Pacific & Western Credit Corp. announces results for its fourth quarter ended October 31, 2007



    TORONTO, Nov. 29 /CNW/ -

    
    FOURTH QUARTER HIGHLIGHTS

    (three months ended October 31, 2007, compared to three months ended
    October 31, 2006, unless otherwise noted)

    -   Lending assets increased by 13% to $978 million from $923 million at
        the end of the previous quarter and from $864 million a year ago.
    -   Total assets increased to $1.5 billion from $1.2 billion at the end
        of the previous quarter and from $1.3 billion a year ago.
    -   Spread (teb) for the quarter improved to 1.33% from 1.16% for the
        previous quarter and compared to 1.42% for the same period a year
        ago.
    -   Credit quality remains strong with gross impaired loans as a
        percentage of total assets equal to 0.10% at the end of the year
        compared to 0.23% a year ago.
    -   Net income for the quarter was $638,000 or $0.04 per share ($0.04
        diluted) compared to $1.5 million or $0.11 per share ($0.10 diluted)
        for the same period last year.
    -   For the year, net income was $2.2 million or $0.14 per share ($0.14
        diluted) compared to $17.0 million or $1.25 per share ($1.22 diluted)
        a year ago. Net income in 2006 included a dilution gain from
        Discovery Air Inc. of $13.8 million or $1.03 per share, after income
        taxes.
    

    PRESIDENT'S COMMENTS

    This quarter's net interest income increased by 19% over the previous
quarter due to improved spreads and continued loan growth. We funded
$127 million of new loans and leases during the quarter, bringing the total
for the year to $500 million compared to $444 million last year. Taking into
consideration scheduled loan repayments for the year, lending assets increased
by 13% to $978 million from $864 million a year ago.
    Over the past two years we witnessed spreads decline to a level where, in
many cases, we did not feel that we were being adequately compensated for the
risk that the loans presented. This had a significant negative impact on our
spread income and the volume of loans that we booked. However, this situation
has reversed as a result of the recent liquidity crisis and we are now able to
book new loans and leases with attractive spreads. At the end of this quarter
we had record commitments to fund loans and leases of $281 million. We are
continuing to work closely with our partner, EllisDon Corporation to provide
infrastructure financing for numerous Ontario hospital projects. In addition,
our Visa card initiative is proceeding on schedule as is our Versabanq
Innovations software initiative. We are very excited about both of these as we
believe they have excellent potential to add significantly to our bottom line.


    

    FINANCIAL HIGHLIGHTS

                                      for the
    (unaudited)                  three months ended     for the year ended
    ------------------------------------------------- -----------------------
    ($ thousands, except      October 31  October 31  October 31  October 31
    per share amounts)           2007        2006        2007        2006
    ------------------------------------------------- -----------------------
    Results of operations
     (teb)
      Net interest income per
       financial statements   $    3,777  $    4,262  $   15,503  $   17,571
      Teb adjustment                 715         432       2,209       1,650
      Net interest income          4,492       4,694      17,712      19,221
      Spread                        1.33%       1.42%       1.27%       1.56%
      Provision for credit
       losses                        198         339         841         787
      Net interest income
       after provision for
       credit losses               4,294       4,355      16,871      18,434
      Other income                   114       1,116       1,626      16,162
      Total revenue                4,408       5,471      18,497      34,596
      Non-interest expenses        3,049       3,252      13,897      12,855
      Net income                     638       1,482       2,200      16,986
      Earnings per common share:
        Basic                 $     0.04  $     0.11  $     0.14  $     1.25
        Diluted               $     0.04  $     0.10  $     0.14  $     1.22
      Efficiency ratio                66%         56%         72%         36%
      Return on average
       common shareholders'
       equity                       4.13%       8.54%       3.25%      28.75%
      Return on average total
       assets                       0.19%       0.45%       0.16%       1.38%
      Gross impaired loans
       to total assets              0.10%       0.23%       0.10%       0.23%
      Provision for credit
       losses as a % of
       average loans                0.02%       0.04%       0.09%       0.10%
      Number of full time
       equivalent staff               57          61          57          61
    ------------------------------------------------- -----------------------
    Balance Sheet Summary
      Cash and securities     $  441,727  $  425,418  $  441,727  $  425,418
      Total loans                977,727     863,830     977,727     863,830
      Average loans              950,556     841,865     920,779     806,569
      Total assets             1,458,656   1,329,729   1,458,656   1,329,729
      Average assets           1,342,120   1,308,594   1,394,193   1,230,478
      Deposits                 1,282,756   1,210,555   1,282,756   1,210,555
      Notes payable               35,660      36,184      35,660      36,184
      Shareholders' equity        57,054      70,650      57,054      70,650
    ------------------------------------------------- -----------------------
    Capital ratios
    (Based on the subsidiary
     Pacific & Western Bank
     of Canada)
      Total regulatory
       capital                $   91,820  $  104,163  $   91,820  $  104,163
      Risk weighted assets       800,582     786,005     800,582     786,005
      Assets to capital ratio      16.19       12.96       16.19       12.96
      Tier 1 risk-based
       capital ratio                8.34%       8.93%       8.34%       8.93%
      Total risk-based capital
       ratio                       11.47%      13.25%      11.47%      13.25%
    ------------------------------------------------- -----------------------
    

    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 fourth quarter of fiscal 2007 should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended October 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 income for the quarter increased to $638,000 or $0.04 per share
($0.04 diluted) compared to $127,000 or $0.01 per share ($nil diluted) for the
previous quarter and compared to $1.5 million or $0.11 per share ($0.10
diluted) for the same period a year ago. For the year, net income was
$2.2 million or $0.14 per share ($0.14 diluted) compared to $17.0 million or
$1.25 per share ($1.22 diluted) last year with the change due primarily to a
decrease in dilution gains and equity earnings from our investment in
Discovery Air Inc. (DA). Effective November 1, 2006, our investment is
accounted for as an available-for-sale asset and the Corporation no longer
records dilution gains or equity earnings from DA.
    Net interest income (teb) for the quarter was $4.5 million compared to
$3.8 million for the previous quarter and $4.7 million for the same period a
year ago and $17.7 million for the year compared to $19.2 million last year.
Net interest income decreased from last year primarily as a result of a
compression in spreads in our securities portfolio. Despite this, the
Corporation maintained its focus on low risk lending opportunities and
maintained a strong discipline in its management of its lending portfolios.
The Corporation does not have any direct exposure to the North American
subprime lending market or to asset backed commercial paper, and is now
benefiting from the recent liquidity crisis as it is seeing spreads widen in
both its securities and lending portfolios. Spread (teb) for the fourth
quarter increased to 1.33% compared to 1.16% for the previous quarter.
    At October 31, 2007, total assets increased to $1.5 billion from
$1.3 billion a year ago. The largest increase was in lending assets which grew
to $978 million at the end of the quarter from $864 million a year ago and
from $923 million at the end of the previous quarter. Credit quality remains
strong with gross impaired loans at the end of the year of only $1.5 million
or 0.10% of total assets compared to $3.1 million or 0.23% of total assets a
year ago. As well, the provision for credit losses as a percentage of average
loans for the year remained steady at 0.09% compared to 0.10% for the previous
year.

    Total Revenue (teb)

    Total revenue (teb), which is comprised of net interest income after
provision for credit losses and other income, was $4.4 million for the quarter
compared to $5.5 million a year ago and for the year was $18.5 million
compared to $34.6 million a year ago.

    Net Interest Income

    Net interest income (teb) was $4.5 million for the quarter, compared to
$4.7 million a year ago and for the year was $17.7 million compared to
$19.2 million a year ago. Net interest margin or spread (teb), which is net
interest income as a percentage of average assets, was 1.33% for the quarter
compared to 1.42% a year ago and for the year was 1.27% compared to 1.56%. The
decrease from a year ago in net interest income and spread was due primarily
to a compression of spreads, particularly in our securities portfolio. As
well, spread in our loan portfolio decreased as a result of a change in the
mix of our loan portfolio, and competitive market conditions. However, as a
result of the recent liquidity crisis, we have seen spreads widen in both our
securities and lending portfolios resulting in our spread (teb) in the fourth
quarter increasing from the previous quarter's spread of 1.16%.

    Other Income

    Other income for the quarter was $114,000 compared to $1.1 million for
the same period a year ago with the decrease being a result of equity earnings
from DA being recorded in the fourth quarter last year. For the year, other
income was $1.6 million compared to $16.2 million a year ago with the decrease
due to other income in the prior year including dilution gains of
$16.9 million resulting from the issue of shares by DA, equity earnings of DA
totalling $1.7 million and reduced by impairment writedowns totalling
$3.8 million. As our investment in DA is now accounted for as an
available-for-sale asset, the Corporation no longer records dilution gains or
equity earnings from DA.

    Non-Interest Expenses

    Non-interest expenses for the quarter were $3.0 million compared to
$3.3 million for the same period a year ago and for the year were
$13.9 million compared to $12.9 million. Non-interest expenses for the quarter
and for the year increased from last year primarily as a result of higher
salaries and benefits due to annual salary adjustments and costs of the office
in Calgary which opened in August, 2006. The increase in salaries and benefits
expense in 2007 was offset by a reduction in the fourth quarter of the accrual
for staff incentive awards as a result of actual results being less than
targeted.
    Our efficiency ratio (teb), which measures the cost of the Corporation to
earn a dollar of revenue, was 66% for the quarter compared to 56% for the same
period last year and for the year was 72% compared to 36% last year. The
change in the efficiency ratio was due primarily to the decrease in revenues
from DA in the current quarter and for the year. At October 31, 2007, our
ratio of assets per full time employee was $25.6 million compared to
$21.8 million a year ago and at this level, the Corporation continues to lead
the other domestic banks.

    Income Taxes

    For the fourth quarter and for the year, 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 rate was affected by
non-taxable income earned on preferred shares in our securities portfolio and
expenses such as stock-based compensation which are not deductible for income
tax purposes. This resulted in an effective rate of 8% for the year.

    Balance Sheet

    Total assets at October 31, 2007, were $1.5 billion compared to
$1.3 billion a year ago and $1.2 billion at the end of the previous quarter
with the increase from a year ago as a result of lending assets which grew by
13%.

    Cash and Securities

    Cash and securities, which are held for liquidity management purposes and
to earn investment income, were $442 million compared to $425 million a year
ago and $267 million at the end of the previous quarter. Securities consist of
government bonds and investment grade corporate debt and preferred shares.
Corporate preferred shares are held for the preferential tax treatment their
dividends receive. 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 recent market instabilities. The increase in cash and
securities from the previous quarter was due to an increase in securities that
were sold under repurchase agreements.
    As a result of new accounting standards for financial instruments,
commencing November 1, 2006, all of the Corporation's securities have been
designated as available-for-sale and are recorded on the balance sheet at fair
value with changes in value recognized, net of taxes, in other comprehensive
income (loss).
    At October 31, 2007, the net unrealized loss in our securities portfolio,
which is included in accumulated other comprehensive income (loss), was
$11.7 million which compares to $6.0 million at the end of the previous
quarter and $1.1 million a year ago. The increase in unrealized losses from
the previous quarter was generally due to the impact of the markets' increases
in the pricing for credit risk in securities as a result of the recent
liquidity crisis.

    Mortgages and Loans

    Lending assets grew to $978 million at the end of the quarter from
$864 million a year ago and from $923 million at the end of the previous
quarter. New lending in the quarter totalled $127 million bringing loan
fundings for the year to $500 million in comparison to $444 million in the
prior year. The outlook for new loan funding continues to be promising with
total loans committed to at October 31, 2007 exceeding $281 million.
    Loan categories which saw increases from a year ago were loans to public
sector entities, insured residential mortgages and commercial loans and
mortgages to investment grade corporations. These increases were offset by
decreases in personal loans which consist of immigrant investor loans. The
changes in our loan portfolio have resulted in lower overall spreads, however,
the composition reflects our continued focus on low risk lending
opportunities. At October 31, 2007, the Corporation does not have any exposure
to the subprime lending market and therefore is not exposed to any direct
losses from this sector.

    Other Assets

    Other assets totalled $39.2 million at the end of the quarter compared to
$35.6 million at the end of the previous quarter and $40.5 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. At October 31, 2007, the
investment in DA had a fair value of $16.6 million including an unrealized
gain of $1.8 million which is included, net of income taxes, in accumulated
other comprehensive income (loss).

    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 were $1.3 billion compared to $1.1 billion at the end of
the previous quarter and $1.2 billion a year ago. Our deposits consist
primarily of fixed term guaranteed investment certificates with a nominal
amount of demand deposits.
    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 quarter, the Corporation had approximately $50 million outstanding in
securities sold under repurchase agreements which compares to $nil at the end
of the previous year.
    Notes payable at October 31, 2007, were $35.7 million compared to
$36.2 million a year ago with the decrease due to the reclassification of
deferred financing charges as required under the new accounting standard on
financial instruments. These notes bear interest at rates ranging from 9.0% to
9.25% per annum with $22.7 million maturing in 2008.

    Off-Balance Sheet

    Off-balance sheet items include standard industry credit instruments such
as letters of credit, loan commitments and other commitments and prior to the
first quarter of 2007, derivative financial instruments which are primarily
interest rate swaps used for Asset Liability Management purposes.
    With the November 1, 2006 adoption of new accounting policies for
financial instruments, all derivative financial instruments are recorded on
the balance sheet at fair value, with changes in fair value reflected in net
income.

    Credit Quality

    Gross impaired loans at the end of the year totalled $1.5 million or
0.10% of total assets, compared to $2.6 million or 0.21% of total assets at
the end of the previous quarter and $3.1 million or 0.23% of total assets a
year ago. The provision for credit losses for the quarter was $198,000
compared to $339,000 a year ago and for the year was $841,000 compared to
$787,000. Total allowances for credit losses, including specific and general
allowances, were $3.2 million at the end of the quarter compared to
$2.6 million a year ago. Provision for credit losses as a percentage of
average loans for the year was 0.09% consistent with the previous years figure
of 0.10%.

    Shareholders' Equity

    At the end of the year, shareholders' equity was $57.1 million compared
to $70.7 million a year ago with the decrease due primarily to the special
dividend of $10.8 million declared and distributed earlier in the year, shares
repurchased and cancelled under the Normal Course Issuer Bid, and accumulated
other comprehensive income (loss) in the amount of ($6.5 million) which was
recorded as a result of the new accounting standard on comprehensive income.
These decreases were partially offset by the issue of common shares on
exercise of stock options and the retention of earnings. Total common shares
outstanding at the end of the year were 13,685,552 compared to 13,421,585 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
1,054,345 at the end of the quarter compared to 1,291,160 a year ago.  Our
book value per common share at the end of the year was $3.91 compared to $5.00
a year ago with the decrease due primarily to the payment of the special
dividend earlier in the year.
    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 Bid will terminate on July 18, 2008. The price that the
Corporation pays for any common shares is the market price at the time of
purchase. The Corporation believes that the market price of its common shares
is unusually low and does not fully reflect the value of its business and
future business prospects. As a result, the Corporation believes that
purchasing its common shares represents an attractive investment opportunity
and an appropriate and desirable use of available funds. To the end of
October 31, 2007 the Corporation had repurchased for cancellation 80,200
common shares for a total cost of $584,000.

    Updated Share Information

    At November 28, 2007, there were 13,679,852 common shares outstanding
with the change since October 31, 2007 due to 5,700 common shares repurchased
for cancellation under the Normal Course Issuer Bid. At November 28, 2007,
there were 1,254,345 common share options outstanding with the increase due to
the granting of 200,000 common share options since October 31, 2007.

    Capital Management

    Total regulatory capital in the Corporation's principal subsidiary,
Pacific & Western Bank of Canada (the "Bank"), totalled $91.8 million at the
end of the year compared to $93.7 million at the end of the previous quarter
and $104 million a year ago. The decrease in total regulatory capital from a
year ago was primarily a result of a dividend of $11 million paid earlier in
the year by the Bank to the Corporation.
    The Bank's total risk-based capital ratio, which is the ratio of
regulatory capital to risk-weighted assets, was 11.47% at the end of the year
compared to 12.45% at the end of the previous quarter and 13.25% 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 8.34% at the end of the year
compared to 8.47% at the end of the previous quarter and 8.93% a year ago. The
Bank's assets to capital ratio was 16.19 at the end of the year compared to
13.36 at the end of the previous quarter and 12.96 a year ago.

    
    Performance Targets

    Performance targets established for the 2007 fiscal year are noted below
    with actual results.

                                                 2007
                                         ---------------------
                                           Annual    Actual
                                           Target    Results
    ----------------------------------------------------------
    Earnings per common share              $0.43      $0.14
    Return on average common shareholders'
     equity                                 8.72%      3.25%
    Return on average total assets          0.42%      0.16%
    Spread (teb)                            1.67%      1.27%
    Loan growth                            33.00%     13.00%
    Total asset growth                     12.00%      9.70%
    

    Actual results for the year fell short of earnings related targets
primarily as a result of a compression of spreads in our securities and loan
portfolios for the majority of the 2007 fiscal year. However, we saw spreads
widen in the fourth quarter as a result of the recent liquidity crisis. Actual
results for loan and asset growth fell short of targets as a result of excess
liquidity and competition in the marketplace for the majority of 2007 for
loans in our target market of low risk and investment grade borrowers.

    
    Summary of Quarterly Results

    (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
    Other income                     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 before income taxes     1,359         255       1,209       1,778
    Income tax provision             721         128         865         687
    Non-controlling interest           -           -           -           -
    Net income                       638         127         344       1,091
    Earnings per share
      - basic                 $     0.04  $     0.01  $     0.02  $     0.08
      - diluted               $     0.04  $        -  $     0.02  $     0.07


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


    (*) Results for these quarters include the results of the operations for
        DA accounted for on the consolidation basis. DA was subsequently
        accounted for on the equity basis until October 31, 2006.
    

    Net interest income and spread (teb) for the fourth quarter increased
from the previous quarter as a result of increased lending which resulted in
increased loan fees. In addition, the Corporation experienced a widening of
spreads in the securities and lending portfolios due to the recent liquidity
crisis. Until the fourth quarter, spreads decreased as a result of competitive
pricing for new loans, a compression of spreads primarily in our securities
portfolio and increased competition for new deposits which resulted in an
increase in our cost of funds.
    Other income was less in the year compared to the prior year as there
were no dilution gains or equity earnings from DA in the current year.
Non-interest expenses in the fourth quarter decreased due to a reduction of
the accrual for staff incentive awards when actual results were less than
target and staff attrition during the year. These were offset by costs of the
office in Calgary which opened in August 2006. The income tax provision
increased in the second quarter as a result of a tax provision on a gain for
income tax purposes which resulted from the disposition of DA shares when they
were distributed as a special dividend in that quarter.

    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 (loss), forms part of Shareholders' Equity and unrealized gains or
losses on available-for-sale financial instruments are reported in accumulated
other comprehensive income until realization.
    At October 31, 2007, accumulated other comprehensive loss totalled
$6.5 million and consisted of unrealized losses of $11.7 million related to
securities held as available-for-sale, unrealized gains of $1.8 million
related to our investment in DA which has been designated as
available-for-sale and deferred losses of $289,000 related to previously
closed cash flow hedges no longer included in other assets. These amounts were
before future income tax recoveries totalling $3.6 million which are also
included in accumulated other comprehensive income (loss).
    The new accounting standard relating to hedges requires the Corporation
to record the hedging item and the hedged item at fair value with the changes
recorded through net income. As a result of this standard, at October 31,
2007, loans and other liabilities include fair value adjustments totalling
$883,000 however, there was minimal impact on net income as the fair value
adjustment to loans and other liabilities offset each other.

    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: November 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)

                                                     October 31   October 31
                                                        2007         2006
                                                    ------------ ------------
                                                     (unaudited)
    Assets
    Cash resources                                  $   113,421  $   207,720
    Securities                                          328,306      217,698
    Mortgages and loans                                 977,727      863,830
    Other assets                                         39,202       40,481
                                                    ------------ ------------

                                                    $ 1,458,656  $ 1,329,729
                                                    ------------ ------------
                                                    ------------ ------------


    Liabilities and Shareholders' Equity
    Deposits                                        $ 1,282,756  $ 1,210,555
    Notes payable                                        35,660       36,184
    Other liabilities                                    83,186       12,340
                                                    ------------ ------------
                                                      1,401,602    1,259,079
                                                    ------------ ------------

    Shareholders' equity
    Share capital                                        39,470       37,775
    Retained earnings                                    24,125       32,875
    Accumulated other comprehensive income
     (loss) (note 1)                                     (6,541)           -
                                                    ------------ ------------
                                                         57,054       70,650
                                                    ------------ ------------

                                                    $ 1,458,656  $ 1,329,729
                                                    ------------ ------------
                                                    ------------ ------------


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

                                  for the
                             three months ended        for the year ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2007         2006         2007         2006
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)

    Interest income
      Interest income on
       loans              $    14,018  $    12,492  $    52,814  $    47,171
      Interest and income
       from securities          3,942        5,508       16,042       15,908
      Loan fee income             835          677        2,618        2,258
                          ------------------------- -------------------------
                               18,795       18,677       71,474       65,337
    Interest expense
      Deposits and other       14,132       13,539       52,452       44,294
      Notes payable               886          876        3,519        3,472
                          ------------------------- -------------------------
                               15,018       14,415       55,971       47,766
                          ------------------------- -------------------------

      Net interest income       3,777        4,262       15,503       17,571

      Provision for credit
       losses                     198          339          841          787
                          ------------------------- -------------------------

      Net interest income
       after provision for
       credit losses            3,579        3,923       14,662       16,784

      Other income                114        1,116        1,626       16,162
                          ------------------------- -------------------------

                                3,693        5,039       16,288       32,946
                          ------------------------- -------------------------

    Non-interest expenses
      Salaries and benefits     1,552        1,783        7,813        7,208
      General and
       administrative           1,037        1,073        4,311        4,391
      Premises and equipment      460          396        1,773        1,256
                          ------------------------- -------------------------
                                3,049        3,252       13,897       12,855
                          ------------------------- -------------------------

      Income (loss) before
       income taxes and other     644        1,787        2,391       20,091

      Income tax (recovery)
       provision                    6          305          191        3,459

      Non-controlling
       interest                     -            -            -          354
                          ------------------------- -------------------------

    Net income            $       638  $     1,482  $     2,200  $    16,986
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Basic earnings per
     share                $      0.04  $      0.11  $      0.14  $      1.25
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Diluted earnings per
     share                $      0.04  $      0.10  $      0.14  $      1.22
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Weighted average
     number of common
     shares                13,739,000   13,366,000   13,674,000   13,343,000
                          ------------------------- -------------------------
                          ------------------------- -------------------------



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

                                  for the
                             three months ended        for the year ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2007         2006         2007         2006
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)

    Common shares
    Balance, beginning of
     period               $    35,871  $    33,381  $    33,986  $    33,191
    Shares issued                  57          605        1,956          795
    Shares repurchased           (185)           -         (209)           -
    Amount transferred
     from contributed
     surplus                        -            -           10            -
                          ------------------------- -------------------------
    Balance, end of
     period               $    35,743  $    33,986  $    35,743  $    33,986
                          ------------------------- -------------------------

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

    Contributed surplus
    Balance, beginning of
     period               $       501  $       208  $       244  $        58
    Fair value of stock
     option transactions
     (note 3)                      56           36          323          186
    Repurchase of shares         (375)           -         (375)           -
    Amount transferred to
     common shares                  -            -          (10)           -
                          ------------------------- -------------------------
    Balance, end of
     period               $       182  $       244  $       182  $       244
                          ------------------------- -------------------------

    Retained earnings
    Balance, beginning
     of period            $    23,487  $    31,393  $    32,875  $    16,129
    Transitional
     adjustment (note 1a)           -            -           77            -
    Net income                    638        1,482        2,200       16,986
    Dividend in kind
     (note 5)                       -            -      (10,787)           -
    Dividends on
     preferred shares               -            -         (240)        (240)
                          ------------------------- -------------------------
    Balance, end of
     period               $    24,125  $    32,875  $    24,125  $    32,875
                          ------------------------- -------------------------

    Accumulated other
     comprehensive income
     (loss), net of taxes
     (note 1)
    Balance, beginning of
     period               $    (2,449) $         -  $         -  $         -
    Transitional
     adjustment                     -            -        3,982            -
    Net unrealized losses
     on assets held as
     available-for-sale        (4,136)           -       (9,377)           -
    Amount transferred to
     net income for hedges         53            -          212            -
    Amount transferred to
     net income for sale
     of available-for-sale
     securities                    (9)           -       (1,358)           -
                          ------------------------- -------------------------
                               (4,092)           -      (10,523)           -
                          ------------------------- -------------------------
    Balance, end of
     period               $    (6,541) $         -  $    (6,541) $         -
                          ------------------------- -------------------------
    Total shareholders'
     equity               $    57,054  $    70,650  $    57,054  $    70,650
                          ------------------------- -------------------------
                          ------------------------- -------------------------
    Accumulated other
     comprehensive income
     (loss), net of taxes
    Balance, end of period,
     consists of:
    Net unrealized losses
     on assets held as
     available-for-sale   $    (6,356) $         -  $    (6,356) $         -
    Deferred losses
     related to previously
     closed cash flow
     hedges                      (185)           -         (185)           -
                          ------------------------- -------------------------
    Balance, end of
     period               $    (6,541) $         -  $    (6,541) $         -
                          ------------------------- -------------------------

    Comprehensive income
     (loss)
    Total net income      $       638  $         -  $     2,200  $         -
    Other comprehensive
     income (loss)             (4,092)           -      (10,523)           -
                          ------------------------- -------------------------
    Total comprehensive
     income (loss)        $    (3,454) $         -  $    (8,323) $         -
                          ------------------------- -------------------------



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

                                  for the
                             three months ended        for the year ended
                          ------------------------- -------------------------
                           October 31   October 31   October 31   October 31
                              2007         2006         2007         2006
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)

    Cash provided by
     (used in):

    Operations:
    Net income            $       638  $     1,482  $     2,200  $    16,986
    Items not involving
     cash:
      Provision for credit
       losses                     198          339          841          787
      Other provisions            100         (136)         100        3,846
      Future income tax
       (recovery) provision       315          (17)         500        3,137
      Stock-based
       compensation (note 3)       56           36          323          186
      Gain on disposal of
       shares                       -            -         (888)           -
      Gain on sale of
       available-for-sale
       securities                 (14)        (520)        (978)        (582)
      Non-controlling
       interest                     -            -            -         (354)
      Dilution gains                -            3            -      (16,933)
      Equity earnings               -         (807)           -       (1,721)
      Change in derivative
       financial instruments     (108)           -         (273)           -
    Change in other assets
     and liabilities           17,088        2,436       15,893        7,943
                          ------------------------- -------------------------
                               18,273        2,816       17,718       13,295
                          ------------------------- -------------------------

    Investing:
    Securities                (93,094)      76,928     (121,322)      59,505
    Mortgages and loans       (53,325)     (44,270)    (113,945)    (115,310)
                          ------------------------- -------------------------
                             (146,419)      32,658     (235,267)     (55,805)
                          ------------------------- -------------------------

    Financing:
    Deposits                  166,439       76,313       72,201      274,797
    Short term financings      49,917      (39,680)      49,917      (97,652)
    Proceeds of common
     shares issued                 58          605        1,956          795
    Shares repurchased           (561)           -         (584)           -
    Notes payable                   -           (2)           -           (2)
    Dividends paid                  -            -         (240)        (240)
                          ------------------------- -------------------------
                              215,853       37,236      123,250      177,698
                          ------------------------- -------------------------

    Increase (decrease) in
     cash resources            87,707       72,710      (94,299)     135,188

    Cash resources,
     beginning of period       25,714      135,010      207,720       72,532
                          ------------------------- -------------------------

    Cash resources, end
     of period            $   113,421  $   207,720  $   113,421  $   207,720
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Supplementary cash
     flow information:
      Interest paid
       during the period  $    11,499  $     8,985  $    55,072  $    40,033
      Income taxes paid
       during the period  $        79  $         -  $       500  $       853




    PACIFIC & WESTERN CREDIT CORP.
    Notes to the interim consolidated financial statements (unaudited)
    For the year ended October 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 $77,000 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
                          ---------------------------------------------------
                                                         Oct 31,      Oct 31,
                                                           2007         2006
                          ---------------------------------------------------
        (thousands of         General     Specific        Total        Total
         dollars)           allowance    allowance    allowance    allowance
        ---------------------------------------------------------------------
        Balance, beginning
         of the period    $     2,536  $       708  $     3,244  $     2,275
        Provision for
         credit losses            197            1          198          339
        Recoveries
         (write-offs)               -         (236)        (236)         (48)
        ---------------------------------------------------------------------
        Balance, end of
         period           $     2,733  $       473  $     3,206  $     2,566
        ---------------------------------------------------------------------


                                         for the year ended
                          ---------------------------------------------------
                                                         Oct 31,      Oct 31,
                                                           2007         2006
                          ---------------------------------------------------
        (thousands of         General     Specific        Total        Total
         dollars)           allowance    allowance    allowance    allowance
        ---------------------------------------------------------------------
        Balance, beginning
         of the period    $     2,208  $       358  $     2,566  $     1,889
        Provision for
         credit losses            525          316          841          787
        Recoveries
         (write-offs)               -         (201)        (201)        (110)
        ---------------------------------------------------------------------
        Balance, end of
         period           $     2,733  $       473  $     3,206  $     2,566
        ---------------------------------------------------------------------

        Gross impaired loans at October 31, 2007 totalled $1,452,000
        (October 31, 2006 - $3,096,000).


    3.  Income taxes

                                    for the
                               three months ended        for the year ended
                          ------------------------- -------------------------
        (thousands of          Oct 31,      Oct 31,      Oct 31,      Oct 31,
         dollars)                2007         2006         2007         2006
        ------------------------------------------- -------------------------
        Tax provision at
         basic rate of
         36%              $       232  $       764  $       861  $     7,353

        Changes resulting
         from:
          Non-taxable income
           from securities       (288)        (267)      (1,152)        (974)
          Dividend in kind          -            -          420            -
          Gains                     -         (262)        (160)      (3,332)
          Other permanent
           differences             62           70          222          412
        ------------------------------------------- -------------------------
        Income tax
         (recovery)
         provision        $         6  $       305  $       191  $     3,459
        ------------------------------------------- -------------------------


        In addition, included in accumulated other comprehensive income
        (loss) at October 31, 2007, is a future income tax asset of
        $3.6 million relating to assets held as available-for-sale and a
        future income tax asset of $104,000 relating to deferred losses on
        previously closed cash flow hedges.

    4.  Share capital and contributed surplus

                                                     Employee Stock Options
                                                    -------------------------
                                                                    Weighted-
                                            Common                   average
                                            shares                  exercise
                                       outstanding       Number        price
        ---------------------------------------------------------------------
        Outstanding, October 31, 2006   13,421,585    1,291,160  $      7.65
        Granted                                  -      117,235        11.76
        Exercised                          344,167     (344,167)        6.09
        Expired                                  -       (9,883)       10.97
        Repurchased                        (80,200)           -            -
        ---------------------------------------------------------------------
        Outstanding, end of year        13,685,552    1,054,345  $      8.58
        ---------------------------------------------------------------------

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

        During the year ended October 31, 2007, the Corporation recognized
        $323,000 (2006-$62,000) 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% (2006-4.02%),
        (ii) expected option life of 5 years (2006-5 years), (iii) expected
        volatility of 30% (2006-45%), and (iv) expected forfeiture rate of 5%
        (2006-5%). The weighted average fair value of options granted was
        estimated at $3.87 (2006-$4.72) per share.

        During the year ended October 31, 2007, $10,000 (2006-$nil) was
        transferred from contributed surplus to common shares relating to the
        exercise of options that had previously been expensed.

        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 bid will terminate on July 18, 2008. The
        price that the Corporation pays for any common shares will be the
        market price at the time of acquisition. To October 31, 2007, the
        Corporation had repurchased for cancellation 80,200 common shares for
        a total cost of $584,000.

    5.  Special dividend

        On March 7, 2007, the Corporation distributed a special dividend to
        common shareholders of record at the close of business on
        February 16, 2007. The dividend was comprised of Class A common
        shares of DA and was 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 $10,787,000, which resulted in a gain of $888,000.

    6.  Derivative instruments

        At October 31, 2007, the Corporation had outstanding contracts for
        asset liability management purposes to swap between floating and
        fixed interest rates with notional amounts totalling $95,772,000
        (2006-$49,308,000). 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 $976,000 (2006-$nil), a credit equivalent amount
        of $2,350,000 (2006-$880,000) and a risk weighted balance of $470,000
        (2006-$176,000). At October 31, 2007, these contracts were in an
        unfavorable position of $611,000 (2006-$1,767,000). Under the new
        accounting standard relating to hedges, this amount is included in
        other assets on the consolidated balance sheet, however there is no
        impact on net earnings.

        At October 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 October 31, 2007, the counterparties to these contracts
        which totalled $19.3 million (2006-$43.7 million) consisted of
        Canadian chartered banks. The contracts have a nominal fair value and
        mature within two years.

    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. 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    $  281,100,000
                      Letters of credit       30,015,000
                                          --------------
                                          $  311,115,000
                                          --------------

    8.  Segmented information

        The Corporation operates in one business segment which provides
        lending services to public sector, commercial and personal markets.
        Its lending activities are to clients in all of the Canadian
        provinces and territories. The segmented information reported in the
        prior year as Other Operations related to the Corporation's
        investment in Discovery Air Inc. (DA), which due to the Corporation's
        dilution of its interest in 2006, is now accounted for as an
        available-for-sale asset.

    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. 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.

    Further information is available through Pacific & Western's corporate
web site at http://www.pwbank.com.





For further information:

For further information: Tel Matrundola, Vice President at
telm@pwbank.com or by phone at 1-866-787-9936. To receive company news
releases via e-mail, please contact Camille Malette, Telephone (519) 675-4204,
camillem@pwbank.com

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