Pacific & Western Credit Corp. announces results for its third quarter ended July 31, 2008



    LONDON, ON, Aug. 28 /CNW/ -

    
    THIRD QUARTER SUMMARY
    (three months ended July 31, 2008, compared to three months ended
    July 31, 2007, unless otherwise noted)

    -  Third quarter results were negatively impacted by a charge of
       $3.7 million ($2.5 million after income taxes) relating to a security
       whose decline in value was determined to be other than temporary.
    -  Net income (loss) for the quarter was ($4.2 million) or ($0.31) per
       share (($0.31) diluted) compared to $127,000 or $0.01 per share
       ($0.00 diluted) for the same period last year. On a year-to-date
       basis, net income (loss) was ($4.3 million) or ($0.33) per share
       (($0.33) diluted) compared to $1.6 million or $0.10 per share
       ($0.10 diluted) for the same period a year ago.
    -  Total loans increased to $949 million from $923 million a year ago.
    -  Total assets were $1.43 billion compared to $1.23 billion a year ago.
    -  Net increase in notes payable totalling $28.6 million during the
       quarter with the proceeds being invested in the Corporation's bank
       subsidiary Pacific & Western Bank of Canada (the "Bank") to fund
       additional growth and pursue new lending opportunities.
    -  Regulatory capital in the Bank increased to $111.8 million at the end
       of the quarter from $93.7 million a year ago.
    


    PRESIDENT'S COMMENTS

    This quarter we determined that there was a permanent impairment in the
value of one of our preferred share positions that had been trading below our
amortized cost for sometime. This resulted in a $2.5 million reduction of
income after taxes. However, the impact upon our shareholder's equity and
regulatory capital of the Bank was significantly less as we had already
recorded this reduction in previous periods' mark to market adjustments. This
quarter's results also continued to be affected by the temporary compression
of spreads resulting from the reduction in the prime interest rate earlier in
the year. As the majority of our short term GIC's have now matured and
replaced by GIC's with lower interest rates, we expect our spread to widen
back to normal levels.
    On a positive note during this quarter, we received the approval of our
Series C Noteholders to extend the notes' maturity date for another ten years,
maturing October, 2018 and also to increase the maximum amount of the issue to
$100 million. We then issued additional Series C Notes and other short term
notes that in total amounted to $28.6 million dollars and invested the
proceeds in the Bank. These additional funds more than offset the decline in
the Bank's regulatory capital caused by mark to market adjustments in the
Bank's equity securities. The Bank's regulatory capital now is at a record
high level of $112 million, which will provide sufficient lending capacity for
the Bank to continue to grow in its target markets. In this respect, the Bank
has identified an opportunity to grow rapidly in the insured residential
mortgage market and intends to develop relationships with residential mortgage
originators in the near future. The turbulent financial markets have taken
their toll on our Bank's preferred share portfolio, which negatively impacted
its regulatory capital. However, with the issuance of new Series C Notes and
other short term notes, our Bank has the capacity to take advantage of
substantial new opportunities in low risk lending markets.


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

    Results of operations (teb)
      Net interest income
       per financial
       statements         $       944  $     3,373  $     7,441  $    11,878
      Teb adjustment              679          559        2,184        1,494
      Net interest income       1,623        3,932        9,625       13,372
      Spread                    0.46%        1.20%        0.89%        1.40%
      Provision for credit
       losses                     242          142          314          643
      Net interest income
       after provision for
       credit losses            1,381        3,790        9,311       12,729
      Impairment writedown
       on securities           (3,703)           -       (3,703)           -
      Other income                139          108          183        1,361
      Total revenue            (2,183)       3,898        5,791       14,090
      Non-interest expenses     3,523        3,643       10,745       10,849
      Net income (loss)        (4,215)         127       (4,280)       1,562
      Earnings (loss) per
       common share:
        Basic             $     (0.31) $      0.01  $     (0.33) $      0.10
        Diluted           $     (0.31) $         -  $     (0.33) $      0.10
      Efficiency ratio            n/m  $      0.90  $      1.76  $      0.73
      Return on average
       common shareholders'
       equity                 -42.21%        0.45%      -13.22%        2.97%
      Return on average
       total assets            -1.21%        0.04%       -0.39%        0.16%
      Gross impaired loans
       to total assets          0.55%        0.21%        0.55%        0.21%
      Provision for credit
       losses as a % of
       average loans            0.02%        0.02%        0.03%        0.07%
      Number of full time
       equivalent staff            58           62           58           62
    ----------------------------------------------- -------------------------

    Balance Sheet Summary
      Cash and securities $   446,908  $   266,588  $   446,908  $   266,588
      Total loans             948,596      923,385      948,596      923,385
      Average loans           969,155      911,678      963,162      893,608
      Total assets          1,430,395    1,225,583    1,430,395    1,225,583
      Average assets        1,382,332    1,296,209    1,444,526    1,277,656
      Deposits              1,173,732    1,116,317    1,173,732    1,116,317
      Notes payable            68,850       35,847       68,850       35,847
      Shareholders' equity     39,946       60,981       39,946       60,981
    ----------------------------------------------- -------------------------

    Capital ratios
    (Based on the subsidiary
     Pacific & Western Bank
     of Canada)
      Total regulatory
       capital            $   111,838  $    93,701  $   111,838  $    93,701
      Risk weighted assets  1,021,138      752,461    1,021,138      752,461
      Assets-to-capital
       ratio                    13.11        13.36        13.11        13.36
      Tier 1 risk-based
       capital ratio            8.99%        8.47%        8.99%        8.47%
      Total risk-based
       capital ratio           10.95%       12.45%       10.95%       12.45%
    ----------------------------------------------- -------------------------
    

    Non-GAAP measures:

    Like most banks, Pacific & Western Credit Corp. (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 third quarter of fiscal 2008 should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended July 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 ($4.2 million) or ($0.31) per share
(($0.31) diluted) compared to $127,000 or $0.01 per share ($0.00 diluted) for
the same period a year ago with the decrease due primarily to a decrease in
net interest income and a charge of $3.7 million ($2.5 million after income
taxes) for impairment of securities where the decline in value was determined
to be other than temporary. A large portion of this charge had already been
reflected in shareholders' equity and in the Bank's regulatory capital as a
result of previously recorded mark-to-market adjustments relating to this
security. On a year-to-date basis, net income (loss) was ($4.3 million) or
($0.33) per share (($0.33) diluted) compared to $1.6 million or $0.10 per
share ($0.10 diluted) for the same period a year ago with the change due
primarily to the same factors mentioned above as well as a decrease in other
income in the current year. Other income for the nine month period last year
included a gain of $888,000 resulting from the disposition of shares of
Discovery Air Inc. (DA). There was no similar gain earned in the current year.
    Net interest income (teb) for the quarter was $1.6 million compared to
$3.9 million for the same period a year ago. On a year-to-date basis net
interest income was $9.6 million compared to $13.4 million last year. The
decrease in net interest income from a year ago was due primarily to an
increase in the cost of funds and a compression of spreads in the securities
and lending portfolios. The spread in the lending portfolio decreased as the
yield on floating rate loans decreased as a result of reductions in the prime
lending rate. Despite this 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 July 31, 2008, total assets were $1.43 billion compared to $1.23
billion a year ago and lending assets increased to $949 million from $923
million a year ago. The provision for credit losses as a percentage of average
loans for the quarter was 0.02%, similar to the same period a year ago and on
a year-to-date basis was 0.03% compared to 0.07% for the same period last
year.

    Total Revenue (teb)

    Total revenue (teb), which is comprised of net interest income after the
provision for credit losses and other income (charges), was ($2.2 million) for
the quarter compared to $3.9 million a year ago. On a year-to-date basis,
total revenue (teb) was $5.8 million compared to $14.1 million last year. The
decrease in total revenue from a year ago was due primarily to the impairment
writedown of $3.7 million on securities and a compression of spreads,
primarily in the Corporation's securities portfolio.

    Net Interest Income

    Net interest income (teb) was $1.6 million for the quarter compared to
$3.9 million a year ago, and on a year-to-date basis was $9.6 million compared
to $13.4 million a year ago. Net interest margin or spread (teb), which is net
interest income as a percentage of average assets, was 0.46% for the quarter
compared to 1.20% for the same quarter a year ago. On a year-to-date basis,
spread (teb) was 0.89% compared to 1.40% a year ago. The decrease in spread
was due primarily to several factors including increased competition in the
deposit broker network where the Corporation raises virtually all of its
deposits. This increased competition resulted in an increase in our cost of
funds. In addition to this, the Corporation's banking subsidiary invested
excess cash in low risk government securities in order to improve its capital
ratios, resulting in a decrease in yield and spread in its securities
portfolio. Finally, over the past nine months, 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.

    Impairment Charge on Securities and Other Income

    During the third quarter, the Corporation recorded an impairment charge
of $3.7 million as a result of a preferred share position in its securities
portfolio which had been trading below the Corporation's amortized cost for a
prolonged period of time. This decline in value was due primarily to current
market conditions rather than to a deterioration in the credit quality of the
issuer. Although the Corporation has the ability to hold this security until
its value recovers, the period of time over which it had been trading below
its amortized cost resulted in the decision to write down the security to its
market value at July 31, 2008.
    Other income for the third quarter was $139,000 compared to $108,000 for
the same period a year ago and on a year-to-date basis was $183,000 compared
to $1.4 million a year ago. This decrease was due to a gain of $888,000
recorded last year when DA shares were disposed of as well as charges recorded
in the current year relating to mark-to-market adjustments on interest rate
swaps.

    Non-Interest Expenses

    Non-interest expenses for the quarter were $3.5 million compared to $3.6
million a year ago and on a year-to-date basis were $10.7 million compared to
$10.8 million a year ago. Non-interest expenses were lower in the current
quarter and year-to-date compared to last year due to a reduction in
discretionary spending. However, this reduction was offset by increased
accruals for capital taxes as a result of new notes being issued in the
quarter and other 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 and impacted by
expenses such as stock-based compensation which are not deductible for income
tax purposes. These items resulted in an effective rate of 34% and an income
tax recovery of $2.2 million being recorded in the quarter and an effective
rate of 40% and an income tax recovery of $2.9 million recorded for the
year-to-date. This is in comparison to a recovery of $431,000 recorded in the
same quarter last year and a provision of $185,000 being recorded for the
previous year-to-date.

    Balance Sheet

    Total assets at July 31, 2008, were $1.43 billion compared to $1.23
billion a year ago with lending assets growing to $949 million from $923
million a year ago. Total assets increased from a year ago primarily as a
result of a higher level of cash and securities.

    Cash and Securities

    Cash and securities, which are held for liquidity management purposes and
to earn investment income, were $447 million compared to $267 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 $10
million and a fair value of $5.2 million based on external valuation models.
The CDO is secured by corporate credits and to date there have been no
defaults by any of these corporations. 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 July 31, 2008, the net unrealized loss in our securities portfolio was
$20.2 million compared to a net unrealized loss of $6.0 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. The result of changes in
market interest rates and the impact of the market's increases in the pricing
for credit risk in securities have negatively impacted the valuation of the
preferred shares. Since the Corporation has the ability and intent to hold
these securities until there is a recovery of value, maturity or redemption,
and the period of time over which they have been trading below amortized cost
has not been prolonged, these unrealized losses are considered temporary in
nature.

    Mortgages and Loans

    Lending assets grew to $949 million at the end of the quarter from $923
million a year ago. This increase was due primarily to growth in public sector
loans and corporate loans and mortgages, offset by decreases in insured
residential mortgages. New lending in the quarter totalled $93 million offset
by $142 million in repayments with the largest repayments being in our insured
residential mortgage portfolio. For the first nine months of fiscal 2008, new
lending totalled $229 million with loan repayments totalling $273 million.
Loan growth in the past two quarters was slowed by current market conditions
which made new lending opportunities less attractive as well as capital
constraints as the Bank introduced higher internal targets for its capital
ratios. However, additional capital invested in the Bank in the third quarter
will allow for new lending opportunities to be pursued.

    Other Assets

    Other assets totalled $34.9 million at the end of the quarter compared to
$35.6 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 July 31, 2008, the investment in DA had a cost of
$14.6 million and an unrealized loss of $5.6 million which is recorded after
income taxes in Accumulated Other Comprehensive Income (Loss). No writedown of
the DA investment has been recorded as the period of time over which the
shares of DA have been trading below cost has not been prolonged and
management has the ability to hold the shares until they recover in value.

    Deposits and Financing

    Deposits are used as a primary source of financing growth in assets and
are raised entirely through a deposit broker network across Canada. Deposits
at the end of the quarter were $1.17 billion compared to $1.12 billion a year
ago and consist primarily of guaranteed investment certificates. Of these
amounts, $15.0 million was in the form of demand deposits at the end of the
quarter compared to $15.9 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 quarter, $120 million was outstanding related to securities sold under
repurchase agreements compared to $nil a year ago.
    Notes payable, net of issue costs, at July 31, 2008 totalled $68.9
million compared to $35.9 million a year ago with the increase due to new
notes issued during the past year, of which $35.6 million were issued in the
third quarter and $7 million of short term notes were repaid. 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 July 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 $10.8 million which mature in
2009. Notes payable bear interest at rates ranging from 7.0% to 9.25% per
annum.

    Credit Quality

    Gross impaired loans at the end of the quarter totalled $7.9 million or
0.55% of total assets compared to $2.6 million or 0.21% of total assets a year
ago with the increase due to several commercial mortgages relating to one
borrower which were classified as impaired in the current quarter. The
provision for credit losses for the third quarter was $242,000 compared to
$142,000 a year ago and on a year-to-date basis was $314,000 compared to
$643,000 a year ago. Total allowances for credit losses, including specific
and general allowances, were $3.5 million at the end of the quarter compared
to $3.2 million a year ago. The provision for credit losses as a percentage of
average loans for the quarter was 0.02%, the same as a year ago and for the
year-to-date was 0.03% compared to 0.07% a year ago.

    Shareholders' Equity

    At the end of the quarter, shareholders' equity was $39.9 million
compared to $61.0 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 quarter totalled 13,644,252 compared to 13,753,652 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
1,079,410 at the end of the quarter compared to 1,071,028 a year ago. Our book
value per common share at the end of the quarter was $2.67 compared to $4.18 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 nine months ended
July 31, 2008, the Corporation repurchased for cancellation under this bid
135,200 common shares for a total cost of $942,000. Since July 17, 2007, the
Corporation repurchased for cancellation under this bid 215,400 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. 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 July
31, 2008, the Corporation has repurchased for cancellation under this bid
2,100 common shares for a total cost of $11,000.

    Updated Share Information

    At August 27, 2008, there was no change in the number of common shares
outstanding and no change in the number of common share options outstanding
since July 31, 2008.

    Capital Management

    Total regulatory capital in the Corporation's principal subsidiary, the
Bank, totalled $111.8 million at July 31, 2008 compared to $93.7 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 equity securities the Bank holds in its securities
portfolio and its investment in DA.
    The Bank's total risk-based capital ratio, which is the ratio of
regulatory capital to risk-weighted assets, was 10.95% at July 31, 2008
compared to 12.45% 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 and higher amounts for loan commitments, offset by
the increase in regulatory capital as discussed above. The Bank's Tier 1
risk-based capital ratio, which is the ratio of Tier 1 capital to
risk-weighted assets, was 8.99% at July 31, 2008, compared to 8.47% a year
ago. The Bank's assets-to-capital ratio was 13.11 at the end of the quarter
compared to 13.36 a year ago. See note 7 to the interim consolidated financial
statements for more information regarding capital management.


    
    Summary of Quarterly Results

    (thousands of dollars
     except per share
     amounts)                              2008                      2007
    --------------------- -------------------------------------- ------------
                               Q3           Q2           Q1           Q4

    Results of operations:
    Total interest income
    per financial
     statements           $    16,022  $    18,105  $    20,377  $    18,795
    Teb adjustment                679          659          844          715
    Total interest income      16,701       18,764       21,221       19,510
    Yield on assets (%)         4.79%        5.39%        5.71%        5.77%
    Interest expense           15,078       15,820       16,165       15,018
    Cost of funds (%)           4.33%        4.54%        4.35%        4.44%
    Net interest income         1,623        2,944        5,056        4,492
    Net interest margin (%)     0.46%        0.85%        1.36%        1.33%
    Provision for credit
     losses                       242           64            8          198
    Impairment writedown on
     securities                (3,703)           -            -            -
    Other income (charges)        139          130          (86)         114
    Total revenue              (2,183)       3,010        4,962        4,408
    Non-interest expenses       3,523        3,441        3,781        3,049
    Income (loss) before
     income taxes              (5,706)        (431)       1,181        1,359
    Income tax provision        1,491          170          645          721
    Net income (loss)          (4,215)        (601)         536          638
    Earnings (loss) per
     share
      -basic              $     (0.31) $     (0.05) $      0.03  $      0.04
      -diluted            $     (0.31) $     (0.05) $      0.03  $      0.04


    (thousands of dollars
     except per share
     amounts)                              2007                      2006
    --------------------- -------------------------------------- ------------
                               Q3           Q2           Q1           Q4

    Results of operations:
    Total interest income
    per financial
     statements           $    16,978  $    17,538  $    18,163  $    18,677
    Teb adjustment                559          492          444          432
    Total interest income      17,537       18,030       18,607       19,109
    Yield on assets (%)         5.37%        5.42%        5.49%        5.79%
    Interest expense           13,757       13,495       13,701       14,415
    Cost of funds (%)           4.21%        4.06%        4.04%        4.37%
    Net interest income         3,780        4,535        4,906        4,694
    Net interest margin (%)     1.16%        1.36%        1.45%        1.42%
    Provision for credit
     losses                       142           72          429          339
    Impairment writedown on
     securities                     -            -            -            -
    Other income (charges)        260          294          959        1,116
    Total revenue               3,898        4,757        5,436        5,471
    Non-interest expenses       3,643        3,548        3,658        3,252
    Income (loss) before
     income taxes                 255        1,209        1,778        2,219
    Income tax provision          128          865          687          737
    Net income (loss)             127          344        1,091        1,482
    Earnings (loss) per
     share
      -basic              $      0.01  $      0.02  $      0.08  $      0.11
      -diluted            $         -  $      0.02  $      0.07  $      0.10
    

    Net interest income (teb) decreased to $1.6 million in the third quarter
from previous quarters as a result of a compression of spreads primarily in
the Corporation's securities portfolio and a decrease in loans outstanding
from the end of the previous quarter. Total loans decreased in the third
quarter due to a slowdown in lending activities resulting from capital
constraints when new internal targets for capital adequacy were implemented by
the Bank. With the Corporation using proceeds from the recent issue of notes
to inject $28.6 million into the Bank's regulatory capital in the quarter, the
Bank is now in a position to pursue new lending opportunities.
    Non-interest expenses in the current quarter increased from the previous
quarter due primarily to increases in volume related expenses and the accrual
for capital taxes resulting from the new capital raised in the quarter, offset
by reductions in discretionary costs.

    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 place over a
transition period ending for its 2012 year end. 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: August 27, 2008

    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)

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

    Assets
    Cash resources                     $   225,237  $   113,421  $    25,714
    Securities                             221,671      328,306      240,874
    Mortgages and loans                    948,596      977,727      923,385
    Other assets                            34,891       39,202       35,610
                                       ------------ ------------ ------------

                                       $ 1,430,395  $ 1,458,656  $ 1,225,583
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------


    Liabilities and Shareholders'
     Equity
    Deposits                           $ 1,173,732  $ 1,282,756  $ 1,116,317
    Notes payable                           68,850       35,660       35,847
    Other liabilities                      147,867       83,186       12,438
                                       ------------ ------------ ------------
                                         1,390,449    1,401,602    1,164,602
                                       ------------ ------------ ------------

    Shareholders' equity
    Share capital                           39,331       39,470       39,917
    Retained earnings                       19,605       24,125       23,513
    Accumulated other comprehensive
     income (loss)                         (18,990)      (6,541)      (2,449)
                                       ------------ ------------ ------------
                                            39,946       57,054       60,981
                                       ------------ ------------ ------------

                                       $ 1,430,395  $ 1,458,656  $ 1,225,583
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------



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

                            for the three months       for the nine months
                                    ended                     ended
                          ------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Interest income
      Interest income on
       loans              $    12,633  $    12,923  $    39,908  $    38,796
      Interest and income
       from securities          2,600        3,486       12,060       12,100
      Loan fee income             789          569        2,536        1,783
                          ------------------------- -------------------------
                               16,022       16,978       54,504       52,679

    Interest expense
      Deposits and other       13,925       12,701       44,031       38,168
      Notes payable             1,153          904        3,032        2,633
                          ------------------------- -------------------------
                               15,078       13,605       47,063       40,801
                          ------------------------- -------------------------

      Net interest income         944        3,373        7,441       11,878

      Provision for credit
       losses                     242          142          314          643
                          ------------------------- -------------------------

      Net interest income
       after provision for
       credit losses              702        3,231        7,127       11,235

      Impairment writedown
       on securities           (3,703)           -       (3,703)           -
      Other income                139          108          183        1,361
                          ------------------------- -------------------------

                               (2,862)       3,339        3,607       12,596
                          ------------------------- -------------------------

    Non-interest expenses
      Salaries and benefits     1,934        2,048        6,046        6,262
      General and
       administrative           1,105        1,134        3,247        3,274
      Premises and equipment      484          461        1,452        1,313
                          ------------------------- -------------------------
                                3,523        3,643       10,745       10,849
                          ------------------------- -------------------------

      Income (loss) before
       income taxes            (6,385)        (304)      (7,138)       1,747

      Income tax (recovery)
       provision               (2,170)        (431)      (2,858)         185
                          ------------------------- -------------------------

    Net income (loss)     $    (4,215) $       127  $    (4,280) $     1,562
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Basic earnings (loss)
     per share            $     (0.31) $      0.01  $     (0.33) $      0.10
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Diluted earnings
     (loss) per share     $     (0.31) $         -  $     (0.33) $      0.10
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Weighted average
     number of common
     shares                13,637,000   13,757,000   13,630,000   13,652,000
                          ------------------------- -------------------------
                          ------------------------- -------------------------



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

                            for the three months       for the nine months
                                    ended                     ended
                          ------------------------- -------------------------
                             July 31      July 31      July 31      July 31
                               2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Total net income
     (loss)               $    (4,215) $       127  $    (4,280) $     1,562
    Other comprehensive
     income (loss), net
     of tax:
      Net unrealized
       losses on assets
       held as available-
       for-sale(1)             (5,474)      (3,799)     (13,149)      (5,241)
      Amount transferred
       to net income for
        hedges(2)                  55           53          164          159
      Amount transferred
       to net income for
       sale of available-
       for-sale assets(3)          30           44         (127)      (1,349)
      Amount transferred
       to net income for
       impairment write-
       down on available-
       for-sale assets(4)       1,863            -          663            -
                          ------------------------- -------------------------
      Total other
       comprehensive
       income (loss)           (3,526)      (3,702)     (12,449)      (6,431)
                          ------------------------- -------------------------
    Total comprehensive
     income (loss)        $    (7,741) $    (3,575) $   (16,729) $    (4,869)
                          ------------------------- -------------------------

    (1) Net of income tax benefit (expense) for the three months of $2,313
        (2007-$2,097) and year-to-date of $5,555 (2007-$2,953)
    (2) Net of income tax benefit (expense) for the three months of ($27)
        (2007-($30)) and year-to-date of ($83) (2007-($90))
    (3) Net of income tax benefit (expense) for the three months of ($14)
        (2007-($25)) and year-to-date of $63 (2007-$507)
    (4) Net of income tax benefit (expense) for the three months of ($876)
        (2007-$nil) and year-to-date of ($341) (2007-$nil)



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

                            for the three months       for the nine months
                                    ended                     ended
                          ------------------------- -------------------------
                             July 31      July 31      July 31      July 31
                               2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Common shares
    Balance, beginning of
     period               $    35,518  $    35,894  $    35,743  $    33,986
    Shares issued                 252            -          288        1,898
    Shares repurchased            (66)         (23)        (327)         (23)
    Amount transferred
     from contributed
     surplus                        -            -            -           10
                          ------------------------- -------------------------
    Balance, end of
     period               $    35,704  $    35,871  $    35,704  $    35,871
                          ------------------------- -------------------------

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

    Contributed surplus
    Balance, beginning
     of period            $        80  $       445  $       182  $       244
    Fair value of stock
     option transactions
     (note 4)                      97           56          526          267
    Repurchase of shares          (95)           -         (626)           -
    Amount transferred
     to common shares               -            -            -          (10)
                          ------------------------- -------------------------
    Balance, end of
     period               $        82  $       501  $        82  $       501
                          ------------------------- -------------------------

    Retained earnings
    Balance, beginning
     of period            $    23,820  $    23,386  $    24,125  $    32,875
    Transitional
     adjustment                     -            -            -          103
    Net income (loss)          (4,215)         127       (4,280)       1,562
    Dividend in kind                -            -            -      (10,787)
    Dividends on
     preferred shares               -            -         (240)        (240)
                          ------------------------- -------------------------
    Balance, end of
     period               $    19,605  $    23,513  $    19,605  $    23,513
                          ------------------------- -------------------------

    Accumulated other
     comprehensive income
     (loss), net of taxes
    Balance, beginning of
     period               $   (15,464) $     1,253  $    (6,541) $         -
    Transitional adjustment         -            -            -        3,982
    Other comprehensive
     income (loss)             (3,526)      (3,702)     (12,449)      (6,431)
                          ------------------------- -------------------------
    Balance, end of
     period               $   (18,990) $    (2,449) $   (18,990) $    (2,449)
                          ------------------------- -------------------------

    Total shareholders'
     equity               $    39,946  $    60,981  $    39,946  $    60,981
                          ------------------------- -------------------------
                          ------------------------- -------------------------



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

                            for the three months       for the nine months
                                    ended                     ended
                          ------------------------- -------------------------
                             July 31      July 31      July 31      July 31
                               2008         2007         2008         2007
                          ------------------------- -------------------------
                           (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Cash provided by (used in):

    Operations:
    Net income (loss)     $    (4,215) $       127  $    (4,280) $     1,562
    Items not involving
     cash:
      Provision for credit
       losses                     242          142          314          643
      Other provisions              -            -           20            -
      Stock-based
       compensation (note 4)       97           56          526          267
      Future income tax
       provision (recovery)    (2,170)        (431)      (2,858)         185
      Gain on sale of
       available-for-sale
       securities                  (9)          68         (673)        (963)
      Gain on disposal of
       shares                       -            -            -         (888)
      Impairment writedown
       on securities            3,703                     3,703
      Change in derivative
       financial instruments        -        2,652          197          648
    Change in other assets
     and liabilities          (10,203)       4,594      (19,373)      (2,008)
                          ------------------------- -------------------------
                              (12,555)       7,208      (22,424)        (554)
                          ------------------------- -------------------------

    Investing:
    Purchase of securities   (513,639)    (108,211)  (1,250,022)    (506,011)
    Proceeds from sale of
     securities               438,491      157,615    1,348,864      477,782
    Mortgages and loans        42,100      (25,171)      39,951      (60,620)
                          ------------------------- -------------------------
                              (33,048)      24,233      138,793      (88,849)
                          ------------------------- -------------------------

    Financing:
    Deposits                  (40,391)   (39,066)     (109,024)      (94,238)
    Notes payable              30,553          -        35,553             -
    Short term financings     119,740   (103,021)       69,823             -
    Proceeds of common
     shares issued                252          -           288         1,898
    Shares repurchased           (161)       (23)         (953)          (23)
    Dividends paid                  -          -          (240)         (240)
                          ------------------------- -------------------------
                              109,993   (142,110)       (4,553)      (92,603)
                          ------------------------- -------------------------

    Increase (decrease)
     in cash resources         64,390   (110,669)      111,816      (182,006)

    Cash resources,
     beginning of period      160,847    136,383       113,421       207,720
                          ------------------------- -------------------------

    Cash resources, end
     of period            $   225,237  $  25,714    $  225,237   $    25,714
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Supplementary cash
     flow information:
      Interest paid
       during the period  $    20,583  $  22,549    $   43,667   $    43,573
      Income taxes paid
       during the period  $         -  $      79    $       68   $       421



    PACIFIC & WESTERN CREDIT CORP.
    Notes to the interim consolidated financial statements (unaudited)
    For the nine months ended July 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 July 31, 2008 is an investment in
        a collateral debt obligation (CDO) which has an amortized cost of
        $10 million (2007 - $10 million) and a fair value of $5.2 million
        (2007 - $10 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 residential sub-prime
        exposure. At July 31, 2008, the CDO had not experienced any defaults
        in its portfolio.

    3.  Allowance for credit losses

                                                  for the three months ended
                                    -----------------------------------------
                                                           July 31,  July 31,
                                                              2008      2007
                                    -----------------------------------------
                                       General  Specific     Total     Total
        (thousands of dollars)       allowance allowance allowance allowance
        ---------------------------------------------------------------------
        Balance, beginning of the
         period                        $ 2,615   $   683   $ 3,298   $ 3,102
        Provision (recovery) for
         credit losses                     112       130       242       142
        Recoveries                           -         -         -         -
        ---------------------------------------------------------------------
        Balance, end of period         $ 2,727   $   813   $ 3,540   $ 3,244
        ---------------------------------------------------------------------


                                                   for the nine months ended
                                    -----------------------------------------
                                                           July 31,  July 31,
                                                              2008      2007
                                    -----------------------------------------
                                       General  Specific     Total     Total
        (thousands of dollars)       allowance allowance allowance allowance
        ---------------------------------------------------------------------
        Balance, beginning of the
         period                        $ 2,733   $   473   $ 3,206   $ 2,566
        Provision (recovery) for
         credit losses                      (6)      320       314       643
        Recoveries                           -        20        20        35
        ---------------------------------------------------------------------
        Balance, end of period         $ 2,727   $   813   $ 3,540   $ 3,244
        ---------------------------------------------------------------------


        Gross impaired loans at July 31, 2008 totalled $7,931,000 (July 31,
        2007 - $2,616,000). Loans past due but not impaired at July 31, 2008
        totalled $539,000 (July 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 July 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
        $10.8 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         7.83
           Exercised                        96,000      (96,000)        3.00
           Expired                               -     (129,333)        7.57
           Repurchased                    (137,300)           -            -
           ------------------------------------------------------------------
           Outstanding, end of period   13,644,252    1,079,410   $     9.00
           ------------------------------------------------------------------


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

           During the nine months ended July 31, 2008, the Corporation
           recognized $526,000 (2007-$267,000) 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 4.03% (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 135,200 common shares for a total cost of
           $942,000. Since July 17, 2007, the Corporation repurchased for
           cancellation 215,400 common shares for a total cost of $1,526,000.
           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 2,100 common shares under this bid
           for a total cost of $11,000.


        b. Accumulated other comprehensive income (loss):

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

                                                        July 31      July 31
                                                           2008         2007
                                                    -------------------------
           Net unrealized losses on assets held as
            available-for-sale                       $  (18,963)  $   (2,212)
           Deferred losses related to previously
            closed cash flow hedges                         (27)        (237)
                                                    -------------------------
           Balance, end of period                    $  (18,990)  $   (2,449)
                                                    -------------------------

           Net of income tax benefit of $6,802 (2007 $1,940).

    6.  Derivative instruments

        At July 31, 2008, the Corporation had outstanding contracts for asset
        liability management purposes to swap between floating and fixed
        interest rates with notional amounts totalling $174,187,000 (2007 -
        $72,011,000). 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
        $193,000 (2007 - $nil), a credit equivalent amount of $2,346,000
        (2007 - $1,035,000) and a risk-weight of $469,000 (2007 - $207,000).
        At July 31, 2008, these contracts were in an unfavorable position of
        $11,856,000 (2007 - favorable position of $424,000). 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. 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      $  454,257,000
                 Letters of credit         36,427,000
                                      ----------------
                                       $  490,684,000
                                      ----------------

    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 nine month period ended July 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:


                                                        July 31      July 31
           (thousands of dollars)                          2008         2007
           ------------------------------------------------------------------
           Total assets (on and off-balance sheet)  $ 1,466,342  $ 1,251,537
           ------------------------------------------------------------------
           Capital
             Common shares                          $    86,870  $    42,117
             Retained earnings                           20,941       24,033
             Unrealized loss on available-for-sale
              equity securities                         (15,973)      (2,449)
             Subordinated debentures                     20,000       30,000
           ------------------------------------------------------------------
           Total regulatory capital                 $   111,838  $    93,701
           ------------------------------------------------------------------

           Assets-to-capital ratio                        13.11        13.36
           ------------------------------------------------------------------


        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 July 31, 2008 are presented below using
           the guidelines under Basel II. The Bank's risk-based capital
           ratios at July 31, 2007 are those determined under the previous
           capital adequacy guideline.



                                      July 31                 July 31
                                        2008                    2007
           ------------------------------------------------------------------
                                Notional/       Risk    Notional/       Risk
           (thousands of           Drawn    Weighted       Drawn    Weighted
            dollars)              Amount     Balance      Amount     Balance
           ------------------------------------------------------------------
           Balance sheet
            assets            $1,429,915  $  782,056  $1,222,073  $  727,755
           Off-balance sheet
            assets               664,871     197,238      29,465      24,707
           Charge for
            operational risk                  41,866                       -
           ------------------------------------------------------------------
           Total risk-weighted
            assets                        $1,021,160              $  752,462
           ------------------------------------------------------------------
           Regulatory capital                111,838                  93,701
           ------------------------------------------------------------------
           Total risk-based
            capital ratio                     10.95%                  12.45%
           ------------------------------------------------------------------
           Tier 1 risk-based
            capital ratio                      8.99%                   8.47%
           ------------------------------------------------------------------


    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 $1.4 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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