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Canadian Imperial (CM) Q2 Earnings Fall, Stock Down 3.7%

Shares of Canadian Imperial Bank of Commerce CM declined 3.7% on the NYSE after the company reported second-quarter fiscal 2020 (ended Apr 30) results. Adjusted earnings per share came in at 94 cents, significantly down 68% from the prior-year quarter reported tally.

Results were impacted by higher provisions, expenses and lower non-interest income. However, increase in net interest income and strong balance-sheet position acted as tailwinds.

After considering several non-recurring items, net income was C$441 million ($316 million), reflecting a slump of 68% year over year.

High Adjusted Revenues Partly Offset Rise in Costs

Adjusted total revenues were up around 1% year over year to C$4.58 billion ($3.28 billion). This increase was driven by higher net interest income, partly muted by lower non-interest income.

Net interest income was C$2.76 billion ($1.98 billion), up 12.2% from the year-ago quarter. Non-interest income decreased 12.5% year over year to C$1.82 billion ($1.3 billion).

Adjusted non-interest expenses totaled C$2.65 billion ($1.9 billion), flaring up 3.1% from the year-ago quarter.

Adjusted efficiency ratio was 57.2% at the end of the reported quarter, up from 56.1% as of Apr 30, 2019. A rise in the efficiency ratio indicates a decline in profitability.

Total provision for credit losses rose significantly year over year to C$1.41 billion ($1.01 billion) on coronavirus concerns.

Improving Balance Sheet & Capital Ratios

Total assets were C$759.1 billion ($551.9 billion) as of Apr 30, 2020, up 12.9% from the prior quarter. Net loans and acceptances grew 4.5% sequentially to C$420.6 billion ($305.8 billion) and deposits climbed 9.2% sequentially to C$543.8 billion ($395.4 billion).

As of Apr 30, 2020, Common Equity Tier 1 ratio was 11.3%, up from the prior-year quarter reported figure of 11.2%. Furthermore, Tier 1 capital ratio was 12.5% compared with 12.6% as of Apr 30, 2019. Total capital ratio was 14.5%, in line with the prior-year quarter.

Adjusted return on common shareholders’ equity was 4.5% at the end of the fiscal second quarter, down from the prior year’s 15.9%.

Our Viewpoint

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

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

The Bank of Nova Scotia BNS reported second-quarter fiscal 2020 (ended Apr 30) adjusted net income of C$1.4 billion ($1 billion), down 39% year over year. Results excluded certain one-time items.

Royal Bank of Canada RY delivered second-quarter fiscal 2020 (ended Apr 30, 2020) net income of C$1.5 billion ($1.09 billion), significantly down 54% from the prior-year quarter’s reported tally.

Bank of Montreal’s BMO second-quarter fiscal 2020 (ended Apr 30) adjusted net income was C$715 million ($519.9 billion), down 53% year over year. The results were hurt by lower revenues and a significant rise in credit costs.

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