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Canadian Imperial Posts Solid 4Q

Zacks Equity Research

Last week, Canadian Imperial Bank of Commerce (CM) reported its fiscal fourth quarter 2012 (ended October 31) adjusted earnings per share of C$2.04. This was up nearly 15% from the prior-quarter earnings of C$1.78.

For fiscal 2012, Canadian Imperial’s adjusted earning were C$8.07 per share compared with C$7.57 recorded last year.

Improved net interest income and robust asset position were the primary earnings drivers. However, rising operating expenses and decline in non-interest revenue partially marred the results.

After considering certain non-recurring items, net income for fiscal fourth quarter came in at C$852 million ($863.7 million), up 1.3% sequentially and 12.5% year over year.

Behind the Headlines

Canadian Imperial reported total revenue of C$3.16 billion ($3.2 billion), up 0.3% from the prior quarter. Yet, adjusted revenue came in at C$3.20 billion ($3.2 billion), down 1.4% from the last quarter.

For the reported quarter, net interest income grew 7.1% sequentially to C$2.02 billion ($2.0 billion). The increase was mainly due to escalated trading related net interest income.

Non-interest revenue came in at C$1.14 billion ($1.2 billion), declining 9.7% from the previous quarter. The fall was mainly attributable to higher trading losses.

Non-interest expenses were C$1.83 billion ($1.9 billion), almost at par sequentially. Adjusted efficiency ratio stood at 56.5% as against 56.1% as of July 31, 2012 and 58.7% as of October 31, 2011.

Total provision for credit losses were C$328 million ($332.5 million), up 3.5% from the last quarter. The marginal rise was primarily due to higher losses in the exited U.S. leveraged finance portfolio, partially offset by lower losses in U.S. real estate finance and lower write-offs and bankruptcies in cards portfolio.

Balance Sheet and Ratios

Total assets came in at C$393.4 billion ($393.2 billion) as of October 31, 2012, surging 2.5% from the prior-year period. Return on common shareholders’ equity was 21.7% in the reported quarter as against 21.8% in the prior quarter and 22.6% in the year-ago period.

As of October 31, 2012, tier 1 capital ratio was 13.8% compared with 14.1% as of July 31, 2012 and 14.7% as of October 31, 2011. Further, total capital ratio stood at 17.3% versus 17.7% in the previous quarter and 18.4% in prior-year quarter.

Dividend Update

Concurrent with the earnings release, Canadian Imperial declared a quarterly cash dividend of C$0.94 per share. The dividend is payable on January 28, 2013 to shareholders of record as of December 28, 2012.

Peer Performance

Royal Bank of Canada (RY) reported net income from continuing operations of C$1.9 billion ($1.9 billion) for fiscal fourth quarter 2012 (ended on October 31), up 19% from C$1.6 billion ($1.6 billion) recorded in the year-ago period. Results reflect a rise in revenue, improved capital position and lower interest expenses. Yet, the key negatives were deteriorating credit quality and elevated non-interest expenses.

Our Take

We expect Canadian Imperial’s acquisition activities to positively impact its financials in the long run. Further, the company’s strong business model, diversified product mix and sturdy capital position will boost its bottom line. However, a persistent low interest rate environment, weak economic recovery and stringent regulatory requirements will remain a drag on its financials.

Canadian Imperial currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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