Pacific & Western Credit Corp. announces results for its third quarter ended July 31, 2009



    TORONTO, Sept. 3 /CNW/ -

    
    THIRD QUARTER SUMMARY

    (three months ended July 31, 2009, compared to three months ended July 31,
2008, unless otherwise noted)

    -   At July 31, 2009, total regulatory capital of the Bank increased by
        14% to $127.8 million from $111.8 million a year ago and from $121.8
        million at the end of the previous quarter.
    -   Mortgages and loans increased to $996 million from $949 million a
        year ago.
    -   Net income (loss) for the quarter was ($3.0 million) or ($0.22) per
        share (($0.22) diluted) compared to ($4.2 million) or ($0.31) per
        share (($0.31) diluted) for the same period last year. For the nine
        months ended July 31, 2009, net income (loss) was ($7.8 million) or
        ($0.59) per share (($0.59) diluted) compared to ($4.3 million) or
        ($0.33) per share (($0.33) diluted) for the same period a year ago.
    -   Net income (loss) and net interest income continue to be impacted by
        a compression of spreads resulting from declines in interest rates
        and challenging economic conditions.
    -   On August 31, 2009, the Corporation issued $33.2 million of new Class
        "B" Preferred Shares as a result of conversions of Class "A"
        Preferred Shares, Series A Notes and Series C Notes.
    

    PRESIDENT'S COMMENTS

    This quarter our Bank continued to benefit from a recovery in value of
its preferred share portfolio, increasing its total regulatory capital from
$121.8 million at the end of the previous quarter to $127.8 million.  This
gave rise to a significant increase in our Bank's total risk-based capital
ratio from 12.81% to 13.42%.  PWC's shareholders' equity also benefited,
increasing by 28%.  With the increase in regulatory capital, our Bank is well
positioned to take advantage of the numerous lending opportunities that exist
in its target markets.  Our net interest income and spread continues to be
negatively impacted by the rapid decline in interest rates associated with our
assets that has not yet been equaled by a decline in the interest rates
associated with our deposits.  However, over the next 45 days we will have
completed the rollover of approximately $800 million in GICs that began
maturing this summer.  The interest rates on these new deposits are
approximately 2.5% less than what we had been paying.  We will begin to
realize the benefit of this rollover in the fourth quarter, and the full
benefit will be realized in the first quarter of 2010.  At the end of August,
we issued $33.2 million of our new Class "B" Preferred Shares.  This took
place through conversions from our Series C Notes, Series A Notes and Class
"A" Preferred Shares.  We plan to continue issuing these new Class "B"
Preferred Shares from time to time to further to build our regulatory capital
in order to fuel growth and diversity in our lending portfolio.

    
    FINANCIAL HIGHLIGHTS
                                         for the               for the
    (unaudited)                     three months ended     nine months ended
    ---------------------------------------------------  --------------------
    ($ thousands, except            July 31    July 31    July 31    July 31
    per share amounts)                 2009       2008       2009       2008
    ---------------------------------------------------  --------------------
    Results of operations (teb)
      Net interest income (loss)
       per financial statements   $    (401) $     944  $     765  $   7,441
      Teb adjustment                    621        679      2,067      2,184
      Net interest income               220      1,623      2,832      9,625
      Spread                           0.05%      0.46%      0.24%      0.89%
      Provision for credit losses       148        242        266        314
      Net interest income after
       provision for credit losses       72      1,381      2,566      9,311
      Other income (charges)            507     (3,564)      (438)    (3,520)
      Total revenue                     579     (2,183)     2,128      5,791
      Non-interest expenses           3,816      3,523     10,562     10,745
      Net income (loss)              (2,969)    (4,215)    (7,838)    (4,280)
      Earnings (loss) per
       common share:
        Basic                     $   (0.22) $   (0.31) $   (0.59) $   (0.33)
        Diluted                   $   (0.22) $   (0.31) $   (0.59) $   (0.33)
      Efficiency ratio                  n/m        n/m        n/m  $    1.76
      Return on average common
       shareholders' equity          -79.92%    -42.21%    -56.52%    -13.22%
      Return on average total
       assets                         -0.73%     -1.21%     -0.67%     -0.39%
      Gross impaired loans to
       total assets                    0.70%      0.55%      0.70%      0.55%
      Provision for credit losses
       as a % of average loans         0.01%      0.02%      0.03%      0.03%
      Number of full time
       equivalent staff                  54         58         54         58
    ---------------------------------------------------  --------------------
    Balance Sheet Summary
      Cash and securities         $ 598,132  $ 446,908  $ 598,132  $ 446,908
      Total loans                   995,802    948,596    995,802    948,596
      Average loans               1,020,179    969,155  1,053,305    963,162
      Total assets                1,624,114  1,430,395  1,624,114  1,430,395
      Average assets              1,603,718  1,382,332  1,568,291  1,444,526
      Deposits                    1,462,488  1,173,732  1,462,488  1,173,732
      Notes payable                 107,903     68,850    107,903     68,850
      Shareholders' equity           20,891     39,946     20,891     39,946
    ---------------------------------------------------  --------------------
    Capital ratios
    (Based on the subsidiary
     Pacific & Western Bank of
     Canada)
      Total regulatory capital    $ 127,778  $ 111,838  $ 127,778  $ 111,838
      Risk weighted assets          951,852  1,021,160    951,852  1,021,160
      Assets-to-capital ratio         12.90      13.11      12.90      13.11
      Tier 1 risk-based capital
       ratio                           9.06%      8.99%      9.06%      8.99%
      Total risk-based capital
       ratio                          13.42%     10.95%     13.42%     10.95%
    ---------------------------------------------------  --------------------
    

    Non-GAAP measures:

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

    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
    CONDITION
    

    This management's discussion and analysis (MD&A) of operations and
financial condition for the third quarter of fiscal 2009 should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended July 31, 2009, included herein, and the audited consolidated
financial statements and MD&A for the year ended October 31, 2008, 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,
2008, remain substantially unchanged.

    Overview

    Net income (loss) for the quarter was ($3.0 million) or ($0.22) per share
(($0.22) diluted) compared to ($4.2 million) or ($0.31) per share (($0.31)
diluted) for the same period a year ago. On a year-to-date basis, net income
(loss) was ($7.8 million) or ($0.59) per share (($0.59) diluted) compared to
($4.3 million) or ($0.33) per share ($0.33 diluted) for the same period a year
ago. Net income (loss) for the current quarter was impacted primarily by a
decrease in net interest income (teb) which was $220,000 for the quarter
compared to $1.6 million for the same period a year ago. On a year-to-date
basis, net interest income (teb) was $2.8 million compared to $9.6 million for
the same period a year ago. The decrease in net interest income was due
primarily to a compression of spreads caused by a rapid decline in interest
rates associated with our interest earning assets that was not equalled by a
similar decline in the interest rates on our deposits. In addition, net
interest income was impacted by higher interest charges incurred on interest
rate swap agreements used to hedge longer term lending assets. The Corporation
believes that interest rates have bottomed out and is seeing market spreads
normalizing with deposit costs trending downwards compared to a year ago.
These factors combined with our ongoing repricing of existing loans on renewal
and interest rates on new lending to reflect current market conditions are
positive indications for future profitability. Despite the compression of
spreads experienced by the Corporation over the past year, it 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, 2009, total assets were $1.6 billion compared to $1.4 billion
a year ago and $1.6 billion at the end of the previous quarter. Lending assets
were $996 million at the end of the quarter compared to $949 million a year
ago. Credit quality remains strong with a ratio of gross impaired loans as a
percentage of assets of 0.70% at the end of the quarter compared to 0.55% a
year ago.

    Total Revenue (teb)

    Total revenue (teb), which is comprised of net interest income after the
provision for credit losses and other income (charges), was $579,000 for the
quarter compared to ($2.2 million) a year ago with the difference being due to
a decrease in net interest income for the current quarter partially offset by
the impact of an impairment charge of $3.7 million in the same quarter a year
ago. On a year-to-date basis, total revenue (teb) was $2.1 million compared to
$5.8 million a year ago. The decrease in total revenue from a year ago was due
primarily to a decrease in net interest income and charges totalling $483,000
million included in other income (charges) recorded in the current period
relating to mark-to-market adjustments on interest rate swap contracts that
had been entered into for interest risk management purposes.

    Net Interest Income

    Net interest income (teb) was $220,000 for the quarter compared to $1.6
million a year ago and on a year-to-date basis was $2.8 million compared to
$9.6 million for the same period a year ago. Net interest margin or spread
(teb), which is net interest income as a percentage of average assets, was
0.05% for the quarter compared to 0.46% a year ago. On a year-to-date basis,
spread (teb) was 0.24% compared to 0.89% for the same period a year ago. As
discussed above, the decrease in spread from a year ago was due primarily to a
rapid decline in interest rates associated with our interest earning assets
that was not equalled by a similar decline in the interest rates on our
deposits. The large majority of our deposits are fixed term deposits versus
demand deposits and therefore interest rates on deposits reset more slowly
than on our interest earning assets. An additional factor was increased
interest expense in 2009 compared to 2008 as a result of Series C and short
term notes payable issued in the past year. As well, net interest income and
spread declined as a result of higher levels of liquidity maintained in the
Corporation due to the current economic environment. These liquid assets were
held primarily in cash or cash equivalents with little or no spread being
earned. With a large amount of deposits scheduled to mature during our fourth
quarter, most of which had been booked a year ago at higher interest rates due
to the liquidity crisis, the Corporation expects to see its interest expense
decrease as these deposits are replaced at much lower interest rates.

    Non-Interest Expenses

    Non-interest expenses for the quarter were $3.8 million compared to $3.5
million a year ago and for the nine month period ending July 31, 2009 were
$10.6 million compared to $10.8 million for the same period a year ago. The
increase in non-interest expenses for the quarter compared to a year ago was
primarily in general and administrative expenses relating to volume related
expenses and higher amounts for capital taxes, consulting and professional
fees. For the nine month period, these increases were offset by overall
targeted reductions in discretionary spending.

    Income Taxes

    The Corporation's statutory federal and provincial income tax rate is
approximately 32% compared to 34% last year with the difference due to rate
reductions which were substantively enacted in the previous year. However, the
Corporation's effective rate was impacted by non-taxable dividend income
earned on preferred shares in our securities portfolio and the tax benefit on
losses in the parent company not being recorded for accounting purposes. These
items resulted in an effective tax rate of 23% and an income tax recovery of
$889,000 compared to 34% and an income tax recovery of $2.2 million for the
same period last year. For the nine months ended July 31, 2009, the
Corporation had an effective tax rate of 25% and an income tax recovery of
$2.7 million compared to an effective tax rate of 40% and an income tax
recovery of $2.9 million for the same period a year ago.
    At July 31, 2009, the Corporation had a future income tax asset of
approximately $11.2 million which is primarily a result of income tax losses
in the Bank from the current and previous periods, the benefit of which was
recorded at the time. This amount compares to $6.6 million a year ago with the
increase due to changes in the market value of preferred shares which are
deducted for income tax purposes offset by operating losses of the Bank over
the past year. The income tax loss carryforwards in the Bank are not scheduled
to begin expiring until 2027 if unutilized.
    As noted above, a significant portion of the future income tax asset
relates to income tax losses in the Bank caused primarily by declines in the
market value of preferred shares, being primarily those of Canadian banks and
insurance companies. The ultimate realization of the future income tax asset
cannot be determined with certainty however management is of the opinion that
it is more likely than not that the Bank will be able to realize the future
income tax asset in future years. The realization of the future income tax
asset is dependent upon the Bank being able to generate taxable income
sufficient to offset these income tax losses. The ability to generate
sufficient taxable income may be dependent upon the Bank increasing regulatory
capital to facilitate growth in its lending portfolio, or on converting
non-taxable income sources to taxable income sources during the carry-forward
period. It is also dependent upon the market value of the preferred shares
recovering in value as they are carried at market value for income tax
purposes with mark to market adjustments being added to or deducted from
taxable income. As discussed below, at July 31, 2009, these preferred shares
traded at a value approximately $17.6 million below their amortized cost,
increasing from a value of $25.3 million below their amortized cost at April
30, 2009 reflecting general improvements in market conditions in the financial
services industry.

    Balance Sheet

    Total assets at July 31, 2009, were $1.6 billion compared to $1.4 billion
a year ago. The increase from a year ago was primarily in cash and securities
which increased to $598 million from $447 million and in mortgages and loans
which grew to $996 million from $949 million a year ago.

    Cash and Securities

    Cash and securities, which are held for liquidity management purposes and
to earn investment income, totalled $598 million compared to $447 million a
year ago with the increase due to higher liquidity levels being maintained as
a result of current market conditions and as a contingency against a large
amount of deposits maturing in the fourth quarter of fiscal 2009. Securities
typically consist of Government of Canada treasury bills and bonds and
corporate debt and preferred shares. Over the past quarter, the Corporation
has been redeploying some of its holdings of excess cash into highly liquid
corporate debt in order to earn increased returns on its securities portfolio
while still maintaining strong credit quality. The Corporation expects that
the increased holdings of corporate bonds will result in an overall increase
in net interest income and spread in the coming months. 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.
    Included in corporate debt is an investment in a collateral debt
obligation (CDO) with an amortized cost of $5.9 million and a fair value based
on external valuation models of $744,000. During 2008, the Corporation
reclassified the CDO from the available-for-sale category to held-to-maturity.
This reclassification was based on the view that carrying the investment at
amortized cost was more appropriate given the lack of verifiable inputs for
the valuation model being used to determine fair value and the Corporation's
intention to hold the investment to maturity. This CDO was arranged by a major
Canadian bank, is secured by corporate credits and matures in 2013.
    At July 31, 2009, the net unrealized loss in our securities portfolio was
$14.8 million compared to a net unrealized loss of $20.2 million a year ago.
These amounts are recorded net of income taxes in Accumulated Other
Comprehensive Income (Loss). The decrease in the net unrealized loss from the
end of the previous year is related primarily to increases in the market value
of the Corporation's investments in the preferred shares of major Canadian
banks and insurance companies. With the exception of the value of the CDO, the
fair values of all securities are based on market values as all of the
remaining securities we own are publicly traded.
    The Corporation's holdings of equity securities, consisting primarily of
major Canadian banks and insurance companies' preferred shares, are subject to
market fluctuations and at July 31, 2009, traded at a value approximately
$17.6 million below their amortized cost compared to $25.3 million below
amortized cost at the end of the previous quarter and $15.8 million below
amortized cost a year ago. The Corporation intends to hold these securities
until a recovery in value is achieved. The preferred shares have provisions
that will allow the issuer to redeem at various dates commencing over the
years 2010 to 2013; however, there is no promise or legal requirement for the
issuers to redeem these shares on those dates. Further recovery in their
market values is dependent upon future market conditions or the ultimate
future redemption of the shares by the issuers. Management is of the opinion
that it is likely that these preferred shares will be redeemed by the issuers
at their redemption dates.

    Mortgages and Loans

    Mortgages and loans grew to $996 million at the end of the quarter from
$949 million a year ago with the growth primarily in corporate loans and
mortgages. As noted above, the Corporation has maintained its focus on low
risk lending and investing opportunities, continuing to provide financing to
public sector entities and high quality corporate borrowers. New lending in
the quarter totalled $53 million compared to $93 million for the same period a
year ago and on a year-to-date basis totalled $350 million compared to $229
million for the same period a year ago. Loan repayments for the current
quarter totalled $88 million and for the year-to-date totalled $476 million.
The amounts for new lending and loan repayments for the current periods
include the purchase and sale of insured mortgage pools which were sold
primarily for liquidity and capital management purposes. As a result of the
economic conditions over the past year, the Corporation has seen a slowdown in
new lending particularly in its residential construction portfolio with fewer
housing starts in the geographic areas in which the Corporation operates.
However the Corporation is starting to see improvements in the demand for
financing from its niche markets and expects to see increases in new lending
in the coming months.

    Credit Quality

    Gross impaired loans at the end of the quarter totalled $11.3 million or
0.70% of total assets compared to $7.9 million or 0.55% of total assets a year
ago. Impaired loans at July 31, 2009 consist primarily of loans totalling $3.7
million to individuals who invested in a government mandated immigrant
investor fund which were classified as impaired in the third quarter, and
property consisting mainly of a healthcare facility foreclosed on settlement
of loans. We are currently in discussions with a qualified buyer for the
healthcare facility and expect to close this transaction in the coming weeks
with no loss being incurred. Our loans continue to be well managed with the
provision for credit losses for the quarter totalling $148,000 and $266,000
for the year-to-date compared to $242,000 and $314,000 for the same periods a
year ago.

    Other Assets

    Other assets totalled $30.2 million at the end of the quarter compared to
$34.9 million a year ago. Included in other assets is the Corporation's
investment in Discovery Air Inc. (DA) which is accounted for as an
available-for-sale asset and carried at market value, and the future income
tax asset referred to previously. At July 31, 2009, the investment in DA had a
carrying value of $2.4 million compared to $9.2 million a year ago with the
change due to a decrease in the investment's market value.

    Deposits and Financing

    Deposits are used as a primary source of financing growth in assets and
are raised entirely through a well established and well diversified deposit
broker network across Canada. Deposits at the end of the quarter were $1.5
billion compared to $1.2 billion a year ago and consist primarily of
guaranteed investment certificates. Of these amounts, $41.0 million or
approximately 3% of total deposits, was in the form of demand deposits at the
end of the quarter compared to $15.0 million or approximately 1% of total
deposits a year ago, with the remaining deposits having fixed terms.
    A second source of financing growth in assets and a source of liquidity
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, there were no amounts outstanding
related to margin lines or securities sold under repurchase agreements.

    Notes Payable

    Notes payable, net of issue costs, totalled $107.9 million at July 31,
2009 compared to $68.9 million a year ago with the increase due to new notes
being issued over the past year. Net proceeds from the issuance of additional
notes payable were used primarily to increase the level of regulatory capital
in the Bank and for working capital purposes in the parent company. At July
31, 2009, excluding share issue costs, notes payable consist of Series C Notes
totalling $76.0 million maturing in 2018, Series A Notes totalling $11.5
million maturing in 2010 and short term notes totalling $5.2 million maturing
in 2009 and 2010. Notes payable bear interest at rates ranging from 7.0% to
9.25% per annum. In addition, as described below, the Corporation has
outstanding subordinated notes payable of the Bank totalling $21.5 million
owing to a third party. These subordinated notes bear interest at 11% and
mature in 2019.
    At July 31, 2009, a difference of approximately $67 million currently
exists between subordinated notes of the Bank owned by Pacific & Western
Credit Corp. and the notes payable it has issued to outside parties. This has
resulted in a deficiency in cash flows and net interest income in Pacific &
Western Credit Corp. on a non-consolidated basis. As discussed below,
management plans to reduce this difference by the parent company issuing
equity with the proceeds being invested in a combination of equity and
interest earning subordinated debt of the Bank.

    Shareholders' Equity

    At the end of the quarter, shareholders' equity was $20.9 million
compared to $39.9 million a year ago with the decrease due primarily to the
net loss incurred over the past year and the change in Accumulated Other
Comprehensive Income (Loss). Accumulated Other Comprehensive Income (Loss) at
July 31, 2009 was ($14.3 million) compared to ($19.0 million) a year ago with
the change due primarily to increases in the market value of preferred shares
owned by the Corporation in his securities portfolio.
    Common shares outstanding at the end of the quarter totalled 13,642,452
compared to 13,644,252 a year ago with the change due to shares repurchased
for cancellation. Outstanding common share options totalled 869,533 at the end
of the quarter compared to 1,079,410 a year ago. Our book value per common
share at the end of the quarter was $1.27 compared to $2.67 a year ago.
    On June 26, 2009, at Special Meetings of the Common Shareholders, Series
A Noteholders and Series C Noteholders, a resolution authorizing the creation
of Class "B" Preferred Shares, and resolutions authorizing the conversions of
the Series A Notes and Series C Notes into Class "B" Preferred Shares, were
passed. The conversion of Series A Notes into Series C Notes was also
authorized. The right to convert may only be exercised up to and including
August 28, 2009, and the effective date of the conversions will be August 31,
2009. All conversions are at the option of the holder.
    On July 27, 2009, at a Special Meeting of the Class "A" Preferred
Shareholders, a resolution authorizing the conversion of Class "A" Preferred
Shares into Class "B" Preferred Shares was passed. The right to convert may
only be exercised up to and including August 28, 2009, and the effective date
of the conversions will be August 31, 2009. All conversions are at the option
of the holder.
    There were no Class "B" Preferred Shares issued or outstanding at July
31, 2009.
    More information with respect to the amendments described above are
available on SEDAR at www.sedar.com.

    Updated Share Information

    As at September 2, 2009, there was no change in the number of common
shares or common share options outstanding since July 31, 2009. At September
2, 2009, as noted below, there were 314,572 Class "A" Preferred Shares
outstanding with the change since July 31, 2009 due to conversions into the
new Class "B" Preferred Shares. At September 2, 2009, there were 1,326,558
Class "B" Preferred Shares outstanding as a result of conversions of Class "A"
Preferred Shares, Series A Notes and Series C Notes.

    Subsequent event

    On August 31, 2009, the Corporation issued 1,326,558 Class "B" Preferred
Shares with a total value of $33.2 million. The issuance of these Class "B"
Preferred Shares was a result of the conversion of Class "A" Preferred Shares,
Series A Notes and Series C Notes. After these conversions, the Corporation
has 314,572 Class "A" Preferred Shares outstanding, Series A Notes totalling
$2.6 million and Series C Notes totalling $55.3 million.

    Capital Management

    Total regulatory capital in the Corporation's principal subsidiary, the
Bank, was $127.8 million at the end of the quarter compared to $121.8 million
at the end of the previous quarter and $111.8 million a year ago. The increase
in total regulatory capital from the previous quarter and from a year ago was
due primarily to additional capital invested in the Bank and increases in the
market value of preferred shares of Canadian banks and insurance companies
which the Bank holds in its securities portfolio, reduced by operating losses
over the past year in the Bank. Regulatory capital includes the after tax
effect of unrealized gains and losses of available-for-sale equity securities
owned by the Bank.
    The Bank's total risk-based capital ratio, which is the ratio of
regulatory capital to risk-weighted assets, was 13.42% at the end of the
quarter compared to 12.81% at the end of the previous quarter and 10.95% a
year ago. The Bank's Tier 1 risk-based capital ratio, which is the ratio of
Tier 1 capital to risk-weighted assets, was 9.06% at the end of the quarter
compared to 8.60% at the end of the previous quarter and 8.99% a year ago. The
Bank's assets-to-capital ratio was 12.90 at the end of the quarter compared to
13.21 at the end of the previous quarter and 13.11 a year ago. See note 8 to
the interim consolidated financial statements for more information regarding
capital management.
    For a period of time during the quarter ended January 31, 2009, the Bank
estimated that it had, on a temporary basis, exceeded by a minor amount, the
assets-to-capital multiple established by OSFI. This exception took place
primarily as a result of a rapid decline in the market value of preferred
shares held in the Bank's securities portfolio which are primarily those of
major Canadian banks and insurance companies. This decline took place as a
result of market volatility versus any credit impairment in the issuers of the
securities. In January 2009, the Bank's adherence to this requirement was
re-established and has been adhered to since that date.




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

                                  for the                   for the
                            three months ended         nine months ended
                         -------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2009         2008         2009         2008
                         -------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)
    Interest income
      Interest income on
       loans              $    12,168  $    12,633  $    42,798  $    39,908
      Interest and income
       from securities          6,797        2,600       13,132       12,060
      Loan fee income             511          789        1,285        2,536
                         -------------------------- -------------------------
                               19,476       16,022       57,215       54,504
    Interest expense
      Deposits and other       17,215       13,925       49,988       44,031
      Notes payable             2,662        1,153        6,462        3,032
                         -------------------------- -------------------------
                               19,877       15,078       56,450       47,063
                         -------------------------- -------------------------

      Net interest income
       (loss)                    (401)         944          765        7,441

      Provision for credit
       losses                     148          242          266          314
                         -------------------------- -------------------------

      Net interest income
       (loss) after
       provision for credit
       losses                    (549)         702          499        7,127

      Impairment writedown
       on securities                -       (3,703)           -       (3,703)
      Other income (charges)      507          139         (438)         183
                         -------------------------- -------------------------

                                  (42)      (2,862)          61        3,607
                         -------------------------- -------------------------

    Non-interest expenses
      Salaries and benefits     1,743        1,934        5,084        6,046
      General and
       administrative           1,583        1,105        3,906        3,247
      Premises and equipment      490          484        1,572        1,452
                         -------------------------- -------------------------
                                3,816        3,523       10,562       10,745
                         -------------------------- -------------------------

      Loss before income
       taxes                   (3,858)      (6,385)     (10,501)      (7,138)

      Income tax recovery        (889)      (2,170)      (2,663)      (2,858)
                         -------------------------- -------------------------

    Net loss              $    (2,969) $    (4,215) $    (7,838) $    (4,280)
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    Basic loss per share  $     (0.22) $     (0.31) $     (0.59) $     (0.33)
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    Diluted loss per
     share                $     (0.22) $     (0.31) $     (0.59) $     (0.33)
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    Weighted average
     number of common
     shares                13,642,000   13,637,000   13,642,000   13,630,000
                         -------------------------- -------------------------
                         -------------------------- -------------------------



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

                                  for the                   for the
                            three months ended         nine months ended
                         -------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2009         2008         2009         2008
                         -------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Net loss              $    (2,969) $    (4,215) $    (7,838) $    (4,280)
    Other comprehensive
     income (loss), net of
     tax:
      Net unrealized gains
       (losses) on assets
       held as available-
       for-sale(1)              7,350       (5,474)       4,111      (13,149)
      Amount transferred to
       net loss for
       hedges(2)                    -           55            -          164
      Amount transferred
       to net loss for
       available-for-sale
       assets(3)                  184           30          608         (127)
      Amount transferred to
       net loss for
       impairment writedown
       on available-for-
       sale assets(4)               -        1,863            -          663
                         -------------------------- -------------------------
      Other comprehensive
       income (loss)            7,534       (3,526)       4,719      (12,449)
                         -------------------------- -------------------------
    Total comprehensive
     income (loss)        $     4,565  $    (7,741) $    (3,119) $   (16,729)
                         -------------------------- -------------------------

    (1) Net of income tax benefit (expense) for the three months of ($2,913)
        (2008-$2,313) and nine months of ($1,679) (2008-$5,555)
    (2) Net of income tax benefit (expense) for the three months of $nil
        (2008-($27)) and nine months of $nil (2008-($83))
    (3) Net of income tax benefit (expense) for the three months of ($79)
        (2008-($14)) and nine months ($256) (2008-$63)
    (4) Net of income tax benefit (expense) for the three months of $nil
        (2008-($876)) and nine months $nil (2008 - ($341)).



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

                                  for the                   for the
                            three months ended         nine months ended
                         -------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2009         2008         2009         2008
                         -------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)
    Common shares
    Balance, beginning of
     period               $    35,663  $    35,518  $    35,663  $    35,743
    Shares issued                   -          252            -          288
    Shares repurchased              -          (66)           -         (327)
                         -------------------------- -------------------------
    Balance, end of
     period               $    35,663  $    35,704  $    35,663  $    35,704
                         -------------------------- -------------------------

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

    Contributed surplus
    Balance, beginning of
     period               $       243  $        80  $       179  $       182
    Fair value of stock
     option transactions
     (note 5)                      55           97          119          526
    Repurchase of shares            -          (95)           -         (626)
                         -------------------------- -------------------------
    Balance, end of
     period               $       298  $        82  $       298  $        82
                         -------------------------- -------------------------

    Retained earnings
     (deficit)
    Balance, beginning of
     period               $    (1,313) $    23,820  $     3,796  $    24,125
    Net loss                   (2,969)      (4,215)      (7,838)      (4,280)
    Dividends on preferred
     shares                         -            -         (240)        (240)
                         -------------------------- -------------------------
    Balance, end of
     period               $    (4,282) $    19,605  $    (4,282) $    19,605
                         -------------------------- -------------------------

    Accumulated other
     comprehensive income
     (loss), net of taxes
    Balance, beginning of
     period               $   (21,867) $   (15,464) $   (19,052) $    (6,541)
    Other comprehensive
     income (loss)              7,534       (3,526)       4,719      (12,449)
                         -------------------------- -------------------------
    Balance, end of
     period               $   (14,333) $   (18,990) $   (14,333) $   (18,990)
                         -------------------------- -------------------------

    Total shareholders'
     equity               $    20,891  $    39,946  $    20,891  $    39,946
                         -------------------------- -------------------------
                         -------------------------- -------------------------



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

                                  for the                   for the
                            three months ended         nine months ended
                         -------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2009         2008         2009         2008
                         -------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)
    Cash provided by (used
     in):

    Operations:
    Net loss              $    (2,969) $    (4,215) $    (7,838) $    (4,280)
    Items not involving
     cash:
      Provision for credit
       losses                     148          242          266          334
      Stock-based
       compensation (note 5)       55           97          119          526
      Future income tax
       provision (recovery)      (889)      (2,170)      (2,663)      (2,858)
      Gain on sale of
       available-for-sale
       securities              (4,119)          (9)      (5,322)        (673)
      Impairment writedown
       on securities                -        3,703            -        3,703
      Change in derivative
       financial instruments      741            -        1,527          197
    Change in other assets
     and liabilities           (1,732)     (10,203)      (1,800)     (19,373)
                         -------------------------- -------------------------
                               (8,765)     (12,555)     (15,711)     (22,424)
                         -------------------------- -------------------------

    Investing:
    Purchase of securities   (307,714)    (513,639)    (856,219)  (1,250,022)
    Proceeds from sale and
     maturity of securities   210,357      438,491      645,751    1,348,864
    Mortgages and loans        36,149       42,100      117,617       39,951
                         -------------------------- -------------------------
                              (61,208)     (33,048)     (92,851)     138,793
                         -------------------------- -------------------------

    Financing:
    Deposits                   44,825      (40,391)      73,033     (109,024)
    Notes payable               9,652       30,553       43,540       35,553
    Short term financings           -      119,740            -       69,823
    Proceeds of common
     shares issued                  -          252            -          288
    Shares repurchased              -         (161)           -         (953)
    Dividends paid                  -            -         (240)        (240)
                         -------------------------- -------------------------
                               54,477      109,993      116,333       (4,553)
                         -------------------------- -------------------------

    Increase (decrease) in
     cash resources           (15,496)      64,390        7,771      111,816

    Cash resources,
     beginning of period      231,098      160,847      207,831      113,421
                         -------------------------- -------------------------

    Cash resources, end
     of period            $   215,602  $   225,237  $   215,602  $   225,237
                         -------------------------- -------------------------
                         -------------------------- -------------------------

    Supplementary cash
     flow information:
      Interest paid during
       the period         $    19,349  $    20,583  $    42,921  $    43,667
      Income taxes paid
       during the period  $         -  $         -  $         -  $        68



    PACIFIC & WESTERN CREDIT CORP.
    Notes to the interim consolidated financial statements (unaudited)
    For the nine months ended July 31, 2009

    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, 2008, 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,
        2008.

        The risk management policies and procedures of the Corporation
        relating to credit, liquidity, and market risk are included on pages
        38 - 41 in the 2008 annual report 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, 2009 is an investment in
        a collateral debt obligation (CDO). This CDO, which is classified as
        held-to-maturity, and matures in 2013, has an amortized cost of
        $5.9 million (2008 - $10 million) and a fair value of $744,000 (2008
        - $5.2 million). Fair value was determined by the use of external
        valuation models which incorporate observable market parameters.
        These include observable interest rates, credit spreads and loss
        expectations. The fair value amount determined based on the above may
        not ultimately reflect what the Corporation would receive if it were
        to sell the CDO in the market. The CDO is secured by corporate
        credits and does not have any direct residential sub-prime exposure.

    3.  Allowance for credit losses

                                       for the three months ended
                          ---------------------------------------------------
                                                        July 31,     July 31,
                                                           2009         2008
                          ---------------------------------------------------
                              General     Specific        Total        Total
    (thousands of dollars)  allowance    allowance    allowance    allowance
    -------------------------------------------------------------------------
    Balance, beginning of
     the period           $     5,167  $       993  $     6,160  $     3,298
    Provision (recovery)
     for credit losses            100           48          148          242
    Recoveries                      -            -            -            -
    -------------------------------------------------------------------------
    Balance, end of
     period               $     5,267  $     1,041  $     6,308  $     3,540
    -------------------------------------------------------------------------


                                       for the nine months ended
                          ---------------------------------------------------
                                                        July 31,     July 31,
                                                           2009         2008
                          ---------------------------------------------------
                              General     Specific        Total        Total
    (thousands of dollars)  allowance    allowance    allowance    allowance
    -------------------------------------------------------------------------
    Balance, beginning of
     the period           $     5,212  $       830  $     6,042  $     3,206
    Provision (recovery)
     for credit losses             55          211          266          314
    Recoveries                      -            -            -           20
    -------------------------------------------------------------------------
    Balance, end of
     period               $     5,267  $     1,041  $     6,308  $     3,540
    -------------------------------------------------------------------------

        Gross impaired loans at July 31, 2009 totalled $11,293,000 (July 31,
        2008 - $7,931,000). Loans past due but not impaired at July 31, 2009
        totalled $849,000 (July 31, 2008 - $539,000). 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

        At July 31, 2009 notes payable consist of Series C Notes totalling
        $76.0 million which mature in 2018, Series A Notes totalling
        $11.5 million which mature in 2010 and short term notes totalling
        $5.2 million which mature in 2009 and 2010. Notes payable bear
        interest at rates ranging from 7.0% to 9.25% per annum. In addition,
        the Corporation has subordinated notes of the Bank totalling
        $21.5 million owing to a third party. These subordinated notes bear
        interest at 11% and mature in 2019.

    5.  Shareholders' equity

        a. Share capital and contributed surplus:

                                                      Employee Stock Options
                                                     ------------------------
                                                                   Weighted-
                                            Common                   average
                                            shares                  exercise
                                       outstanding       Number        price
        ---------------------------------------------------------------------
        Outstanding, October 31, 2008   13,642,452    1,077,110  $      9.02
        Granted                                  -       50,000         5.00
        Exercised                                -            -            -
        Expired                                  -     (257,577)        9.29
        Repurchased                              -            -            -
        ---------------------------------------------------------------------
        Outstanding, end of period      13,642,452      869,533  $      8.71
        ---------------------------------------------------------------------

        In addition, at July 31, 2009, there were 1,142,556 (2008 -
        1,142,556) Class "A" preferred shares outstanding and no Class "B"
        preferred shares issued or outstanding.

        During the nine months ended July 31, 2009, the Corporation
        recognized $119,000 (2008 - $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 2.41% (2008 - 4.03%), (ii) expected option life of 5 years (2008 -
        5 years), (iii) expected volatility of 45% (2008 - 30%), and (iv)
        expected forfeiture rate of 5% (2008 - 5%). The weighted average fair
        value of options granted was estimated at $1.26 (2008 - $2.66) per
        share.

        On June 26, 2009, at Special Meetings of the Common Shareholders,
        Series A Noteholders and Series C Noteholders, a resolution
        authorizing the creation of Class "B" Preferred Shares, and
        resolutions authorizing the conversions of the Series A Notes and
        Series C Notes into Class "B" Preferred Shares, were passed. The
        conversion of Series A Notes into Series C Notes was also authorized.
        The right to convert may only be exercised up to and including
        August 28, 2009, and the effective date of the conversions will be
        August 31, 2009. All conversions are at the option of the holder.

        On July 27, 2009, at a Special Meeting of the Class "A" Preferred
        Shareholders, a resolution authorizing the conversion of Class "A"
        Preferred Shares into Class "B" Preferred Shares was passed. The
        right to convert may only be exercised up to and including August 28,
        2009, and the effective date of the conversions will be August 31,
        2009. All conversions are at the option of the holder.


        b. Accumulated other comprehensive income (loss):

        The balance in accumulated other comprehensive income (loss), net of
        income taxes, consists of:
                                                        July 31      July 31
                                                           2009         2008
                                                    -------------------------
        Net unrealized losses on assets held as
         available-for-sale                         $   (14,333) $   (18,963)
        Deferred losses related to previously
         closed cash flow hedges                              -          (27)
                                                    -------------------------
        Balance, end of period                      $   (14,333) $   (18,990)
                                                    -------------------------

        Net of income tax benefit of $5,736,000 (2008 - $6,802,000).

    6.  Derivative instruments

        At July 31, 2009, the Corporation had outstanding contracts for asset
        liability management purposes to swap between floating and fixed
        interest rates with notional amounts totalling $437,458,000 (2008 -
        $174,187,000). 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
        $1,004,000 (2008 - $193,000), a credit equivalent amount of
        $5,268,000 (2008 - $2,346,000) and a risk-weight of $1,054,000 (2008
        - $469,000). As required under the accounting standard relating to
        hedges, at July 31, 2009, $27,253,000 (2008 - $12,033,000) relating
        to these contracts was included in other liabilities and the
        offsetting amount included in the carrying values of the assets to
        which they relate.

    7.  Commitments and contingencies

        The amount of credit related commitments represents the maximum
        amount of additional credit that the Corporation could be obligated
        to extend. Under certain circumstances, the Corporation may cancel
        loan commitments at its option. 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     $147,265,000
                       Letters of credit      27,502,000
                                            -------------
                                            $174,767,000
                                            -------------

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

        In the ordinary course of business, cash and securities are pledged
        against liabilities and off-balance sheet items. Details of assets
        pledged are as follows:

                                                        July 31      July 31
                                                           2009         2008
                                                    -------------------------
        Collateral related to derivative contracts  $    28,910  $     6,133
        Collateral related to letters of credit           2,942        2,896
        Obligations related to securities sold under
         repurchase agreements                                -      119,741
                                                    -------------------------
                                                    $    31,852  $   128,770
                                                    -------------------------

    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 ratios.

        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)                             2009         2008
        ---------------------------------------------------------------------
        Total assets (on and off-balance sheet)     $ 1,648,301  $ 1,466,342
        ---------------------------------------------------------------------
        Capital
        Common shares                               $    95,365  $    86,870
        Retained earnings                                 4,715       20,941
        Unrealized loss on available-for-sale equity
         securities                                     (13,802)     (15,973)
        Subordinated debentures                          41,500       20,000
        ---------------------------------------------------------------------
        Total regulatory capital                    $   127,778  $   111,838
        ---------------------------------------------------------------------

        Assets-to-capital ratio                           12.90        13.11
        ---------------------------------------------------------------------

        For a period of time during the first quarter ended January 31, 2009,
        the Bank estimated that it had, on a temporary basis, exceeded by a
        minor amount, the assets-to-capital multiple established by OSFI.
        This exception took place primarily as a result of a decrease in the
        market value of preferred shares held in the Bank's securities
        portfolio and which are primarily those of major Canadian banks and
        insurance companies. This decrease took place as a result of market
        volatility versus any credit impairment in the issuers of the
        securities. In January 2009, the Bank's adherence to this requirement
        was re-established and has been adhered to since that date.


        c. Risk-Based Capital Ratios:

        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 are presented below using the
        guidelines under Basel II.

                                  July 31                   July 31
                                    2009                      2008
        ---------------------------------------------------------------------
                            Notional/         Risk    Notional/         Risk
        (thousands of           Drawn     Weighted        Drawn     Weighted
         dollars)              Amount      Balance       Amount      Balance
        ---------------------------------------------------------------------
        Balance sheet
         assets           $ 1,620,799  $   880,695  $ 1,429,915  $   782,056
        Off-balance sheet
         assets               612,225       52,710      664,871      197,238
        Charge for
         operational risk                   18,447                    41,866
        ---------------------------------------------------------------------
        Total risk-weighted
         assets                        $   951,852               $ 1,021,160
        ---------------------------------------------------------------------
        Regulatory capital                 127,778                   111,838
        ---------------------------------------------------------------------
        Total risk-based
         capital ratio                      13.42%                    10.95%
        ---------------------------------------------------------------------
        Tier 1 risk-based
         capital ratio                       9.06%                     8.99%
        ---------------------------------------------------------------------

    9.  Comparative figures

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

    10. Subsequent event:

        On August 31, 2009, the Corporation issued 1,326,558 Class "B"
        Preferred Shares with a total value of $33.2 million. The issuance of
        these Class "B" Preferred Shares was a result of the conversion of
        Class "A" Preferred Shares, Series A Notes and Series C Notes. After
        these conversions, the Corporation has 314,572 Class "A" Preferred
        Shares outstanding, Series A Notes totalling $2.6 million and Series
        C Notes totalling $55.3 million.
    

    Pacific & Western Bank of Canada (PWBank), a Schedule I chartered bank,
is a branchless financial institution with approximately $1.6 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: Wade McBain at (800)
244-1509 or InvestorRelations@pwbank.com; Public Relations & Media: Tel
Matrundola, Vice-President, (416) 203-0882, telm@pwbank.com, Visit our website
at: http://www.pwbank.com

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