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Last week, Canadian Imperial Bank of Commerce (CM - Snapshot Report) reported its fiscal third quarter 2012 (ended July 31, 2012) adjusted earnings per share of C$2.06, which compared favorably with the prior quarter earnings of C$2.00 as well as the year-ago earnings of C$1.93.

Adjusted net income attributable to common shareholders came in at C$835 billion ($821.14 billion) up 3.5% from the previous quarter and 8.9% year over year.

Improved top-line and robust asset position were the primary earnings drivers. However, rising operating expenses were the downside.

After considering loss from the structured credit run-off business and amortization of intangible assets, net income attributable to common shareholders came in at C$810.0 million ($796.55 million) or C$2.00 per share, up from C$766 million ($753.28 million) or C$1.90 per share in the prior quarter and C$546 million ($536.94 million) or C$1.33 per share in the year-ago period.

Behind the Headlines

Canadian Imperial reported total revenue of C$3.15 billion ($3.10 billion), up 2.1% from the prior quarter. Adjusted revenue came in at C$3.24 billion ($3.19 billion), up 2.2% from the last quarter.

For the reported quarter, net interest income grew 7.4% sequentially to C$1.88 billion ($1.85 billion). The increment was mainly due to escalated trading and treasury-related net interest income, extra days in the reported quarter, and volume growth across retail products.

Moreover, the absence of a hedge accounted for a loss on leveraged leases in the last quarter. Net interest margin was 1.87%, up 5 basis points from the previous quarter.

Non-interest revenue came in at C$1.27 billion ($1.25 billion), declining 4.9% from the previous quarter. The fall was mainly driven by reduced trading income and lower gains net of write-downs on available-for-sale (AFS) securities.

Non-interest expenses were C$1.83 billion ($1.80 billion), up 3.8% from the prior quarter. The rise was primarily driven by elevated employee compensation and benefits, and advertising and business development expenses. Efficiency ratio stood at 58.1% as against 57.2% as of April 30, 2012 and 64.0% as of July 31, 2011.

Total provision for credit losses were C$317.0 million ($311.74 million), up 2.9% from the last quarter.

Total assets came in at C$401.01 billion ($394.35 billion) as of July 31, 2012, surging 3.5% from C$387.46 billion ($381.03 billion) as of April 30, 2012 and 2.1% from C$392.65 billion ($386.12 billion) as of July 31, 2011.  Return on common shareholders’ equity was 21.8% in the reported quarter as against 22.1% in the prior quarter and 17.1% in the year-ago period.

Dividend

Concurrent with the earnings release, Canadian Imperial declared fourth-quarter dividend of C$0.94 per share, payable on October 29, 2012 to shareholders of record as of September 28, 2012. This represents a 4.4% hike from the third quarter dividend.

Latest Developments

On August 30, 2012, Canadian Imperial announced that it intends to begin a normal course issuer bid on September 7, subject to approval from the Toronto Stock exchange. Under the bid, the company intends to repurchase for cancellation up to 8.1 million common shares, representing nearly 2% of shares issued and outstanding common shares as of August 27.

Further, the company also declared that it has reached an agreement to purchase Griffis & Small, LLC, a Houston-based energy advisory firm focusing on acquisitions and divestitures (A&D) in the exploration and production (E&P) area. The terms of the deal were not disclosed. The transaction is expected to conclude in the fiscal fourth quarter. This acquisition will expand the company’s advisory capabilities as well as its presence in the U.S.

On August 8, 2012, Canadian imperial announced a deal to acquire the private wealth management business, MFS McLean Budden, a subsidiary of Sun Life Financial Inc. (SLF - Analyst Report). The agreement would substantially improve Canadian Imperial’s market share in the wealth management sector.

Though the financial terms of the deal were not disclosed, CIBC stated that the acquired unit would be integrated to its Wealth Management division’s private-wealth business. Moreover, the agreement, which is still subject to regulatory approval, is expected to close by the end of October.

Peer Performances

Bank of Montreal (BMO - Snapshot Report) reported its third-quarter 2012 (ended July 31, 2012) adjusted earnings per share of C$1.49, which compared favorably with the previous-quarter earnings of C$1.44 and the year-ago earnings of C$1.34. The improvement in results came on the back of enhanced net interest revenue and non-interest income. The total assets and capital ratios also remained strong in the quarter. However, increased operating expenses were the primary headwinds.

The Toronto-Dominion Bank (TD - Snapshot Report) reported its fiscal third quarter 2012 (ended July 31, 2012) adjusted earnings per share of C$1.91, which compares favorably with the prior quarter earnings of C$1.82 as well as the year-ago earnings of C$1.75. Better-than-expected results were driven by enhanced net interest revenue and non-interest income. The total assets and profitability ratio also remained strong in the quarter. However, elevated operating expenses were the primary headwinds.

Our Viewpoint

We expect Canadian Imperial’s acquisition activities to positively impact its financials in the long run. Further, investor confidence is expected to be boosted since the company has announced a meaningful capital deployment program. However, a persistent low interest rate environment, weak economic recovery and stringent regulatory requirements will remain a drag on its financials.

Canadian Imperial currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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