Canadian Imperial Bank of Commerce CM declined over 1% on the NYSE following the release of its fourth-quarter and fiscal 2015 earnings (ended Oct 31) on Dec 3. Adjusted earnings per share came in at C$2.36, up from C$2.24 in the prior year.
The quarter recorded a rise in total revenue driven by strong performance in its retail banking and capital markets divisions. However, results suffered due to mounting expenses and higher provision for credit losses. Although other earnings drivers including loans and acceptances, and deposits were active during the quarter, these ultimately surrendered to the expense rise. Perhaps concerns over rising expenses resulted in the decline in share price.
After considering several non-recurring items, reported net income in the quarter fell 4.1% year over year to C$778 million ($591.2 million). For fiscal 2015, reported net income amounted to C$3.6 billion ($2.9 billion), up 12.5% from the prior year.
Performance in Detail
In the reported quarter, total revenue increased 8.4% year over year to C$3.5 billion ($2.6 billion).
For fiscal 2015, total revenue came in at C$13.9 billion ($11.2 billion), up 3.7% from the prior year.
Net interest income in the fiscal fourth quarter was C$2.0 billion ($1.6 billion), up 8.6% from the year-ago quarter. The rise reflected a decline in interest expenses, partly offset by lower interest income.
Non-interest income climbed 8.1% year over year to C$1.4 billion ($1.1 billion). The rise was mainly driven by growth in credit fees, card fees, mutual fund fees, investment management and custodial fees, and Insurance fees. However, this was partially offset by lower underwriting and advisory fees, trading losses and a fall in commissions on securities transactions.
Non-interest expenses totaled C$2.4 billion ($1.8 billion), up 14.4% from the year-ago quarter. The rise was primarily due to elevated employee compensation as well as higher costs related to occupancy, computer, software and office equipment expenditure and higher profession fees.
Adjusted efficiency ratio stood at 60.4%, in line with the prior year quarter. A rise in efficiency ratio indicates lower profitability and vice versa.
Total provision for credit losses increased 2.1% year over year to C$198 million ($150.5 million). Loan loss ratio was 0.26%, down 4 basis points from the year-ago quarter.
Balance Sheet and Ratios
Total assets came in at C$463.3 billion ($354.2 billion) as of Oct 31, 2015, up 11.7% from the prior year. Loans and acceptances (net of allowance) increased 8.5% year over year to C$291.0 billion ($222.5 billion), while deposits grew 12.7% year over year to C$366.7 billion ($280.3 billion).
Adjusted return on common shareholders’ equity stood at 18.5% at the end of the quarter, down from 20.1% in the year-ago period.
As of Oct 31, 2015, Basel III Common Equity Tier 1 ratio came in at 10.8% compared with 10.3% as of Oct 31, 2014. Further, Tier 1 capital ratio was 12.5% compared with 12.2% in the year-ago period. Total capital ratio was 15.0%, down from 15.5% in the prior year.
Dividend Hike
Concurrent with the earnings release, Canadian Imperial announced a quarterly cash dividend of C$1.15 per share, representing a 3% hike from the prior payout. The dividend will be paid on Jan 28, 2016 to shareholders of record as of Dec 29, 2015.
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.
Mounting expenses remain a major concern at Canadian Imperial. Further, slow growth in interest income and limited avenues for earning fee income keep us apprehensive regarding the company’s near-term performance.
However, Canadian Imperial’s strong business model, diversified product mix and sound capital position should continue to boost its bottom line. Also, the company’s commitment to increase shareholders value keeps investors optimistic on the stock.
Canadian Imperial currently carries a Zacks Rank #3 (Hold).
Performance of Other Canadian Banks
Royal Bank of Canada RY reported fiscal fourth-quarter 2015 (ended Oct 31) net income of C$2.6 billion ($2.0 billion), up 11% year over year. Results benefited from a decline in provisions. Elevated loans and deposits balances reflected organic growth. However, a rise in non-interest expenses and lower revenues were the headwinds.
Bank of Montreal BMO announced fiscal third-quarter 2015 (ended Jul 31) adjusted net income of C$1.23 billion ($0.96 billion), up 5.6% year over year. Sturdy growth in the top line was partially offset by weak expense management and higher provisions.
The Toronto-Dominion Bank TD also known as TD Bank, reported improved earnings in fiscal third-quarter 2015 (ended Jul 31). Adjusted earnings of C$1.20 per share were up 4.3% year over year. Also, adjusted net income rose 5.4% year over year to C$2.29 billion ($1.84 billion).
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