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Canadian Imperial's (CM) Q3 Earnings Improve, Stock Falls

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Canadian Imperial Bank of Commerce (CM - Free Report) reported third-quarter fiscal 2017 (ended Jul 31) adjusted earnings per share of C$2.77, up from C$2.67 in the prior-year quarter.

Results improved due to growth in adjusted revenues and a fall in provision for credit losses. However, increase in expenses and a decline in capital ratios were the undermining factors, which perhaps led shares of the company to fall nearly 1.7%.

After considering several non-recurring items, net income came in at C$1.10 billion ($0.88 billion), reflecting a decrease of 23.9% year over year.

Rise in Costs Offset by Improved Adjusted Revenues

Adjusted total revenues grew 8.2% year over year to C$4.13 billion ($3.30 billion). On a reported basis, total revenues came in at C$4.10 billion ($3.28 billion), down nearly 1% from the prior-year quarter.

Net interest income was C$2.28 billion ($1.82 billion), increasing 7.7% from the year-ago quarter. The improvement reflected a rise in interest income, partly offset by higher interest expenses.

Non-interest income declined 9.6% year over year to C$1.83 billion ($1.46 billion). This fall was driven by lower underwriting and advisory fees, foreign exchange other than trading and lower other income.

Adjusted non-interest expenses totaled C$2.37 billion ($1.89 billion), up 7.2% from the year-ago quarter.

Total provision for credit losses declined 14% year over year to C$209 million ($167.1 million).

Improving Balance Sheet

Total assets came in at C$560.91 billion ($448.35 billion) as of Jul 31, 2017, up 6.1% from the prior quarter. Loans and acceptances (net of allowance) increased 8.5% sequentially to C$358.99 billion ($286.95 billion) while deposits grew 6.3% to C$439.36 billion ($351.20 billion).

Capital Ratios Declined

As of Jul 31, 2017, Basel III Common Equity Tier 1 ratio came in at 10.4% compared with 10.9% as of Jul 31, 2016. Further, Tier 1 capital ratio was 11.9% compared with 12.4% as of Jul 31, 2016. Total capital ratio was 13.7%, down from 14.4% 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 improving credit quality along with strong balance sheet position support its inorganic growth strategies. Also, the company’s acquisition of PrivateBancorp, Inc. shall expand its private banking and wealth management capabilities in the United States. However, continuously rising expenses and declining fee income remain major concerns for the company in the near term.  

Canadian Imperial Bank of Commerce Price and EPS Surprise

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

Performance of Other Foreign Banks

Barclays PLC’s (BCS - Free Report) second-quarter 2017 net loss attributable to ordinary equity holders was £1.40 billion ($1.79 billion), mainly reflecting losses incurred from the disposal of the Africa unit. Notably, in the prior-year quarter, net profit attributable to ordinary equity holders was £677 million.

HSBC Holdings plc (HSBC - Free Report) second-quarter 2017 results recorded net profit attributable to shareholders of $4 billion, up 55% from the year-ago quarter. Results were supported by stable revenues and a fall in loan impairment charges. Also, driven by steady success in its cost-saving initiatives, operating expenses fell marginally.

Deutsche Bank AG (DB - Free Report) reported net income of €466 million ($512.4 million) in second-quarter 2017, significantly up on a year-over-year basis. Income before income taxes more than doubled to €822 million ($903.9 million) on a year-over-year basis.

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