Expenses Rising for Canadian Imperial Bank of Commerce in Q3, but Fees Hold Up and NII on the Rise

Narrow-moat-rated Canadian Imperial Bank of Commerce, or CIBC, reported OK fiscal third-quarter earnings. Adjusted earnings per share were CAD 1.85, representing a year-over-year decline of 6% and sequential growth of 5%. Preprovision pretax, or PPPT, earnings were up 10% year over year, with provisioning being the key difference between PPPT earnings and net income. The biggest point of weakness for the Canadian banking sector in this quarter has been fees, particularly within the more market- and activity-sensitive investment banking, trading, and wealth businesses. CIBC saw a similar trend for investment banking and wealth fees; however, the bank outperformed on trading fees, which helped offset some of the other fee pressure, so we don’t expect to have to adjust our 2022 fee outlook downward as much for CIBC as we have for some peers. Solid balance sheet growth helped net interest income expand 5% sequentially, a solid result. Finally, expenses are coming in a bit ahead of where we expected, as spending on strategic initiatives is driving some additional expense growth. As we adjust our expense outlook slightly higher, we do not expect a material change in our fair value estimate of CAD 77/USD 60. Overall, preprovision net revenue is still on track to meet management’s goal of 5%-10% for the year.