Canadian Imperial Bank of Commerce CM-T reported second-quarter earnings that beat analyst estimates, helping the lender build on the positive momentum it has established in recent months.
CIBC made $1.7-billion in the quarter ended April 30, or $1.79 a share, and earnings a share were up 2 per cent year-over-year. After adjusting for one-time items, the bank made $1.75 a share, beating analyst estimates of $1.65 a share.
Canadian banks have reported mixed results for the latest quarter, with higher provisions for credit losses at some lenders concerning investors. Interest rates have remained higher than prepandemic levels, making it more expensive for clients to borrow, and that has pushed bankruptcies higher.
CIBC’s provisions for credit losses, however, dropped slightly quarter-over-quarter, particularly in Canadian banking, which is the lender’s largest division. The bank also got a boost from stabilizing loan losses in its commercial real estate loan book in the United States.
Profits have varied across the Big Six banks during the latest quarter, making it tough for analysts and investors to decipher just how strong, or weak, each lender is in an uncertain economy. But CIBC is arguably benefitting at the moment from a smaller U.S. footprint relative to Toronto-Dominion Bank and Bank of Montreal, because lending margins in the United States are facing major competitive pressures.
CIBC has also focused on expense control of late, and that continued last quarter. The bank reported operating leverage of 3 per cent in Canadian personal and commercial banking, meaning revenues in its largest unit are growing faster than expenses.
“There is a bit of noise in these results,” Scotia Capital analyst Meny Grauman wrote in a note to clients. “But in our view this is a very constructive quarter as the bank continues to deliver on its guidance.”
CIBC’s shares jumped 7 per cent on Thursday, more than offsetting their drop the day earlier that was driven by BMO’s results, which had spooked investors. CIBC’s shares are up 21 per cent over the past year, on par with Royal Bank of Canada for best performance across the Big Six lenders.
While CIBC has some positive momentum, the bank is still in the midst of a recovery. CIBC’s leadership has targeted a 16-per-cent return on equity, which is the dominant performance metric within the banking sector, and last quarter the bank reported 13.7 per cent. Loan growth was also muted, with Canadian personal and business banking delivering 2-per-cent growth over the year prior, and flat to the prior quarter.
Across the sector, investors remain cautious about the economic and competitive outlook. Canada’s economy has cooled considerably as higher interest rates bite, and there are fears about the large number of mortgages that are currently set to renew at much higher rates this year and next.
And while CIBC has benefitted from a smaller U.S. footprint of late, its long-standing emphasis on Canada could ultimately hurt if businesses bankruptcies continue to rise here.
With CIBC delivering solid earnings, some analysts have wondered what the bank will do with the excess capital, or profit, it is accumulating. On a conference call Thursday morning, chief executive Victor Dodig emphasized the executive team is “highly” focused on organic growth.
Earlier this year, CIBC announced a management shuffle as the board starts preparing for succession, now that Mr. Dodig is in his 10th year as chief executive officer. As part of the changes, former chief financial officer Hratch Panossian moved to a role in the Canadian banking division, and capital markets head Harry Culham had his role expanded to include new mandates. The bank also named former treasurer Robert Sedran as its new chief financial officer.