Canadian Imperial Bank of Commerce CM increased nearly 4% on the NYSE following the release of its fourth-quarter and fiscal 2016 earnings (ended Oct 31) last week. Adjusted earnings per share for the quarter came in at C$2.60, up from C$2.36 in the prior-year quarter.
For fiscal 2016, adjusted earnings increased 8% year over year to C$10.22 per share.
Quarterly results improved based on growth in top line. Further, a strong balance sheet position supported the results. However, an increase in provision for credit losses and expenses was an undermining factor.
After considering several non-recurring items, reported net income in the quarter surged 20% year over year to C$931 million ($710 million). For fiscal 2016, net income was C$4.3 billion, up 19% from the prior year.
Improvement in Revenues Offset a Marginal Rise in Costs
Adjusted total revenue grew 6% year over year to C$3.8 billion ($2.9 billion). On a reported basis, total revenue was C$3.7 billion ($2.8 billion), up 6% from the prior-year quarter.
For fiscal 2016, adjusted revenue was C$15 billion, an increase of 5% from the prior year. On a reported basis, total revenue rose 9% year over year to C$15 billion.
Net interest income was C$2.1 billion ($1.6 billion), up 3% from the year-ago quarter. The improvement reflected a rise in interest income, partly offset by higher interest expenses.
Non-interest income grew 9% year over year to C$1.6 billion ($1.2 billion). The upside was due to growth in all fee income components, except deposit and payment fees, net insurance fees, commissions on securities transactions, AFS securities gains and income from equity-accounted associates and joint ventures.
Adjusted non-interest expenses totaled C$2.2 billion ($1.7 billion), up 2% from the year-ago quarter.
Total provision for credit losses jumped 12% year over year to C$222 million ($169.3 million).
Stable Balance Sheet; Capital Ratios Reflect Strength
Total assets came in at C$501.4 billion ($374 billion) as of Oct 31, 2016, up 1% from the prior quarter. Loans and acceptances (net of allowance) increased 10% sequentially to C$319.8 billion ($238.6 billion), while deposits grew 8% to C$395.6 billion ($295.1 billion).
Adjusted return on common shareholders’ equity was 18.8% at the end of the quarter, up from 18.5% in the year-ago quarter.
As of Oct 31, 2016, Basel III Common Equity Tier 1 ratio came in at 11.3% compared with 10.8% as of Oct 31, 2015. Further, Tier 1 capital ratio was 12.8% compared with 12.5% as of Oct 31, 2015. Total capital ratio was 14.8%, down from 15.0% in the prior-year quarter.
Our Viewpoint
Canadian Imperial delivered a decent performance at a time when banks in Canada are encountering a number of challenges, including a low rate environment, stressed energy sector and a weak economy. However, 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 is a major headwind.
Notably, Canadian Imperial’s deal to acquire PrivateBancorp, Inc. PVTB is likely to expand its private banking and wealth management capabilities in the U.S.
Canadian Imperial currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Canadian Banks
The Bank of Nova Scotia’s BNS net income for the quarter came in at C$2.0 billion ($1.5 billion), up 9.1% year over year. A rise in revenues was partly offset by higher operating expenses. Improvement in capital and profitability ratios was impressive.
Royal Bank of Canada’s RY net income of C$2.5 billion ($1.9 billion) was down nearly 2% from the prior-year quarter. Rise in expenses and higher provisions led to investors’ apprehension. However, growth in net interest income, steady growth in loan and deposits, and a strong capital position acted as tailwinds.
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