Canadian Imperial Bank of Commerce (CM) rose 2.4% on the NYSE following the release of its first-quarter fiscal 2015 earnings (ended Jan 31) on Feb 26, before the opening bell. Adjusted earnings per share came in at C$2.36, up 2.2% year over year.
Results benefited from a rise in net interest income and a fall in provision for credit losses, partially offset by lower non-interest income and an increase in operating expenses. Further, growth in loan and deposit balances, along with strong capital ratios, acted as tailwind.
After considering several non-recurring items, reported net income in the quarter fell 21.6% year over year to C$923 million ($793.9 million).
Performance in Detail
In the reported quarter, total revenue slipped 4.7% year over year to C$3.5 billion ($3 billion). However, adjusted total revenue came in at C$3.6 billion ($3.1 billion), rising 4.8% from the prior-year quarter.
Net interest income was C$2.0 billion ($1.7 billion), up 2.7% from the year-ago quarter. The rise was driven by lower interest expenses and a marginal increase in interest income.
Non-interest income fell 12.9% year over year to C$1.5 billion ($1.3 billion). The fall was mainly due to a decrease in card fee, trading losses and insurance fees, partially offset by growth in mutual fund fees, investment management and custodial fees, and underwriting and advisory fees.
Non-interest expenses totaled C$2.2 billion ($1.9 billion), up 11.1% from the year-ago quarter. The rise was largely due to an elevated employee compensation as well as higher computer, software and office equipment expenditure.
Adjusted efficiency ratio stood at 59.2%, up from 56.7% as of Jan 31, 2014. A rise in efficiency ratio indicates lower profitability.
Total provision for credit losses declined 14.2% year over year to C$184 million ($158.3 million). Loan loss ratio was 0.28%, down 10 basis points from the year-ago quarter.
Balance Sheet and Ratios
Total assets were C$445.2 billion ($351.6 billion) as of Jan 31, 2015, up 11% from the prior year. Loans and acceptances (net of allowance) increased 7.1% year over year to C$275 billion ($217.2 billion), while deposits grew 8.1% year over year to C$339.9 billion ($268.4 billion).
Adjusted return on common shareholders’ equity stood at 20.6%, down from 22.1% in the year-ago period.
As of Jan 31, 2015, Basel III Common Equity Tier 1 ratio came in at 10.3% compared with 9.5% as of Jan 31, 2014. Further, Tier 1 capital ratio was 12.1%, up from 11.5% in the year-ago period, while total capital ratio was 15.0%, an increase from 14.2%.
Dividend
Concurrent with the earnings release, Canadian Imperial announced a quarterly cash dividend of C$1.06 per share, representing a 3% hike from the prior payout. The dividend will be paid on Apr 28 to shareholders of record on Mar 27.
Our Viewpoint
We remain concerned about slow top-line growth over the last few quarters, given the low interest rate scenario and limited fee income earning avenues. Moreover, rising expenses are anticipated to worsen the situation going forward.
However, Canadian Imperial’s strong business model, diversified product mix and sound capital position should continue to boost its bottom line.
Canadian Imperial currently carries a Zacks Rank #4 (Sell).
Performance of Other Foreign Banks
Deutsche Bank AG (DB) reported net income of €441 million ($551 million) in the fourth quarter of 2014, compared with loss of €1.37 billion ($1.86 billion) in the prior-year quarter. Notably, in the reported quarter, the bank recorded an income tax benefit of €189 million ($236 million), primarily due to changes in the recognition and measurement of deferred taxes.
UBS Group AG (UBS) reported fourth-quarter 2014 net profit attributable to shareholders of CHF 963 million ($998.3 million), increasing 5% year over year. The results were driven by elevated net interest income, and increased net fee and commission income.
HSBC Holdings plc’s (HSBC) earnings for 2014 came in at 69 cents per share, down 18% from the prior-year figure. Results were largely impacted by less number of business disposal and reclassification gains. Further, significant items including fines, settlements, UK customer redress and associated provisions adversely impacted HSBC’s financials.
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