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Common shareholders' net income from Continuing Operations, diluted earnings per common share and adjusted cash earnings per common share were each down 2% compared to the prior quarter.

Excluding net realized gains/losses on securities and the impact of higher Alberta corporate taxes from all periods, first quarter adjusted cash earnings per common share from Continuing Operations increased 6% from last year and the prior quarter.

"Solid first quarter results, despite persistent challenges related to low interest rates and volatile financial markets, have CWB well positioned at the outset of an important year," said Chris Fowler, President and CEO. "The recently closed acquisition of CWB Maxium Financial (Maxium) will be very positive for us moving forward. Maxium's specialized financing originations provide attractive returns and are complementary to our existing lending verticals. This acquisition brings an experienced, motivated and highly respected management group with a demonstrated history of delivering consistently strong financial performance and solid credit quality. With 80% of its business in Ontario, Maxium will accelerate expansion of CWB's geographic footprint in Central and Eastern Canada. Both the Maxium acquisition and the upcoming launch of our new core banking system represent significant steps in the continued execution of CWB's strategic direction."

"The Canadian economy continues to adjust to the impacts of low oil prices and we are working proactively with our clients, particularly in Alberta and Saskatchewan, to address related operating challenges," continued Mr. Fowler. "Solid credit quality through the first quarter reflects CWB's proven, secured lending business model, our disciplined underwriting and proactive loan management. We continue to maintain a realistic outlook in view of the opportunities and challenges presented to us, just as we've done through prior economic cycles. This perspective is supported through CWB's ongoing stress testing program, which is rigorous, comprehensive and conservative. Our stress test results continue to confirm the resilience of CWB's profitability and capital position inclusive of the impacts of extreme, adverse economic assumptions. On this basis we will continue to support our clients and pursue opportunities for profitable growth throughout our geographic footprint."

Medium-term Performance Target Ranges for Continuing Operations

CWB's performance target ranges reflect the objectives embedded within CWB's strategic direction and a time horizon consistent with the longer-term interests of CWB shareholders. Target ranges for key financial metrics over a three to five year time horizon are presented in the following table:

Medium-term performance target ranges are based on expectations for moderate economic growth in Canada over the three to five year forecast horizon. Achievement of overall financial results within these target ranges will be largely driven by management's commitment to continue to deliver ongoing strong and profitable loan growth at levels relatively consistent with CWB's recent performance, further optimization of CWB's funding mix, stable credit quality, effective expense management in consideration of revenue growth opportunities, and prudent capital management.

Outlook for Continuing Operations

CWB's outlook for 2016 remains positive despite caution related to the portions of our businesses in Alberta and Saskatchewan that are directly affected by persistent low energy and other commodity prices. Financial performance will continue to benefit from an expanding geographic footprint with increased business diversification, including the impact of Maxium, as well as ongoing success in other key strategic initiatives to build core funding sources, enhance client offerings, and leverage current and future investment in technology.

CWB's acquisition of the non-securitized lending assets and other business assets of Maxium closed on March 1, 2016. Securitized assets that were originated by Maxium prior to March 1, 2016 were not included in the transaction. Given the purchase structure, the acquisition is expected to have a moderate negative impact on CWB's consolidated adjusted earnings per common share in 2016. Meaningful positive contributions to adjusted earnings per share are expected to commence in 2018 and accelerate thereafter, once new originations and renewals build a material asset base supported by CWB's funding capabilities. Notwithstanding the expected benefits of the Maxium acquisition over the medium-term and continued implementation of CWB's well-defined strategic direction, the impacts of continued pressure on net interest margin, elevated economic uncertainty and slower economic growth compared to prior years are expected to affect near-term overall financial performance. As such, general profitability and earnings growth in fiscal 2016 are expected to fall below CWB's medium-term target ranges.

Summary and Outlook for Loans and Deposits

Loan growth of 12% over the past twelve months and 4% compared to the prior quarter was driven by strong activity within targeted portfolio segments, reinforcing our expectation for overall loan growth in fiscal 2016 to be relatively consistent with levels achieved in recent years. This expectation is primarily based on continued higher relative contributions from non-oil producing provinces across CWB's growing geographic footprint. Combined loan growth within BC and Ontario accounted for two thirds of the increase from the prior quarter, compared to less than one third in the same quarter last year. Although CWB's direct exposure to the energy industry is relatively small at approximately 5% of total loans outstanding, 2016 loan growth in Alberta and Saskatchewan is expected to slow compared to prior years due to the economic impact of low oil prices.

Initial participation in the National Housing Act Mortgage Backed Security (NHA MBS) program contributed $173 million to the increase in outstanding loans this quarter. Adjusted for this contribution, organic loan growth was 11% compared to last year and 3% compared to the prior quarter. Increased utilization of CWB's NHA MBS allocation and originations within Maxium are expected to contribute a total of up to $600 million in net 2016 loan growth. Maxium's originations are expected to be concentrated in Ontario, with anticipated full year originations in the range of $350 to $400 million commencing in fiscal 2017. CWB will continue to pursue opportunities to service high quality borrowers operating within our targeted industry segments, and further improve CWB's funding mix through an emphasis on growing preferred types of branch-raised deposits.

Summary and Outlook for Credit Quality

Overall credit quality is consistent with expectations, inclusive of the sequential increase in total gross impaired loans from $94.9 million to $111.5 million. The annual provision for credit losses is expected to migrate toward the higher end of a range between 18 and 23 basis points of average loans. As we work with our clients through a challenging operating environment, particularly in Alberta, we continue to carefully monitor the loan portfolio for signs of weakness resulting from the first and second order impacts of lower oil prices. Total impaired loans within Alberta of $45.2 million represent 41% of total impairments at January 31, 2016, consistent with the geographic composition of the overall portfolio. The level of impaired loans in Alberta compares to $30.2 million 12 months ago and $41.7 million in the prior quarter. Impaired loans related to CWB's equipment financing and energy exposures within Alberta of $33.0 million increased from $17.7 million last year and $27.4 million last quarter. We remain confident that our combination of disciplined underwriting, secured lending practices and proactive account management will continue to mitigate the financial impacts of further increases in impairments.

Based on the results of stress tests simulating severe economic conditions in Alberta and Saskatchewan, in combination with very challenging economic conditions throughout the rest of CWB's geographic footprint over a multi-year timeframe, management is confident CWB will continue to deliver positive earnings for shareholders while maintaining financial stability and a strong capital position. This expectation is supported through stress tests which incorporate multiple dimensions of artificially intensified severity. For reference, incorporated within the assumed consolidated loss rate of approximately 65 basis points within CWB's stress tests were loss rates related to direct lending to oil and gas producers of approximately 425 basis points, and loss rates related to CWB's equipment financing and leasing exposures within Alberta of approximately 175 basis points.

Summary and Outlook for Efficiency and Operating Leverage

Commencing this quarter, CWB revised its efficiency ratio calculation to exclude the pre-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration. These purchase accounting items represent non-cash charges that are not considered to be indicative of ongoing business performance. All periods presented have been recalculated to conform to the current period presentation.

In view of necessary investment in people and technology underway to facilitate ongoing implementation of CWB's strategic direction, including the impact of the launch of CWB's new core banking system, as well as the low probability of meaningful short-term improvement in net interest margin, management expects CWB's efficiency ratio to fluctuate at levels moderately higher than the recent past.

First quarter operating leverage was negative 1% as moderate year-over-year growth of 5% in non-interest expenses outpaced 4% growth in total revenues. Management is committed to disciplined control of all discretionary expenses and positive operating leverage is expected over the medium-term. However, in the absence of an increase in interest rates, continued pressure on net interest margin is expected to constrain revenue growth and operating leverage is likely to be slightly negative in fiscal 2016.

Summary and Outlook for Capital Management and the Dividend Payout Ratio

CWB maintains a strong capital position under the more conservative Standardized approach for calculating risk-weighted assets. Common share dividend increases are evaluated every quarter against the dividend payout ratio target of approximately 30%. The timing of future dividend increases will be influenced by capital requirements to support expected asset growth under the Standardized approach for calculating risk-weighted assets, as well as the impacts on earnings growth from challenges related to persistent net interest margin pressure and macroeconomic uncertainty.

About CWB Group

CWB Group (CWB) is a diversified financial services organization serving businesses and individuals across Canada. Operating from its headquarters in Edmonton, Alberta, CWB's key business lines include full-service business and personal banking offered through 41 branches of Canadian Western Bank and Internet banking services provided by Canadian Direct Financial (CDF). Highly responsive specialized financing is delivered under the banners of CWB Equipment Financing, National Leasing, CWB Maxium Financial and CWB Optimum Mortgage. Trust Services are offered through Canadian Western Trust. Comprehensive wealth management offerings are provided through CWB Wealth Management, which includes the businesses of Adroit Investment Management, McLean & Partners Wealth Management and Canadian Western Financial. As a public company on the Toronto Stock Exchange (TSX), CWB trades under the symbols "CWB" (common shares) and "CWB.PR.B" (Series 5 Preferred Shares). Learn more at www.cwb.com.

Fiscal 2016 First Quarter Results Conference Call

CWB's first quarter results conference call is scheduled for Thursday, March 3, 2016, at 1:30 p.m. ET (11:30 a.m. MT). CWB's executives will comment on financial results and respond to questions from analysts and institutional investors.

The conference call may be accessed on a listen-only basis by dialing 647-788-4922 or toll-free 1-877-223-4471. The call will also be webcast live on CWB's website:

www.cwb.com/investor-relations/webcasts-and-events.

A replay of the conference call will be available until March 17, 2016, by dialing 416-621-4642 (Toronto) or 1-800-585-8367 (toll-free) and entering passcode 50610298.

Selected Financial Highlights

Taxable Equivalent Basis (teb)

Most banks analyze revenue on a taxable equivalent basis to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the Consolidated Statement of Income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends received is significantly lower than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they would have been had the tax-exempt securities been taxed at the statutory rate. The taxable equivalent basis does not have a standardized meaning prescribed by International Financial Reporting Standards (IFRS) and, therefore, may not be comparable to similar measures presented by other financial institutions. Total revenues, net interest income and income taxes are discussed on a taxable equivalent basis throughout this quarterly report to shareholders.

Non-IFRS Measures

CWB uses a number of financial measures to assess its performance. These measures provide readers with an enhanced understanding of how management views the results. Non-IFRS measures may also provide readers the ability to analyze trends and provide comparisons with our competitors. Taxable equivalent basis, adjusted cash earnings per common share, return on common shareholders' equity, adjusted return on common shareholders' equity return on assets, efficiency ratio, net interest margin, common equity Tier 1, Tier 1 and total capital adequacy ratios, and average balances do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other financial institutions.

Management's Discussion and Analysis

This management's discussion and analysis (MD&A), dated March 2, 2016, should be read in conjunction with Canadian Western Bank's (CWB) unaudited condensed interim consolidated financial statements for the period ended January 31, 2016, and the audited consolidated financial statements and MD&A for the year ended October 31, 2015, available on SEDAR at www.sedar.com and CWB's website at www.cwb.com.

Continuing and Discontinued Operations

On May 1, 2015, CWB completed the divestitures of its property and casualty insurance subsidiary, Canadian Direct Insurance (CDI), and the stock transfer business of its subsidiary, Valiant Trust Company (Valiant), ("Discontinued Operations"). The remaining operations are defined as "Continuing Operations" and the total Discontinued Operations and Continuing Operations are defined as "Combined Operations". In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, revenue, expenses and gains on sale associated with the businesses sold have been classified as Discontinued Operations in CWB's interim consolidated statements of income for all periods presented. Associated assets and liabilities were classified as held for sale in CWB's interim consolidated balance sheets prospectively from January 31, 2015 until their sale on May 1, 2015, and comparative information has not been adjusted. Return on common shareholders' equity reflects equity from Combined Operations. All other measures reflect either Continuing or Combined Operations as indicated. The proceeds of sale may be subject to further post-closing adjustments and costs.

Forward-looking Statements

From time to time, CWB makes written and verbal forward-looking statements. Statements of this type are included in the Annual Report and reports to shareholders and may be included in filings with Canadian securities regulators or in other communications such as press releases and corporate presentations. Forward-looking statements include, but are not limited to, statements about CWB's objectives and strategies, targeted and expected financial results and the outlook for CWB's businesses or for the Canadian economy. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate", "may increase", "may impact", "goal", "focus", "potential", "proposed" and other similar expressions, or future or conditional verbs such as "will", "should", "would" and "could".

By their very nature, forward-looking statements involve numerous assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that management's predictions, forecasts, projections, expectations and conclusions will not prove to be accurate, that its assumptions may not be correct and that its strategic goals will not be achieved.

A variety of factors, many of which are beyond CWB's control, may cause actual results to differ materially from the expectations expressed in the forward-looking statements. These factors include, but are not limited to, general business and economic conditions in Canada, including the volatility and level of liquidity in financial markets, fluctuations in interest rates and currency values, the volatility and level of various commodity prices, changes in monetary policy, changes in economic and political conditions, legislative and regulatory developments, legal developments, the level of competition, the occurrence of natural catastrophes, changes in accounting standards and policies, the accuracy and completeness of information CWB receives about customers and counterparties, the ability to attract and retain key personnel, the ability to complete and integrate acquisitions, reliance on third parties to provide components of business infrastructure, changes in tax laws, technological developments, unexpected changes in consumer spending and saving habits, timely development and introduction of new products, and management's ability to anticipate and manage the risks associated with these factors. It is important to note that the preceding list is not exhaustive of possible factors.

Additional information about these factors can be found in the Risk Management section of CWB's annual Management's Discussion and Analysis (MD&A). These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause CWB's actual results to differ materially from the expectations expressed in such forward-looking statements. Unless required by securities law, CWB does not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time by it or on its behalf.

Assumptions about the performance of the Canadian economy over the forecast horizon and how it will affect CWB's businesses are material factors considered when setting organizational objectives and targets. In determining expectations for economic growth, CWB primarily considers economic data and forecasts provided by the Canadian government and its agencies, as well as an average of certain private sector forecasts. These forecasts are subject to inherent risks and uncertainties that may be general or specific. Where relevant, material economic assumptions underlying forward looking statements are disclosed within the Outlook sections of this MD&A.

Acquisition of Maxium Group

On March 1, 2016, CWB completed the previously announced acquisition of the non-securitized lending assets and other net business assets of Maxium Financial Services Inc. and Desante Financial Services Inc., now referred to as "CWB Maxium Financial" (Maxium). Securitized assets that were originated by Maxium prior to March 1, 2016 were not included in the transaction. The purchase agreement is structured over three years with maximum total consideration of up to $120 million. The acquisition was funded at closing with 1,250,312 common shares and $19.5 million in cash. Remaining consideration consists of contingent payments that could total up to $70.5 million. Contingent payment installments will be made annually with determination of the total amount payable based on Maxium's cumulative business performance over a 36-month purchase price adjustment period. Up to 50% of the total contingent consideration may be settled with CWB shares, provided the share price at the time of issuance exceeds $30, with the remainder to be paid in cash. Full disclosure of the accounting treatment of the transaction will be provided in the second quarter.

Given the purchase structure, the transaction is expected to have a moderate negative impact on CWB's consolidated adjusted cash earnings per common share in 2016. Meaningful positive contributions to adjusted earnings per share are expected to commence in 2018 and accelerate thereafter, once new originations and renewals build a material base of on-balance sheet assets supported by CWB's funding capabilities.

Overview of Continuing Operations

CWB reported solid quarterly performance from core operations.

Q1 2016 vs. Q1 2015

Common shareholders' net income of $52.1 million was down 1% as the benefit of strong 12% loan growth was more than offset by an 11 basis point decrease in net interest margin (teb), lower non-interest income, growth in non-interest expenses and the increase in Alberta's provincial corporate tax rate. Non-interest income declined $3.4 million as the combined increase in credit related fee income, fees for retail services, and trust services revenues was more than offset by the change in net gains/losses on securities, and lower wealth management revenues. Net losses on securities of $2.9 million, compared to gains of $0.6 million last year, primarily reflect the impact of volatile financial market conditions on CWB's small portfolio of common equities. Diluted earnings per common share of $0.65 and adjusted cash earnings per common share, which excludes the after-tax amortization of acquisition-related intangible assets and non-tax deductible changes in fair value of contingent consideration, of $0.66 were both unchanged compared to last year.

Q1 2016 vs. Q4 2015

Common shareholders' net income was down 2% as the positive impacts of 4% loan growth and relatively stable net interest margin were more than offset by lower non-interest income and the impact of higher corporate taxes in Alberta. The decrease in non-interest income primarily resulted from net losses on securities, compared to nil gains last quarter, and lower 'other' non-interest income.

ROE and ROA

In order to adjust for the impact of purchase accounting items which represent non-cash charges not considered to be indicative of ongoing business performance, CWB will provide an adjusted return on common shareholders' equity commencing this quarter which excludes the after-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration from common shareholders' net income. All periods presented have been recalculated to conform to the current period presentation. First quarter adjusted return on common shareholders' equity (ROE) was 11.7%, compared to 13.4% last year and 12.0% in the previous quarter. Return on assets (ROA) of 0.90% was down from 1.01% a year earlier and 0.94% last quarter.

Outlook for Profitability Ratios

Capital generated from divestiture gains increased common shareholders' equity in 2015, and common shares issued in support of the Maxium acquisition will result in higher levels of common shareholders' equity this year. In view of these factors, as well as the impact of continued net interest margin pressure on growth in total revenues, adjusted return on shareholders' equity in fiscal 2016 is expected to fall below CWB's medium-term target range. CWB's capital levels are deemed to be prudent in view of current macroeconomic conditions.

Impact of net gains/losses on securities and the increase in Alberta's provincial corporate tax rate

Excluding net gains/losses on securities in all periods and the 20% increase in Alberta's provincial corporate tax rate, adjusted cash earnings per common share was up 6% from both the first quarter last year and the prior quarter. Adjusted return on common shareholders' equity (ROE) was 12.2%, compared to 13.1% last year and 11.9% in the previous quarter. Return on assets (ROA) of 0.95% was down from 1.01% a year earlier and up from 0.94% last quarter.

Total Revenues (teb) from Continuing Operations

First quarter total revenues of $158.7 million, comprised of both net interest income (teb) and non-interest income, grew 4% compared to the same quarter in 2015 and was relatively unchanged from the prior quarter. Excluding net gains/losses on securities in all periods, first quarter total revenues grew 7% compared to the same quarter in 2015, and 2% from last quarter.

Net Interest Income (teb)

Q1 2016 vs. Q1 2015

Net interest income of $144.1 million was up 7% ($9.7 million) primarily reflecting the benefit of strong 12% loan growth, partially offset by an 11 basis point decrease in net interest margin (teb) to 2.48%. The Bank of Canada's January and July 2015 interest rate cuts and the corresponding 15 basis point decreases in CWB's prime lending interest rate have had a negative impact on loan yields. Corresponding reductions in the cost of various deposits has not fully offset the impact of these changes on net interest margin. As such, various positive factors, including more favourable deposit costs, and strong growth in both higher yielding loan portfolios and preferred types of branch-raised demand and notice deposits, were more than offset by the impact of significantly lower loan yields and competitive factors, resulting in lower net interest margin.

Q1 2016 vs. Q4 2015

Net interest income was up 2% ($3.0 million) reflecting the benefit of 4% loan growth and relatively stable net interest margin (teb).

Interest rate sensitivity

Note 12 to the unaudited interim consolidated financial statements summarizes CWB's exposure to interest rate risk as at January 31, 2016. The estimated sensitivity of net interest income to a change in interest rates is presented in the table below. The amounts represent the estimated change in net interest income that would result over the following 12 months from a one-percentage point change in interest rates. The estimates are based on a number of assumptions and factors, which include:

• a constant structure in the interest sensitive asset and liability portfolios;

• interest rate changes affecting interest sensitive assets and liabilities by proportionally the same amount, except floor levels for various deposit liabilities and certain floating rate loans, and applied at the appropriate repricing dates; and,

• no early redemptions.

In addition to the projected changes in net interest income noted above, it is estimated that a one-percentage point increase in all interest rates at January 31, 2016 would increase unrealized losses related to available-for-sale securities and the fair value of interest rate swaps designated as hedges, and result in a reduction in other comprehensive income of approximately $69.1 million, net of tax (January 31, 2015 - $47.3 million). It is estimated that a one-percentage point decrease in all interest rates at January 31, 2016 would have the opposite effect, increasing other comprehensive income by approximately $62.2 million, net of tax (January 31, 2015 - $40.8 million). Management maintains the asset liability structure and interest rate sensitivity within CWB's established policies through pricing and product initiatives, as well as the use of interest rate swaps.

Outlook for net interest margin (teb)

Continued pressure on net interest margin is expected to result from the combined impact of the current low interest rate environment, competitive factors and the persistently flat yield curve, as well as the likelihood that CWB will carry moderately higher average balances of cash and securities in view of current macroeconomic conditions. CWB will maintain its strategic focus on mitigating the earnings impact of ongoing margin pressure through efforts to achieve stronger relative growth in higher yielding loan portfolios with an acceptable risk profile, as well as managing the funding mix to optimize the overall cost of funds and liquidity adequacy requirements. Very strong 14% year-over-year growth in preferred types of branch-raised demand and notice deposits has provided incremental support to net interest margin, and CWB will maintain an ongoing strategic focus in this area.

Provision for Credit Losses

The quarterly provision for credit losses measured against average loans was 18 basis points, compared to 16 basis points in the same period last year and unchanged from the prior quarter. Annualized first quarter net new specific allowances of 18 basis points increased from 15 basis points last year and were consistent with the prior quarter. Expectations for credit quality include increased provisioning, with the 2016 provision as a percentage of average loans expected to migrate toward the higher end of a range between 18 and 23 basis points. The current level of provisioning compares to a peak annual provision during the prior economic cycle of 22 basis points in fiscal 2010.

Non-interest Income from Continuing Operations

Excluding net gains/losses on securities in all periods, non-interest income was relatively unchanged from both the same quarter last year and the prior quarter.

Q1 2016 vs. Q1 2015

Non-interest income of $14.6 million was down 19% ($3.4 million) as the combined increase in credit related fee income, fees for retail services, and trust services revenues was more than offset by the change in net gains/losses on securities and lower wealth management revenues. Net losses on securities of $2.9 million compare to gains of $0.6 million last year and primarily reflect the impact of volatile financial market conditions on CWB's holdings of common equities in the current period.

Q1 2016 vs. Q4 2015

Non-interest income was down 19% ($3.3 million), primarily attributed to lower net gains/losses on securities and decreased 'other' non-interest income. The decline in 'other' non-interest income reflects higher gains on the sale of residential mortgages in the prior period.

Outlook for non-interest income from Continuing Operations

The outlook for growth in banking-related fee income is relatively consistent with anticipated loan and deposit growth. Trust services is also expected to continue to provide stable growth and consistent contributions. Based on the current composition of the securities portfolio, net gains/losses on securities through the remainder of 2016 are not expected to have a material impact on non-interest income although equity and bond market conditions are inherently unpredictable in the short-term. Management will realize gains on the sale of residential mortgage portfolios as opportunities become available. Such gains are anticipated to be a recurring, although sporadic, source of 'other' non-interest income.

Significant progress has been made toward further implementation of CWB's wealth management strategy, including the appointment of David Schaffner as President and CEO to lead CWB's newly formed division, CWB Wealth Management. The new division consolidates oversight of the businesses of Adroit Investment Management (Adroit), McLean & Partners Wealth Management (McLean & Partners) and CWB's branch-based mutual fund distribution channel, Canadian Western Financial. Subsequent to quarter end, CWB Wealth Management received registration approval in the categories of Portfolio Manager, Investment Fund Manager and Exempt Market Dealer. In combination with the continued expansion of CWB's regional Wealth Management Specialist teams and the filing of a final prospectus for a series of new, proprietary mutual funds to be managed by the teams at Adroit and McLean & Partners, these developments enable CWB Wealth Management to introduce customized wealth management offerings and comprehensive financial planning services for high net worth clients through CWB's branch network.

Non-interest Expenses from Continuing Operations

Q1 2016 vs. Q1 2015

Quarterly non-interest expenses of $75.6 million were up 5% ($3.7 million) due to 6% ($2.9 million) higher salaries and benefits, and a 6% ($0.8 million) increase in general expenses. Premises and equipment expenses were relatively unchanged. The change in salaries and benefits mainly resulted from annual salary increments and modest increases in staff complement to support ongoing growth across all businesses.

Q1 2016 vs. Q4 2015

Non-interest expenses were unchanged from the prior quarter, as incremental increases in both salaries and benefits and premises and equipment expenses were offset by lower general expenses.

Outlook for non-interest expenses from Continuing Operations

One of management's key priorities is to deliver strong long-term growth in earnings per share through strategic investment while maintaining effective control of costs. This strategy is aligned with a commitment to maximize long-term shareholder value and is expected to provide material benefits in future periods. Upgrades and expansion of branch infrastructure continue, including work toward the addition of a full-service branch location in Lloydminster, Saskatchewan, scheduled for the third quarter of 2016. Compliance with an increasing level of regulatory rules and oversight for all Canadian banks requires the investment of both time and resources, which further contributes to higher non-interest expenses. Diligent cost control contributed to moderate non-interest expense growth over the past year. However, in view of necessary investment in people, technology and infrastructure underway to facilitate ongoing implementation of CWB's strategic direction, including the launch of CWB's new core banking system, as well as the addition of Maxium's non-interest expenses commencing March 1, 2016, non-interest expense growth is expected to increase moderately over the near term compared to the recent past.

Core banking system implementation

Work towards the launch of CWB's new core banking system continues. System integration testing is complete, user acceptance testing is approaching completion and client outreach is underway. Investment to date is consistent with estimated total costs of up to $71 million. Implementation is currently scheduled for May 2, 2016, after which the 15 year amortization of capitalized costs, as well as additional sustainment expenses related to the system, will commence.

Efficiency ratio

The first quarter efficiency ratio, which measures non-interest expenses, excluding the pre-tax amortization of acquisition-related intangible assets, as a percentage of total revenues (teb), excluding the non-tax deductible change in fair value of contingent consideration, was 46.9%, up slightly from 46.2% last year and consistent with the previous quarter. Compared to the first quarter last year, the positive impact on total revenues of strong loan growth was more than offset by the impact of lower net interest margin, reduced non-interest income and moderately higher expenses.

Excluding realized gains/losses on securities in all periods, the first quarter efficiency ratio (teb) was 46.0%, compared to 46.4% last year and 47.0% in the previous quarter.

Outlook for the efficiency ratio and operating leverage

The combination of ongoing pressure on net interest margin and net losses on securities has constrained revenue growth compared to expectations. In view of the level of necessary investment, as discussed above, as well as the low probability of meaningful short-term improvement in net interest margin, management expects CWB's efficiency ratio to fluctuate at levels moderately higher than the recent past. In the absence of an increase in interest rates and/or a sustained steepening of the yield curve, continued pressure on net interest margin is expected to constrain revenue growth and operating leverage is likely to be slightly negative in fiscal 2016.

Income Taxes

The first quarter effective income tax rate (teb) for Continuing Operations was 27.5%, compared to 26.3% last year. The 20% increase in Alberta's provincial corporate income tax rate, from 10% to 12%, effective July 1, 2015, had a negative impact on adjusted cash earnings per share of approximately $0.01 compared to the first quarter last year.

Outlook for income taxes

The full year impact of the increase in Alberta's provincial corporate income tax rate on common shareholders' net income is expected to be approximately $0.04 per share. CWB's expected income tax rate (teb) for 2016 is approximately 27.5%.

Overview of Discontinued Operations

The components of net income from Discontinued Operations included in the interim consolidated statements of income, which are attributable entirely to CWB common shareholders, follow:

First quarter common shareholders' net income from Discontinued Operations was nil, compared to $1.8 million, or $0.03 of adjusted cash earnings per common share, in the same quarter last year.

Overview of Combined Operations

Q1 2016 vs. Q1 2015

Common shareholders' net income of $52.1 million was down 4% primarily reflecting the factors discussed above within the overview of Continuing Operations, along with the absence of earnings contributions from Discontinued Operations this quarter. Diluted earnings per common share of $0.65 was down 3% and adjusted cash earnings per common share decreased 4% to $0.66.

Q1 2016 vs. Q4 2015

Common shareholders' net income decreased 2% reflecting the factors discussed above within the overview of Continuing Operations.

ROE and ROA

First quarter adjusted return on common shareholders' equity (ROE) was 11.7%, compared to 13.9% last year and 12.1% last quarter. Return on assets (ROA) of 0.90% compares to 1.03% a year earlier and 0.94% last quarter.

Comprehensive Income

Comprehensive income is comprised of common shareholders' net income from Combined Operations and other comprehensive income (OCI), all net of income taxes.

Q1 2016 vs. Q1 2015

Comprehensive income of $47.9 million was down from $55.0 million in the same period last year. The change reflects decreases of $5.0 million and $2.1 million in OCI and common shareholders' net income from Combined Operations, respectively.

Changes in OCI, all net of tax, resulted from a decrease in the change in fair value of derivatives designated as cash flow hedges and a lower reclassification to net income for these instruments, partially offset by a reduction in negative changes in fair value and a higher reclassification to net income for available-for-sale securities. CWB's portfolio of available-for-sale securities is comprised of debt securities, investment grade preferred shares and common equities. While the combined dollar investment in CWB's portfolios of preferred and common equities is relatively small in relation to total assets, volatility in the market value of these securities increases the potential for comparatively larger fluctuations in OCI.

Lower common shareholders' net income from Combined Operations resulted primarily from the absence of contributions from Discontinued Operations this year.

Balance Sheet

Total assets increased 10% in the past year and 3% in the quarter to reach $23,473 million at January 31, 2016.

Cash and Securities

Cash and securities totaled $2,770 million at January 31, 2016, compared to $2,530 million a year earlier and $2,995 million at the end of last quarter.

The cash and securities portfolio is comprised of high quality debt instruments, investment grade preferred shares and common equities that are not held for trading purposes and, where applicable, are typically held until maturity. Net unrealized losses on cash and securities from Continuing Operations recorded on the balance sheet of $84.9 million compare to net unrealized gains of $19.2 million as at January 31, 2015, and net unrealized losses of $76.2 million last quarter. Fluctuations in value are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. Volatility in equity markets also leads to fluctuations in value for common shares. The difference compared to last year primarily reflects decreases in the market value of preferred shares and fixed income securities. The change from last quarter reflects decreases in the market value of preferred shares, partially offset by lower unrealized losses on fixed income securities and common shares.

Net realized losses on securities in the first quarter were $2.9 million, compared to net gains of $0.6 million in the same period last year and nil in the previous quarter. Net losses on securities primarily reflect the impact of volatile financial market conditions on CWB's small portfolio of common equities this quarter. Based on the current composition of the securities portfolio, net gains/losses on securities through the remainder of 2016 are not expected to have a material impact on non-interest income although equity and bond market conditions are inherently unpredictable in the short-term.

Treasury Management

Average balances of cash and securities were higher than the same quarter last year and moderately lower than the prior quarter. Management held liquidity for several months, including the first month of this quarter, in preparation for the November 30, 2015, redemption of $300 million of subordinated debentures. Management expects to maintain a conservative level of liquid assets as a percentage of total assets in view of current macroeconomic conditions. CWB remains compliant with the Office of the Superintendent of Financial Institutions' (OSFI) Liquidity Adequacy Requirements guideline.

Loans

Total loans, excluding the allowance for credit losses, grew 12% ($2,210 million) in the past twelve months and 4% ($882 million) in the quarter to reach $20,452 million. Initial participation in the National Housing Act Mortgage Backed Security (NHA MBS) program, through the purchase of pooled, CMHC-insured mortgages, contributed $173 million to the increase in outstanding loans. Adjusted for this contribution, organic loan growth was 11% compared to last year and 3% compared to the prior quarter. In dollar terms, year-over-year growth by lending sector was led by personal loans and mortgages ($656 million). Growth in real estate project loans was also strong ($516 million) as CWB continued to identify opportunities to finance well-capitalized developers on the basis of sound loan structures and acceptable pre-sale/lease levels.

Growth in general commercial loans was $382 million, commercial mortgages were up $360 million, and equipment financing and leasing grew $270 million. Growth in oil and gas production loans of $64 million primarily reflects participation in three new syndicated facilities, partially offset by a decrease in loans to direct borrowers within this segment. Corporate lending declined by $39 million.

On a sequential basis, first quarter growth was led by real estate project loans ($374 million) and personal loans and mortgages ($244 million), followed by general commercial loans ($143 million) and commercial mortgages ($141 million). Oil and gas production loans were up $16 million, equipment financing and leasing was relatively unchanged and corporate lending contracted by $35 million.

Lending activity in British Columbia showed the highest growth in dollar terms on a year-over-year basis, followed by Alberta and Ontario. Combined first quarter loan growth within BC and Ontario accounted for two thirds of the increase from the prior quarter, compared to less than one third in the same quarter last year. In contrast, Alberta accounted for less than a third of CWB's sequential loan growth in the first quarter this year compared to 50% last year. Very strong 21% annual growth within National Leasing reflects the solid market position and coast-to-coast footprint of this business.

Optimum Mortgage

Net of portfolio sales, total loans of $1,996 million within Optimum increased 30% ($463 million) year-over-year and 4% ($73 million) compared to the prior quarter. Growth for the quarter was driven almost exclusively by alternative mortgages secured via first mortgages carrying a weighted average loan-to-value ratio at initiation of approximately 70%. The book value of alternative mortgages represented 90% of Optimum's total portfolio at quarter end, compared to 86% last year and 88% in the prior quarter. Ontario continues to account for more than half of all new originations. At approximately 43% of the total, Ontario also represents the largest geographic exposure by province within Optimum's portfolio, followed by Alberta at 28% and British Columbia at 16%. The average size of Optimum mortgages originated in the first quarter was approximately $300,000, and the average size of mortgage outstanding at January 31, 2016 was $266,000.

Outlook for Optimum Mortgage

Canadian residential real estate markets have been resilient and affordability in most geographic areas outside of certain neighborhoods in Toronto and Vancouver remains within historical ranges, largely reflecting very low interest rates. However, reduced housing sector activity and softer pricing is apparent in Alberta and Saskatchewan, and the combination of historically high price levels and sentiment related to potential economic headwinds caused by low energy prices could lead to further moderation of housing sector activity in these and other markets. Through ongoing selective underwriting in all of its markets, including reduced loans-to-value at initiation within markets perceived to be more vulnerable to price correction and manual adjudication of each loan application, in combination with the ongoing addition of business development staff to new markets, Optimum is expected to continue to deliver very strong performance with an attractive risk profile. Management believes Optimum's underwriting internal control appropriately manages key risk factors associated with this type of lending.

Outlook for loans

Growth in Canada's domestic economy is expected to continue at a moderate pace in 2016. CWB will continue to support high quality borrowers operating within targeted industry segments and pursue opportunities for profitable growth throughout CWB's geographic footprint.

Management expects overall loan growth in fiscal 2016 to be relatively consistent with levels achieved in recent years. This expectation is primarily based on continued higher relative contributions from non-oil producing provinces across CWB's growing geographic footprint. Continued economic strength in the U.S. and a lower Canadian dollar are expected to support an escalation of manufacturing and exporting activity in all provinces, especially BC, Ontario and Manitoba. Taken together, these three provinces account for greater than half of CWB's geographic exposure. Increased participation in the NHA MBS program, primarily through the ongoing purchase of insured loans originated across the country, is expected to support further geographic diversification, as will Maxium's originations. In combination, these two new sources of loan growth are expected to contribute up to a total of $600 million in net growth during fiscal 2016. Approximately 80% of Maxium's current business is in Ontario, and annual originations are expected to be in the range of $350 to $400 million commencing in fiscal 2017.

CWB's direct exposure to the energy industry is relatively small at approximately 5% of total loans outstanding, comprised of loans to exploration and production companies representing approximately 2%, and loans to energy service companies representing approximately 3%. However, Alberta and Saskatchewan are generally expected to underperform the rest of Canada, reflecting expectations for reduced capital investment and the potential for out-migration owing to diminished resource-related activity. As such loan growth in these two provinces is expected to slow in 2016 compared to the levels achieved in recent years.

Credit Quality

Overall credit quality reflects CWB's secured lending business model and continued strong underwriting practices, proactive loan management and the management experience and financial stability of its client base. CWB has no material exposure to unsecured personal borrowing, including credit cards. Nearly three quarters of CWB's direct exposure to exploration and production companies is constituted of syndicated advances to borrowers with strong balance sheets and substantial proven, developed and producing resources. Loans to service companies are primarily comprised of term-reducing advances against standard industrial equipment, as opposed to operating lines of credit or loans secured against receivables and/or inventory. These factors mitigate the risk of CWB's limited direct exposures to the energy sector, and management continues to proactively monitor all accounts with a particular focus on those located within the oil-exporting provinces as the full impact of lower oil prices continues to work its way through all facets of the economy.

The dollar level of gross impaired loans at January 31, 2016 totalled $111.5 million, up from $79.8 million last year and $94.9 million in the prior quarter. Total impaired loans within Alberta of $45.2 million represent 41% of total impairments, consistent with the overall portfolio composition, and compare to $30.2 million, or 38% of total impairments, 12 months ago, and $41.7 million, or 44% of total impairments, in the prior quarter. Impaired loans related to CWB's equipment financing and energy exposures within Alberta of $33.0 million, included within total Alberta impaired loans discussed above, increased from $17.7 million last year and $27.4 million last quarter.

The dollar level of gross impaired loans represented 0.55% of total loans at quarter end, compared to 0.44% last year and 0.49% at October 31, 2015, and the increase in gross impaired loans is consistent with management's expectations. The level of gross impaired loans fluctuates as loans become impaired and are subsequently resolved, and does not directly reflect the dollar value of expected write-offs given tangible security held in support of lending exposures. The overall loan portfolio is reviewed regularly with credit decisions undertaken on a case-by-case basis to provide early identification of possible adverse trends.

Loans that have become impaired are monitored closely by a specialized team with regular quarterly, or more frequent, reviews of each loan and its realization plan. Specific allowances for expected write-offs are established through detailed analyses of both the overall quality and marketability of security held against each impaired account. Within total specific allowances of $20.9 million this quarter are specific allowances of $12.8 million on loans with Alberta-based security, up from $7.1 million one year ago and $11.0 million last quarter.

As at January 31, 2016, the collective allowance for credit losses exceeded the balance of impaired loans, net of specific allowances. The total allowance for credit losses (collective and specific) was $120.6 million at January 31, 2016, compared to $115.4 million last quarter and $100.5 million a year earlier. The total allowance for credit losses represented 108% of gross impaired loans at quarter end, compared to 122% last quarter and 126% one year ago. Growth of the collective allowance of 11% over the past twelve months was relatively consistent with growth in loans.

Outlook for credit quality

CWB continues to work with its clients through a challenging operating environment, particularly in Alberta, and is carefully monitoring the loan portfolio for signs of weakness resulting from the first and second order impacts of lower oil prices. Management remains confident that CWB's combination of disciplined underwriting, secured lending practices and proactive account management will continue to mitigate the financial impacts of further increases in loan impairments. In support of CWB's loan management processes, experienced credit adjudicators have been activated in the field to help branches and credit teams proactively identify and address higher risk loans. Gross impaired loans remain low as a percentage of total loans, with the current level of 0.55% comparing to a peak during the prior credit cycle of 1.68% in the second quarter of 2010. While expectations for credit quality include further increases in gross impaired loans from current levels, actual credit losses are expected to remain within CWB's historical range of acceptable levels.

Based on the results of stress tests simulating severe economic conditions in Alberta and Saskatchewan, in combination with very challenging economic conditions throughout the rest of CWB's geographic footprint over a multi-year timeframe, management is confident CWB will continue to deliver positive earnings for shareholders while maintaining financial stability and a strong capital position. This expectation is supported through stress tests which incorporate multiple dimensions of artificially intensified severity, including: the simultaneous application of 150% of CWB's historical peak loss rates within each portfolio segment to all exposures within Alberta and Saskatchewan; the simultaneous application of 100% of peak loss rates to all exposures in all other regions; significant net interest margin compression reflecting a persistent low interest rate environment, increased competition for core deposits and much higher levels of gross impaired loans; materially slower loan growth to reflect lower assumed levels of economic activity that may be attributed to protracted period of very low oil prices; and, all stressed conditions persisting over a three year period. For reference, incorporated within the assumed consolidated loss rate of approximately 65 basis points within CWB's stress tests were loss rates related to direct lending to oil and gas producers of approximately 425 basis points, and loss rates related to CWB's equipment financing and leasing exposures within Alberta of approximately 175 basis points.

Deposits and Funding

Total deposits were up 11% over the past year ($1,944 million), and 3% ($494 million) from the previous quarter. Total deposits by type and source are summarized below:

Personal deposits represented 61% of total deposits at January 31, 2016, compared to 58% one year ago and 59% in the prior quarter. Total branch-raised deposits, including trust services deposits, represented 53% of total deposits at January 31, 2016, down slightly from 54% both one year ago and in the previous quarter.

Lower cost demand and notice deposits increased 14% from the same quarter last year and now comprise 35% of total deposits, up from 34% one year ago and relatively consistent with the previous quarter. Term deposits raised through debt capital markets were $1,935 million at quarter end, representing 10% of total deposits, down from 12% last year reflecting the redemption of certain deposit notes, and consistent with last quarter.

Securitization

Securitized leases and mortgages are reported on-balance sheet with total loans. The gross amount of securitized leases at January 31, 2016 was $947 million, compared to $564 million one year ago and $635 million last quarter. The gross amount of mortgages securitized under the NHA MBS program was $173 million (Q1 and Q4 2015 - nil). Funding from securitization of leases in the first quarter was $354 million (2015 - $134 million). Increased utilization of securitization reflects the relative cost-effectiveness of this funding channel, as well as initiatives which resulted in lower overall capital requirements for CWB's existing pool of securitized leases.

Outlook for deposits and funding

One of management's long-term strategic objectives is to increase the level of deposits which strengthen relationships by providing clients with relevant tools for managing their business and personal finances. These deposits also have attractive liquidity characteristics, are typically lower cost, and provide associated transactional fee income. Specific emphasis is placed on growing personal and business deposits raised within the branch network, trust services and, given suitable market conditions, Canadian Direct Financial, the Internet-based division of CWB. Recent improvements to CWB's product offerings for business clients, including the introduction of a new US dollar Business Savings Account this quarter, along with ongoing training programs continue to support this focus on growing branch-raised deposits. CWB's expanding market presence, including ongoing expansion and upgrades to existing branches, also supports the generation of branch-raised deposits. Strong 14% year-over-year growth in preferred types of demand and notice deposits reflects this ongoing strategic focus.

Management remains committed to further enhance and diversify funding sources to support growth, manage the impact of competitive factors and mitigate pressure on net interest margin. The deposit broker network remains a valued channel for raising insured fixed term retail deposits and has proven to be an effective and efficient way to access funding and liquidity over a wide geographic base. Participation in the NHA MBS program provides liquidity in the near term and will provide an additional source of incremental funding over the medium term. Increased use of securitization and ongoing utilization of debt capital markets are also incorporated within management's strategy to further diversify the funding base. Assuming normal market conditions, CWB will seek to issue funding instruments through capital markets several times per year. In the absence of accommodative pricing in capital markets, management will continue to utilize the broker deposit network to supplement branch-raised deposits.

Other Assets and Other Liabilities

Other assets totaled $352 million at January 31, 2016, compared to $593 million one year ago and $369 million last quarter. Other liabilities were $483 million at quarter end, compared to $511 million a year earlier and $374 million the previous quarter. The decrease in other assets and other liabilities compared to last year primarily reflects the elimination of assets and liabilities held for sale resulting from closing the transactions involving CDI and the stock transfer business of Valiant Trust. A higher balance of securities sold under repurchase agreements this quarter partially offset the decrease in other liabilities.

Off-Balance Sheet

Off-balance sheet items include assets under administration and assets under management. Total assets under administration, which are comprised of trust assets and third-party leases under administration, as well as mortgages under service agreements, totaled $9,501 million at January 31, 2016, compared to $9,223 million one year ago and $9,294 million last quarter. Assets under management were $1,825 million at quarter end, compared to $1,868 million a year earlier and $1,883 million last quarter.

Other off-balance sheet items are comprised of standard industry credit instruments (guarantees, standby letters of credit and commitments to extend credit). CWB does not utilize, nor does it have exposure to, collateralized debt obligations or credit default swaps. For additional information regarding other off-balance sheet items refer to Note 10 of the unaudited interim consolidated financial statements for the period ended January 31, 2016, as well as Note 20 of the audited consolidated financial statements in CWB's 2015 Annual Report.

Capital Management

OSFI requires Canadian financial institutions to manage and report regulatory capital in accordance with the Basel III capital management framework. CWB's required minimum regulatory capital ratios, including a 250 basis point capital conservation buffer, are 7.0% common equity Tier 1 (CET1), 8.5% Tier 1 and 10.5% total capital.

At January 31, 2016, CWB's capital ratios were 8.6% CET1, 9.8% Tier 1 and 12.0% total capital. The increase in CWB's CET1 capital ratio compared to the prior quarter partially reflects initiatives which resulted in lower overall capital requirements for CWB's existing pool of securitized leases. CWB's current CET1 capital level is prudent in view of the expected 30 basis point impact of closing the Maxium acquisition during the second quarter, as well as current macroeconomic conditions. On November 30, 2015, CWB redeemed all $300 million outstanding 4.389% subordinated debentures which did not qualify as non-viability contingent capital under the Basel III regulatory capital requirements. The redemption resulted in an $80 million reduction in CWB's total regulatory capital. At 7.7%, the Basel III leverage ratio remains very conservative.

Further details regarding CWB's regulatory capital and capital adequacy ratios are included in the following table:

CWB currently reports its regulatory capital ratios using the Standardized approach for calculating risk-weighted assets, which requires CWB to carry significantly more capital for certain credit exposures compared to requirements under the Advanced Internal Ratings Based (AIRB) methodology. For this reason, regulatory capital ratios of banks that utilize the Standardized approach are not directly comparable with the large Canadian banks and other financial institutions which utilize the AIRB methodology.

CWB continues to monitor changes proposed to the Standardized approach for credit risk by the Basel Committee on Banking Supervision.

Planning for CWB's multi-year transition to an AIRB methodology for managing credit risk and calculating risk-weighted assets continues, including preliminary development of quantitative credit risk models specific to certain portfolios, as well as evaluation of resource requirements. Implementation of CWB's new core banking system, currently scheduled for May 2, 2016, is a critical component for a number of requirements necessary for AIRB compliance, including the collection and analysis of certain types of data.

Further information relating to CWB's capital position is provided in Note 13 of the unaudited interim consolidated financial statements for the period ended January 31, 2016 as well as the audited consolidated financial statements and MD&A for the year ended October 31, 2015.

Book value per common share at January 31, 2016 was $22.53, compared to $19.99 last year and $22.18 last quarter. The increase from a year ago reflects both the gain on sale from the strategic transactions involving CDI and Valiant as well as strong business growth.

Common shareholders received a quarterly cash dividend of $0.23 per common share on January 7, 2016. On March 2, 2016, CWB's Board of Directors declared a cash dividend of $0.23 per common share, payable on March 31, 2016 to shareholders of record on March 17, 2016. This quarterly dividend is consistent with the prior quarter and up 10% from the dividend declared one year ago. Preferred shareholders received a quarterly cash dividend of $0.275 on January 31, 2016. On March 2, 2016, the Board of Directors also declared a cash dividend of $0.275 per Series 5 Preferred Share payable on April 30, 2016 to shareholders of record on April 21, 2016.

Common share dividend increases are evaluated every quarter against the dividend payout ratio target of approximately 30%. The first quarter dividend payout ratio was 34%. The timing of future common share dividend increases will be influenced by capital requirements to support expected asset growth under the Standardized approach for calculating risk-weighted assets, as well as the impacts on earnings growth from challenges related to persistent net interest margin pressure and macroeconomic uncertainty.

Significant Changes in Accounting Policies and Financial Statement Presentation

The unaudited interim consolidated financial statements for the quarter were prepared using the same accounting policies as the audited consolidated financial statements for the year ended October 31, 2015.

Future Accounting Changes

A number of standards and amendments have been issued by the International Accounting Standards Board (IASB) and are described in further detail on page 49 of CWB's 2015 Annual Report. These standards and amendments may impact the presentation of financial statements in the future and management is currently reviewing these changes to determine the impact, if any.

IFRS 9 - Financial Instruments

IFRS 9 will be mandatorily effective for CWB's fiscal year beginning on November 1, 2018 with early adoption permitted. OSFI has determined that Domestic Systemically Important Banks (D-SIBs) will adopt IFRS 9 beginning November 1, 2017, while early adoption is permitted but not required for other federally regulated Canadian banks with October year-ends, such as CWB. CWB has not yet determined if it will early adopt this standard. CWB is continuing its work on its IFRS 9 transition project and analyzing the impact of the accounting policy changes on its consolidated financial statements. Further details will be provided as the project progresses.

IFRS 15 - Revenue from Contracts with Customers

IFRS 15 establishes principles for reporting about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard provides a single, principles based model for revenue recognition to be applied to all contracts with customers except for revenue arising from items such as financial instruments, and will be effective for CWB's fiscal year beginning November 1, 2018, with earlier adoption permitted. CWB is currently reviewing IFRS 15 to determine the impact of adoption on its consolidated financial statements.

IFRS 16 - Leases

In January 2016, the IASB issued IFRS 16, requiring most leases to be recorded on the balance sheet. For lessees, most operating leases other than short-term or low-value leases will be capitalized, and will result in a balance sheet increase in lease assets and lease liabilities, and a decrease in operating lease expenses and increase in financing costs on the income statement. The new standard will not impact lessor accounting beyond additional disclosures. The new standard is effective for CWB's fiscal year beginning November 1, 2019 with early adoption permitted if IFRS 15 Revenue from Contracts with Customers is also applied. CWB is currently reviewing IFRS 16 to determine the impact of adoption on its consolidated financial statements.

CWB continues to monitor the IASB's proposed changes to IFRS.

Controls and Procedures

There were no changes in CWB's internal controls over financial reporting that occurred during the quarter ended January 31, 2016 that have materially affected, or are reasonably likely to materially affect, CWB's internal controls over financial reporting. Prior to its release, this quarterly report to shareholders was reviewed by the Audit Committee and, on the Audit Committee's recommendation, approved by the Board of Directors of CWB.

Third-party Credit Ratings

DBRS Limited (DBRS) maintains published credit ratings on CWB's senior debt (deposits), short-term debt, subordinated debentures and First Preferred Shares Series 5 of "A (low)", "R1 (low)", "BBB (high)" and "Pfd-3", respectively, all with a stable outlook. Credit ratings do not consider market price or address the suitability of any financial instrument for a particular investor and are not recommendations to purchase, sell or hold securities. Ratings are subject to revision or withdrawal at any time by the rating organization. Management believes the ratings widen the base of clients and investors who can participate in CWB's offerings, while also lowering overall funding costs and the cost of capital.

Updated Share Information

As at February 25, 2016, there were 80,561,227 common shares and 5,021,778 stock options outstanding. For additional information on share capital and stock options, see Notes 17 and 18 of audited annual consolidated financial statements for the year ended October 31, 2015 and Notes 8 and 9 to the interim consolidated financial statements for this quarter.

Dividend Reinvestment Plan

CWB common shares (CWB.TO) and preferred shares (CWB-PB.TO) are deemed eligible to participate in CWB's dividend reinvestment plan (the Plan). The Plan provides holders of eligible shares of CWB the opportunity to direct cash dividends toward the purchase of CWB common shares. CWB has elected to issue common shares for the Plan at the average market price (as defined in the Plan). Further details for the Plan are available on CWB's website.

Summary of Quarterly Financial Information

The financial results for each of the last eight quarters are summarized above. In general, CWB's performance reflects a relatively consistent trend, although the second quarter contains three fewer revenue-earning days. Results of Discontinued and Combined Operations for the third quarter of fiscal 2015 include divestiture gains. CWB's past quarterly financial results were subject to some fluctuation due to its exposure to property and casualty insurance. Insurance operations, which are reflected in total revenues of Discontinued Operations up to and including the second quarter of fiscal 2015, are subject to seasonal weather conditions, cyclical patterns of the industry and natural catastrophes. Among other things, quarterly results can also fluctuate from the recognition of periodic income tax items. For additional details on variations between the prior quarters, refer to the summary of quarterly results section of CWB's MD&A for the year ended October 31, 2015 and the individual quarterly reports to shareholders which are available on SEDAR at www.sedar.com and on CWB's website at www.cwb.com.

Taxable Equivalent Basis (teb)

Most banks analyze revenue on a taxable equivalent basis to permit uniform measurement and comparison of net interest income. Net interest income (as presented in the consolidated statement of income) includes tax-exempt income on certain securities. Since this income is not taxable, the rate of interest or dividends received is significantly lower than would apply to a loan or security of the same amount. The adjustment to taxable equivalent basis increases interest income and the provision for income taxes to what they would have been had the tax-exempt securities been taxed at the statutory rate. The taxable equivalent basis does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions. Total revenues, net interest income and income taxes are discussed on a taxable equivalent basis throughout this quarterly report to shareholders.

Non-IFRS Measures

CWB uses a number of financial measures to assess its performance. These measures provide readers with an enhanced understanding of how management views the results. Non-IFRS measures may also provide readers the ability to analyze trends and provide comparisons with our competitors. Taxable equivalent basis, adjusted cash earnings per common share, return on common shareholders' equity, return on assets, efficiency ratio, net interest margin, common equity Tier 1, Tier 1 and total capital adequacy ratios, and average balances do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other financial institutions. The non-IFRS measures used in this MD&A are calculated as follows:

• taxable equivalent basis - described above;

• adjusted cash earnings per common share - diluted earnings per common share excluding the after-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration (see calculation below). These exclusions represent non-cash charges and are not considered to be indicative of ongoing business performance;

• return on common shareholders' equity - annualized common shareholders' net income divided by average common shareholders' equity;

• adjusted return on common shareholders' equity - annualized common shareholders' net income excluding the after-tax amortization of acquisition-related intangible assets and the non-tax deductible change in fair value of contingent consideration (see calculation below), divided by average common shareholders' equity.

• return on assets - annualized common shareholders' net income divided by average total assets;

• efficiency ratio - non-interest expenses, excluding the pre-tax amortization of acquisition-related intangible assets (see calculation below), divided by total revenues, including the gain related to the sales of the property and casualty insurance subsidiary and CWB's stock transfer business and excluding the non-tax deductible change in fair value of contingent consideration (see calculation below);

• net interest margin - net interest income divided by average total assets;

• operating leverage - total revenue (teb) growth less non-interest expense growth over the past twelve months.

• common share dividend payout ratio - common share dividends declared during the past twelve months divided by common shareholders' net income earned over the same period.

• Basel III common equity Tier 1, Tier 1 and total capital ratios - in accordance with guidelines issued by OSFI; and

• average balances - average daily balances.

Consolidated Balance Sheets

nm - not meaningful

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Income

nm - not meaningful

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Comprehensive Income

Items presented in other comprehensive income will be subsequently reclassified to the Consolidated Statement of Income when specific conditions are met.

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Changes in Equity

The accompanying notes are an integral part of the interim consolidated financial statements.

Consolidated Statements of Cash Flow

The accompanying notes are an integral part of the interim consolidated financial statements.

Notes to Interim Consolidated Financial Statements

(unaudited)

($ thousands, unless otherwise noted)

1. Basis of Presentation and Significant Accounting Policies

These unaudited condensed interim consolidated financial statements of Canadian Western Bank (CWB) have been prepared in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) using the same accounting policies as the audited consolidated financial statements for the year ended October 31, 2015, except as noted below. These interim consolidated financial statements of CWB, domiciled in Canada, have also been prepared in accordance with subsection 308 (4) of the Bank Act and the accounting requirements of the Office of the Superintendent of Financial Institutions Canada (OSFI). Under International Financial Reporting Standards (IFRS), additional disclosures are required in annual financial statements and accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2015 as set out on pages 68 to 108 of CWB's 2015 Annual Report.

The interim consolidated financial statements were authorized for issue by the Board of Directors on March 2, 2016.

2. Future Accounting Changes

CWB continues to monitor the IASB's proposed changes to accounting standards. Although not expected to materially impact CWB's 2016 consolidated financial statements, these proposed changes may have a significant impact on future financial statements. Additional discussion on certain accounting standards that may impact CWB is included in the audited consolidated financial statements within CWB's 2015 Annual Report.

IFRS 9 - Financial Instruments

The IASB has issued IFRS 9, which will be mandatorily effective for CWB's fiscal year beginning on November 1, 2018 with early adoption permitted. OSFI has determined that Domestic Systemically Important Banks (D-SIBs) will adopt IFRS 9 beginning November 1, 2017, while early adoption is permitted but not required for other federally regulated Canadian banks with October year-ends, such as CWB. CWB has not yet determined if it will early adopt this standard. CWB is continuing its work on its IFRS 9 transition project and analyzing the impact of the accounting policy changes on its consolidated financial statements. Further details will be provided as the project progresses.

IFRS 15 - Revenue from Contracts with Customers

The IASB has issued IFRS 15, which establishes principles for reporting about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The standard provides a single, principles based model for revenue recognition to be applied to all contracts with customers except for revenue arising from items such as financial instruments, and will be effective for CWB's fiscal year beginning November 1, 2018, with earlier adoption permitted. CWB is currently reviewing IFRS 15 to determine the impact of adoption on its consolidated financial statements.

IFRS 16 - Leases

In January 2016, the IASB issued IFRS 16, requiring most leases to be recorded on the balance sheet. For lessees, most operating leases other than short-term or low-value leases will be capitalized, and will result in a balance sheet increase in lease assets and lease liabilities, and a decrease in operating lease expenses and an increase in financing costs on the income statement. The new standard will not impact lessor accounting beyond additional disclosures. The new standard is effective for CWB's fiscal year beginning November 1, 2019 with early adoption permitted if IFRS 15 Revenue from Contracts with Customers is applied. CWB is currently reviewing IFRS 16 to determine the impact of adoption on its consolidated financial statements.

3. Securities

Net unrealized gains (losses) reflected on the consolidated balance sheets follow:

The securities portfolio is primarily comprised of high quality debt instruments, preferred shares and common shares that are not held for trading purposes and, where applicable, are typically held until maturity. Fluctuations in value are generally attributed to changes in interest rates, market credit spreads and shifts in the interest rate curve. Volatility in equity markets also leads to fluctuations in value, particularly for common shares. As at January 31, 2016, CWB assessed the securities with unrealized losses and based on available objective evidence, including a review of the creditworthiness of the issuers, no impairment charges were included in gains (losses) on securities, net (January 31, 2015 - $1,500).

4. Loans

The composition of CWB's loan portfolio by geographic region and industry sector follow:

5. Allowance for Credit Losses

The following table shows the changes in the allowance for credit losses:

6. Impaired and Past Due Loans

Outstanding gross loans and impaired loans, net of allowance for credit losses, by loan type, follow:

Outstanding impaired loans, net of allowance for credit losses, by provincial location of security, follow:

Gross impaired loans exclude certain past due loans where payment of interest or principal is contractually in arrears. Details of such past due loans that have not been included in the gross impaired amount follow:

7. Derivative Financial Instruments

When designated as accounting hedges by CWB, certain derivative financial instruments are designated as either a hedge of the fair value of recognized assets or liabilities or firm commitments (fair value hedges), or a hedge of highly probable future cash flows attributable to a recognized asset or liability or a forecasted transaction (cash flow hedges). Changes in fair value attributed to both the interest rate swaps designated as fair value hedges and the associated hedged risk are included in non-interest income. Any difference between the two represents hedge ineffectiveness. Changes in fair value of the effective portion of equity and interest rate swap derivatives designated as cash flow hedges are recorded in other comprehensive income and are reclassified to net income in the same period that the hedged item affects income. On an ongoing basis, the derivatives used in hedging transactions are assessed to determine whether they are effective in offsetting changes in fair values or cash flows of the hedged items. If a designated cash flow hedging transaction becomes ineffective, any subsequent change in the fair value of the hedging instrument is recognized in net income.

The notional value outstanding and related fair value for derivative financial instruments follow:

The impact of hedge ineffectiveness gains (losses) recognised in other non-interest income within the consolidated statements of income follow:

At January 31, 2016, hedged cash flows are expected to occur and affect profit or loss within the next six years.

CWB limits its exposure to credit losses related to derivative financial instruments by dealing with creditworthy counterparties and entering into contracts that provide for the exchange of collateral between parties where the fair value of the outstanding transactions exceeds an agreed upon threshold. At January 31, 2016, the Bank held $11,799 (October 31, 2015 - $9,870 and January 31, 2015 - $nil) of collateral related to derivative financial instruments with a positive fair value and pledged $7,870 (October 31, 2015 and January 31, 2015 - $nil) of cash collateral related to derivative financial instruments with a negative fair value.

There were no forecasted transactions that failed to occur during the three months ended January 31, 2016.

8. Capital Stock

Share Capital

9. Share-based Payments

Stock Options

All exercised options are settled via cashless settlement, which provides the option holder the number of shares equivalent to the excess of the market value of the shares under option, determined at the exercise date, over the exercise price. During the three months ended January 31, 2016, option holders did not exchange the rights to any options (2015 - 23,497) and no shares (2015 - 6,410) were returned by way of the cashless settlement.

For the three months ended January 31, 2016, salary expense of $717 (2015 - $1,207) was recognized relating to the estimated fair value of options granted. No stock options were granted during the three months ended January 31, 2016 or January 31, 2015.

Further details relating to stock options outstanding and exercisable at January 31, 2016 follow:

10. Contingent Liabilities and Commitments

In the normal course of business, CWB enters into various commitments and has contingent liabilities, which are not reflected in the consolidated balance sheets. At January 31, 2016, these items include guarantees and standby letters of credit of $449,471 (January 31, 2015 - $404,163). Significant contingent liabilities and commitments, including guarantees provided to third parties, are discussed in Note 20 of CWB's audited consolidated financial statements for the year ended October 31, 2015 (see page 97 of the 2015 Annual Report).

In the ordinary course of business, CWB and its subsidiaries are party to legal proceedings. Based on current knowledge, CWB does not expect the outcome of any of these proceedings to have a material effect on the consolidated financial position or results of operations.

11. Fair Value of Financial Instruments

Financial Assets and Liabilities by Measurement Basis

The table below provides the carrying amount of financial instruments by category as defined in IAS 39 - Financial Instruments: Recognition and Measurement and by balance sheet heading. The table does not include assets and liabilities that are not considered financial instruments. The table also excludes assets and liabilities which are considered financial instruments, but are not recorded at fair value and for which the carrying amount approximates fair value.

Fair values are based on management's best estimates based on market conditions and pricing policies at a certain point in time. The estimates are subjective and involve particular assumptions and matters of judgment and, as such, may not be reflective of future fair values. Further information on how the fair value of financial instruments is determined is included in Note 27 of the October 31, 2015 consolidated audited financial statements (see page 103 of the 2015 Annual Report).

Fair Value Hierarchy

CWB categorizes its fair value measurements of financial instruments recorded on the consolidated balance sheets according to a three-level hierarchy. Level 1 fair value measurements reflect unadjusted quoted prices in active markets for identical assets and liabilities that CWB can access at the measurement date. Level 2 fair value measurements were estimated using observable inputs, including quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model inputs that are either observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 fair value measurements were determined using one or more inputs that are unobservable and significant to the fair value of the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement date. There were no transfers between Level 1, Level 2 or Level 3 during the three months ended January 31, 2016 or 2015.

The following table presents CWB's financial assets and liabilities (excluding those classified as held for sale in Note 3) that are either carried at fair value on the balance sheet or for which fair value is disclosed, categorized by level under the fair value hierarchy:

Fair Value Hierarchy

Financial instruments that are not carried on the balance sheet at fair value, but for which fair value is disclosed above, include loans, deposits and debt.

Level 3 Financial Instruments

The level 3 financial liabilities measured at fair value on the consolidated balance sheets are comprised of contingent consideration on business acquisitions and sales. The following table shows a reconciliation of the fair value measurements related to the Level 3 valued instruments:

12. Interest Rate Sensitivity
CWB's exposure to interest rate risk as a result of a difference or gap between the maturity or repricing behavior of interest sensitive assets and liabilities, including derivative financial instruments, is discussed in Note 26 of the audited consolidated financial statements for the year ended October 31, 2015 (see page 102 of the 2015 Annual Report). The following table shows the gap position for selected time intervals. Comparatives in this table for January 31, 2015 include the interest sensitive assets and liabilities of the discontinued operations.
Asset Liability Gap Positions

The effective weighted average interest rates of financial assets and liabilities are shown below:

13. Capital Management

Capital for Canadian financial institutions is managed and reported in accordance with a capital management framework specified by OSFI commonly called Basel III. Additional information about CWB's capital management practices is provided in Note 29 to the fiscal 2015 audited consolidated financial statements within the 2015 Annual Report (see page 107 of the 2015 Annual Report) and in the Capital Management section in the Q1 2016 Management's Discussion and Analysis.

Capital funds are 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 customer deposits and provide capacity for internally generated growth and strategic opportunities that do not otherwise require accessing the public capital markets, all while providing a satisfactory return for shareholders.

Capital Structure and Regulatory Ratios

In fiscal 2016, CWB redeemed all $300 million of 4.389% subordinated debentures which did not qualify as non-viability contingent capital under the Basel III regulatory capital requirements. During the three months ended January 31, 2016, CWB complied with all internal and external capital requirements.

14. Subsequent Event

On March 1, 2016, CWB acquired the non-securitized lending assets and other business assets of the privately held Maxium Financial Services Inc. and Desante Financial Services Inc., now referred to as "CWB Maxium Financial (Maxium)". Maxium provides loans, equipment leases and structured financing solutions to more than 35,000 clients mainly in Ontario. Specialized financing solutions are primarily provided in the areas of health care, golf, transportation, real estate, and general corporate financing.

Securitized assets that were originated by Maxium prior to March 1, 2016 were not included in the transaction. The purchase agreement is structured over three years with maximum total consideration of up to $120.0 million. The acquisition, which supports the growth and diversification strategy of CWB, was funded at closing with 1,250,312 common shares and $19.5 million in cash. Remaining consideration consists of contingent payments of $70.5 million, of which up to 50% may be settled with CWB shares. Contingent payment installments will be made annually with determination of the total amount payable based on Maxium's cumulative business performance over a 36-month purchase price adjustment period.

As the initial accounting for the acquisition is still in progress, disclosure of the acquisition-date fair value of total consideration, including estimated contingent consideration, and fair value of acquired assets and liabilities will be provided in the second quarter. Any required adjustment to the contingent consideration after the acquisition date will be recognized in non-interest income.

15. Comparative Figures

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

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