Canadian Imperial (CM) Q2 Earnings Rise, Stock Down 4.5%

Canadian Imperial Bank of Commerce CM reported strong second-quarter fiscal 2019 (ended Apr 30) results. Adjusted earnings per share were C$2.97, up 1% from the prior-year quarter’ reported tally.

Results were driven by increase in non-interest income. Moreover, strong balance-sheet position acted as a tailwind. However, investors’ concerns escalated on significant rise in provisions, expenses and lower net interest income. Therefore, following the release, shares of Canadian Imperial Bank of Commerce declined 4.5% on the NYSE.

After considering several non-recurring items, net income was C$1.35 billion ($1.01 billion), reflecting a rise of 2% year over year.

Solid Adjusted Revenues Partly Offset Rise in Costs

Adjusted total revenues were up 3.9% year over year to C$4.58 billion ($3.44 billion). On a reported basis, total revenues came in at C$4.54 billion ($3.41 billion), indicating an increase of 3.7% from the prior-year quarter.

Net interest income was C$2.46 billion ($1.85 billion), down around 1% from the year-ago quarter. This downside reflected rise in interest expenses, partly offset by higher interest income.

Non-interest income increased 9.5% year over year to C$2.08 billion ($1.56 billion).

Adjusted non-interest expenses totaled C$2.57 billion ($1.93 billion), flaring up 4% from the year-ago quarter.

Adjusted efficiency ratio was 56.1% at the end of the reported quarter, up from 55.9% as of Apr 30, 2018. Rise in efficiency ratio indicates decline in profitability.

Total provision for credit losses grew 20.3% year over year to C$255 million ($191.4 million).

Improving Balance Sheet & Capital Ratios

Total assets were C$634.1 billion ($473.6 billion) as of Apr 30, 2019, up 3.2% from the prior quarter. Net loans and acceptances grew 2% sequentially to C$392.9 billion ($293.4 billion) and deposits climbed 2.8% sequentially to C$477.5 billion ($356.6 billion).

As of Apr 30, 2019, Common Equity Tier 1 ratio was 11.2%, in line with the prior-year quarter’s reported figure. Furthermore, Tier 1 capital ratio was 12.6% compared with 12.7% as of Apr 30, 2018. Total capital ratio was 14.5%, declining from 15.1% in the prior-year quarter.

Adjusted return on common shareholders’ equity was 15.9% at the end of the reported quarter, down from 17.4% a year ago.

Our Viewpoint

Given an improving economy and loan growth, Canadian Imperial is expected to witness steady improvement in revenues. However, elevated expenses and a challenging operating backdrop remain major concerns.

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 price-consensus-eps-surprise-chart | Canadian Imperial Bank of Commerce Quote

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