Pacific & Western Credit Corp. announces net earnings of $1.1 million for its first quarter ended January 31, 2007, and growth in lending assets of 16% from a year ago



    LONDON, ON, March 1 /CNW/ -

    FIRST QUARTER FINANCIAL HIGHLIGHTS
    (three months ended January 31, 2007 compared to three months ended
    January 31, 2006 unless otherwise noted)

    
    -   Net earnings of $1.1 million or $0.08 per share ($0.07 diluted)
        compared to $1.7 million or $0.12 per share ($0.12 diluted) last
        year.
    -   Net interest income (teb) of $4.9 million compared to $5.0 million a
        year ago.
    -   Total revenue (teb) of $5.4 million compared to $5.8 million last
        year.
    -   Return on average common shareholders' equity of 6.37% compared to
        12.63% last year.
    -   Return on average assets of 0.32% compared to 0.58% last year.
    -   Lending assets increased by 16% to $895 million from $769 million a
        year ago and from $864 million at the end of the previous quarter.
    

    PRESIDENT'S COMMENTS

    This quarter our lending assets continued to show steady growth,
exceeding our target and increasing to $895 million with loan fundings of
$111 million. This represents a 28% increase over loan fundings for the same
period last year. Spread, on a teb basis, also exceeded our target for the
quarter and increasing to 1.45% from the previous quarter as a result of the
growth in lending assets. Our strategy of providing financing to low risk
public sector entities and investment grade corporations continues to provide
positive results with these lending niches providing the greatest areas of
growth over the past year and giving us positive spreads with minimal risk.
Recently we have been successful in entering into significant new loan
commitments with public sector entities, which will allow this growth to
continue. In addition to these new commitments, loans in our pipeline totalled
$127 million at the end of the quarter.
    In January, we were pleased to announce that your Board of Directors
declared a special dividend to holders of the Corporation's common shares.
This special dividend will be comprised of Class A common shares of Discovery
Air Inc. (DA) and will be payable based on .53 of a DA share for every one
common share of the Corporation held. Considering the success of the
Corporation's investment in DA, the Board of Directors decided to provide you,
the shareholders, with the opportunity to benefit directly in DA by way of
this dividend. This reduced our Bank's holdings in DA to only 1.3 million
shares. However, we continue to be bullish on DA and have acquired a 5 year
option to purchase approximately 9.3 million common shares at $2.00 per share
so that we will still be able to enjoy any benefit that these shares may
provide.
    While net earnings for the quarter were less than a year ago due
primarily to increases in provisions on two loan facilities previously
classified as impaired, our target for the quarter was still exceeded, and
with growth in lending assets and spread continuing, we look forward to
improving profitability in the months to come.

    
    FINANCIAL HIGHLIGHTS
                                            for the three months ended
    -------------------------------------------------------------------------
    (unaudited)
    ($ thousands, except per share      January 31   October 31   January 31
     amounts)                                 2007         2006         2006
    -------------------------------------------------------------------------

    Results of operations (teb)

      Net interest income per
       financial statements            $     4,462  $     4,262  $     4,547
      Teb adjustment                           444          432          427
      Net interest income                    4,906        4,694        4,974
      Spread                                  1.45%        1.42%        1.72%
      Provision for credit losses              429          339           49
      Net interest income after
       provision for credit losses           4,477        4,355        4,925
      Other income                             959        1,116          832
      Total revenue                          5,436        5,471        5,757
      Non-interest expenses                  3,658        3,252        3,284
      Net earnings                           1,091        1,482        1,659
      Earnings per common share:
        Basic                          $      0.08  $      0.11  $      0.12
        Diluted                        $      0.07  $      0.10  $      0.12
      Efficiency ratio                 $      0.62  $      0.56  $      0.57
      Return on average common
       shareholders' equity                   6.36%        8.54%       12.63%
      Return on average total assets          0.32%        0.45%        0.58%
      Gross impaired loans to total
       assets                                 0.19%        0.23%        0.03%
      Number of full time equivalent
       staff                                    65           61           50
    -------------------------------------------------------------------------
    Balance Sheet Summary
      Cash and securities              $   414,315  $   425,418  $   362,869
      Total loans                          895,158      863,830      768,850
      Total assets                       1,358,729    1,329,729    1,157,631
      Average assets                     1,344,229    1,308,594    1,144,429
      Deposits                           1,174,237    1,210,555      966,395
      Notes payable                         36,184       36,184       36,186
      Shareholders' equity                  65,087       70,650       54,599
    -------------------------------------------------------------------------
    Capital ratios
    (Based on the subsidiary Pacific
     & Western Bank of Canada)
      Assets to capital ratio                13.95        12.96        13.55
      Tier 1 risk-based capital ratio         8.10%        8.93%        7.75%
      Total risk-based capital ratio         12.32%       13.25%       11.46%
    -------------------------------------------------------------------------
    

    Non-GAAP measures:
    Like most banks, the Corporation analyzes revenue on a taxable equivalent
basis (teb) to permit uniform measurement and comparison of net interest
income. Net interest income includes tax-exempt income on certain securities.
Since this income is not taxable, the rate of interest or dividends received
is lower than would apply to a loan or taxable security of the same amount.
The taxable equivalent basis includes an adjustment that increases interest
income and the provision for income taxes by the same amount that adjusts the
income on the tax-exempt securities to what income would have been had it been
taxed at the statutory rate.

    MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
    CONDITION

    This management's discussion and analysis (MD&A) of operations and
financial condition for the first quarter of fiscal 2007 should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended January 31, 2007, included herein, and the audited
consolidated financial statements and MD&A for the year ended October 31,
2006, which are available on SEDAR at www.sedar.com. Except as discussed
below, all other factors discussed and referred to in the MD&A for the year
ended October 31, 2006, remain substantially unchanged.

    Overview

    Net earnings for the quarter were $1.1 million or $0.08 per share
($0.07 diluted) compared to $1.7 million or $0.12 per share ($0.12 diluted)
for the same period a year ago. Net earnings for the quarter decreased from
the same period a year ago primarily as a result of increases in the provision
for credit losses and non-interest expenses. Net interest income (teb) for the
quarter increased to $4.9 million from $4.7 million for the previous quarter
and in comparison to $5.0 million a year ago. Total revenue for the quarter
was $5.4 million compared to $5.5 million in the previous quarter and
$5.8 million a year ago.
    On January 24, 2007, the Corporation declared a special dividend to
holders of its common shares. This special dividend will consist of .53 of a
Discovery Air Inc. (DA) Class A common share for every one common share of the
Corporation held and will be paid on March 7, 2007. The declaration of this
dividend resulted in a gain of approximately $888,000, which is included in
other income in the interim consolidated financial statements.
    At January 31, 2007, total assets increased to $1.36 billion from
$1.33 billion at the end of the previous quarter and $1.16 billion a year ago.
Lending assets continued to show steady growth, increasing at the end of the
quarter to $895 million from $864 million at the end of the previous quarter
and $769 million a year ago. Gross impaired loans at the end of the quarter
were $2.5 million or 0.19% of total assets compared to $3.1 million or 0.23%
of total assets at the end of the previous quarter.
    Return on average common shareholders' equity for the quarter was 6.36%
compared to 8.54% for the previous quarter and 12.63% for the same period a
year ago. Return on average assets for the quarter was 0.32% compared to 0.45%
for the previous quarter and 0.58% for same period a year ago.

    Total Revenue (teb)

    Total revenue (teb), which is comprised of net interest income after
provision for credit losses and other income, was $5.4 million for the quarter
compared to $5.5 million for the previous quarter and $5.8 million for same
period a year ago with the difference due primarily to increases in the
provision for credit losses.

    Net Interest Income

    Net interest income (teb) for the quarter was $4.9 million compared to
$4.7 million for the previous quarter and $5.0 million last year. The increase
in net interest income from the previous quarter was primarily due to an
increase in lending assets which grew to $895 million from $864 million.
Spread (teb), which is net interest income as a percentage of average assets,
was 1.45% compared to 1.42% for the previous quarter and 1.72% for the same
period last year. Spread (teb) increased from the previous quarter as a result
of growth in lending assets, however, it was less than last year as a result
of competitive market conditions and decreases in immigrant investor loans and
residential development loans which historically had high spreads. These
decreases were offset by increases in loans with lower spreads such as public
sector loans and loans and leases to investment grade corporations.

    Other Income

    Other income for the quarter was $959,000 compared to $832,000 for the
same period last year. Other income for the quarter consisted primarily of a
gain of approximately $888,000 relating to a special dividend declared by the
Corporation consisting of DA common shares. Also included in other income are
fees relating to financial services the Corporation provides to DA which for
the three month period ended January 31, 2007, totalled $52,000 (2006 - $nil).
Other income for the same period a year ago consisted primarily of fees
totalling $678,000 for providing wind up services to a client.

    Non-Interest Expenses

    Non-interest expenses for the quarter were $3.7 million compared to
$3.3 million for the previous quarter and for the same period last year.
Non-interest expenses for the quarter increased from last year primarily as a
result of higher salaries and benefits due to increased staff levels and
higher depreciation charges and premises costs, including the office in
Calgary which opened during the summer of 2006. Non-interest expenses
increased from the previous quarter as a result of higher salaries and
benefits due to increased staff levels and charges for stock-based
compensation.
    Our efficiency ratio (teb), which measures the cost of the Corporation to
earn $1 of revenue, was $0.62 for the quarter compared to $0.57 for the same
period last year and $0.56 for the previous quarter. The change in the
efficiency ratio was due primarily to increased non-interest expenses in the
quarter. At January 31, 2007, our ratio of assets per full time employee was
$20.9 million compared to $23.1 million a year ago. At the current levels, the
Corporation remains one of the most efficient of the domestic banks.

    Income Taxes

    The income tax provision for the quarter was $243,000 compared to
$624,000 last year with the difference due to the gain from the disposition of
the DA shares in the quarter being taxed at a lower effective rate. In the
first quarter of 2007, the Corporation's statutory federal and provincial
income tax rate was approximately 36%, the same rate that was in effect for
2006. However, the effective income tax rate for the quarter was 18% compared
to 30% for the same period last year with the difference due to a lower level
of tax on gains and the impact of non-taxable income from securities earned in
the period.
    The Corporation's effective income tax rate in the second quarter of
fiscal 2007 may increase as a result of income for tax purposes which may
arise as a result of the disposition of the DA shares comprising the special
dividend payable on March 7, 2007. Any taxable income which may arise will be
taxed at an effective rate of 18%.

    Balance Sheet

    Total assets at January 31, 2007 were $1.36 billion compared to
$1.16 billion a year ago and $1.33 billion at the end of the previous quarter
with the largest increase from a year ago being in lending assets which grew
from $769 million to $895 million.

    Cash and Securities

    Cash and securities, which are held for liquidity management purposes and
to earn investment income, increased to $414 million from $363 million a year
ago compared to $425 million at the end of the previous quarter. The decrease
from the end of the previous quarter was due to short term securities being
used to fund loan growth and deposit maturities.
    At January 31, 2007, net unrealized losses in our securities portfolio
and under the new accounting standard included in accumulated other
comprehensive income totalled $326,000 compared to $1.1 million at the end of
the previous quarter and $8.5 million a year ago. The change in unrealized
losses from a year ago was a result of changes in general market conditions
and the impact of recording an impairment writedown during 2006 of
$3.2 million relating to an investment included in our securities portfolio
which had been trading below our book value and determined to be an other than
temporary decline.

    Mortgages and Loans

    Lending assets grew to $895 million at the end of the quarter from
$769 million a year ago and from $864 million at the end of the previous
quarter. New lending in the quarter totalled $111 million and was offset by
loan repayments of $79 million. In comparison to a year ago, lending
categories which saw increases were our public sector and commercial loan
categories. These increases were offset by decreases in personal loans which
consist of immigrant investor loans and residential development loans.
Decreases in residential development loans were due to loan repayments in 2006
which were higher than anticipated due to a strong housing market in
Southwestern Ontario.

    Other Assets

    Other assets totalled $49.3 million at the end of the quarter compared to
$40.5 million at the end of the previous quarter and $25.9 million a year ago.
Included in other assets is the Corporation's investment in DA which at
January 31, 2007, had a carrying value of $30.8 million including an
unrealized gain of $5.2 million included in accumulated other comprehensive
income.

    Deposits and Financing

    Deposits are used as a primary source of financing growth in assets and
are raised entirely through an agent network across Canada. Deposits at the
end of the quarter decreased to $1.17 billion from $1.21 billion at the end of
the previous quarter but increased from $966,000 a year ago. The decrease in
deposits from the end of the previous quarter was due to excess treasury
assets being used as a source to fund maturing deposits rather than depending
solely on new deposits to fund maturities.
    A second source of financing for asset growth is the use of margin lines
and securities sold under repurchase agreements which totalled $60 million at
the end of the quarter compared to $89 million a year ago and $nil at the end
of the previous quarter.

    Credit Quality

    Gross impaired loans at the end of the quarter totalled $2.5 million or
0.19% of total assets compared to $3.1 million at the end of the previous
quarter. The provision for credit losses for the quarter was $429,000 compared
to $49,000 for the same period a year ago with the increase due to specific
provisions and additions to our general allowance for credit losses. During
the quarter, specific provisions totalling $294,000 were recorded, increasing
the provisions against two loans which had been previously classified as
impaired. Total allowances for credit losses, including specific and general
allowances, were $3.0 million at the end of the quarter compared to
$2.6 million at the end of 2006.

    Shareholders' Equity

    Shareholders' equity at the end of the quarter was $65.1 million compared
to $54.6 million a year ago with the increase due primarily to the retention
of earnings and offset by the special dividend of $10.7 million. Total common
shares outstanding at the end of the quarter were 13,520,460 compared to
13,421,585 at the end of the previous quarter with the increase due to the
exercise of common share options. Outstanding common share options totalled
1,309,320 at the end of the previous quarter compared to 1,401,700 a year ago.
 Our book value per common share at the end of the quarter was $4.55 compared
to $3.83 a year ago.

    Updated Share Information

    At February 28, 2007, there were 13,751,752 common shares outstanding and
1,078,028 common share options outstanding with the changes due to the
exercise of common share options.

    Capital Adequacy

    The Bank's total risk-based capital ratio, which is the ratio of
regulatory capital to risk-weighted assets, was 12.32% at the end of the
quarter compared to 13.25% at the end of the previous quarter and 11.46% a
year ago. The Bank has an internal target for its risk-based capital ratio of
11% and manages its regulatory capital and risk-weighted assets so this target
is exceeded. The Bank's Tier 1 risk-based capital ratio, which is the ratio of
Tier 1 capital to risk-weighted assets, was 8.10% at the end of the quarter
compared to 8.93% at the end of the previous quarter and 7.75% a year ago. The
Bank's assets to capital ratio was 13.95 at the end of the quarter compared to
12.96 at the end of the previous quarter and 13.55 a year ago.

    Performance Targets

    Performance targets established for the 2007 fiscal year and 2007
year-to-date are noted below with actual results for the period ended January
31, 2007.

    
                                                          2007
                                     ----------------------------------------
                                        Annual   Year-to-Date   Year-to-Date
                                        Target         Target        Results
    -------------------------------------------------------------------------
    Spread (teb)                          1.67%          1.40%          1.45%
    Loan growth                          33.00%          2.00%          3.60%
    Total asset growth                   12.00%          2.00%          2.20%
    

    Changes in Accounting Policies

    Newly issued accounting standards by The Canadian Institute of Chartered
Accountants relating to comprehensive income, equity, financial instruments
and hedges were adopted by the Corporation effective November 1, 2006. As a
result of these new standards, a new category, accumulated other comprehensive
income, forms part of Shareholders' Equity and certain unrealized gains or
losses on available-for-sale financial instruments are reported in accumulated
other comprehensive income until realization.
    At January 31, 2007, accumulated other comprehensive income totalled
$3,674,000 and consisted of unrealized losses of $326,000 related to
securities held as available-for-sale, unrealized gains of $5,152,000 related
to our investment in DA which has been designated as available-for-sale and
deferred losses of $535,000 related to previously closed cash flow hedges no
longer included in other assets. In addition, accumulated other comprehensive
income included $617,000 relating to the future income taxes on the above
items.
    The new accounting standard relating to hedges requires the Corporation
to fair value the hedging item and the hedged item with the changes recorded
through net earnings. As a result of this standard, at January 31, 2007,
mortgages and loans and other liabilities include fair value adjustments
totalling $2,429,000 however, there was no impact on net earnings as the fair
value adjustment to mortgages and loans was offset by the increase in the fair
value adjustment of the corresponding hedges recorded in other liabilities.

    Changes in Internal Control Over Financial Reporting

    During the most recent interim period, there have been no changes in the
Corporation's policies and procedures and other processes that comprise its
internal control over financial reporting, that have materially affected, or
are reasonably likely to materially affect, the Corporation's internal control
over financial reporting.


    
    Summary of Quarterly Results

    (thousands of
     dollars except
     per share
     amounts)        2007                          2006
    ------------- ----------- -----------------------------------------------
                      Q1          Q4          Q3          Q2          Q1
    Results of
     operations:
    Total interest
     income per
     financial
     statements    $  18,163   $  18,677   $   16,418  $  15,104   $  15,138
    Teb adjustment       444         432          440        352         427
    Total interest
     income           18,607      19,109       16,858     15,456      15,565
    Yield on
     assets (%)         5.49%       5.79%        5.37%      5.37%       5.40%
    Interest expense  13,701      14,415       12,200     10,560      10,591
    Cost of funds (%)   4.04%       4.37%        3.89%      3.67%       3.68%
    Net interest
     income            4,906       4,694        4,658      4,896       4,974
    Spread (%)          1.45%       1.42%        1.48%      1.70%       1.72%
    Provision for
     credit losses       429         339          321         78          49
    Other income         959       1,116       12,963      1,251         832
    Total revenue      5,436       5,471       17,300      6,069       5,757
    Non-interest
     expenses          3,658       3,252        3,215      3,104       3,284
    Income before
     income taxes      1,778       2,219       14,085      2,965       2,473
    Income tax
     provision           687         737        2,282      1,040       1,051
    Non-controlling
     interest              -           -            -        117         237
    Net earnings       1,091       1,482       11,803      2,042       1,659
    Earnings per
     share
      -basic         $  0.08   $    0.11   $     0.88  $    0.15   $    0.12
      -diluted       $  0.07   $    0.10   $     0.85  $    0.14   $    0.12



    (thousands of
     dollars except
     per share
     amounts)                                2005
    ------------------------- -----------------------------------
                                  Q4          Q3          Q2
    Results of
     operations:
    Total interest
     income per
     financial
     statements                $  13,845   $  13,117   $  13,298
    Teb adjustment                   484         423         446
    Total interest
     income                       14,329      13,540      13,744
    Yield on
     assets (%)                     5.21%       5.11%       5.41%
    Interest expense               9,846      10,000       9,666
    Cost of funds (%)               3.58%       3.77%       3.80%
    Net interest
     income                        4,483       3,540       4,078
    Spread (%)                      1.63%       1.34%       1.61%
    Provision for
     credit losses                   147          91          38
    Other income                   2,592       4,275       1,078
    Total revenue                  6,928       7,724       5,118
    Non-interest
     expenses                      3,904       3,652       2,746
    Income before
     income taxes                  3,024       4,072       2,372
    Income tax
     provision                     1,196       1,507         840
    Non-controlling
     interest                        (72)       (826)        107
    Net earnings                   1,756       1,739       1,639
    Earnings per
     share
      -basic                   $    0.13   $    0.12   $    0.12
      -diluted                 $    0.13   $    0.12   $    0.12
    

    Dated: February 28, 2007

    Forward-Looking Statements

    The statements in this management's discussion and analysis which relate
to the future are forward-looking statements. By their very nature,
forward-looking statements involve inherent risks and uncertainties, both
general and specific, and risks exist that predictions, forecasts, projections
and other forward-looking statements will not be achieved. Readers are
cautioned not to place undue reliance on these forward-looking statements as a
number of important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions expressed
in such forward-looking statements. These factors include, but are not limited
to, the strength of the Canadian economy in general and the strength of the
local economies within Canada in which we conduct operations; the effects of
changes in monetary and fiscal policy, including changes in interest rate
policies of the Bank of Canada; the effects of competition in the markets in
which we operate; inflation; capital market fluctuations; the timely
development and introduction of new products in receptive markets; the impact
of changes in the laws and regulations regulating financial services; changes
in tax laws; technological changes; unexpected judicial or regulatory
proceedings; unexpected changes in consumer spending and savings habits; and
our anticipation of and success in managing the risks implicated by the
foregoing.
    The foregoing list of important factors is not exhaustive. When relying
on forward-looking statements to make decisions, investors and others should
carefully consider the foregoing factors and other uncertainties and potential
events. There is no undertaking to update any forward-looking statement that
is contained in this management's discussion and analysis or made from time to
time by the Corporation.

    
    PACIFIC & WESTERN CREDIT CORP.
    Consolidated Balance Sheet
    (thousands of dollars)

                                  January 31     October 31       January 31
                                     2007           2006             2006
                               --------------  --------------  --------------
                                 (unaudited)                     (unaudited)

    Assets
    Cash resources             $     142,656   $     207,720   $      84,348
    Securities                       271,659         217,698         278,521
    Mortgages and loans              895,158         863,830         768,850
    Other assets                      49,256          40,481          25,912
                               --------------  --------------  --------------
                               $   1,358,729   $   1,329,729   $   1,157,631
                               --------------  --------------  --------------
                               --------------  --------------  --------------

    Liabilities and
     Shareholders' Equity
    Deposits                   $   1,174,237   $   1,210,555   $     966,395
    Notes payable                     36,184          36,184          36,186
    Other liabilities                 83,221          12,340          99,804
                               --------------  --------------  --------------
                                   1,293,642       1,259,079       1,102,385
                               --------------  --------------  --------------

    Non-controlling interest               -               -             647

    Shareholders' equity
    Share capital                     38,282          37,775          37,051
    Retained earnings                 23,131          32,875          17,548
    Accumulated other
     comprehensive
     income(note 1)                    3,674               -               -
                               --------------  --------------  --------------
                                      65,087          70,650          54,599
                               --------------  --------------  --------------

                               $   1,358,729   $   1,329,729   $   1,157,631
                               --------------  --------------  --------------
                               --------------  --------------  --------------



    PACIFIC & WESTERN CREDIT CORP.
    Consolidated Statement of Earnings
    (thousands of dollars)

                                                   for three months ended
                                               ------------------------------
                                                 January 31      January 31
                                                    2007            2006
                                               ------------------------------
                                                 (unaudited)     (unaudited)

    Interest income
      Interest income on loans                 $      13,094   $      11,494
      Interest and income from securities              4,469           3,125
      Loan fee income                                    600             519
                                               ------------------------------
                                                      18,163          15,138
    Interest expense
      Deposits and other                              12,831           9,733
      Notes payable                                      870             858
                                               ------------------------------
                                                      13,701          10,591
                                               ------------------------------

      Net interest income                              4,462           4,547

      Provision for credit losses                        429              49
                                               ------------------------------
      Net interest income after provision for
       credit losses                                   4,033           4,498

      Other income(note 4)                               959             832
                                               ------------------------------

                                                       4,992           5,330
                                               ------------------------------

    Non-interest expenses
      Salaries and benefits                            2,120           1,861
      General and administrative                       1,137           1,140
      Premises and equipment                             401             283
                                               ------------------------------
                                                       3,658           3,284
                                               ------------------------------

      Earnings before income taxes and other           1,334           2,046

      Income tax provision                               243             624

      Non-controlling interest                             -            (237)
                                               ------------------------------

    Net earnings                               $       1,091   $       1,659
                                               ------------------------------
                                               ------------------------------

    Basic earnings per share                   $        0.08   $        0.12
                                               ------------------------------
                                               ------------------------------

    Diluted earnings per share                 $        0.07   $        0.12
                                               ------------------------------
                                               ------------------------------

    Weighted average number of common shares      13,471,000      13,319,000
                                               ------------------------------
                                               ------------------------------



    PACIFIC & WESTERN CREDIT CORP.
    Consolidated Statement of Changes in Shareholders' Equity
    (thousands of dollars)

                                                   for three months ended
                                               ------------------------------
                                                 January 31      January 31
                                                    2007            2006
                                               ------------------------------
                                                 (unaudited)     (unaudited)


    Common shares
    Balance, beginning of period               $      33,986   $      33,191
    Proceeds of shares issued                            359             107
                                               ------------------------------
    Balance, end of period                     $      34,345   $      33,298
                                               ------------------------------

    Class A preferred shares
                                               ------------------------------
    Balance, beginning and end of period       $       3,545   $       3,545
                                               ------------------------------

    Stock-based compensation
    Balance, beginning of period               $         244   $          58
    Fair value of stock option
     transactions (note 3)                               148             150
                                               ------------------------------
    Balance, end of period                     $         392   $         208
                                               ------------------------------

    Retained earnings
    Balance, beginning of period
                                               $      32,875   $      16,129
    Transitional adjustment (note 1a)                    103               -
    Net earnings                                       1,091           1,659
    Dividends in kind                                (10,698)              -
    Dividends on preferred shares                       (240)           (240)
                                               ------------------------------
    Balance, end of period                     $      23,131   $      17,548
                                               ------------------------------

    Accumulated other comprehensive
     income (note 1)
    Transitional adjustment                    $       3,982   $           -
    Net unrealized gains on assets held as
     available-for-sale, net of tax
     provision of $468                                   760               -
    Amount transferred to net income
     for hedges, net of tax provision of $30              53               -
    Amount transferred to net income for sale
     of available-for-sale securities
     net of tax benefit of $379                       (1,121)              -
                                               ------------------------------
    Balance, end of period                     $       3,674    $          -
                                               ------------------------------

    Total shareholders' equity                 $      65,087    $     54,599
                                               ------------------------------
                                               ------------------------------



    PACIFIC & WESTERN CREDIT CORP.
    Consolidated Statement of Cash Flows
    (thousands of dollars)

                                                   for three months ended
                                               ------------------------------
                                                 January 31      January 31
                                                    2007            2006
                                               ------------------------------
                                                 (unaudited)     (unaudited)

    Cash provided by (used in):

    Operations:
    Net earnings                               $       1,091   $       1,659
    Items not involving cash:
      Provision for credit losses                        429              49
      Future income tax (recovery) provision            (116)            744
      Stock-based compensation (note 3)                  153             250
      Gain on disposal of shares                        (888)              -
      Non-controlling interest                             -            (237)
    Change in other assets and liabilities            (3,235)          5,900
                                               ------------------------------
                                                      (2,566)          8,365
                                               ------------------------------
    Investing:
    Securities                                       (54,287)          1,330
    Mortgages and loans                              (31,757)        (19,592)
                                               ------------------------------
                                                     (86,044)        (18,262)
                                               ------------------------------

    Financing:
    Deposits                                         (36,318)         30,637
    Short term financings                             59,750          (8,791)
    Proceeds of common shares issued                     354             107
    Dividends paid                                      (240)           (240)
                                               ------------------------------
                                                      23,546          21,713
                                               ------------------------------

    Increase (decrease) in cash resources            (65,064)         11,816
    Cash resources, beginning of period              207,720          72,532
                                               ------------------------------
    Cash resources, end of period              $     142,656   $      84,348
                                               ------------------------------

    Supplementary cash flow information:
      Interest paid during the period          $       9,990   $       8,527
      Income taxes paid during the period      $         264   $         820



    PACIFIC & WESTERN CREDIT CORP.
    Notes to the interim consolidated financial statements (unaudited)
    For the three months ended January 31, 2007

    1.  Basis of presentation

        The interim consolidated financial statements of Pacific & Western
        Credit Corp. (the Corporation) should be read in conjunction with the
        Corporation's consolidated financial statements for the year ended
        October 31, 2006, which are available on SEDAR at www.sedar.com.
        These consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles
        using the same accounting policies and methods as were used for the
        Corporation's financial statements for the year ended October 31,
        2006, with the exception of accounting policies relating to newly
        issued accounting standards by The Canadian Institute of Chartered
        Accountants. These new accounting policies include those relating to
        financial instruments, hedges and comprehensive income are as
        follows:

           a) Financial instruments:

              All financial assets are classified as one of the following:
              held-to-maturity, loans and receivables, held for trading or
              available-for-sale. All financial liabilities are classified as
              held for trading or other liabilities. Financial assets and
              liabilities held for trading are measured at fair value with
              gains and losses recognized in net earnings. Financial assets
              held-to-maturity, loans and receivables and financial
              liabilities other than those held-for-trading, are measured at
              amortized cost based on the effective interest method.
              Available-for-sale instruments are measured at fair value with
              gains and losses, net of tax, recognized in other comprehensive
              income.

              At November 1, 2006, all of the assets in the Corporation's
              securities portfolio as well as its investment in Discovery Air
              Inc. (DA) were designated as available-for-sale.

              At November 1, 2006, a transitional adjustment to accumulated
              other comprehensive income totalled $3,982,000 and consisted of
              unrealized losses of $1,075,000 related to securities held as
              available-for-sale, unrealized gains of $6,150,000 related to
              our investment in DA which is included in other assets and
              deferred losses of $618,000 related to previously closed cash
              flow hedges that are no longer included in other assets. In
              addition, other liabilities increased by $475,000 relating to
              future income taxes on the above items.

              At November 1, 2006 a transitional adjustment to retained
              earnings of $103,000 was recorded related to changing the
              amortization method on financial instruments from the
              straight-line method to the effective interest rate method.

           b) Hedges:

              In a fair value hedging relationship, the carrying value of the
              hedged item is adjusted by gains or losses attributable to the
              hedged risk and recorded in net earnings. This change in fair
              value of the hedged item, to the extent the hedging
              relationship is effective, is offset by changes in the fair
              value of the derivative also measured at fair value on the
              balance sheet date, with changes in value recorded through net
              earnings.

              At November 1, 2006, mortgages and loans and other liabilities
              increased by $1,915,000 relating to the transitional adjustment
              for the fair value however, there was no impact on retained
              earnings.

           c) Comprehensive income:

              Unrealized gains and losses on financial instruments that are
              held as available-for-sale, and changes in the fair value of
              cash flow hedging instruments, are recorded in other
              comprehensive income, net of tax, until recognized in earnings.


    2.  Allowance for credit losses

                                                  for the three months ended
                                              -------------------------------
                                                            January 31, 2007
                                              -------------------------------
                                                 General  Specific     Total
        (thousands of dollars)                 allowance allowance allowance
        ---------------------------------------------------------------------

        Balance, beginning of the period         $ 2,208   $   358   $ 2,566
        Provision for credit losses                  135       294       429
        Recoveries (write-offs)                        -         -         -
        ---------------------------------------------------------------------
        Balance, end of period                   $ 2,343   $   652   $ 2,995
        ---------------------------------------------------------------------


                                                  for the three months ended
                                               ------------------------------
                                                            January 31, 2006
                                               ------------------------------
                                                 General  Specific     Total
        (thousands of dollars)                 allowance allowance allowance
        ---------------------------------------------------------------------

        Balance, beginning of the period         $ 1,889   $     -   $ 1,889
        Provision for credit losses                   42         7        49
        Recoveries (write-offs)                        -         2         2
        ---------------------------------------------------------------------
        Balance, end of period                   $ 1,931   $     9   $ 1,940
        ---------------------------------------------------------------------



        Impaired loans at January 31, 2007 totalled $2,544,000 (January 31,
        2006 - $380,000).


    3.  Share capital and stock-based compensation

                                                     Employee Stock Options
                                               ------------------------------
                                      Common                        Weighted
                                      shares                         average
                                 outstanding          Number  exercise price
        ---------------------------------------------------------------------

        Outstanding,
         October 31, 2006         13,421,585       1,291,160   $        7.65
        Granted                            -         117,235           11.76
        Exercised                     98,875         (98,875)           5.02
        Expired                            -            (200)          11.70
        ---------------------------------------------------------------------
        Outstanding,
         January 31, 2007         13,520,460       1,309,320   $        8.21
        ---------------------------------------------------------------------



        In addition, at January 31, 2007, there were 1,142,556
        (2006-1,142,556) preferred shares outstanding.

        During the three months ended January 31, 2007, the Corporation
        recognized $153,000 (2006-$250,000) of salaries and benefits expense
        relating to the estimated fair value of stock options granted. The
        fair value of options granted during the period was estimated using
        the Black-Scholes option pricing model based on the following
        weighted-average assumptions: (i) risk-free interest rate of 4.07%
        (2005-3.89%), (ii) expected option life of 5 years (2005-5 years),
        (iii) expected volatility of 30% (2005-45%), and (iv) expected
        forfeiture rate of 5% (2005-5%). The weighted average fair value of
        options granted was estimated at $3.87 (2005-$4.45) per share.

        During the quarter ended January 31, 2007, $5,000 (2006-$nil) was
        transferred from contributed surplus to common shares relating to the
        exercise of options that had previously been expensed.

    4.  Special dividend

        On January 24, 2007, the Corporation declared a special dividend to
        the holders of its common shares. The dividend is payable on March 7,
        2007, to shareholders of record at the close of business on
        February 16, 2007. The dividend will be comprised of Class A common
        shares of DA and will be payable based on .53 of a DA share for every
        one common share of the Corporation held.

        The value of the special dividend on the declaration date was
        determined to be $10,698,000, which resulted in a gain of $888,000
        being transferred from other comprehensive income to net income in
        the period.

    5.  Derivative instruments

        At January 31, 2007, the Corporation had outstanding contracts for
        asset liability management purposes to swap between floating and
        fixed interest rates with notional amounts totalling $81,733,000. The
        Corporation only enters into these interest rate contracts for its
        own account and does not act as an intermediary in this market. These
        contracts have a current replacement cost of $nil, a credit
        equivalent amount of $1,171,000 and a risk weighted balance of
        $234,000. At January 31, 2007, these contracts were in an unfavorable
        position of $2,429,000. Under the new accounting standard relating to
        hedges, this amount is included in other liabilities on the
        consolidated balance sheet, however there is no impact on net
        earnings.

        At January 31, 2007, the Corporation had outstanding credit
        derivative contracts for credit risk management purposes under which
        the Corporation would be compensated by the counterparty to the
        contract for losses on a security or loan in the event a default
        occurs. At January 31, 2007, the counterparties to these contracts
        which totalled $32 million (2006-$32 million) consisted of Canadian
        chartered banks. The contracts have a nominal fair value and mature
        within three years.

    6.  Commitments and contingencies

        The amount of credit related commitments represents the maximum
        amount of additional credit that the Corporation could be obligated
        to extend. The amount with respect to the letters of credit are not
        necessarily indicative of credit risk as many of these arrangements
        are contracted for a limited period of usually less than one year and
        will expire or terminate without being drawn upon.


                          Loan commitments     $ 126,856,000
                          Letters of credit       25,886,000
                                               --------------
                                               $ 152,742,000


        The Corporation has guaranteed the repayment of bank indebtedness of
        one of its equity investments to the extent of $1,000,000. The
        guarantee expires when the related bank indebtedness has been repaid
        in full. Payments under the guarantee would be required if the
        investee fails to meet the scheduled repayments. While the
        Corporation does not expect to be required to make any payments
        related to the guarantee, any amounts paid may not be recoverable.
    

    Pacific & Western Bank of Canada (PWBank), a Schedule I chartered bank,
is a branchless financial institution with over $1.3 billion in assets. PWBank
specializes in providing innovative financing to large corporate and
government entities including hospitals, school boards, universities and
colleges, municipalities and provincial and federal government agencies. With
no retail operations or store fronts, PWBank is one of the most efficiently
operating financial institutions in Canada. These overhead savings translate
into very competitive rates for our clients.
    Pacific & Western Bank of Canada is wholly owned by Pacific & Western
Credit Corp., whose shares trade on the TSX under the symbol PWC.

    On behalf of the Board of Directors: David R. Taylor, President & C.E.O.





For further information:

For further information: Investor Relations: Bruce Schruder, Vice
President, Investor Relations & Marketing, (800) 244-1509,
InvestorRelations@pwbank.com; Public Relations & Media: Tel Matrundola, Vice
President, Public & Strategic Initiatives, (416) 203-0882, telm@pwbank.com; To
receive company news releases via e-mail: Karen McConnell, (519) 675-4204,
karenm@pwbank.com; Further information on PWC is available through Pacific &
Western's corporate web site at http://www.pwbank.com

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Pacific & Western Credit Corp.

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