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Canadian Imperial Bank of Commerce CM reported decent fiscal fourth-quarter earnings largely in line with our expectations, with strong trading results and net interest income growth helping total revenue. Adjusted net income increased 24% from a year ago to C$1.9 billion. Adjusted earnings per share were C$1.91, up 22% year over year and down 1% quarter over quarter. The results translate into an adjusted return on equity of 13.4%, below the bank’s updated medium-term target of 15% (from 16%). Given that fourth-quarter results and management’s outlook largely align with our previous views of CIBC, we maintain our current fair value estimate of C$70 per share and view the stock as overvalued.
Key Morningstar Metrics for Canadian Imperial Bank of Commerce
Credit costs were better than its peers, as CIBC’s provisioning expense decreased 23% year over year and 13% from a quarter ago to C$419 million. The sequential decrease in provisioning was mostly driven by a 10% decline in performing loan provisioning, often driven by changes in the projections or economic assumptions, not credit results. On the other hand, provisioning on impaired loans decreased 13% year over year and increased 3% sequentially to C$417 million. Net write-offs were flat from last year and decreased 3% sequentially to C$413 million.
Gross impaired loans increased 6% from a quarter ago, largely due to the bank’s US multifamily exposure. New formations of impaired loans also increased by 13% sequentially to C$1.3 billion, more elevated than the previous several quarters. We still expect credit costs to remain elevated in the near term. That said, the bank has a strong balance sheet with a common equity Tier 1 ratio of 13.3%.
Fee revenue increased 13% from a year ago to C$3.1 billion, mostly driven by the 59% increase in trading results. We view capital-market-related revenue as volatile from quarter to quarter and caution investors not to extrapolate too much from these results.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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