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Solid Earnings for Canadian Imperial

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Canadian Imperial Bank of Commerce (CM - Free Report) reported its fiscal second-quarter 2013 (ended Apr 30) adjusted earnings per share of C$2.12. This was 6.0% higher than the prior-year quarter earnings of C$2.00.

An augmented top-line and a robust asset position were the primary growth drivers. However, rising operating expenses partially marred the results.

After considering certain non-recurring items, net income came in at C$876 million ($861.2 million), down 8.0% year over year.

Performance in Detail

Canadian Imperial’s total revenue came in at C$3.14 billion ($3.09 billion), up 1.8% from the prior-year quarter. Additionally, adjusted revenue came in at C$3.21 billion ($3.16 billion), increasing 1.0% from the last-year quarter.

For the reported quarter, net interest income (NII) rose 4.0% year over year to C$1.82 billion ($1.79 billion). The increase was mainly due to higher trading-related NII and wider retail spreads, partly offset by lower treasury-related NII.

Non-interest revenue came in at C$1.32 billion ($1.30 billion), down 1.1% from the previous-year quarter. The decline was mainly due to trading losses, partially offset by an increase in mutual fund fees.

Non-interest expenses reached C$1.82 billion ($1.79 billion), increasing 3.2% year over year. Adjusted efficiency ratio stood at 56.6%, deteriorating from 55.1% as of Apr 30, 2012. Rise in efficiency ratio indicates decline in profitability.

Total provision for credit losses were C$265 million ($260.5 million), down 14.0% from the last-year quarter.

Total assets came in at C$397.7 billion ($391.9 billion) as of Apr 30, 2013, up 33.9% from the prior-year period. Return on common shareholders’ equity was 22.39% versus 22.1% in the year-ago quarter and 19.9% in the prior quarter.

Other Developments

On Apr 11, Canadian Imperial announced that it had entered into a definitive agreement to acquire Atlantic Trust Private Wealth Management from Invesco Ltd. (IVZ - Free Report) for $210 million. The transaction is subject to regulatory approval and is expected to close in early fiscal 2014.

Dividend Update

Along with its earnings release, Canadian Imperial declared a quarterly cash dividend of C$0.96 per share. The dividend will be paid on Jul 29 to shareholders of record as of Jun 28.

Performance of Other Canadian Banks

The Toronto-Dominion Bank (TD - Free Report) reported its fiscal second-quarter 2013 (ended Apr 30) adjusted earnings of C$1.98 per share, which compared favorably with the year-ago earnings of C$1.82. Improved results were driven by growth in revenues as well as strong assets and profitability ratio in the quarter. However, higher operating expenses were the primary headwinds.

Royal Bank of Canada (RY - Free Report) reported fiscal first-quarter 2013 net income from continuing operations of C$2.1 billion ($2.1 billion), beating the year-ago earnings by 11%. Results reflect a rise in revenues, aided by higher net interest and non-interest income. However, a deteriorating credit quality and higher non-interest expenses were the headwinds.

Our Viewpoint

We expect Canadian Imperial’s strong business model, diversified product mix and sturdy capital position to boost its bottom line. Nevertheless, a persistent low interest rate environment, weak economic recovery and stringent regulatory requirements will remain a drag on its financials.

Canadian Imperial currently carries a Zacks Rank #3 (Hold).

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