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Canadian Imperial (CM) Q4 Earnings Increase, Stock Down 3.4%

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Canadian Imperial Bank of Commerce’s (CM - Free Report) fourth-quarter fiscal 2018 (ended Oct 31) adjusted earnings per share came in at C$3.00, up 7% from the prior-year quarter.

Despite improved year-over-year performance, shares of the company declined 3.4% on NYSE, as management commentary related to earnings growth for the next year disappointed the investors. Management projects fiscal 2019 earnings growth to be at the lower end of the 5-10% range. Dismal quarterly performance on a sequential basis may perhaps be a reason for the share price decline too.   

The improved results were driven by growth in both net interest 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 in the reported quarter came in at C$1.27 billion ($0.97 billion), reflecting a 9% year-over-year increase.

In fiscal 2018, adjusted earnings of C$12.21 per share grew 10% year over year. Further, net income (on a reported basis) increased 12% from a year ago to C$5.28 billion.

Revenues Improve, Costs Rise

Adjusted total revenues grew 6% year over year to C$4.53 billion ($3.48 billion). On a reported basis, total revenues came in at C$4.45 billion ($3.41 billion), indicating an increase of 4% from the prior-year quarter.

Net interest income was C$2.53 billion ($1.94 billion), up 3% from the year-ago quarter. The improvement reflected a rise in interest income, partly offset by higher interest expenses.

Non-interest income increased 6% year over year to C$1.91 billion ($1.47 billion).

Adjusted non-interest expenses totaled C$2.55 billion ($1.96 billion), rising 5% from the year-ago quarter.

Total provision for credit losses rose 15% year over year to C$264 million ($202.5 million).

Improving Balance Sheet & Capital Ratios

Total assets came in at C$597.1 billion ($453.8 billion) as of Oct 31, 2018, up marginally from the fiscal third-quarter level. Net loans and acceptances grew 1% sequentially to C$381.7 billion ($290.1 billion), and deposits recorded a slight increase to C$461 billion ($350.3 billion).

On Oct 31, 2018, Common Equity Tier 1 ratio came in at 11.4% compared with 10.6% as of the same date in 2017. Tier 1 capital ratio was 12.9% compared with 12.1% as of Oct 31, 2017. Total capital ratio was 14.9%, improving from 13.8% in the prior-year quarter.

Adjusted return on common shareholders’ equity was 16.4% at the end of the quarter, down from 17.2% a year ago.

Our Viewpoint

Given the gradual improvement in loan demand, Canadian Imperial is expected to witness a steady rise in revenues. Also, 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. Further, ongoing global economic certainty and trade war-related concerns make us apprehensive.

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

Zacks Rank

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 third-quarter 2018 net profit attributable to shareholders of CHF 1.2 billion ($1.2 billion), up around 31.7% from the prior-year quarter. The results display a rise in net fee and commission income, along with lower net interest income. Further, the company’s performance in the quarter reflects lower expenses.

Deutsche Bank AG (DB - Free Report) reported net income of €229 million ($267.4 million) in third-quarter 2018, which tanked 64.7% from the year-ago quarter. Income before taxes plunged 45.8% from a year ago to €506 million ($590.9 million). Lower revenues and higher expenses were the key undermining factors. However, strong capital position and lower provisions were the main positives.

Barclays (BCS - Free Report) reported third-quarter 2018 net income attributable to ordinary equity holders of £1 billion ($1.30 billion). The results were driven by improvement in trading activities and a decline in credit impairment charges. However, a fall in net interest income and higher expenses acted as headwinds.

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