                  Amount Allowance     Loans
        ---------------------------------------------------------------------
        Alberta                                 $ 54,925  $  5,205  $ 49,720
        British
         Columbia                                 50,166     7,134    43,032
        Saskatche-
         wan                                       1,801       609     1,192
        Manitoba                                     388       388         -
        Other                                        505       219       286
        ---------------------------------------------------------------------
        Total                                   $107,785  $ 13,555    94,230
        -----------------------------------------------------------
        General
         allow-
         ance(1)                                                     (60,922)
        ---------------------------------------------------------------------
        Net
         impaired
         loans
         after
         general
         allow-
         ance                                                       $ 33,308
        ---------------------------------------------------------------------

        (1) The general allowance for credit risk is not allocated by
            province.
        (2) Included in Other is a corporate loan with security that is not
            identifiable to a specific province.


        During the quarter ended January 31, 2010, interest recognized as
        income on impaired loans totaled $117 (2009 - $206).

        Gross impaired loans exclude certain past due loans where payment of
        interest or principal is contractually in arrears, which are not
        classified as impaired. Details of such past due loans that have not
        been included in the gross impaired amount are as follows:

                                           As at January 31, 2010
                            -------------------------------------------------
                              1 - 30   31 - 60   61 - 90  More than
                                days      days      days    90 days    Total
        ---------------------------------------------------------------------
        Residential
         mortgages          $  6,896  $  9,375  $  1,460  $  1,165  $ 18,896
        Other loans           23,232    10,992     1,853         -    36,077
        ---------------------------------------------------------------------
                            $ 30,128  $ 20,367  $  3,313  $  1,165  $ 54,973
        ---------------------------------------------------------------------

        Total as at
         October 31, 2009   $ 27,533  $ 29,272  $  4,694  $      -  $ 61,499
        Total as at
         January 31, 2009   $ 20,729  $ 24,990  $  3,489  $      -  $ 49,208
        ---------------------------------------------------------------------

    7.  Derivative Financial Instruments

        For the quarter ended January 31, 2010, a net unrealized after tax
        gain of $783 (2009 - $3,436) was recorded in other comprehensive
        income for changes in fair value of the effective portion of
        derivatives designated as cash flow hedges, and $nil (2009 - $nil)
        was recorded in other income for changes in fair value of the
        ineffective portion of derivatives classified as cash flow hedges.
        Amounts accumulated in other comprehensive income are reclassified to
        net income in the same period that interest on certain floating rate
        loans (i.e. the hedged items) affect income. For the quarter ended
        January 31, 2010, a net gain after tax of $1,844 (2009 - $1,510) was
        reclassified to net income. A net gain of $601 (2009 - $5,801) after
        tax recorded in accumulated other comprehensive income (loss) as at
        January 31, 2010 is expected to be reclassified to net income in the
        next 12 months and will offset variable cash flows from floating rate
        loans.

        The following table shows the notional value outstanding for
        derivative financial instruments and the related fair value:


                     As at January 31, 2010        As at October 31, 2009
                 ------------------------------------------------------------
                            Positive  Negative            Positive  Negative
                  Notional      Fair      Fair  Notional      Fair      Fair
                    Amount     Value     Value    Amount     Value     Value
    -------------------------------------------------------------------------
    Interest rate
     swaps
     designated as
     cash flow
     hedges(1)    $145,000  $    748  $      -  $235,000  $  2,265  $      -
    Equity
     contracts(2)    2,000         -        12     2,000         -        33
    Foreign
     exchange
     contracts(3)    5,463        52        52     2,496        44        41
    Embedded
     derivatives
     in equity-
     linked
     deposits(2)       n/a         2         -       n/a        25         -
    Other
     forecasted
     transactions        -         -         -         -         -         -
    -------------------------------------------------------------------------
    Derivative
     related
     amounts                $    802  $     64            $  2,334  $     74
    -------------------------------------------------------------------------


                                                    As at January 31, 2009
                                               ------------------------------
                                                          Positive  Negative
                                                Notional      Fair      Fair
                                                  Amount     Value     Value
    -------------------------------------------------------------------------
    Interest rate
     swaps
     designated as
     cash flow
     hedges                                     $513,000  $ 12,848  $     75
    Equity
     contracts                                     4,400         -       169
    Foreign
     exchange
     contracts                                     4,280         4        37
    Embedded
     derivatives
     in equity-
     linked
     deposits                                        n/a       184         -
    Other
     forecasted
     transactions                                      -         -         -
    -------------------------------------------------------------------------
    Derivative
     related
     amounts                                              $ 13,036  $    281
    -------------------------------------------------------------------------

    (1) Interest rate swaps outstanding at January 31, 2010 mature between
        March and June 2010.
    (2) Equity contracts and equity-linked deposits outstanding at
        January 31, 2010 mature between March 2010 and March 2011.
    (3) Foreign exchange contracts outstanding at January 31, 2010 mature
        between February and June 2010.

        n/a - not applicable.


        There were no forecasted transactions that failed to occur during the
        quarter ended January 31, 2010.

    8.  Subordinated Debentures

        On November 20, 2009, conventional subordinated debentures in the
        amount of $60,000 were redeemed by the Bank at face value.

    9.  Capital Stock

        Share Capital

                                       For the three months ended
                          ---------------------------------------------------
                               January 31, 2010          January 31, 2009
                          ---------------------------------------------------
                            Number of                 Number of
                               Shares       Amount       Shares       Amount
        ---------------------------------------------------------------------
        Preferred Shares
         - Series 3
          Outstanding at
           beginning of
           period           8,390,000  $   209,750            -  $         -
          Issued during
           the period               -            -            -            -
          Outstanding at
           end of
           period(1)        8,390,000      209,750            -            -
        ---------------------------------------------------------------------
        Common Shares
          Outstanding at
           beginning of
           period          63,903,460      226,480   63,457,142      221,914
          Issued under
           dividend
           reinvestment
           plan(2)             36,146          758            -            -
          Issued on
           exercise or
           exchange of
           options             34,143          304       10,990           60
          Transferred from
           contributed
           surplus on
           exercise or
           exchange of
           options                  -          130            -           36
          Issued on
           exercise of
           warrants             3,200           44            -            -
        ---------------------------------------------------------------------
          Outstanding at
           end of
           period(3)       63,976,949      227,716   63,468,132      222,010
        ---------------------------------------------------------------------
        Share Capital                  $   437,466               $   222,010
        ---------------------------------------------------------------------

        (1) Holders of the Preferred Shares - Series 3 are entitled to
            receive non-cumulative quarterly fixed dividends for the initial
            five-year period ending April 30, 2014 of 7.25% per annum,
            payable quarterly, as and when declared. For further information
            on dividend rates after April 30, 2014, refer to Note 18 of the
            audited consolidated financial statements for the year ended
            October 31, 2009 (see page 85 of the 2009 Annual Report).
        (2) During the quarter, shares were issued at a 2% discount from the
            average closing price of the five trading days preceding the
            dividend payment date.
        (3) On February 1, 2010, 2,065,088 common shares were issued as part
            of the acquisition of National Leasing Group (Note 16).


        Warrants to Purchase Common Shares

                                                  For the three months ended
                                                -----------------------------
                                                     January 31   January 31
        Number of Warrants                                 2010         2009
        ---------------------------------------------------------------------
        Outstanding at beginning of period           14,964,356            -
        Issued                                                -            -
        Purchased and cancelled                          (4,500)           -
        Exercised                                        (3,200)           -
        ---------------------------------------------------------------------
        Outstanding at end of period                 14,956,656            -
        ---------------------------------------------------------------------

        Normal Course Issuer Bid

        On January 18, 2010, the Bank received approval from the Toronto
        Stock Exchange to institute a Normal Course Issuer Bid (NCIB) to
        purchase and cancel up to 748,058 of its warrants. The NCIB commenced
        January 20, 2010 and will expire January 19, 2011. From January 20 to
        January 31, 2010, the Bank purchased and cancelled 4,500 warrants at
        an aggregate cost of $33 which was charged to retained earnings.

    10. Stock-Based Compensation

        Stock Options

                                       For the three months ended
                          ---------------------------------------------------
                               January 31, 2010          January 31, 2009
                          ---------------------------------------------------
                                          Weighted                  Weighted
                                           Average                   Average
                            Number of     Exercise    Number of     Exercise
                              Options        Price      Options        Price
        ---------------------------------------------------------------------
        Options
          Balance at
           beginning of
           period           4,394,605  $     18.66    5,204,882  $     20.83
          Granted             358,291        22.09      990,035        11.76
          Exercised or
           exchanged          (55,000)       13.83      (21,000)       10.07
          Forfeited           (29,665)       17.88            -            -
        ---------------------------------------------------------------------
        Balance at end
         of period          4,667,731  $     18.98    6,173,917  $     19.41
        ---------------------------------------------------------------------

        The terms of the share incentive plan allow the holders of vested
        options a cashless settlement alternative whereby the option holder
        can either (a) elect to receive shares by delivering cash to the Bank
        in the amount of the option exercise price or (b) elect to receive
        the number of shares equivalent to the excess of the market value of
        the shares under option over the exercise price. Of the 55,500
        options (2009 - 21,000) exercised or exchanged in the three months
        ended January 31, 2010, option holders exchanged the rights to 33,650
        options (2009 - 15,000) and received 12,293 shares (2009 - 4,990) in
        return under the cashless settlement alternative.

        For the quarter ended January 31, 2010, salary expense of $1,206
        (2009 - $1,561) was recognized relating to the estimated fair value
        of options. The fair value of options granted was estimated using a
        binomial option pricing model with the following variables and
        assumptions: (i) risk-free interest rate of 2.6% (2009 - 2.1%), (ii)
        expected option life of 4.0 years (2009 - 4.0 years), (iii) expected
        volatility of 44% (2009 - 35%), and (iv) expected dividends of 2.0%
        (2009 - 4.0%). The weighted average fair value of options granted was
        estimated at $7.16 (2009 - $1.90) per share.

        Further details relating to stock options outstanding and exercisable
        at January 31, 2010 follow:

                                Options Outstanding      Options Exercisable
                          ---------------------------------------------------
                                      Weighted
                                       Average
                                     Remaining
                                      Contract- Weighted            Weighted
                                           ual   Average             Average
        Range of Exercise  Number of      Life  Exercise Number of  Exercise
        Prices               Options    (years)    Price   Options     Price
        ---------------------------------------------------------------------
        $ 8.58 to $13.78   1,190,235       3.2  $  12.08    216,500 $  13.78
        $15.46 to $17.58   1,157,200       2.0     16.61    712,000    16.44
        $19.16 to $21.46   1,062,890       1.9     21.45    753,100    21.44
        $22.09 to $26.38   1,034,126       3.3     24.41    284,700    24.96
        $28.11 to $31.18     223,280       2.9     31.13          -        -
        ---------------------------------------------------------------------
        Total              4,667,731       2.6  $  18.98  1,966,300 $  19.30
        ---------------------------------------------------------------------

        Restricted Share Units

        Under the Restricted Share Unit (RSU) plan, certain employees are
        eligible to receive an award in the form of RSUs. Each RSU entitles
        the holder to receive the cash equivalent of the market value of the
        Bank's common shares at the vesting date and an amount equivalent to
        the dividends paid on the common shares during the vesting period.
        RSUs vest on each anniversary of the grant in equal one-third
        installments over a vesting period of three years. Salary expense is
        recognized evenly over the vesting period, except where the employee
        is eligible to retire prior to the vesting date, in which case the
        expense is recognized between the grant date and the date the
        employee is eligible to retire.

        For the quarter ended January 31, 2010, salary expense of $375
        ($261 net of tax) was recognized related to RSUs (2009 - nil). As at
        January 31, 2010, the liability for the RSUs held under this plan was
        $4,360 (2009 - nil). At the end of each period, the liability and
        salary expense are adjusted to reflect changes in the market value of
        the Bank's common shares.

                                                  For the three months ended
                                                -----------------------------
                                                     January 31   January 31
        Number of RSUs                                     2010         2009
        ---------------------------------------------------------------------
        Restricted Share Units
          Balance at beginning of period                285,197            -
          Granted                                        13,240            -
          Vested                                              -            -
          Forfeited                                      (3,681)           -
        ---------------------------------------------------------------------
          Balance at end of period                      294,756            -
        ---------------------------------------------------------------------

    11. Contingent Liabilities and Commitments

        Significant contingent liabilities and commitments, including
        guarantees provided to third parties, are discussed in Note 20 of the
        Bank's audited consolidated financial statements for the year ended
        October 31, 2009 (see page 88 of the 2009 Annual Report) and include:

                                             As at        As at        As at
                                        January 31   October 31   January 31
                                              2010         2009         2009
        ---------------------------------------------------------------------
        Guarantees and standby
         letters of credit
          Balance outstanding          $   187,786  $   196,380  $   217,270
        Business credit cards
          Total approved limit              11,025       10,496       11,763
          Balance outstanding                2,794        2,566        2,703
        ---------------------------------------------------------------------

        In the ordinary course of business, the Bank and its subsidiaries are
        party to legal proceedings. Based on current knowledge, management
        does not expect the outcome of any of these proceedings to have a
        material effect on the consolidated financial position or results of
        operations.

    12. Financial Instruments

        As a financial institution, most of the Bank's balance sheet is
        comprised of financial instruments and the majority of net income
        results from gains, losses, income and expenses related to the same.

        Financial instrument assets include cash resources, securities,
        securities purchased under resale agreements, loans and derivative
        financial instruments. Financial instrument liabilities include
        deposits, securities sold under repurchase agreements, derivative
        financial instruments and subordinated debentures.

        The use of financial instruments exposes the Bank to credit,
        liquidity and market risk. A discussion of how these and other risks
        are managed can be found in the 2009 consolidated annual financial
        statements.

        The value of financial assets recorded on the consolidated balance
        sheets at January 31, 2010 at fair value (cash, securities,
        securities purchased under resale agreements and derivatives) was
        determined using published market prices quoted in active markets for
        97% (2009 - 98%) of the portfolio and estimated using a valuation
        technique based on observable market data for 3% (2009 - 2%) of the
        portfolio. The value of liabilities recorded on the consolidated
        balance sheet at fair value (derivatives and securities sold under
        repurchase agreements) was determined using a valuation technique
        based on observable market data. There were no financial instruments
        that were measured using unobservable market data.

        The table below sets out the fair values of financial instruments
        (including certain derivatives) using the valuation methods and
        assumptions outlined in the 2009 consolidated annual financial
        statements. The table does not include assets and liabilities that
        are not considered financial instruments.


                         January 31, 2010              October 31, 2009
                 ------------------------------------------------------------
                                          Fair                          Fair
                                         Value                         Value
                                          Over                          Over
                                        (Under)                       (Under)
                     Book       Fair      Book      Book      Fair      Book
                    Value      Value     Value     Value     Value     Value
    -------------------------------------------------------------------------
    Assets
      Cash
       resources $294,166   $294,166  $      -  $297,104  $297,104  $      -
      Securi-
       ties     1,855,784  1,855,784         - 1,891,409 1,891,409         -
      Securities
       purchased
       under
       resale
       agreements  20,000     20,000         -         -         -         -
      Loans(1)  9,364,019  9,407,326    43,307 9,320,749 9,368,074    47,325
      Other
       assets(2)   84,730     84,730         -    97,179    97,179         -
      Derivative
       related        802        802         -     2,334     2,334         -
    Liabilities
      Depo-
       sits(1) 10,016,880 10,132,300   115,420 9,628,949 9,739,360   110,411
      Other
       liabili-
       ties(3)    228,190    228,190         -   265,295   265,295         -
      Securities
       sold under
       repurchase
       agreements       -          -         -   300,242   300,242         -
      Subordinated
       debentures 315,000    318,397     3,397   375,000   377,363     2,363
      Derivative
       related         64         64         -        74        74         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        (1) Loans and deposits exclude deferred premiums and deferred
            revenue, which are not financial instruments.
        (2) Other assets exclude land, buildings and equipment, goodwill and
            other intangible assets, reinsurers' share of unpaid claims and
            adjustment expenses, future income tax asset, prepaid and
            deferred expenses, financing costs and other items that are not
            financial instruments.
        (3) Other liabilities exclude future income tax liability, deferred
            revenue, unearned insurance premiums and other items that are not
            financial instruments.
        (4) For further information on interest rates associated with
            financial assets and liabilities, including derivative
            instruments, refer to Note 13.


    13. Interest Rate Sensitivity

        The Bank's exposure to interest rate risk as a result of a difference
        or gap between the maturity or repricing behavior of interest
        sensitive assets and liabilities, including derivative financial
        instruments, is discussed in Note 28 of the audited consolidated
        financial statements for the year ended October 31, 2009 (see page 93
        of the 2009 Annual Report). The following table shows the gap
        position for selected time intervals.


    Asset Liability Gap Positions

                             Floating
                             Rate and                                  Total
                               Within       1 to 3     3 Months       Within
    ($ millions)              1 Month       Months    to 1 Year       1 Year
    -------------------------------------------------------------------------
    January 31, 2010
    Assets
    Cash resources and
     securities           $        59  $        44  $       632  $       735
    Loans                       4,724          593          899        6,216
    Other assets                    -            -            -            -
    Derivative financial
     instruments(1)                 -            -          152          152
    -------------------------------------------------------------------------
    Total                       4,783          637        1,683        7,103
    -------------------------------------------------------------------------
    Liabilities and Equity
    Deposits                    3,935          733        1,913        6,581
    Other liabilities               3            6           26           35
    Debentures                      -            -           70           70
    Shareholders' equity            -            -            -            -
    Derivative financial
     instruments(1)               152            -            -          152
    -------------------------------------------------------------------------
    Total                 $     4,090  $       739  $     2,009  $     6,838
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $       693  $      (102) $      (326) $       265
    -------------------------------------------------------------------------
    Cumulative Gap        $       693  $       591  $       265  $       265
    -------------------------------------------------------------------------
    Cumulative Gap as a
     percentage of total
     assets                       5.9%         5.0%         2.2%         2.2%
    -------------------------------------------------------------------------

    October 31, 2009
    Cumulative gap        $       486  $       275  $       208  $       208
    -------------------------------------------------------------------------
    Cumulative gap as a
     Percentage of total
     assets                       4.1%         2.3%         1.8%         1.8%
    -------------------------------------------------------------------------

    January 31, 2009
    Cumulative gap        $     1,295  $     1,371  $       432  $       432
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                      11.3%        12.0%         3.8%         3.8%
    -------------------------------------------------------------------------


                                                            Non-
                               1 Year    More than     interest
    ($ millions)           to 5 Years      5 Years    Sensitive        Total
    -------------------------------------------------------------------------
    January 31, 2010
    Assets
    Cash resources and
     securities           $     1,264  $        83  $        68  $     2,150
    Loans                       3,058          109          (81)       9,302
    Other assets                    -            -          190          190
    Derivative financial
     instruments(1)                 -            -            -          152
    -------------------------------------------------------------------------
    Total                       4,322          192          177       11,794
    -------------------------------------------------------------------------
    Liabilities and Equity
    Deposits                    3,334          105          (16)      10,004
    Other liabilities              35            8          224          302
    Debentures                    170           75            -          315
    Shareholders' equity            -            -        1,021        1,021
    Derivative financial
     instruments(1)                 -            -            -          152
    -------------------------------------------------------------------------
    Total                 $     3,539  $       188  $     1,229  $    11,794
    -------------------------------------------------------------------------
    Interest Rate
     Sensitive Gap        $       783  $         4  $    (1,052) $         -
    -------------------------------------------------------------------------
    Cumulative Gap        $     1,048  $     1,052  $         -  $         -
    -------------------------------------------------------------------------
    Cumulative Gap as a
     percentage of total
     assets                       8.9%         8.9%           -%           -%
    -------------------------------------------------------------------------

    October 31, 2009
    Cumulative gap        $     1,052  $     1,073  $         -  $         -
    -------------------------------------------------------------------------
    Cumulative gap as a
     Percentage of total
     assets                       8.9%         9.0%           -%           -%
    -------------------------------------------------------------------------

    January 31, 2009
    Cumulative gap        $       805  $       766  $         -  $         -
    -------------------------------------------------------------------------
    Cumulative gap as a
     percentage of total
     assets                       7.0%         6.7%           -%           -%
    -------------------------------------------------------------------------

    (1) Derivative financial instruments are included in this table at the
        notional amount.
    (2) Accrued interest is excluded in calculating interest sensitive assets
        and liabilities.
    (3) Potential prepayments of fixed rate loans and early redemption of
        redeemable fixed term deposits have not been estimated. Redemptions
        of fixed term deposits where depositors have this option are not
        expected to be material. The majority of fixed rate loans, mortgages
        and leases are either closed or carry prepayment penalties.


        The effective, weighted average interest rates for each class of
        financial assets and liabilities are shown below:


              Floating
    January   Rate and           3 Months   Total   1 Year     More
     31,        Within   1 to 3      to 1  Within       to     than
     2010      1 Month   Months      Year  1 Year  5 Years  5 Years    Total
    -------------------------------------------------------------------------
    Total
     assets       3.8%     2.8%       3.9    3.7%     5.0%     5.0%     4.2%
    Total
     liabil-
     ities        0.7      1.9        2.9    1.4      3.4      5.7      2.2
    -------------------------------------------------------------------------
    Interest
     rate
     sensitive
     gap          3.1%     0.9%       1.0%   2.3%     1.6%    (0.7)%    2.0%
    -------------------------------------------------------------------------

    October 31,
     2009
    -------------------------------------------------------------------------
    Total
     assets       3.8%     2.6%       4.5%   3.8%     4.9%     5.8%     4.3%
    Total
     liabil-
     ities        0.7      2.4        3.1    1.4      3.6      5.8      2.3
    -------------------------------------------------------------------------
    Interest
     rate
     sensitive
     gap          3.1%     0.2%       1.4%   2.4%     1.3%       -%     2.0%
    -------------------------------------------------------------------------

    January 31,
     2009
    -------------------------------------------------------------------------
    Total
     assets       3.9%     3.1%       5.0%   4.0%     5.4%     6.4%     4.5%
    Total
     liabil-
     ities        1.3      2.5        3.9    2.3      4.2      5.8      2.9
    -------------------------------------------------------------------------
    Interest
     rate
     sensitive
     gap          2.6%     0.6%       1.1%   1.7%     1.2%     0.6%     1.6%
    -------------------------------------------------------------------------

        Based on the current interest rate gap position, it is estimated that
        a one-percentage point increase in all interest rates would decrease
        net interest income by approximately 0.8% or $2,066 (October 31, 2009
        - 2.5 % or $6,574) and decrease other comprehensive income $16,052
        (October 31, 2009 - $21,355) net of tax, respectively over the
        following twelve months. A one-percentage point decrease in all
        interest rates would increase net interest income by approximately
        3.2% or $8,532 (October 31, 2009 - 3.8% or $10,241) and increase
        other comprehensive income $16,052 (October 31, 2009 - $21,355) net
        of tax.

    14. Segmented Information

        The Bank operates principally in two industry segments - banking and
        trust, and insurance. These two segments differ in products and
        services but are both within the same geographic region. The banking
        and trust segment provides banking, trust and wealth management
        services to personal clients, small to medium-sized commercial
        business clients and institutional clients primarily in Western
        Canada. The insurance segment provides home and auto insurance to
        individuals in British Columbia and Alberta.

                         Banking and Trust                 Insurance
                  -----------------------------------------------------------
                        Three months ended            Three months ended
                  -----------------------------------------------------------
                   January   October   January   January   October   January
                   31 2010   31 2009   31 2009   31 2010   31 2009   31 2009
    -------------------------------------------------------------------------
    Net interest
     income
     (teb)(1)     $ 72,619  $ 66,387  $ 53,101  $  1,687  $  1,625  $  1,495
    Less teb
     adjustment      2,379     2,219     1,438       184       178       148
    -------------------------------------------------------------------------
    Net interest
     income per
     financial
     statements     70,240    64,168    51,663     1,503     1,447     1,347
    Other
     income(2)      20,616    17,019    20,218     5,750     5,068     2,133
    -------------------------------------------------------------------------
    Total
     revenues       90,856    81,187    71,881     7,253     6,515     3,480
    Provision
     for credit
     losses          3,713     3,393     3,369         -         -         -
    Non-interest
     expenses       37,627    38,997    33,910     2,621     2,576     2,495
    Provision for
     income taxes   12,750    11,271     9,713     1,287     1,049       188
    Non-controlling
     interest in
     subsidiary         76        59        67         -         -         -
    -------------------------------------------------------------------------
    Net income    $ 36,690  $ 27,467  $ 24,822  $  3,345  $  2,890  $    797
    -------------------------------------------------------------------------
    Total
     average
     assets
     ($ millions)
     (3)          $ 11,317  $ 11,342  $ 10,711  $    214  $    212  $    188
    -------------------------------------------------------------------------


                                                            Total
                                                -----------------------------
                                                      Three months ended
                                                -----------------------------
                                                 January   October   January
                                                 31 2010   31 2009   31 2009
    -------------------------------------------------------------------------
    Net interest income (teb)(1)                $ 74,306  $ 68,012  $ 54,596
    Less teb adjustment                            2,563     2,397     1,586
    -------------------------------------------------------------------------
    Net interest income per
     financial statements                         71,743    65,615    53,010
    Other income                                  26,366    22,087    22,351
    -------------------------------------------------------------------------
    Total revenues                                98,109    87,702    75,361
    Provision for credit losses                    3,713     3,393     3,369
    Non-interest expenses                         40,248    41,573    36,405
    Provision for income taxes                    14,037    12,320     9,901
    Non-controlling interest in subsidiary            76        59        67
    -------------------------------------------------------------------------
    Net income                                  $ 40,035  $ 30,357  $ 25,619
    -------------------------------------------------------------------------
    Total average assets ($ millions)(3)        $ 11,531  $ 11,554  $ 10,899
    -------------------------------------------------------------------------

    (1) Taxable Equivalent Basis (teb) - Most financial institutions analyze
        revenue on a taxable equivalent basis to permit uniform measurement
        and comparison of net interest income. Net interest income (as
        presented in the consolidated statement of income) includes tax-
        exempt income on certain securities. Since this income is not
        taxable, the rate of interest or dividends received is significantly
        lower than would apply to a loan or security of the same amount. The
        adjustment to taxable equivalent basis increases interest income and
        the provision for income taxes to what they would have been had the
        tax-exempt securities been taxed at the statutory rate. The taxable
        equivalent basis does not have a standardized meaning prescribed by
        generally accepted accounting principles and therefore may not be
        comparable to similar measures presented by other financial
        institutions.
    (2) Other income for the insurance segment is presented net of net
        claims, adjustment expenses and policy acquisition expenses and
        includes gains on sale of securities.
    (3) Assets are disclosed on an average daily balance basis as this
        measure is most relevant to a financial institution and is the
        measure reviewed by management.


    15. Capital Management

        Capital for Canadian financial institutions is managed and reported
        in accordance with a capital management framework specified by OSFI
        commonly called Basel II.

        Capital funds are managed in accordance with policies and plans that
        are regularly reviewed and approved by the Board of Directors and
        take into account forecasted capital needs and markets. The goal is
        to maintain adequate regulatory capital to be considered well
        capitalized, protect customer deposits and provide capacity for
        internally generated growth and strategic opportunities that do not
        otherwise require accessing the public capital markets, all while
        providing a satisfactory return for shareholders.

        Additional information about the Bank's capital management practices
        is provided in Note 31 to the 2009 audited financial statements
        beginning on page 97 of the 2009 Annual Report.

        Capital Structure and Regulatory Ratios

                                             As at        As at        As at
                                        January 31   October 31   January 31
                                              2010         2009         2009
        ---------------------------------------------------------------------
        Capital
          Tier 1                       $ 1,094,841  $ 1,063,287  $   787,859
          Total                          1,420,842    1,449,790    1,180,204
        ---------------------------------------------------------------------
        Capital ratios
          Tier 1                              11.6%        11.3%         8.7%
          Total                               15.1         15.4         13.0
        Assets to capital multiple             8.2x         8.1x         9.3x
        ---------------------------------------------------------------------

        During the quarter ended January 31, 2010, the Bank complied with all
        internal and external capital requirements.

    16. Subsequent Event

        On February 1, 2010, the Bank acquired 100% of the outstanding common
        shares of privately held National Leasing Group Inc. (National
        Leasing) in exchange for $52.8 million in cash, 2,065,088 common
        shares of the Bank and contingent consideration for a total agreed
        upon value of $130.0 million. Both the Bank and the vendors have the
        option to trigger the payment of the contingent consideration no
        earlier than November 1, 2012. Any required adjustment to the
        contingent consideration will be recognized as an adjustment to
        goodwill in the period in which the contingency is resolved.

        National Leasing is a commercial equipment leasing company for small
        to mid-size transactions, headquartered in Winnipeg, Manitoba.
        National Leasing has over 58,000 existing lease agreements with a
        collective book value of approximately $650 million, including
        securitized leases which comprise approximately one half of the
        portfolio and are off-balance sheet.

    17. Future Accounting Changes

        International Financial Reporting Standards

        The CICA will transition Canadian GAAP for publicly accountable
        entities to International Financial Reporting Standards (IFRS). The
        Bank's consolidated financial statements will be prepared in
        accordance with IFRS for the fiscal year commencing November 1, 2011
        and will include comparative information for the prior year.

        During 2008, the Bank commenced a four stage project to identify and
        evaluate the impact of the transition to IFRS on the consolidated
        financial statements and develop a plan to complete the transition.
        The project plan includes the following phases - diagnostic, design
        and planning, solution development, and implementation. The
        diagnostic and the design and planning phases are complete, and the
        solution development phase is expected to be completed by the end of
        fiscal 2010.

        The impact of the transition to IFRS on the Bank's consolidated
        financial statements for current standards is not yet determinable.
        CWB continues to monitor the International Accounting Standards
        Board's proposed changes to standards during Canada's transition to
        IFRS. These proposed changes may have a significant impact on the
        Bank's implementation plan and future financial statements.


    -------------------------------------------------------------------------
    Shareholder Information
    -------------------------------------------------------------------------

    Head Office                       Transfer Agent and Registrar

    Canadian Western Bank & Trust     Valiant Trust Company
    Suite 3000, Canadian Western      Suite 310, 606 - 4th Street S.W.
    Bank Place                        Calgary, AB T2P 1T1
    10303 Jasper Avenue               Telephone: (403) 233-2801
    Edmonton, AB T5J 3X6              Fax: (403) 233-2857
    Telephone: (780) 423-8888         Website: www.valianttrust.com
    Fax: (780) 423-8897               E-mail: inquiries@valianttrust.com
    Website: www.cwbankgroup.com
                                      Eligible Dividends Designation
    Subsidiary Offices
                                      CWB designates all dividends for both
    Canadian Western Trust Company    common and preferred shares paid to
    Suite 600, 750 Cambie Street      Canadian residents as "eligible
    Vancouver, BC V6B 0A2             dividends", as defined in the Income
    Toll-free: 1-800-663-1124         Tax Act (Canada), unless otherwise
    Fax: (604) 669-6069               noted.
    Website: www.cwt.ca
                                      Dividend Reinvestment Plan
    Canadian Direct Insurance
    Incorporated                      CWB's dividend reinvestment plan allows
    Suite 600, 750 Cambie Street      common and preferred shareholders to
    Vancouver, BC V6B 0A2             purchase additional common shares by
    Telephone: (604) 699-3678         reinvesting their cash dividend without
    Fax: (604) 699-3851               incurring brokerage and commission
    Website: www.canadiandirect.com   fees. For information about
                                      participation in the plan, please
    Valiant Trust Company             contact the Transfer Agent and
    Suite 310, 606 - 4th Street S.W.  Registrar or visit www.cwbankgroup.com.
    Calgary, AB T2P 1T1
    Toll-free: 1-866-313-1872         Investor Relations
    Fax: (403) 233-2857               For further financial information
    Website: www.valianttrust.com     contact:
                                      Kirby Hill, CFA
    Adroit Investment Management Ltd. Assistant Vice President, Investor and
    Suite 1250, Canadian Western      Public Relations
    Bank Place                        Canadian Western Bank
    10303 Jasper Avenue               Telephone: (780) 441-3770
    Edmonton, AB T5J 3N6              Toll-free: 1-800-836-1886
    Telephone: (780) 429-3500         Fax: (780) 969-8326
    Fax: (780) 429-9680               E-mail: InvestorRelations@cwbank.com
    Website:
    www.adroitinvestments.ca          Online Investor Information

    National Leasing Group Inc.       Additional investor information
    1525 Buffalo Place                including supplemental financial
    Winnipeg, MB T3T 1L9              information and corporate presentations
    Toll-free: 1-888-599-1966         are available on CWB's website at
    Toll-free fax: 1-866-408-0729     www.cwbankgroup.com.
    Website: www.nationalleasing.com
                                      Quarterly Conference Call and Webcast
    Stock Exchange Listings
    The Toronto Stock Exchange        CWB's quarterly conference call and
      Common Shares: CWB              live audio webcast will take place on
      Series 3 Preferred Shares:      March 4, 2010 at 2:00 p.m. ET.
       CWB.PR.A                       The webcast will be archived on the
      Common Share Purchase           Bank's website at www.cwbankgroup.com
       Warrants: CWB.WT               for sixty days. A replay of the
                                      conference call will be available until
                                      March 18, 2010 by dialing (416) 849-
                                      0833 or toll-free (800) 642-1687 and
                                      entering passcode 56178290.
    

SOURCE Canadian Western Bank

For further information: For further information: Larry M. Pollock, President and Chief Executive Officer, Canadian Western Bank, Phone: (780) 423-8888; Kirby Hill, CFA, Assistant Vice President, Investor and Public Relations, Canadian Western Bank, Phone: (780) 441-3770, E-mail: kirby.hill@cwbank.com

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Canadian Western Bank

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