June 3, 2010 / 12:58 PM / in 7 years

UPDATE 2-Canadian Western Bank profit surges, beats Street

* Q2 diluted EPS C$0.47 vs C$0.30 yr-ago

* Beats expectations for C$0.43/shr

* Shares rise 3.8 pct (Adds analyst and CEO comment, share price)

TORONTO, June 3 (Reuters) - Canadian Western Bank’s (CWB.TO) quarterly profit surged past expectations on Thursday as a recent acquisition boosted net interest margins, but the regional lender cautioned it expects earnings growth to moderate in the months ahead.

Edmonton, Alberta-based CWB said net income climbed 76 percent, sending its shares 3.8 percent higher late Thursday afternoon on the Toronto Stock Exchange.

Analysts said the strong profit was largely due to a higher than expected net interest margin, driven by the recent acquisition of National Leasing, which had a higher yield portfolio. The acquisition added about 5 Canadian cents to CWB’s diluted earnings per share, the bank said.

“Significantly higher margins offset higher loan losses, both largely due to the National Leasing Group acquisition,” RBC Dominion Securities analyst Dave Mun said in a research note.

CWB reported net income of C$37.9 million ($36.4 million), or 47 Canadian cents a share, in the second quarter, ended April 30. That compared with C$21.6 million, or 30 Canadian cents a share, a year earlier.

Analysts on average had expected a profit of 44 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Chief Executive Larry Pollack said the bank’s businesses were performing better than he expected at the onset of fiscal 2010.

“Although we expect earnings growth to moderate for the remaining two quarters, it’s shaping up to be a great year for CWB,” Pollack said in a statement.

He told analysts the bank was still hungry to grow, with the capital strength and flexibility to do more deals.

“Our combination of strong consistent income, our relatively high earnings retention ratio and the preferred share capital we raised in 2009 provides us with significant flexibilities as we move forward. We are in an excellent position to capitalize on strategic opportunities,” Pollack said on a conference call.

CWB’s banking and trust segment, which includes a full three months of performance from National Leasing, reported net income of C$34.5 million, up 78 percent from a year earlier.

A big jump in net interest margin, including the favorable margin impact from National Leasing, a 38 percent increase in other income and 9 percent loan growth helped push the segment’s total revenues up 49 percent to reach a record C$103.4 million, the bank said.

Quarterly net income from insurance operations was a record C$3.4 million, up from C$2.2 million.

CWB, which offers personal and commercial banking in Canada’s western provinces of Manitoba, Saskatchewan, Alberta and British Columbia, capped a mixed earnings season for Canada’s banks.

$1=$1.04 Canadian Reporting by Andrea Hopkins; editing by Rob Wilson

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