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On Wednesday, Raymond James adjusted its stance on shares of Canadian Western Bank (TSX:CWB:CN) (OTC: CBWBF), shifting from an "Outperform" rating to "Market Perform," despite raising the price target to C$54.00 from C$52.00. This decision followed Canadian Western Bank's third-quarter financial report released on August 30, which revealed a mixed performance, with strong net interest income but an earnings shortfall due to increased provisions for credit losses (PCLs).
The bank registered revenue of C$298.5 million, slightly above the consensus estimate of C$296 million. Net interest margin (NIM) stood at 2.49%, surpassing both the market's expectation of 2.42% and Raymond James' forecast of 2.45%. This resulted in an interest income of C$263.9 million, which also exceeded the consensus of C$261.1 million and Raymond James' projection of C$258.4 million.
However, the bank faced a challenge with a significant rise in the provision for credit losses on total loans and impaired loans, both increasing by 33 basis points sequentially. This increase was attributed to two loans with unusually high provisions. Management at Canadian Western Bank has signaled that it expects credit losses to return to their normal historical range in the future.
Adding to the narrative, the bank's management mentioned that the anticipated takeover by National Bank might be completed sooner than initially expected. As a result of the share price now moving in tandem with National Bank's, Raymond James suggests that investors should consider moving out of Canadian Western Bank shares. The firm's new "Market Perform" rating reflects this updated outlook.
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