CIBC hikes dividend as it reports third-quarter profit rise, beating estimates

TORONTO -- The Canadian Imperial Bank Of Commerce hiked its dividend and reported a two per cent rise in its third-quarter net income to beat analyst estimates.

The Toronto-based lender saw growth in Canadian personal and small business banking and its U.S. commercial banking platform, but this was offset by weaker capital markets earnings and an increase in loan loss provisions.

The bank's chief executive Victor Dodig said Thursday that CIBC delivered "strong underlying results" across each of its businesses in the latest quarter.

"Overall, we are pleased with our core operating results this quarter. Through continued growth and deepening of client relationships, we generated revenue growth... While our provision for credit losses increased modestly this quarter to $291 million, the quality of our book remained relatively stable and we remain comfortable with the outlook."

Canada's fifth-largest lender was the second of the Big Six banks to report its third-quarter earnings. On Wednesday, the Royal Bank of Canada delivered a five-per-cent increase in quarterly profits, but fell short of expectations as its capital markets and investor and treasury services divisions were lower amid challenging market conditions, including trade uncertainty.

CIBC on Thursday reported net income of $1.4 billion for the quarter ended July 31, compared with $1.37 billion during the same period a year ago.

The lender said it earned $3.06 per diluted share for the quarter compared with $3.01 a year ago. On an adjusted basis, CIBC earned $3.10 per diluted share, compared with an adjusted profit of $3.08 during the same quarter in 2018.

Analysts on average had expected earnings of $3.06 per share, according to financial markets data firm Refinitiv.

CIBC also said Thursday it will now pay a quarterly dividend of $1.44 per share, up four cents.

The bank's latest earnings were also impacted by certain items which resulted in a negative impact of four cents per share. The charges included $27 million in amortization of acquisition-related intangible assets and $6 million in purchase accounting adjustments net of transaction and integration-related costs associated with the acquisitions of The PrivateBank and Geneva Advisors.

"CIBC's earnings came in ahead of expectations on a strong performance in its domestic consumer bank," said John Aiken, an analyst with Barclays in Toronto. "Capital markets performance was weak but offset by ongoing growth in its U.S. commercial banking platform. After commentary last quarter about higher run-rate expenses fuelling strategic initiatives, revenue growth outpaced expense growth both sequentially and from a year ago."

CIBC's Canadian personal and small business banking unit reported net income of $657 million, up $18 million or three per cent from the prior year as higher revenue was partially offset by an increase in expenses and provision for credit losses, or money set aside for bad loans.

Its Canadian commercial banking and wealth management arm saw net income drop by one per cent, or $2 million, to $348 million during its third quarter. The division's revenue rose on volume growth, higher fees and higher assets under management but this was offset by a higher provision for credit losses as well as higher non-interest expenses.

U.S. commercial banking and wealth management, meanwhile, reported a six per cent or $10 million jump in net income to $172 million for the quarter, primarily due to higher revenue but offset by a rise in expenses and provision for credit losses.

Capital markets reported a 13 per cent or $34 million drop in third-quarter net income to $231 million, primarily due to a higher provision for credit losses, CIBC said.

Total provisions for credit losses amounted to $291 million, up from $241 million during the third quarter of 2018.

"Credit quality was reasonably benign, despite slightly higher than expected provisions, largely related to provisions on performing loans," said Aiken.

A key measure of the bank's financial health, the common equity tier 1 ratio, was 11.4 per cent as of July 31, up from 11.2 per cent in the previous quarter and 11.3 per cent a year ago.

CIBC delivered a "slight beat" after three consecutive earnings-per-share misses, mainly benefiting from much better net interest margins, said Canaccord Genuity analyst Scott Chan in a note to clients.

Net interest margins are the difference between the money banks earn on the loans they make and the interest they pay out to savers.

However, Chan said questions remain on whether this pattern is sustainable given expected interest rate cuts. The U.S. Federal Reserve recently cut its key benchmark interest rate by 25 basis points and analysts foresee the possibility of Canada's central bank cutting rates as early as next year.

The bank's chief financial officer Kevin Glass said Thursday that its net interest margin was up eight basis points from the previous quarter, largely due to deposit promotions ending and on the back of favourable rates.

"Based on our current expectations, both in Canada in the U.S., we certainly expect some margin compression," he told analysts. "But we feel its manageable."

CIBC also announced Thursday that Glass will be retiring after 10 years with the bank, effective Jan. 1. He will serve as CFO until Oct. 31, and stay on as a special adviser until his retirement.

CIBC has appointed Hratch Panossian, currently executive vice-president, global controller and investor relations for the bank, as chief financial officer, effective Nov. 1.

Net interest margins are the difference between the money banks earn on the loans they make and the interest they pay out to savers.

However, Chan said questions remain on whether this pattern is sustainable given expected interest rate cuts. The U.S. Federal Reserve recently cut its key benchmark interest rate by 25 basis points and analysts foresee the possibility of Canada's central bank cutting rates as early as next year.

The bank's chief financial officer Kevin Glass said Thursday that its net interest margin was up eight basis points from the previous quarter, largely due to deposit promotions ending and on the back of favourable rates.

"Based on our current expectations, both in Canada in the U.S., we certainly expect some margin compression," he told analysts. "But we feel its manageable."

CIBC also announced Thursday that Glass will be retiring after 10 years with the bank, effective Jan. 1. He will serve as CFO until Oct. 31, and stay on as a special adviser until his retirement.

CIBC has appointed Hratch Panossian, currently executive vice-president, global controller and investor relations for the bank, as chief financial officer, effective Nov. 1.