March 5, 2009 / 3:38 PM / 9 years ago

UPDATE 2-Canadian Western results weaken, shares slump

* Q1 EPS unchanged at C$0.40

* Revenue up 3 percent at C$75.4 mln

* Shares plunge more than 11 percent (Recasts, adds analyst comments, updates stock)

TORONTO, March 5 (Reuters) - Canadian Western Bank (CWB.TO) shares tumbled on Thursday after it reported a 1 percent drop in quarterly profit as global financial turmoil contributed to a squeeze of its lending margins.

The Edmonton, Alberta-based bank said its net income slipped to C$25.6 million ($19.8 million), or 40 Canadian cents a share, in the first quarter, ended Jan. 31.

That compared with a profit of C$25.9 million, or 40 Canadian cents, in the year-earlier period. Analysts had expected a profit of 38 Canadian cents a share before one-time items, according to Reuters Estimates.

Net income at the country’s No. 8 bank by market capitalization was boosted by C$8.1 million in gains on sales of securities, up from about C$1 million a year earlier.

“I thought earnings quality was weak. There was a pretty big securities gain that if you excluded they would have missed our estimate,” said Robert Sedran, a banking analyst with National Bank Financial.

“The margin pressure was particularly acute. This is a problem they’ve been suffering throughout the year. It’s not new, but it looks like it’s intensified during the quarter. The margin pressure is a concern.”

Canadian Western said its margins had been squeezed by declines in the prime lending rate and elevated deposit costs related to market disruptions.

It said its first-quarter net interest margin was 1.99 percent, a drop of 37 basis points from a year earlier.

The bank reiterated that its target for net income growth for fiscal 2009 was between 2 percent and 5 percent. Net income rose 6 percent the previous year.

Total revenue rose 3 percent to C$75.4 million, while its loans grew by 4 percent.

Canadian Western shares fell C$1.22, or 11.51 percent, to C$9.38 on the Toronto Stock Exchange, compared with a 4.63 percent decline in the broader financial index .SPTTFS.

$1=$1.29 Canadian Reporting by Frank Pingue and Jeffrey Hodgson; editing by Rob Wilson

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