Pacific & Western Credit Corp. announces results for its fourth quarter and the year ended October 31, 2008



    LONDON, ON, Jan. 29 /CNW/ -

    
    FOURTH QUARTER AND 2008 FISCAL YEAR SUMMARY

    Pacific & Western Credit Corp. announces results for its fourth quarter
and the year ended October 31st, 2008.

    -   Regulatory capital increased by 9.69% to $100.7 million from
        $91.8 million a year ago.
    -   Loans and leases increased by 13.6% to $1.1 billion from $978 million
        a year ago.
    -   Net interest income for the year declined to $11.4 million from
        $17.7 million a year ago.
    -   Spread for the year declined to .77% from 1.27% a year ago.
    -   Several large non-cash charges were made during the year totaling
        $17.7 million. These charges included $15.0 million to reflect a
        decline in market value of certain securities, $2.7 million charge
        against future income tax assets and $2.5 million addition to general
        provisions.
    -   Non-interest expenses marginally increased to $14.0 million from
        $13.9 million a year ago.
    -   Net Income (Loss) was ($20.1 million) versus $2.2 million a year ago.
    

    PRESIDENT'S COMMENTS

    Last year was an incredibly challenging year for our industry and tested
our model, which, I am pleased to tell you stood up well. We have a high
quality portfolio of loans, leases and securities that are beginning to yield
attractive spread income. However, while our risk averse model was not
directly impacted by the toxic assets that have plagued our industry
world-wide, we did not escape the negative affect of these extremely turbulent
times altogether. Our long standing portfolio of major Canadian financial
institutions' preferred shares lost significant market value, which as a
result of mark to market accounting, significantly reduced our regulatory
capital, which in turn reduced our lending capacity and our ability to invest
in higher yielding short term treasury assets. Additionally, this quarter we
wrote down our investment in Discovery Air, a company that we formed in 2004
to invest in niche aviation businesses. This company's stock appreciated
rapidly and gave rise to non-cash gains, most of which we wrote down last
quarter. The actual cash cost of our Discovery Air investment was nominal and
our written down book value is currently $2.8 million. The decline in the
market value of our Discovery Air investment also negatively impacted our
regulatory capital, but not nearly as much as the decline in our portfolio of
major financial institutions' preferred shares. To compensate for this
unfortunate reduction in regulatory capital, we raised additional capital
through issuance of interest bearing notes during the year. The capital raised
in this manner was more than enough to offset the decline due to the drop in
market value of the securities and resulted in our regulatory capital
increasing to $100.7 million from $91.8 million a year ago. This increase in
capital allowed us to continue the steady growth of our loan portfolio which
increased to $1.1 billion from $978 million a year ago. In normal
circumstances this should have given rise to an increase in our net interest
income, however, due to the turbulent market, we faced a significant
compression in the spread that we earn on our loans, leases and investments,
over what we paid to our depositors. Our spread for the year dropped to .77%
from 1.27% earned in the previous year. In particular, we suffered spread
compression on our loans priced over major banks' prime rates. This situation,
however, was corrected towards the end of the fiscal year by re-pricing the
majority of these loans over our 30 day cost of funds.
    We feel that our low risk lending model with particular emphasis on
financing public sector entities is ideally suited to take advantage of the
unusually wide spreads that now exist in this market and the reduced
competition. We plan to continue steady growth by serving Canada's public
sector entities and expect our spreads and profits to increase steadily in
2009 as our existing loan and lease portfolio gradually is re-priced and new
more profitable loans and leases are booked.

    
    FINANCIAL HIGHLIGHTS
                            for the three months           for the year
    (unaudited)                     ended                      ended
    ----------------------------------------------- -------------------------
    ($ thousands, except   October 31   October 31   October 31   October 31
     per share amounts)       2008         2007         2008         2007
    ----------------------------------------------- -------------------------

    Results of operations (teb)
      Net interest income
       per financial
       statements         $     1,115  $     3,777  $     8,555  $    15,503
      Teb adjustment              675          715        2,859        2,209
      Net interest income       1,790        4,492       11,414       17,712
      Spread                    0.49%        1.33%        0.77%        1.27%
      Provision for credit
       losses                   2,502          198        2,815          841
      Net interest income
       after provision
       for credit losses         (712)       4,294        8,599       16,871
      Impairment writedowns   (11,341)           -      (15,044)           -
      Other income                129          114          312        1,626
      Total revenue           (11,924)       4,408       (6,133)      18,497
      Non-interest expenses     3,280        3,049       14,025       13,897
      Net income (loss)       (15,809)         638      (20,089)       2,200
      Earnings (loss) per
       common share:
        Basic             $     (1.16) $      0.04  $     (1.49) $      0.14
        Diluted           $     (1.16) $      0.04  $     (1.49) $      0.14
      Efficiency ratio            n/m  $      0.66          n/m  $      0.72
      Return on average
       common shareholders'
       equity                -223.39%        4.13%      -54.87%        3.25%
      Return on average
       total assets            -4.31%        0.19%       -1.35%        0.16%
      Gross impaired loans
       to total assets          0.52%        0.10%        0.52%        0.10%
      Provision for credit
       losses as a % of
       average loans            0.24%        0.02%        0.27%        0.09%
      Number of full time
       equivalent staff            57           57           57           57
    ----------------------------------------------- -------------------------

    Balance Sheet Summary
      Cash and securities $   370,993  $   441,727  $   370,993  $   441,727
      Total loans           1,110,807      977,727    1,110,807      977,727
      Average loans         1,029,702      950,556    1,044,267      920,779
      Total assets          1,512,467    1,458,656    1,512,467    1,458,656
      Average assets        1,471,431    1,342,120    1,485,562    1,394,193
      Deposits              1,389,455    1,282,756    1,389,455    1,282,756
      Notes payable            70,405       35,660       70,405       35,660
      Shareholders' equity     24,131       57,054       24,131       57,054
    ----------------------------------------------- -------------------------

    Capital ratios
    (Based on the subsidiary
     Pacific & Western Bank
     of Canada)
      Total regulatory
       capital            $   100,705  $    91,820  $   100,705  $    91,820
      Risk weighted assets    907,151      800,582      907,151      800,582
      Assets-to-capital
       ratio                    15.35        16.19        15.35        16.19
      Tier 1 risk-based
       capital ratio            8.90%        7.72%        8.90%        7.72%
      Total risk-based
       capital ratio           11.10%       11.47%       11.10%       11.47%
    ----------------------------------------------- -------------------------
    n/m - not meaningful
    

    Non-GAAP measures:

    Like most banks, Pacific & Western Credit Corp. (the "Corporation")
through its wholly-owned subsidiary Pacific & Western Bank of Canada (the
"Bank") 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 fourth quarter of fiscal 2008 should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended October 31, 2008, included herein, and the audited
consolidated financial statements and MD&A for the year ended October 31,
2007, 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, 2007, remain substantially unchanged.

    Overview

    Net income (loss) for the quarter was ($15.8 million) or ($1.16) per
share (($1.16) diluted) compared to $638,000 or $0.04 per share ($0.04
diluted) for the same period a year ago. The decrease from last year was due
primarily to a compression in spreads, a charge of $2.5 million relating to an
increase in the general provision for credit losses, a charge of $2.7 million
relating to a valuation allowance against future income tax assets and a
charge for impairment of $11.3 million ($9.5 million after income taxes)
relating to the Corporation's investment in Discovery Air Inc. (DA). A large
portion of the decline in market value of the investment in DA had already
been reflected in previous periods' shareholders' equity and in the Bank's
regulatory capital as a result of previously recorded mark-to-market
adjustments relating to this investment. For the year, net income (loss) was
($20.1 million) or ($1.49) per share (($1.49) diluted) compared to $2.2
million or $0.14 per share ($0.14 diluted) last year. The change in net income
from a year ago was due primarily to the factors described above in addition
to an impairment charge of $3.7 million recorded in the third quarter.
    Net interest income (teb) for the quarter was $1.8 million compared to
$4.5 million for the same period a year ago. For the year, net interest income
(teb) was $11.4 million compared to $17.7 million last year. The decrease in
net interest income from a year ago was due primarily to increased cost of
funds on deposits and interest on additional notes payable issued in the year
as well as a compression of spreads in the securities and lending portfolios.
The spread in the lending portfolio declined earlier in the year as the yield
on floating rate loans decreased due to reductions in the prime lending rate.
Reductions in the prime lending rate will generally have a negative influence
on spread as the loan portfolio reprices more quickly than the Corporation's
deposit liabilities. Net interest income also declined as a result of higher
liquidity levels maintained during the year as a result of market instability.
Late in 2008 the Corporation began repricing its floating rate loans so they
are priced based on the Corporation's costs of funds. This will result in
increased spreads in the coming year. Despite the compression of spreads, the
Corporation has maintained its focus on low risk lending and investing
opportunities and does not have any direct exposure to the North American
subprime lending market or to asset-backed commercial paper.
    At October 31, 2008, total assets were $1.51 billion compared to $1.46
billion a year ago and lending assets grew to $1.1 billion from $978 million a
year ago, an increase of 14%. The provision for credit losses as a percentage
of average loans for the quarter was 0.24% compared to 0.02% a year ago and
for the year was 0.27% compared to 0.09% last year. While the credit quality
of the Corporation's overall loan portfolio remains strong, the Corporation
increased its general provision for credit losses by $2.5 million in the
fourth quarter as a result of a review of its credit models relating primarily
to its personal loan portfolio due to recent events in the market place.

    Total Revenue (teb)

    Total revenue (teb), which is comprised of net interest income after the
provision for credit losses and other income (charges), was ($11.9 million)
for the quarter compared to $4.4 million a year ago. For the year, total
revenue (teb) was ($6.1 million) compared to $18.5 million last year. The
decrease in total revenue from a year ago was due primarily to a compression
of spreads during the year, the increase in the general provision for credit
losses and impairment charges on available-for-sale assets.

    Net Interest Income

    Net interest income (teb) was $1.8 million for the quarter compared to
$4.5 million a year ago, and for the year was $11.4 million compared to $17.7
million a year ago. Net interest margin or spread (teb), which is net interest
income as a percentage of average assets, was 0.49% for the quarter compared
to 1.33% for the same quarter a year ago. For the year, spread (teb) was 0.77%
compared to 1.27% a year ago. The decrease in spread was due primarily to
several factors including an increase in our cost of funds on deposits and the
interest on additional notes payable issued in the year. In addition, the
Corporation maintained higher liquidity levels during the year as a result of
market instability. Finally, spreads in the Corporation's lending portfolio
narrowed when the yield on floating rate loans decreased as a result of
reductions in the prime lending rate. Reductions in the prime lending rate
will generally have a negative influence on spread as the loan portfolio
reprices more quickly than the Corporation's deposit liabilities.

    Impairment Charge on Available-for-sale Assets

    In the fourth quarter, the Corporation recorded an impairment charge of
$11.3 million as a result of its investment in DA trading below the
Corporation's amortized cost for a prolonged period of time. In addition the
Corporation recorded an impairment charge of $3.7 million in the third quarter
bringing total charges for impairment for the year to $15.0 million. The
charge taken in the third quarter related to a preferred share position in its
securities portfolio which had been trading below the Corporation's amortized
cost for a prolonged period of time. The decline in value of this preferred
share position was due primarily to market conditions rather than to a
deterioration in the credit quality of the issuer.

    Non-Interest Expenses

    Non-interest expenses for the quarter were $3.3 million compared to $3.1
million a year ago and for the year were $14.0 million compared to $13.9
million a year ago. Most categories of non-interest expenses were lower in the
fourth quarter and for the year compared to last year due to a reduction in
discretionary spending however these reductions were offset by volume related
expenses.

    Income Taxes

    The Corporation's statutory federal and provincial income tax rate is
approximately 33% compared to 36% last year with the difference due to rate
reductions which were substantively enacted earlier in the current year.
However, the Corporation's effective rate is reduced by non-taxable income
earned on preferred shares in our securities portfolio, a lower rate of tax
being applied to the impairment charge on the DA investment and impacted by
expenses such as stock-based compensation which are not deductible for income
tax purposes. These items, as well as a valuation allowance on future income
tax assets resulted in an income tax recovery of $70,000 and an effective rate
of 0.04% being recorded in the fourth quarter, and for the year an income tax
recovery of $2.9 million and an effective rate of 13%.
    At October 31, 2008, the Corporation had a future income tax asset of
$11.0 million (2007 - $3.5 million) which is primarily a result of income tax
losses from the current and previous years, the benefit of which was recorded
at the time, and net of a valuation allowance of $2.7 million relating to the
future income tax asset in Pacific & Western Credit Corp., the parent company.
The income tax loss carryforwards in the Bank are scheduled to expire in 2027
and in 2028 if unutilized. A significant portion of the future tax asset
relates to the decline in market value of the preferred shares. The ultimate
realization of the future income tax asset cannot be determined with certainty
however management is of the opinion that it is more likely than not that the
Corporation will be able to realize the future income tax asset in future
years.
    The realization of the future income tax asset is dependent upon the
Corporation being able to generate taxable income sufficient to offset these
income tax losses. The ability to generate sufficient taxable income may be
dependent upon the Bank increasing regulatory capital to facilitate growth in
its lending portfolio, or on converting non-taxable income sources to taxable
income sources during the carry-forward period. It is also dependent upon the
market value of the preferred shares recovering in value as they are carried
at market value for income tax purposes with mark to market adjustments being
added to or deducted from taxable income.

    Balance Sheet

    Total assets at October 31, 2008, were $1.51 billion compared to $1.46
billion a year ago with lending assets growing to $1.1 billion from $978
million a year ago. Total assets increased from a year ago primarily as a
result of the higher level of mortgages and loans.

    Cash and Securities

    Cash and securities, which are held for liquidity management purposes and
to earn investment income, were $371 million compared to $442 million a year
ago. Securities consist of Government of Canada treasury bills and bonds and
corporate debt and preferred shares. Included in corporate debt is an
investment in a collateral debt obligation (CDO) with an amortized cost of
$5.4 million and a fair value based on external valuation models of $1.2
million. On August 1, 2008 the Corporation reclassified the CDO from the
available-for-sale category to held-to-maturity. This reclassification was
based on the view that carrying the investment at amortized cost was more
appropriate given the lack of verifiable inputs for the valuation model being
used to determine fair value and the Corporation's intention to hold the
investment to maturity. This CDO was arranged by a major Canadian bank and is
secured by corporate credits. As indicated previously, the Corporation does
not own any asset-backed commercial paper and therefore is not exposed to any
direct losses from this type of security as a result of market instabilities.
    At October 31, 2008, the net unrealized loss in our securities portfolio
was $26.7 million compared to a net unrealized loss of $11.7 million a year
ago. These amounts are recorded after income taxes in Accumulated Other
Comprehensive Income (Loss). The increase in the net unrealized loss from the
previous year is related primarily to a decrease in the market value of the
Corporation's investments in the preferred shares of major Canadian banks and
insurance companies and its investment in the CDO.
    Recent market conditions have resulted in a significant decline in the
market value of equity securities held by the Corporation for investment
purposes. These securities, consisting primarily of preferred shares of major
Canadian banks and insurance companies, are subject to market fluctuations
and, at October 31, 2008, traded at a value approximately $21,675,000 below
their amortized cost. The Corporation intends to hold these securities until a
recovery in value is achieved. The securities have provisions that will allow
the issuer to redeem the securities at various dates commencing over the years
2010 to 2013; however, there is no promise or legal requirement for the
issuers of the preferred shares to redeem these shares on those dates.
Recovery of the market value declines is dependent upon future market
conditions and the ultimate future redemption of the shares by the issuers.

    Mortgages and Loans

    Lending assets grew to $1.1 billion at the end of the year from $978
million a year ago. This growth was due primarily to increases in insured
residential mortgages, public sector loans and corporate loans and mortgages.
New lending in the quarter totalled $241 million compared to $127 million for
the same period a year ago. For the year, new lending totalled $471 million
compared to $500 million last year. Loan growth in the current year was slowed
by capital constraints as the Bank introduced higher internal targets for its
capital ratios and carried higher levels of liquidity during the year as a
result of market instabilities.

    Other Assets

    Other assets totalled $30.7 million at the end of the year compared to
$39.2 million a year ago. Included in other assets is the Corporation's
investment in DA which is accounted for as an available-for-sale asset and
carried at market value. At October 31, 2008, the investment in DA had a
carrying value of $3.5 million after the Corporation recorded an impairment
charge of $11.3 million against the investment in the fourth quarter. This
charge was recorded primarily as a result of the length of time the shares of
DA had been trading below the Corporation's amortized cost as well as the
significance of the decline in value below the Corporation's amortized cost.

    Deposits and Financing

    Deposits are used as a primary source of financing growth in assets and
are raised entirely through a well established and well diversified deposit
broker network across Canada. Deposits at the end of the year were $1.39
billion compared to $1.28 billion a year ago and consist primarily of
guaranteed investment certificates. Of these amounts, $18.9 million was in the
form of demand deposits at the end of the year compared to $7.5 million a year
ago with the remaining deposits having fixed terms.
    A second source of financing growth in assets is the use of margin lines
and securities sold under repurchase agreements. From time to time, the
Corporation uses these sources of financing when the cost of borrowing is less
than the interest rates that would have to be paid on new deposits. At the end
of the year, there were no amounts outstanding related to securities sold
under repurchase agreements or margin lines compared to $50 million being
outstanding last year.

    Notes Payable

    Notes payable, net of issue costs, at October 31, 2008 totalled $70.4
million compared to $35.7 million a year ago with the increase due to new
notes issued during the past year. In the third quarter, notes totalling $35.6
million were issued and $7 million in short term notes were repaid. In the
fourth quarter, $1.8 million in short term notes were issued. The net proceeds
from the issue of notes payable were used to increase the level of regulatory
capital in the Bank. At October 31, 2008 notes payable consist of Series C
Notes totalling $47.5 million which mature in 2018, Series A Notes totalling
$11.5 million which mature in 2010 and short term notes totalling $12.6
million which mature in 2009. Notes payable bear interest at rates ranging
from 7.0% to 9.25% per annum.
    In June 2008, the Corporation received approval from its Series C
Noteholders to extend the maturity date of its Series C Notes from October 16,
2008 to October 16, 2018. In addition, the Corporation received approval from
the Series C Noteholders to increase the number of Series C Notes that the
Corporation can issue to a maximum of $100 million.
    With the increase in the notes issued by Pacific & Western Credit Corp.
during the year, a difference of approximately $50 million currently exists
between subordinated notes of the Bank owned by Pacific & Western Credit Corp.
and the notes payable it has issued. This has also resulted in a deficiency in
cash flows and net interest income in Pacific & Western Credit Corp. on a
non-consolidated basis. Management plans to reduce this difference by the
parent issuing non-interest bearing equity with the proceeds being invested in
a combination of equity and interest earning subordinated debt of the Bank.

    Credit Quality

    Gross impaired loans at the end of the year totalled $7.8 million or
0.52% of total assets compared to $1.5 million or 0.10% of total assets a year
ago. The increase in impaired loans was due to a borrower whose loans, which
are secured primarily by a hospital facility, were impaired at the end of the
year. We expect these loans to be settled with no loss being incurred. The
provision for credit losses for the fourth quarter was $2.5 million compared
to $198,000 a year ago and for the year was $2.8 million compared to $841,000
a year ago. The increase in the provision for credit losses was a result of an
increase in the general provision as the Corporation reviewed its credit
models relating primarily to its personal loan portfolio based on recent
events in the market place. Total allowances for credit losses, including
specific and general allowances, were $6.0 million at the end of the year
compared to $3.2 million a year ago. The provision for credit losses as a
percentage of average loans for the quarter was 0.24% compared to 0.02% last
year. For the year, the provision for credit losses as a percentage of average
loans was 0.27% compared to 0.09% a year ago.

    Shareholders' Equity

    At the end of the year, shareholders' equity was $24.1 million compared
to $57.1 million a year ago with the decrease due primarily to the change in
Accumulated Other Comprehensive Income (Loss), the net loss incurred in the
current year and common shares repurchased and cancelled under the Normal
Course Issuer Bids. These decreases were partially offset by the issue of
common shares on exercise of stock options. Common shares outstanding at the
end of the year totalled 13,642,452 compared to 13,685,552 a year ago with the
change due to the exercise of common share options offset by shares
repurchased for cancellation. Outstanding common share options totalled
1,077,110 at the end of the year compared to 1,054,345 a year ago. Our book
value per common share at the end of the year was $1.51 compared to $3.91 a
year ago.
    On July 17, 2007, the Corporation announced that it had filed a Notice of
Intention to make a Normal Course Issuer Bid, pursuant to which the
Corporation may purchase for cancellation up to 1 million of its common
shares. This bid terminated on July 18, 2008. During the year, the Corporation
repurchased for cancellation under this bid 131,800 common shares for a total
cost of $956,500. Since July 17, 2007, the Corporation repurchased for
cancellation under this bid 212,000 common shares for a total cost of $1.5
million.
    On July 18, 2008, the Corporation announced that it had filed a Notice of
Intention to make another Normal Course Issuer Bid, pursuant to which the
Corporation may purchase for cancellation up to 500,000 of its common shares.
The Bid commenced on July 22, 2008 and will terminate on July 21, 2009. The
price that the Corporation pays for any common shares is the market price at
the time of purchase. To October 31, 2008, the Corporation has repurchased for
cancellation under this bid 7,300 common shares for a total cost of $36,500.
It is anticipated that the Corporation will not make any further purchases
pursuant to this second bid.

    Updated Share Information

    At January 26, 2009, there was no change in the number of common shares
outstanding since October 31, 2008. At the same date, there were 901,167 stock
options outstanding with the change since October 31, 2008 due to stock
options which had expired.

    Capital Management

    Total regulatory capital in the Corporation's principal subsidiary, the
Bank, totalled $100.7 million at October 31, 2008 compared to $91.8 million a
year ago. The increase in total regulatory capital from a year ago was
primarily a result of common shares or Tier 1 capital issued by the Bank to
the Corporation, offset by the change in Accumulated Other Comprehensive
Income (Loss) related to available-for-sale equity securities the Bank holds
in its securities portfolio and its investment in DA which are recorded at
market values.
    The Bank's total risk-based capital ratio, which is the ratio of
regulatory capital to risk-weighted assets, was 11.10% at October 31, 2008
compared to 11.47% a year ago with the change being a result of an increase in
risk-weighted assets due to the inclusion of an operational risk charge under
the new Basel II guidelines. The Bank's Tier 1 risk-based capital ratio, which
is the ratio of Tier 1 capital to risk-weighted assets, was 8.90% at October
31, 2008, compared to 7.72% a year ago. The Bank's assets-to-capital ratio was
15.35 at the end of the year compared to 16.19 a year ago. See note 8 to the
interim consolidated financial statements for more information regarding
capital management.
    Subsequent to October 31, 2008, the Bank estimated that it had, on a
temporary basis, exceeded by a minor amount, the assets-to-capital ratio that
had been established by OSFI. This exception took place primarily as a result
of a decrease in the market value of preferred shares held in the Bank's
securities portfolio and which are primarily those of major Canadian banks and
insurance companies. This decrease took place as a result of market volatility
versus any credit impairment in the issuers of the securities. Shortly
thereafter, the Bank's adherence to this requirement was re-established.

    
    Summary of Quarterly Results

    (thousands of dollars
     except per share
     amounts)                                       2008
    --------------------- ---------------------------------------------------
                                 Q4           Q3           Q2           Q1

    Results of operations:
    Total interest income
     per financial
     statements           $    17,702  $    16,022  $    18,105  $    20,377
    Teb adjustment                675          679          659          844
    Total interest income      18,377       16,701       18,764       21,221
    Yield on assets (%)         5.01%        4.79%        5.39%        5.71%
    Interest expense           16,587       15,078       15,820       16,165
    Cost of funds (%)           4.52%        4.33%        4.54%        4.35%
    Net interest income         1,790        1,623        2,944        5,056
    Net interest margin (%)     0.49%        0.46%        0.85%        1.36%
    Provision for credit
     losses                     2,502          242           64            8
    Impairment writedowns     (11,341)      (3,703)           -            -
    Other income (charges)        129          139          130          (86)
    Total revenue             (11,924)      (2,183)       3,010        4,962
    Non-interest expenses       3,280        3,523        3,441        3,781
    Income (loss) before
     income taxes             (15,204)      (5,706)        (431)       1,181
    Income taxes                  605       (1,491)         170          645
    Net income (loss)         (15,809)      (4,215)        (601)         536
    Earnings (loss) per
     share
      -basic              $     (1.16) $     (0.31) $     (0.05) $      0.03
      -diluted            $     (1.16) $     (0.31) $     (0.05) $      0.03


    (thousands of dollars
     except per share
     amounts)                                       2007
    --------------------- ---------------------------------------------------
                                 Q4           Q3           Q2           Q1

    Results of operations:
    Total interest income
     per financial
     statements           $    18,795  $    16,978  $    17,538  $    18,163
    Teb adjustment                715          559          492          444
    Total interest income      19,510       17,537       18,030       18,607
    Yield on assets (%)         5.77%        5.37%        5.42%        5.49%
    Interest expense           15,018       13,757       13,495       13,701
    Cost of funds (%)           4.44%        4.21%        4.06%        4.04%
    Net interest income         4,492        3,780        4,535        4,906
    Net interest margin (%)     1.33%        1.16%        1.36%        1.45%
    Provision for credit
     losses                       198          142           72          429
    Impairment writedowns           -            -            -            -
    Other income (charges)        114          260          294          959
    Total revenue               4,408        3,898        4,757        5,436
    Non-interest expenses       3,049        3,643        3,548        3,658
    Income (loss) before
     income taxes               1,359          255        1,209        1,778
    Income taxes                  721          128          865          687
    Net income (loss)             638          127          344        1,091
    Earnings (loss) per
     share
      -basic              $      0.04  $      0.01  $      0.02  $      0.08
      -diluted            $      0.04  $         -  $      0.02  $      0.07
    

    Net interest income (teb) decreased to $1.6 million in the third quarter
from previous quarters but improved to $1.8 million in the fourth quarter.
Spread (teb) improved to 0.49% in the fourth quarter from 0.46% in the third
quarter as a result of growth in lending assets. However net interest income
and spread for the last two quarters were less than in previous quarters in
the year as a result of a compression of spreads primarily in the
Corporation's securities and loan portfolios and an increase in liquidity
levels to deal with market instability. The provision for credit losses
increased in the fourth quarter to $2.5 million as a result of enhancements
made to credit models relating primarily to the personal loan portfolio based
on recent events in the market place.
    Non-interest expenses in the fourth quarter decreased from previous
quarters due to reductions in discretionary spending offset slightly by
increases in volume related expenses.
    Net income (loss) in the fourth quarter was further impacted by a
valuation allowance of $2.7 million being recorded in the provision for income
taxes. This valuation allowance was with respect to the future income tax
assets that exist within the parent company Pacific & Western Credit Corp.

    Change in Accounting Policies

    Significant accounting policies are detailed on pages 50 to 59 of the
Corporation's 2007 Annual Report. Effective November 1, 2007, the Corporation
adopted new accounting standards issued by the Canadian Institute of Chartered
Accountants (CICA) as follows: Section 1535, Capital Disclosures, Section
3862, Financial Instruments - Disclosures, and Section 3863, Financial
Instruments - Presentation.

    Future Change in Accounting Policies

    The CICA has announced that public companies will be required to converge
Canadian Generally Accepted Accounting Principles with International Financial
Reporting Standards (IFRS). For the Corporation, this will take with its
fiscal period commencing November 1, 2011. The Corporation has commenced a
review of the new standards however the impact of IFRS convergence on the
Corporation's consolidated financial statements is not yet determinable.

    Risk Management

    The risk management policies and procedures of the Corporation are
provided in the annual MD&A for the year ended October 31, 2007, and are found
on pages 39 to 41.

    Controls and Procedures

    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.

    Dated: January 26, 2009

    Forward-Looking Statements

    The statements in this management's discussion and analysis that relate
to the future are forward-looking statements. By their very nature,
forward-looking statements involve inherent risks and uncertainties, both
general and specific, many of which are out of our control. 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. For a detailed discussion of certain
key factors that may affect our future results, please see pages 39-42 of our
2007 Annual Report.
    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. The forward-looking information contained in the management's
discussion and analysis is presented to assist our shareholders in
understanding our financial position and may not be appropriate for any other
purposes. Except as required by securities law, we do not undertake 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 or on its
behalf.


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

                                                     October 31   October 31
                                                        2008         2007
                                                    ------------ ------------
                                                     (unaudited)

    Assets
    Cash resources                                  $   207,831  $   113,421
    Securities                                          163,162      328,306
    Mortgages and loans                               1,110,807      977,727
    Other assets                                         30,667       39,202
                                                    ------------ ------------

                                                    $ 1,512,467  $ 1,458,656
                                                    ------------ ------------
                                                    ------------ ------------

    Liabilities and Shareholders' Equity
    Deposits                                        $ 1,389,455  $ 1,282,756
    Notes payable                                        70,405       35,660
    Other liabilities                                    28,476       83,186
                                                    ------------ ------------
                                                      1,488,336    1,401,602
                                                    ------------ ------------

    Shareholders' equity
    Share capital                                        39,387       39,470
    Retained earnings                                     3,796       24,125
    Accumulated other comprehensive income (loss)       (19,052)      (6,541)
                                                    ------------ ------------
                                                         24,131       57,054
                                                    ------------ ------------

                                                    $ 1,512,467  $ 1,458,656
                                                    ------------ ------------
                                                    ------------ ------------



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

                            for the three months           for the year
                                    ended                      ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Interest income
      Interest income
       on loans           $    13,582  $    14,018  $    53,490  $    52,814
      Interest and income
       from securities          3,225        3,942       15,285       16,042
      Loan fee income             895          835        3,431        2,618
                          ------------------------- -------------------------
                               17,702       18,795       72,206       71,474
    Interest expense
      Deposits and other       14,973       14,132       59,005       52,452
      Notes payable             1,614          886        4,646        3,519
                          ------------------------- -------------------------
                               16,587       15,018       63,651       55,971
                          ------------------------- -------------------------

      Net interest income       1,115        3,777        8,555       15,503

      Provision for credit
       losses                   2,502          198        2,815          841
                          ------------------------- -------------------------

      Net interest income
       (loss) after
       provision for
       credit losses           (1,387)       3,579        5,740       14,662

      Impairment writedown
       on securities          (11,341)           -      (15,044)           -
      Other income                129          114          312        1,626
                          ------------------------- -------------------------

                              (12,599)       3,693       (8,992)      16,288
                          ------------------------- -------------------------

    Non-interest expenses
      Salaries and benefits     1,552        1,552        7,598        7,813
      General and
       administrative           1,228        1,037        4,475        4,311
      Premises and equipment      500          460        1,952        1,773
                          ------------------------- -------------------------
                                3,280        3,049       14,025       13,897
                          ------------------------- -------------------------

      Income (loss) before
       income taxes           (15,879)         644      (23,017)       2,391

      Income tax (recovery)
       provision                  (70)           6       (2,928)         191
                          ------------------------- -------------------------

    Net income (loss)     $   (15,809) $       638  $   (20,089) $     2,200
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Basic earnings (loss)
     per share            $     (1.16) $      0.04  $     (1.49) $      0.14
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Diluted earnings
     (loss) per share     $     (1.16) $      0.04  $     (1.49) $      0.14
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Weighted average
     number of common
     shares                13,643,000   13,739,000   13,633,000   13,674,000
                          ------------------------- -------------------------
                          ------------------------- -------------------------



    PACIFIC & WESTERN CREDIT CORP.
    Consolidated Statement of Comprehensive Income (Loss)
    (thousands of dollars)

                            for the three months           for the year
                                    ended                      ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Total net income
     (loss)               $   (15,809) $       638  $   (20,089) $     2,200
    Other comprehensive
     income (loss), net
     of tax:
      Net unrealized
       losses on assets
       held as available-
       for-sale(1)             (4,960)      (4,136)     (11,866)      (9,377)
      Amount transferred
       to net income for
       hedges(2)                   27           53          190          212
      Amount transferred
       to net income for
       available-for-sale
       assets(3)                   89           (9)         (38)      (1,358)
      Amount transferred
       to net income for
       impairment writedown
       on available-for-
       sale assets(4)           4,782            -         (797)           -
                          ------------------------- -------------------------
      Total other
       comprehensive
       income (loss)              (62)      (4,092)     (12,511)     (10,523)
                          ------------------------- -------------------------
    Total comprehensive
     income (loss)        $   (15,871) $    (3,454) $   (32,600) $    (8,323)
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    (1) Net of income tax benefit (expense) for the three months of $470
        (2007-$790) and year-to-date of $5,085 (2007-$3,743)
    (2) Net of income tax benefit (expense) for the three months of ($21)
        (2007-($30)) and year-to-date of ($104) (2007-($120))
    (3) Net of income tax benefit (expense) for the three months of ($37)
        (2007-$5) and year-to-date of $26 (2007-$512)
    (4) Net of income tax benefit (expense) for the three months of ($362)
        (2007-$nil) and year-to-date of $21 (2007-$nil)



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

                            for the three months           for the year
                                    ended                      ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Common shares
    Balance, beginning
     of period            $    35,704  $    35,871  $    35,743  $    33,986
    Shares issued                   -           57          288        1,956
    Shares repurchased            (41)        (185)        (368)        (209)
    Amount transferred
     from contributed
     surplus                        -            -            -           10
                          ------------------------- -------------------------
    Balance, end of
     period               $    35,663  $    35,743  $    35,663  $    35,743
                          ------------------------- -------------------------

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

    Contributed surplus
    Balance, beginning
     of period            $        83  $       501  $       182  $       244
    Fair value of stock
     option transactions
     (note 5)                      96           56          622          323
    Repurchase of shares            -         (375)        (625)        (375)
    Amount transferred
     to common shares               -            -            -          (10)
                          ------------------------- -------------------------
    Balance, end of
     period               $       179  $       182  $       179  $       182
                          ------------------------- -------------------------

    Retained earnings
    Balance, beginning
     of period            $    19,605  $    23,487  $    24,125  $    32,875
    Transitional
     adjustment                     -            -            -           77
    Net income (loss)         (15,809)         638      (20,089)       2,200
    Dividend in kind                -            -            -      (10,787)
    Dividends on
     preferred shares               -            -         (240)        (240)
                          ------------------------- -------------------------
    Balance, end of
     period               $     3,796  $    24,125  $     3,796  $    24,125
                          ------------------------- -------------------------

    Accumulated other
     comprehensive income
     (loss), net of taxes
    Balance, beginning
     of period            $   (18,990) $    (2,449) $    (6,541) $         -
    Transitional
     adjustment                     -            -            -        3,982
    Other comprehensive
     income (loss)                (62)      (4,092)     (12,511)     (10,523)
                          ------------------------- -------------------------
    Balance, end of
     period               $   (19,052) $    (6,541) $   (19,052) $    (6,541)
                          ------------------------- -------------------------

    Total shareholders'
     equity               $    24,131  $    57,054  $    24,131  $    57,054
                          ------------------------- -------------------------
                          ------------------------- -------------------------



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

                            for the three months           for the year
                                    ended                      ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Cash provided by
     (used in):

    Operations:
    Net income (loss)     $   (15,809) $       638  $   (20,089) $     2,200
    Items not involving
     cash:
      Provision for credit
       losses                   2,501          198        2,815          841
      Impairment writedown
       on other assets         11,341            -       11,341            -
      Stock-based
       compensation (note 5)       96           56          622          323
      Future income tax
       provision (recovery)       (70)         315       (2,928)         500
      Gain on sale of
       available-for-sale
       securities                  (3)         (14)        (676)        (978)
      Gain on disposal of
       shares                       -            -            -         (888)
      Impairment writedown
       on securities                -            -        3,703            -
      Change in derivative
       financial instruments        -         (108)         197         (273)
    Change in other assets
     and liabilities          (12,224)      17,188      (30,467)      15,993
                          ------------------------- -------------------------
                              (14,168)      18,273      (35,482)      17,718
                          ------------------------- -------------------------

    Investing:
    Purchase of securities   (530,753)    (152,827)  (1,780,775)    (658,838)
    Proceeds from sale and
     maturity of securities   586,839       59,733    1,935,703      537,516
    Mortgages and loans      (155,267)     (53,325)    (115,316)    (113,945)
                          ------------------------- -------------------------
                              (99,181)    (146,419)      39,612     (235,267)
                          ------------------------- -------------------------

    Financing:
    Deposits                  215,723      166,439      106,699       72,201
    Notes payable                   -            -       34,443            -
    Short term financings    (119,740)      49,917      (49,917)      49,917
    Proceeds of common
     shares issued                  -           58          288        1,956
    Shares repurchased            (40)        (561)        (993)        (584)
    Dividends paid                  -            -         (240)        (240)
                          ------------------------- -------------------------
                               95,943      215,853       90,280      123,250
                          ------------------------- -------------------------

    Increase (decrease)
     in cash resources        (17,406)      87,707       94,410      (94,299)

    Cash resources,
     beginning of period      225,237       25,714      113,421      207,720
                          ------------------------- -------------------------

    Cash resources, end
     of period            $   207,831  $   113,421  $   207,831  $   113,421
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Supplementary cash
     flow information:
      Interest paid
       during the period  $    21,758  $    11,499  $    65,425  $    55,072
      Income taxes paid
       during the period  $         -  $        79  $        68  $       500



    PACIFIC & WESTERN CREDIT CORP.
    Notes to the interim consolidated financial statements (unaudited)
    For the year months ended October 31, 2008

    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, 2007, 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,
        2007.

        Effective November 1, 2007, the Corporation adopted the following new
        accounting standards issued by the Canadian Institute of Chartered
        Accountings ("CICA") relating to disclosures:

        -   Section 1535, Capital Disclosures specifies the disclosure of i)
            objectives, policies and processes for managing capital; ii)
            quantitative data about what is regarded as capital; and iii)
            compliance or non-compliance with capital requirements and effect
            thereof.
        -   Section 3862, Financial Instruments-Disclosures and Section 3863,
            Financial Instruments-Presentation which set revised and enhanced
            disclosure and presentation requirements. An increased emphasis
            is placed on disclosures regarding risks arising from financial
            instruments and the management thereof.

        The risk management policies and procedures of the Corporation
        relating to credit, liquidity, and market risk are included on pages
        39-41 in the annual MD&A and are an integral part of the Interim
        Consolidated Financial Statements.

    2.  Securities

        The Corporation's cash and securities are comprised of cash, federal
        government treasury bills, federal and provincial government bonds,
        government insured mortgage-backed securities, corporate bonds and
        corporate preferred shares. The Corporation does not have any direct
        exposure to asset-backed commercial paper in its treasury portfolio.

        Included in cash and securities at October 31, 2008 is an investment
        in a collateral debt obligation (CDO) which has an amortized cost of
        $5.4 million (2007 - $10 million) and a fair value of $1.2 million
        (2007 - $7.6 million). Fair value was determined by the use of
        external valuation models which incorporate observable market
        parameters. These include observable interest rates, credit spreads
        and loss expectations. The fair value amount determined based on the
        above may not ultimately reflect what the Corporation would receive
        if it were to sell the CDO in the market. The CDO is secured by
        corporate credits and does not have any direct residential sub-prime
        exposure.

    3.  Allowance for credit losses

                                                  for the three months ended
                          ---------------------------------------------------
                                                     October 31,  October 31,
                                                           2008         2007
                          ---------------------------------------------------
        (thousands            General     Specific        Total        Total
         of dollars)        allowance    allowance    allowance    allowance
        ---------------------------------------------------------------------
        Balance,
         beginning of
         the period       $     2,727  $       813  $     3,540  $     3,244
        Provision for
         credit losses          2,485           17        2,502          198
        Recoveries
         (write-offs)               -            -            -         (236)
        ---------------------------------------------------------------------
        Balance, end of
         period               $ 5,212  $       830  $     6,042  $     3,206
        ---------------------------------------------------------------------


                                                          for the year ended
                          ---------------------------------------------------
                                                     October 31,  October 31,
                                                           2008         2007
                          ---------------------------------------------------
        (thousands            General     Specific        Total        Total
         of dollars)        allowance    allowance    allowance    allowance
        ---------------------------------------------------------------------
        Balance,
         beginning of
         the period       $     2,733  $       473  $     3,206  $     2,566
        Provision for
         credit losses          2,479          336        2,815          841
        Recoveries
         (write-offs)               -           21           21         (201)
        ---------------------------------------------------------------------
        Balance, end of
         period           $     5,212  $       830  $     6,042  $     3,206
        ---------------------------------------------------------------------


        Gross impaired loans at October 31, 2008 totalled $7,791,000
        (October 31, 2007 - $1,452,000). Loans past due but not impaired at
        October 31, 2008 totalled $248,000 (October 31, 2007 - $nil). Loans
        are secured primarily by collateral mortgages against real estate
        with respect to real estate lending and specific charges against
        equipment being financed for other lending activities.

    4.  Notes payable

        In June 2008, the Corporation received approval from its Series C
        Noteholders to extend the maturity date of its Series C Notes from
        October 16, 2008 to October 16, 2018. In addition, the Corporation
        received approval from the Series C Noteholders to increase the
        number of Series C Notes that the Corporation can issue to a maximum
        of $100 million.

        At October 31, 2008 notes payable consist of Series C Notes totalling
        $47.5 million which mature in 2018, Series A Notes totalling
        $11.5 million which mature in 2010 and short term notes totalling
        $12.6 million which mature in 2009. Notes payable bear interest at
        rates ranging from 7.0% to 9.25% per annum.

    5.  Shareholders' equity

        a.  Share capital and contributed surplus:

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

            Outstanding, October 31,
             2007                       13,685,552    1,054,345  $      8.58
            Granted                              -      250,398         7.82
            Exercised                       96,000      (96,000)        3.00
            Expired                              -     (131,633)        7.59
            Repurchased                   (139,100)           -            -
            -----------------------------------------------------------------
            Outstanding, end of period  13,642,452    1,077,110  $      9.02
            -----------------------------------------------------------------

            In addition, at October 31, 2008, there were 1,142,556 (2007-
            1,142,556) preferred shares outstanding.

            During the year ended October 31, 2008, the Corporation
            recognized $622,000 (2007-$323,000) 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 4.02% (2007-4.07%), (ii) expected option life of
            5 years (2007-5 years), (iii) expected volatility of 30% (2007-
            30%), and (iv) expected forfeiture rate of 5% (2007-5%). The
            weighted average fair value of options granted was estimated at
            $2.66 (2007-$3.87) per share.

            On July 17, 2007, the Corporation announced that it had filed a
            Notice of Intention to make a Normal Course Issuer Bid, pursuant
            to which the Corporation may purchase for cancellation up to
            1 million of its common shares. The price that the Corporation
            paid for any common shares was the market price at the time of
            acquisition. Since October 31, 2007, the Corporation repurchased
            for cancellation 131,800 common shares for a total cost of
            $956,500. Since July 17, 2007, the Corporation repurchased for
            cancellation 212,000 common shares for a total cost of
            $1,540,500. This bid was completed on July 18, 2008.

            On July 18, 2008, the Corporation announced that it had filed a
            Notice of Intention to make a Normal Course Issuer Bid, pursuant
            to which the Corporation may purchase for cancellation up to
            500,000 of its common shares. The bid commenced on July 22, 2008
            and will terminate on July 21, 2009. The price that the
            Corporation pays for any common shares will be the market price
            at the time of acquisition. To July 31, 2008 the Corporation has
            repurchased for cancellation 7,300 common shares under this bid
            for a total cost of $36,500. It is anticipated that the
            Corporation will not make any further purchases pursuant to this
            Bid.

        b.  Accumulated other comprehensive income (loss):

            The balance in accumulated other comprehensive income (loss), net
            of income taxes, consists of:

                                                     October 31   October 31
                                                        2008         2007
                                                    -------------------------
            Net unrealized losses on assets
             held as available-for-sale             $   (19,052) $    (6,356)
            Deferred losses related to previously
             closed cash flow hedges                          -         (185)
                                                    -------------------------
            Balance, end of period                  $   (19,052) $    (6,541)
                                                    -------------------------

            Net of income tax benefit of $8,165 (2007-$3,660).

    6.  Derivative instruments

        At October 31, 2008, the Corporation had outstanding contracts for
        asset liability management purposes to swap between floating and
        fixed interest rates with notional amounts totalling $241,410,000
        (2007 - $95,772,000). 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 $18,000 (2007 - $976,000), a credit equivalent
        amount of $2,613,000 (2007 - $2,350,000) and a risk-weight of
        $523,000 (2007 - $470,000). At October 31, 2008, these contracts were
        in an unfavorable position of $21,327,000 (2007 - $611,000). Under
        the accounting standard relating to hedges, this amount is included
        in other liabilities on the consolidated balance sheet, however there
        was nominal impact on net income (loss).

    7.  Commitments and contingencies

        The amount of credit related commitments represents the maximum
        amount of additional credit that the Corporation could be obligated
        to extend. Under certain circumstances, the Corporation may cancel
        loan commitments at its option. During 2008, loan commitments
        totalling approximately $230 million were withdrawn. 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        $ 186,657,000
              Letters of credit          31,910,000
                                     ---------------
                                      $ 218,567,000
                                     ---------------

        In the ordinary course of business, the Corporation and its
        subsidiaries are party to claims or possible claims against it.
        Management of the Corporation believes that the resolution of any
        outstanding claims will not be material to the financial position of
        the Corporation.

    8.  Capital Management

        a.  Overview:

            The Corporation's policy is to maintain a strong capital base so
            as to maintain investor, creditor and market confidence and to
            sustain future development of the business. The impact of the
            level of capital on shareholders' return is also important and
            the Corporation recognizes the need to maintain a balance between
            the higher returns that might be possible with greater leverage
            and the advantages and security afforded by a sound capital
            position.

            The Corporation's primary subsidiary is Pacific & Western Bank of
            Canada, (the "Bank") and as a result, the following discussion on
            capital management is with respect to the capital of the Bank.
            The Bank operates as a bank under the Bank Act (Canada) and is
            regulated by the Office of the Superintendent of Financial
            Institutions Canada (OSFI). OSFI sets and monitors capital
            requirements for the Bank.

            Capital is 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 consumer deposits and provide capacity for
            internally generated growth and strategic opportunities that do
            not otherwise require accessing the public capital markets, all
            the while providing a satisfactory return for shareholders. The
            Bank's regulatory capital is comprised of share capital, retained
            earnings and accumulated other comprehensive income (loss)
            (Tier 1 capital) and subordinated notes (Tier 2 capital).

            The Bank monitors its capital adequacy and related capital ratios
            on a daily basis and has policies setting internal maximum and
            minimum amounts for its capital ratios. These capital ratios
            consist of the assets-to capital multiple and the risk-based
            capital ratio.

            During the year ended October 31, 2008, there have been no
            material changes in the Bank's management of capital and it has
            complied with capital requirements as prescribed by OSFI's
            Guidelines on Capital Adequacy.

        b.  Assets-to-Capital Multiple:

            The Bank's growth in total assets is limited by a permitted
            assets-to-capital multiple which is prescribed by OSFI and is
            defined as the ratio of the total assets of the Bank to its
            regulatory capital. The Bank's assets-to-capital multiple is
            calculated as follows:

                                                     October 31   October 31
            (thousands of dollars)                      2008         2007
            -----------------------------------------------------------------

            Total assets (on and off-balance sheet) $ 1,545,437  $ 1,486,166
            -----------------------------------------------------------------
            Capital
              Common shares                         $    87,365  $    42,117
              Retained earnings                           8,513       24,654
              Unrealized loss on available-for-sale
               equity securities                        (15,173)      (4,951)
              Subordinated debentures                    20,000       30,000
            -----------------------------------------------------------------
            Total regulatory capital                $   100,705  $    91,820
            -----------------------------------------------------------------

            Assets-to-capital ratio                       15.35        16.19
            -----------------------------------------------------------------

            Subsequent to October 31, 2008, the Bank estimated that it had,
            on a temporary basis, exceeded by a minor amount, the assets-to-
            capital multiple that had been established by OSFI. This
            exception took place primarily as a result of a decrease in the
            market value of preferred shares held in the Bank's securities
            portfolio and which are primarily those of major Canadian banks
            and insurance companies. This decrease took place as a result of
            market volatility versus any credit impairment in the issuers of
            the securities. Subsequently, the Bank's adherence to this
            requirement was re-established.

        c.  Risk-Based Capital Ratio:

            OSFI requires banks to measure capital adequacy in accordance
            with guidelines for determining risk-adjusted capital and risk-
            weighted assets including off-balance sheet credit instruments.
            Based on the deemed credit risk for each type of asset, a
            weighting of 0% to 150% is assigned to determine the risk-based
            capital ratio. OSFI requires banks to maintain a minimum total
            risk-based capital ratio of 10% and a Tier 1 risk-based capital
            ratio in excess of 7%.

            In June 2004, the Basel Committee on Banking Supervision released
            its report entitled "International Convergence of Capital
            Measurement and Capital Standards: A Revised Framework" (Basel
            II). The new framework is designed to more closely align
            regulatory capital requirements with underlying risks by
            introducing changes in the treatment of credit risk. An explicit
            new capital charge for operational risk was introduced, as well
            as increased supervisory review of capital adequacy and expansion
            of the related public disclosure. The new Basel II Framework was
            effective November 1, 2007 for Canadian banks. The Bank's risk-
            based capital ratios at October 31, 2008 are presented below
            using the guidelines under Basel II. The Bank's risk-based
            capital ratios at October 31, 2007 are those determined under the
            previous capital adequacy guideline.


                                     October 31              October 31
                                        2008                    2007
            -----------------------------------------------------------------
                                Notional/       Risk    Notional/       Risk
            (thousands of          Drawn    Weighted       Drawn    Weighted
             dollars)             Amount     Balance      Amount     Balance
            -----------------------------------------------------------------
            Balance sheet
             assets           $1,513,456  $  809,747  $1,456,045  $  777,247
            Off-balance sheet
             assets              459,977      57,706     216,148      23,335
            Charge for
             operational risk                 39,698                       -
            -----------------------------------------------------------------
            Total risk-
             weighted assets              $  907,151              $  800,582
            -----------------------------------------------------------------
            Regulatory capital               100,705                  91,820
            -----------------------------------------------------------------
            Total risk-based
             capital ratio                    11.10%                  11.47%
            -----------------------------------------------------------------
            Tier 1 risk-based
             capital ratio                     8.90%                   7.72%
            -----------------------------------------------------------------


    9.  Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current period's presentation.
    

    Pacific & Western Bank of Canada (PWBank), a Schedule I chartered bank,
is a branchless financial institution with over $1.5 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.
    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.

    To receive company news releases, please contact:
    Carla McPhee at carlam@pwbank.com, (519) 675-4204
    





For further information:

For further information: Investor Relations: (800) 244-1509,
InvestorRelations@pwbank.com; Public Relations & Media: Tel Matrundola,
Vice-President, (416) 203-0882, telm@pwbank.com; Visit our website at:
http://www.pwbank.com

Organization Profile

Pacific & Western Credit Corp.

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