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Canadian Imperial's (CM) Q2 Earnings Improve, Stock Down

Zacks Equity Research
Updated

Canadian Imperial Bank of Commerce CM reported second-quarter fiscal 2017 (ended Apr 30) adjusted earnings per share of C$2.64, up from C$2.40 in the prior-year quarter.

Results improved due to growth in revenues and a fall in provision for credit losses. Further, a strong balance sheet position supported the results. However, an increase in expenses was the undermining factor, which perhaps lead shares of the company to decline nearly 1.4%.

After considering several non-recurring items, net income came in at C$1.05 billion ($0.78 billion), reflecting an increase of 11.6% year over year.

Improved Revenues Offset Rise in Costs

Adjusted total revenue grew 3.5% year over year to C$3.83 billion ($2.88 billion). On a reported basis, total revenue came in at C$3.70 billion ($2.78 billion), reflecting an increase of 1.8% from the prior-year quarter.

Net interest income was C$2.10 billion ($1.58 billion), increasing 2.8% from the year-ago quarter. The improvement reflected a rise in interest income, partly offset by higher interest expenses.

Non-interest income increased marginally year over year to C$1.60 billion ($1.20 billion).

Adjusted non-interest expenses totaled C$2.26 billion ($1.70 billion), up 5.1% from the year-ago quarter.

Total provision for credit losses declined 44.8% year over year to C$179 million ($134.4 million).

Improving Balance Sheet, Capital Ratios Reflect Strength

Total assets came in at C$528.59 billion ($386.98 billion) as of Apr 30, 2017, up 3% from the prior quarter. Loans and acceptances (net of allowance) increased 2.7% sequentially to C$330.75 billion ($242.14 billion), while deposits grew nearly 1% to C$413.13 billion ($302.45 billion).

As of Apr 30, 2017, Basel III Common Equity Tier 1 ratio came in at 12.2% compared with 10.4% as of Apr 30, 2016. Further, Tier 1 capital ratio was 13.5% compared with 11.9% as of Apr 30, 2016. Total capital ratio was 15.4%, up from 13.9% in the prior-year quarter.

Adjusted return on common shareholders’ equity was 18.1% at the end of the quarter, reflecting a decline from 18.4% in the year-ago quarter.

Our Viewpoint

Canadian Imperial’s continuously rising expenses remain a major concern for the company in the near term.  Also, slow growth in interest income and limited avenues for earning fee income keep us apprehensive about the company’s near-term performance. However, the company’s deal to acquire PrivateBancorp, Inc. PVTB is likely to expand its private banking and wealth management capabilities in the U.S.
 

Canadian Imperial Bank of Commerce Price, Consensus and EPS Surprise
 

Canadian Imperial Bank of Commerce Price, Consensus and EPS Surprise | Canadian Imperial Bank of Commerce Quote

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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 Foreign Banks

Barclays PLC’s BCS first-quarter 2017 net income from continuing operations was £1.21 billion ($1.50 billion), which more than doubled from £545 million recorded in the prior-year quarter. Encouraging underwriting performance and significant drop in losses in Non-Core division were the primary reasons for the drastically improved results. However, an unexpected fall in trading revenues, lower net interest income and rise in credit impairment charges were the undermining factors.

HSBC Holdings plc HSBC reported first-quarter 2017 net profit attributable to shareholders of $3.5 billion, down 19% from the year-ago quarter. Basically, the decline reflected absence of Brazil business results, which was divested last July. Despite witnessing steady success in its cost-saving initiatives, HSBC’s results were hampered by streamlining operations. Further, a rise in operating expenses acted as a headwind.

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