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Canadian Imperial (CM) Down on Lower Q4 Earnings, Costs Rise

Zacks Equity Research

Shares of Canadian Imperial Bank of Commerce CM declined 5% on the NYSE following the release of fourth-quarter fiscal 2019 (ended Oct 31) results. The bank’s adjusted earnings per share were C$2.84, down 5% from the year-ago quarter.

Results were driven by increase in revenues, and steady rise in loans and deposits. However, significant rise in provisions and higher operating expenses were the undermining factors.

After considering several non-recurring items, net income was C$1.19 billion ($0.90 billion), reflecting a fall of 6% year over year.

For fiscal 2019, adjusted earnings of C$11.92 per share declined 2%. Also, reported net income decreased 3% to C$5.12 billion ($3.85 billion).

Adjusted Revenues & Expenses Rise

Adjusted total revenues for the reported quarter were up 5% year over year to C$4.75 billion ($3.59 billion). On a reported basis, total revenues came in at C$4.77 billion ($3.60 billion), reflecting an increase of 7%.

For fiscal 2019, adjusted total revenues were C$18.69 billion ($14.06 billion), up 3%. Total revenues (reported basis) came in at C$18.61 billion ($14 billion), increasing 4%.

Net interest income was C$2.80 billion ($2.12 billion), up 10% from the year-ago quarter. The increase reflected rise in interest income, partially offset by higher interest expenses.

Non-interest income increased 3% year over year to C$1.97 billion ($1.49 billion). The rise was mainly driven by credit fees, investment management and custodial fees, and underwriting and advisory fees.

Adjusted non-interest expenses totaled C$2.66 billion ($2.01 billion), increasing 4% from the year-ago quarter.

Adjusted efficiency ratio was 56.0% at the end of the fiscal fourth quarter, marginally down from 56.2% as of Jul 31, 2018. Fall in efficiency ratio indicates improvement in profitability.

Total provision for credit losses surged 52% year over year to C$402 million ($303.7 million).

Strong Balance Sheet & Capital Ratios

Total assets were C$651.6 billion ($494.8 billion) as of Oct 31, 2019, up 1% from the prior quarter. Net loans and acceptances grew nearly 1% sequentially to C$398.1 billion ($302.3 billion) and deposits rose nearly 1% to C$485.7 billion ($368.8 billion).

As of Oct 31, 2019, Common Equity Tier 1 ratio was 11.6%, up from 11.4% in the prior-year quarter. Furthermore, Tier 1 capital ratio was 12.9%, on par with the Oct 31, 2018 level. Total capital ratio was 15.0%, up from 14.9%.

Adjusted return on common shareholders’ equity was 14.2% at the end of the quarter, down from 16.4% a year ago.

Our Take

Given an improving economy and loan growth, Canadian Imperial is expected to witness steady rise in revenues. However, elevated expenses and a challenging operating backdrop pose major concerns.

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 price-consensus-eps-surprise-chart | Canadian Imperial Bank of Commerce Quote

Canadian Imperial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Canadian Banks

Bank of Montreal’s BMO fourth-quarter fiscal 2019 (ended Oct 31) adjusted net income was C$1.61 billion ($1.22 billion), up 5% year over year. Results were primarily driven by rise in net interest income, and higher loan and deposit balances.

The Bank of Nova Scotia BNS reported fourth-quarter fiscal 2019 (ended Oct 31) adjusted net income of C$2.4 billion ($1.8 billion), up 2% year over year. Results excluded acquisition- and divestiture-related costs.

Royal Bank of Canada RY reported fourth-quarter fiscal 2019 (ended Oct 31) net income of C$3.2 billion ($2.4 billion), down 1% year over year. The results show higher revenues, and elevated loan and deposit balances. However, escalating expenses and provisions acted as undermining factors.

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