CIBC revenue growth outpaces expenses, proposes stock splits

CIBC’s strategy of investing in its own growth has led to increased revenue and earnings from loans, fees and capital markets in the first quarter that outpaced rising expenses, chief executive Victor Dodig said Friday.

The 11% revenue growth reported for the quarter ending Jan. 31 was slightly ahead of the 10% growth in expenses as CIBC continued to invest in technology and other client-focused investments to grow market share.

“We have invested significant resources to enhance our banking capabilities, to grow market share and to streamline our cost base. I think you can see all of this in our results,” Dodig said during a conference call with financial analysts to discuss the bank’s first-quarter results.

Just this week the bank announced it was investing in cloud-based banking platform Pollinate to bring its small and medium-sized digital business payments and banking system Tyl to Canada. In January the bank also struck a deal to use nCino Inc.’s cloud platform to streamline business banking.

Dodig said the investments will not only help the bank grow but also better prepare it for a future where open banking — which allows people to securely share their banking data with third-parties such as tech companies — is the norm.

In Canadian commercial banking and wealth management, CIBC reported net income of $462 million in the latest quarter, up from $442 million in Q4 2021 and $354 million in Q1 2021.

CIBC reported Friday its assets under management, as of Jan. 31, were $317.4 billion. This was essentially unchanged from $316.8 billion as of Oct 31, 2021 but up 13.2% from $280 billion as of Jan 31, 2021.

That double-digit growth was “driven by both market activity, strong investment performance and solid net flows,” Dodig said Friday.

“Our North American wealth management business continued to benefit from both market appreciation and client flows, driving strong growth in mutual fund and investment management custodial fees, which, in aggregate, were up 16% from a year ago,” chief financial officer Hratch Panossian added.

To help boost personal banking, CIBC invested to take over Costco’s MasterCard portfolio last year, with existing clients expected to be switched over to CIBC-linked cards in March.

While growth-related investments helped push up costs, Panossian said expenses were also up due to performance-based compensation, inflation, and increased activity including business development, offset by some efficiency improvements.

He said that while the bank is focused on growth, it could also dial back spending if necessary.

“We have the ability to manage the pace of investment in the face of a more challenging operating environment in order to work towards our positive operating leverage target.”

Overall CIBC reported a profit of $1.87 billion or $4.03 per diluted share for the quarter ended Jan. 31, up from $1.63 billion or $3.55 per diluted share in the same quarter a year earlier.

Revenue totalled $5.50 billion for the quarter, up from $4.96 billion, while provisions for credit losses amounted to $75 million compared with $147 million in the same quarter last year.

On an adjusted basis, CIBC says it earned $4.08 per diluted share for the quarter, up from an adjusted profit of $3.58 per diluted share a year earlier.

Analysts on average had expected an adjusted profit of $3.67 per share, according to financial markets data firm Refinitiv.

Scotiabank analyst Meny Grauman noted that trading revenue, up 75% from the previous quarter, was 49% higher than his expectations.

Grauman said it was a key driver in beating his overall estimates, but said it would be a mistake to dismiss the results as simply a trading beat because the bank also posted 14% loan growth, slightly positive operating leverage and positive results in its property and casualty business.

“When we dig into the results we see a lot to highlight beyond capital markets strength,” he said in a note.

CIBC also proposed a two-for-one stock split as it reported results Friday, subject to approval by shareholders at its annual meeting on April 7, as well as requirements of the Toronto Stock Exchange and New York Stock Exchange.

Dodig said the stock split proposal comes after the bank has seen its share price appreciate significantly, with the bank’s shares trading at around $160 a share in recent weeks compared with a little over $100 a share before the pandemic.

“That makes now a good time to announce a split, which would make our shares more accessible to many retail investors,” said Dodig.