Canadian Bank Earnings Part 2 – Looking At Canada’s Smaller Banks

We’ve already taken a look at the performance of Canada’s Big Banks, some among the strongest Canadian dividend stocks – but there are a slew of other banks that are also worth talking about. They often get overlooked by traditional investors that are looking for a safer place for their investments.

Should those with a higher risk profile take another look at Canada’s smaller banks?

Let’s explore the idea.

Ticker	EPS	Estimate	Revenue	Estimate	PCLs ‘21	PCLs ‘20
CWB	$0.84	$0.76	$247M	$240M	-$5M	$19M
EQB	$4.89	$3.58	$165M	$131M	-$0.8M	$35.68M
LB	$1.23	$0.89	$249M	$239M	$2.4M	$54.9M
VB	$0.25	$0.26	$15.97M	$15.25M	-$312	$490M

Overall, the same themes carried over to the smaller Canadian banks

Strong results and provision for credit losses materially changed. In fact, three of the four posted recoveries, Canadian Western Bank, Equitable Bank, and VersaBank.

CWB, EQB, LB, VB, 1 year total returns

Let’s start with Canadian Western Bank (TSX:CWB)

Canadian Western Bank (TSE:CWB) is the most exposed to Western Canada and by extension – exposed to the oil patch. The company delivered solid earnings and revenue, topping expectations on both the top and bottom lines.

There are arguments to be made that as the price of oil strengthens, CWB is well positioned to outperform over the next little while. The company has P/E of 11.32 which is below that of the bigger banks, but slightly above historical averages. On a forward basis, that drops to 9.78 which is below the company’s five-year average of 10.26.

CWB is one to watch and worth noting, it owns the longest dividend growth streak among all Canadian financial institutions at 29 years.

Next up is Equitable Bank (TSX:EQB) 

Equitable Bank (TSE:EQB) crushed expectations on both the top and bottom lines. The company continues to be the highest growth bank in Canada. The company used to be primarily an alternate lender but has emerged as Canada’s “Challenger Bank” and is now competing directly with the Big Six.

The company is growing its customer base at an impressive clip and it is showing no signs of slowing down as it raised Fiscal 2021 Outlook along with Q2 earnings.

The markets continue to underappreciate this stock as it trades at only 8.1 times forward earnings. Equitable Bank is one of the most attractively valued financials on the TSX Index, especially when one takes into account its impressive growth rate.

Prior to the pandemic, Equitable Bank was also emerging as one of the best dividend growth stocks in the country. It had averaged 20%+ dividend growth and has a targeted dividend growth rate of 25% annually. Once the OSFI lifts the dividend ban, EQP is best positioned to return to strong dividend growth.

Which traditional bank has been the best performing of 2021? 

You might be surprised to know that Laurentian Bank (TSE:LB) tops its peers with 42% year to date returns. A nice reprieve for shareholders who have been dealing with years of underperformance.

With a new CEO at the helm, Laurentian Bank has some positive momentum on its side. After the mortgage scandal, we brought forward Laurentian Bank as a potential value play to Stocktrades Premium members.

While the thesis took a little while longer to work out as it navigated further operational issues, Laurentian has closed that valuation gap. The company is now trading at 10.25 times forward earnings and the company’s shift to a branchless model should enable it to reduce costs and improve profitability.

Should it continue to build on this past quarter’s strong showing, it still has room to run.

Finally, we turn our attention to VersaBank (TSX:VB) 

VersaBank (TSE:VB) is Canada’s first fully digital Schedule 1 charter bank.

The company delivered ‘OK’ results, but as it was already the best performing bank in 2021, the company took a little dip on earnings that didn’t appear as strong as some of the rest. While it continues to post record quarterly results, growth continues to slow.

While VersaBank may have commanded a premium thanks to its impressive growth rates, the company is trading at a premium to historical averages across all metrics and is one of the most expensive banks in Canada. Given that growth is slowing, I question if this premium is sustainable. Time will tell if growth continues to slow, or if it’s but a hiccup in what has been thus far an impressive growth story.

Next, check out some info on Canadian dividend All-stars.