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Canadian Imperial (CM) Q2 Earnings Improve, Stock Falls 1.9%

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Canadian Imperial Bank of Commerce’s (CM - Free Report) second-quarter fiscal 2018 (ended Apr 30) adjusted earnings per share came in at C$2.95, increasing from C$2.64 in the prior-year quarter.

Shares of Canadian Imperial declined 1.9% on the NYSE, perhaps owing to the dismal mortgage origination outlook. The company expects mortgage originations to plunge around 50% in the second half of fiscal 2018, due to the implementation of stringent lending rules. Further, overall mortgage growth is expected to be in the low single-digit rate.

Results improved due to growth in both net interest income and non-interest income. Furthermore, a strong balance-sheet position supported the results. However, an increase in expenses and higher provisions were the undermining factors.

After considering several non-recurring items, net income came in at C$1.32 billion ($1.04 billion), reflecting an increase of 26% year over year.

Revenues Improve, Costs Rise

Adjusted total revenues grew 15% year over year to C$4.41 billion ($3.46 billion). On a reported basis, total revenues came in at C$4.38 billion ($3.43 billion), indicating an increase of 18% from the prior-year quarter.

Net interest income was C$2.48 billion ($1.94 billion), up 18% from the year-ago quarter. The improvement reflected a rise in interest income, partly offset by higher interest expenses.

Non-interest income increased 19% year over year to C$1.90 billion ($1.49 billion).

Non-interest expenses totaled C$2.52 billion ($1.98 billion), rising 11% from the year-ago quarter.

Total provision for credit losses rose 18% year over year to C$212 million ($166.2 million).

Improving Balance Sheet, Capital Ratios Weaken

Total assets came in at C$590.54 billion ($460.15 billion) as of Apr 30, 2018, up nearly 1% from the prior quarter. Net loans and acceptances grew 2% sequentially to C$374.22 billion ($291.60 billion), while deposits rose roughly 1% to C$449.03 billion ($349.89 billion).

As of Apr 30, 2018, Common Equity Tier 1 ratio came in at 11.2% compared with 12.2% as of Apr 30, 2017. Further, Tier 1 capital ratio was 12.7% compared with 13.5% as of Apr 30, 2017. Total capital ratio was 15.1%, declining from 15.4% in the prior-year quarter.

Adjusted return on common shareholders’ equity was 17.4% at the end of the quarter, down from 18.1% in the year-ago quarter.

Our Viewpoint

Given the improving economy and loan growth, Canadian Imperial is expected to witness a steady rise in revenues. Additionally, the acquisition of PrivateBancorp expanded its private banking and wealth management capabilities in the United States. However, persistently rising expenses remain a major near-term concern for the company. 

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

Canadian Imperial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

UBS Group AG (UBS - Free Report) reported first-quarter 2018 net profit attributable to shareholders of CHF 1.5 billion ($1.6 billion), up around 19% from the prior-year quarter. Results displayed rise in net fee and commission income (up 3% year over year) and higher net interest income (up 3% year over year). However, the quarter reflected elevated expenses.

Barclays (BCS - Free Report) incurred first-quarter 2018 net loss attributable to ordinary equity holders of £764 million ($1.06 billion). Net income attributable to ordinary equity holders was £190 million ($248 million) in the prior-year quarter. A fall in interest income and muted underwriting fees acted as headwinds. However, lower expenses, rise in trading income and decline in credit impairment charges supported the results.

HSBC Holdings (HSBC - Free Report) recorded first-quarter 2018 pre-tax profit of $4.8 billion, down 4% year over year. Further, net income attributable to shareholders of $3.1 billion reflects 1% fall from the year-ago quarter. Results were adversely impacted by increase in operating expenses as the company continued to invest in growth programs. On the other hand, higher revenues and a decline in loan impairment charges acted as tailwinds.

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