CIBC profit rises 9% in first quarter, beats expectations

CIBC posted net income of $835 million, or $1.93 per share – an increase from $763 million, or $1.80 per share, a year ago.

Adjusted earnings were $1.97, which beat analyst expectations of $1.93 per share on average, according to a poll by Thomson Reuters.

Although CIBC joined many of its peers in beating analyst expectations, it did not raise its dividend as TD Bank (TSX:TD) Royal Bank (TSX:RY) and Scotiabank (TSX:BNS) did.

Like its rivals, the bank saw an improvement in retail lending and deposits, but profits in its wholesale banking segment fall in the quarter amid lower trading because of stock market volatility.

CIBC (TSX:CM) president and CEO Gerry McCaughey noted that headwind is unlikely to dissipate any time soon.

“The trend of business levels toward the end of Q1 and early indications this quarter suggest that market conditions are trending less favourably than in Q1,” he told analysts on a conference call.

Meanwhile, the bank said it’s the right time to sell its mortgage-broker business given that CIBC-branded mortgages grew at a 10% rate over the past year compared with an industry average of seven per cent, said David Williamson, CIBC’s group head for retail and business banking.

The move would allow it to offer a number of products rather than just a specific mortgage through an arms-length broker.

If the bank does sell FirstLine, it would likely see a slight decline in its total mortgage portfolio, but that would be largely offset by the current level of growth it is experiencing on its own branded mortgages, Williamson said, adding that expenses would also be lower because it would mean consolidating two businesses into one.

“It’s a strategic choice we’re making. We believe it’s aligned with our corporate goal of being a lower-risk bank and it will make for more efficient use of our balance sheet,” Williamson said.

But Barclay’s Capital analyst John Aiken warned that retail banking earnings were disappointing compared to its peers and a sale of FirstLine would weigh on volume growth in personal lending.

Overall, the bank’s first-quarter revenue grew to $3.2 billion from $3.1 billion.

However, the bank was hit with a number of one-time charges including a $35-million loss from its structured credit run-off business, an $18-million premium paid on preferred share redemptions and a $9-million charge on amortization of intangible assets, which were only partially offset by a $37-million gain on an equity investment in its wealth management business.

The slightly better than expected results were driven by lower expenses and a better tax rate, which offset higher provisions for credit losses, said RBC Capital Markets analyst Andre-Phillipe Hardy.

By segment, corporate division profits were higher than he expected, while wealth management disappointed.

“We do not expect the stock to react much to the results given that, although EPS were 2% ahead of expectations, the outperformance was due to taxes and the corporate segment,” Hardy said. “And most importantly in our view, retail revenue growth remains challenged versus peers.”

In its retail and business banking division, profits rose to $567 million for the first quarter from $540 million for the same quarter last year.

Revenue was up 1% to $2 billion, largely due to volume growth in both personal and business banking.

However, unlike many of the other banks, provision for credit losses – or the money set aside to cover bad loans – rose in the quarter.

The bank’s $281 million in PCLs was up from $272 million in the same quarter last year “due to the expected higher writeoffs in the MasterCard portfolio, partially offset by lower writeoffs in the other cards portfolio and lower provisions in commercial banking,” it said.

Loan losses were up due to $24 million higher losses in its U.S real estate portfolio and $13 million higher losses in its credit card business, but CIBC expects those losses to run lower in the coming quarters.

Wealth management reported net income of $100 million for the first quarter, up from $66 million for the same quarter last year.

Revenue was up 5% to $435 million, largely due to higher asset management revenue including a one-time gain and partially offset by lower commissions from equity trading and new issues activity.

Wholesale banking reported net income of $133 million for the first quarter, $140 million in the same year-earlier quarter.

Revenue fell to $438 million in the first quarter from $478 million in the same quarter of 2011. That was primarily driven by lower corporate and investment banking revenue, partially offset by higher revenue from fixed income and debt new issue activity, as well as lower losses from the structured credit run-off business, the bank said.

CIBC has more than 41,000 employees across its operations including retail and wholesale banking and financial services, serving more than 11 million customers.

Shares in the bank fell 16 cents to close at $76.11 Thursday on the Toronto Stock Exchange.