Canadian Imperial Bank of Commerce CM rose nearly 4% on the NYSE following the release of its first-quarter fiscal 20Array6 earnings (ended Jan 3Array) on Feb 25. Adjusted earnings per share came in at C$2.55, up from C$2.36 in the prior year.
The quarter witnessed a rise in total revenue driven by strong performance in its Retail and Business Banking division. Further, a modest decrease in expenses and a strong balance sheet position acted as tailwinds. However, an increase in provision for credit losses remained an undermining factor.
After considering several non-recurring items, reported net income in the quarter rose 6.4% year over year to C$982 million ($7Array5.8 million).
Performance in Detail
Adjusted total revenue increased 4.3% year over year to C$3.7 billion ($2.70 billion). On a reported basis, total revenue was C$3.6 billion ($2.62 billion), up 3.7% from the prior-year quarter.
Net interest income was C$2.Array billion ($Array.53 billion), up 7.7% from the year-ago quarter. The rise reflected a decline in interest expenses, partly offset by a modest fall in interest income.
Non-interest income fell Array.5% year over year to C$Array.5 billion ($Array.09 billion). The fall was due to declines in all fee income components, except underwriting and advisory fees, mutual fund fees, commissions on securities transactions, net AFS securities gains, income from equity-accounted associates and joint ventures and other income.
Non-interest expenses totaled C$2.2 billion ($Array.60 billion), down Array.4% from the year-ago quarter. The decline was largely due to lower employee compensation costs.
The adjusted efficiency ratio was 58.Array%, down from 59.2% in the prior-year quarter. A fall in the efficiency ratio indicates improved profitability.
Total provision for credit losses jumped 40.Array% year over year to C$262 million ($Array9Array million). Loan loss ratio was 0.26%, down 2 basis points from the year-ago quarter.
Balance Sheet and Ratios
Total assets came in at C$479.0 billion ($342.6 billion) as of Jan 3Array, 20Array6, up 7.6% from the prior year. Loans and acceptances (net of allowance) increased 9.6% year over year to C$30Array.3 billion ($2Array5.5 billion), while deposits grew ArrayArray% year over year to C$377.2 billion ($269.8 billion).
Adjusted return on common shareholders’ equity was Array9% at the end of the quarter, down from 20.6% in the year-ago period.
As of Jan 3Array, 20Array6, Basel III Common Equity Tier Array ratio came in at Array0.6% compared with Array0.3% as of Jan 3Array, 20Array5. Further, Tier Array capital ratio was Array2.Array%, in line with the prior-year quarter level. Total capital ratio was Array4.2%, down from Array5% in the prior year.
Dividend
Along with the earnings release, Canadian Imperial announced a quarterly cash dividend of C$Array.Array8 per share, representing a 2.6% hike from the prior payout. The dividend will be paid on Apr 28, 20Array6, to shareholders of record as of Mar 28, 20Array6.
Our Viewpoint
It was a decent performance by Canadian Imperial in the quarter at a time when banks in Canada are encountering a number of challenges including a low rate environment, a stressed energy sector and a weak economy.
Slow growth in interest income and limited avenues for earning fee income keep us apprehensive regarding the company’s near-term performance. Also, rising provision for credit losses remains a major headwind.
Canadian Imperial currently carries a Zacks Rank #3 (Hold).
Performance of Other Foreign Banks
Royal Bank of Canada RY reported fiscal first-quarter 20Array6 (ended Jan 3Array) net income of C$2.4 billion ($Array.8 billion), almost in line with the prior-year quarter. A rise in non-interest expenses and lower revenues were the headwinds. Moreover, the rise in provisions was a concern.
HSBC Holdings plc HSBC recorded a net loss of $Array.Array billion in fourth-quarter 20Array5 as against a net profit of $765 million in the year-ago quarter. Results were hurt by a decline in the top line and higher loan impairment charges.
HDFC Bank Ltd.’s HDB third-quarter fiscal 20Array6 (ended Dec 3Array) net profit was INR33.57 billion ($0.5Array billion), up 20.Array% year over year. Results continued to reflect top-line growth, partly offset by elevated operating expenses as well as provisions.
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