Canadian Imperial Bank of Commerce (CIBC) posted a lower profit in the third quarter of 2023, as it set aside more money to cover potential loan losses amid a slowing economy and rising interest rates. The bank also announced a dividend increase of 2 cents per share, to $1.48 per share.
Higher provisions for credit losses
CIBC reported a net income of $1.43 billion, or $1.47 per share, for the three months ended July 31, 2023, down from $1.67 billion, or $1.78 per share, in the same period a year ago. The bank’s provision for credit losses, or the amount of money it earmarks to cover bad loans, increased by 20% to $291 million, compared to $242 million in the third quarter of 2022.
The bank said the higher provisions were mainly due to higher expected losses in its Canadian personal and business banking segment, as well as its U.S. commercial banking and wealth management segment. The bank also cited the impact of the COVID-19 pandemic and its variants, as well as the uncertainty around the economic recovery and inflation.
Revenue growth across segments
Despite the lower profit, CIBC’s revenue grew by 5% to $5.85 billion, compared to $5.57 billion in the third quarter of 2022. The bank attributed the revenue growth to higher net interest income, driven by volume growth and improved margins, as well as higher non-interest income, mainly from higher fees and commissions.
The bank’s Canadian personal and business banking segment reported a net income of $497 million, down 16% from a year ago, due to higher provisions and lower card fees. However, the segment’s revenue increased by 4% to $2.28 billion, driven by higher net interest income from volume growth and improved margins.
The bank’s Canadian commercial banking and wealth management segment reported a net income of $467 million, down 4% from a year ago, due to higher provisions. However, the segment’s revenue increased by 7% to $1.38 billion, driven by higher net interest income from volume growth and improved margins, as well as higher non-interest income from higher fees and commissions.
The bank’s U.S. commercial banking and wealth management segment reported a net income of $212 million, up 10% from a year ago, due to lower expenses and a lower effective tax rate. The segment’s revenue increased by 9% to $1.06 billion, driven by higher net interest income from volume growth and improved margins, as well as higher non-interest income from higher fees and commissions.
The bank’s capital markets segment reported a net income of $392 million, up 14% from a year ago, due to lower expenses and a lower provision for credit losses. The segment’s revenue increased by 4% to $1.11 billion, driven by higher non-interest income from higher trading activity and underwriting fees.
Dividend increase and outlook
CIBC announced that it will increase its quarterly dividend by 2 cents per share, or 1.4%, to $1.48 per share, payable on October 28, 2023, to shareholders of record on September 28, 2023. The bank said the dividend increase reflects its strong capital position and confidence in its future earnings growth.
CIBC also said that it expects to achieve its medium-term financial targets for fiscal 2023, which include an adjusted earnings per share growth of 5% to 10%, an adjusted return on equity of 15% or more, and an efficiency ratio of below 55%.
CIBC’s President and Chief Executive Officer Victor G. Dodig said that the bank delivered solid financial results in the third quarter despite a more challenging economic environment. He also said that the bank continues to execute its client-focused strategy and realize the benefits of its recent investments in technology and talent.
