David Taylor didn’t plan to get into banking, but he has made a pretty good go of it anyway. Originally a biologist who wrote software, he later developed a program that allowed banks to use the Internet for deposits and lending, and in 1993, he acquired Pacific & Western Trust (PW Trust) and transformed it into his vision of a fully electronic, branchless financial institution—possibly the first of its kind at the time. The company later became Pacific & Western Bank of Canada (PWBank), and today it has approximately $1.4 billion in assets on its balance sheet. Peruse the stats to see how.
In 1993, Taylor acquired PW Trust and converted it into a branchless entity that gathered deposits electronically from a nationwide network of brokers; it then lent those funds to low-risk markets. It was a novel concept, but in 2002, the federal government granted PW Trust its Schedule I banking charter, making it no different from traditional banks—except that it had less overhead, meaning more income reached the bottom line. This is still true today. “We’ve had to find ways to get our product to our customers without creating an extensive branch network,” Taylor says, “so we’re keen on using our IT expertise to access new markets.”
When the financial crisis struck in September 2008, PWBank wasn’t in the desperate situation that many large banks were, but it did see a rapid depletion of capital, exposing weaknesses in its banking model. The executive team learned from that experience and decided to start diversifying the bank’s asset mix. One idea: offering to electronically acquire loans and leases from originators, allowing them to clear their balance sheets so that they could borrow more and grow as businesses.
Partly as a result of its bulk financing program, PWBank’s lending business is impressive. It had issued, in total, more than $1.2 billion in loans as of September 2013. “We’ve signed up 13 large loan and lease originators out of about 35 that would meet our criteria, so we’re not even halfway to full penetration, which presents a significant opportunity in a wonderful market for us,” Taylor says.
In 2012, PWBank began issuing credit cards for Home Hardware, a retailer with more than 1,100 locations across Canada. “It was a good opportunity to provide niche financing and tap into an existing distribution channel,” Taylor says. The bank’s call centre was initially inundated with calls, and around 30,000 people now use the cards.
On the liability side of PWBank’s balance sheet is a new trustee-in-bankruptcy deposit program, part of the institution’s structured finance division. “Banks are always looking to diversify their deposit base geographically and by industry, and we were able to do that in conjunction with Royal Bank of Canada by offering trustees in bankruptcies a specialized banking facility,” Taylor says. “We currently have $50 million in deposits through that program, which doesn’t seem like a lot when you have $1.5 billion of deposits total, but we believe there are a lot of opportunities in that market, and it could become a significant funding source for us.”
Success in banking, Taylor says, is partly measured by earning good “spread,” an insider’s term for interest. To measure how profitable a lending business is, one looks at its net-interest margin, which is akin to gross profit. PWBank’s net-interest margin has increased quarter after quarter and is now one of the highest in the industry at 1.95 percent.
A bank’s success is also reflected in its loan-loss history, and PWBank has one of the best such records in the country. “We’ve been able to do something that is atypical in the industry, which is having one of the lowest loan-loss experiences of any financial institution, consistently, over two decades, and I accredit my seasoned team of commercial lenders for this industry-wide accomplishment,” Taylor says.
1.725 million common shares
On August 27, 2013, PWBank was listed on the Toronto Stock Exchange, raising gross proceeds of $12.5 million from the 1.725 million common shares it sold in its initial public offering. It’s now 1 of just 10 public banks in Canada—and one of the only to be listed in the past 30 years. “For investors looking to take a position in the Canadian banking industry, PWBank is trading at book value whereas other banks are trading at closer to two times book value,” Taylor says. “That makes us a bargain in the banking industry.”
This year, PWBank completed all its new initiatives, Taylor says, and the bank’s focus is now on turning them into growth quarter after quarter. “The last few years we had a building story, but it’s now turned into a growth story,” he says.
THE BOTTOM LINE
President & CEO
Years in the business
Where did you start your career?
As a biologist.
Describe yourself in three words
Cautiously optimistic entrepreneur.
Advice to those just starting in finance
Surround yourself with people who can provide you with sound advice that will complement your own knowledge base.