CIBC Profits Soar 25% in Q3 2024 as Credit Losses Drop
The Canadian Imperial Bank of Commerce (TSX: CM) has reported a significant rise in its third-quarter profits for 2024, driven by a sharp decrease in provisions for credit losses and robust growth in its Canadian personal and business banking division.
CIBC’s net income for Q3 2024 climbed to $1.80 billion, or $1.82 per diluted share, up from $1.43 billion, or $1.47 per diluted share, in the same quarter last year. This represents a 25% increase in net income year-over-year and a 24% increase in reported EPS.
On an adjusted basis, which excludes certain items like acquisition-related expenses and tax impacts, the bank’s earnings per share were even higher at $1.93, up from $1.52 last year—a 27% year-over-year increase, surpassing analysts’ expectations of $1.74 per share.
CIBC’s total revenue for the quarter ending July 31, 2024, reached $6.60 billion, up 13% from $5.85 billion in the corresponding period in 2023. This robust revenue growth was driven by gains in both the Canadian and U.S. banking operations, as well as improved net interest margins across several segments.
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The net interest margin on average interest-earning assets, a key profitability metric for banks, increased slightly to 1.50% from 1.49% last year. Excluding trading activities, the margin was even higher at 1.84%, up from 1.67% in Q3 2023.
This revenue growth, combined with a significant reduction in the bank’s provisions for credit losses—down to $483 million from $736 million a year earlier—helped to boost the bottom line.
The decrease in provisions was primarily due to lower allocations in the U.S. Commercial Banking and Wealth Management division, where issues in the office loan portfolio have largely been addressed. This contrasts with the higher provisions made last year, which were influenced by a more pessimistic economic outlook at the time.
CEO Victor G. Dodig attributed the strong performance to the bank’s strategic focus and the diversification of its North American platform: “Our strong third-quarter results reflect the consistent, disciplined execution of our client-focused strategy and the diversification of our North American platform as we continue to create value for our stakeholders.”
The Canadian personal and business banking division, which constitutes approximately 40% of CIBC’s total revenue, played a pivotal role in the bank’s strong quarterly performance. The division’s net income soared by 26% to $628 million, driven by higher net interest margins and increased balances in personal loans, mortgages, and credit cards.
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Revenue for this segment rose to nearly $2.6 billion, marking a 7.6% increase from the same period last year. Additionally, provisions for credit losses within this segment decreased by over 20% to $338 million, reflecting improved credit quality.
John Aiken, an analyst at Jefferies, noted the significance of the lower provisions in the bank’s overall performance. “We note that provisions related to commercial real estate impairments were largely immaterial for the first time in a year and a half,” Aiken said in a note to investors.
CIBC’s U.S. commercial banking and wealth management unit also demonstrated remarkable recovery, with net income tripling to $215 million compared to $73 million the same quarter last year. This surge was largely due to a decrease in provisions for credit losses and increased revenue from loan syndications and market appreciation.
The bank’s earlier issues with its U.S. office loan portfolio, which had been a significant drag on earnings, appear to have been largely resolved. In its presentation to investors, CIBC indicated that the “majority of challenges” in the $3 billion office portfolio were now behind it, with the bank reducing its exposure to these troubled assets.
“Watchlist loans remain elevated and there will be some new inflow, but defaults are significantly reduced going forward,” the bank assured investors.
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While CIBC’s domestic and U.S. banking operations showed strong performance, the bank’s capital markets segment faced a decline. Net income in this division fell by over 20% to $388 million, down from $494 million in the same quarter last year, reflecting higher expenses, increased provisions for credit losses, and lower revenue from its global markets business.
CIBC’s reported return on common shareholders’ equity for the quarter was 13.2%, up from 11.6% in Q3 2023, reflecting the improved profitability. On an adjusted basis, ROE was even higher at 14.0%, compared to 12.0% last year. The bank’s Common Equity Tier 1 ratio, a key measure of financial strength, increased to 13.3% from 12.2% in the same quarter last year, indicating a strong capital position.
The quarter’s results were also influenced by specific regulatory and tax changes. CIBC recorded an $88 million charge related to the Canadian federal government’s tax measure that denies the dividends received deduction for banks. This new tax measure had a $0.11 per share negative impact on the bank’s earnings.
CIBC last traded at $77.12 on the TSX.
Information for this briefing was found via Sedar, Global News, Bloomberg, The Globe And Mail, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
