[Note: This is an excerpt of the official release, to see the complete release click here.]
CIBC (CM: TSX; NYSE) today reported net income of $640 million for the third quarter ended July 31, 2010, compared with net income of $434 million for the same period last year. Diluted earnings per share (EPS) were $1.53, compared with diluted EPS of $1.02 a year ago. Cash diluted EPS were $1.55(1), compared with cash diluted EPS of $1.04(1) a year ago.
Results for the third quarter of 2010 were affected by the following items aggregating to a negative impact of $0.11 per share:
– $138 million ($96 million after-tax, or $0.25 per share) loss from the structured credit run-off business; and
– $76 million ($53 million after-tax, or $0.14 per share) reversal of provision for credit losses in the general allowance.
Net income of $640 million for the third quarter compared with net income of $660 million for the prior quarter. Diluted EPS and cash diluted EPS of $1.53 and $1.55(1), respectively, for the third quarter compared with diluted EPS and cash diluted EPS of $1.59 and $1.61(1), respectively, for the prior quarter, which included items of note aggregating to a positive impact of $0.15 per share.
CIBC’s capital position remains strong. CIBC’s Tier 1 and Tangible Common Equity ratios at July 31, 2010 were 14.2% and 9.5%, respectively, up from 13.7% and 8.9%, respectively, at April 30, 2010.
Return on equity for the third quarter was 19.8%.
Core business performance
CIBC delivered solid performance and progress during the third quarter.
“The investments we are making in our retail and wholesale businesses are furthering our strength in Canada and positioning us well for the future,” says Gerry McCaughey, President and Chief Executive Officer. “Given the uncertainty related to the economic recovery and the regulatory environment, we will continue to grow our businesses cautiously while maintaining balance sheet strength and expense discipline.”
CIBC Retail Markets reported net income of $599 million.
Revenue of $2.5 billion was up 7% from the third quarter of 2009, the highest growth since the first quarter of 2008, supported by strong results across our personal banking, business banking and wealth management businesses, as well as higher treasury allocations.
Credit quality in CIBC’s retail portfolios continued to improve. Provision for credit losses of $304 million was down from $334 million in the prior quarter and a peak of $417 million in the third quarter of 2009. Lower losses in domestic commercial banking, cards and personal lending portfolios were partially offset by higher losses in CIBC’s FirstCaribbean International Bank subsidiary.
CIBC’s retail business continues to make progress against its strategy to become the primary financial institution for more of its 11 million clients. During the quarter, CIBC provided clients with strong financial advice and increased access and choice by continuing to invest across its franchise:
– We announced an acquisition of $2.1 billion of credit card balances from Citigroup’s Canadian MasterCard business. This acquisition will further strengthen our market-leading credit card business by broadening our client base and diversifying our credit card portfolio, making CIBC the largest dual issuer of Visa and MasterCard products in Canada;
– We completed our five-year strategic branch investment program to open, expand or relocate more than 70 branches more than a year ahead of schedule;
– We were voted the “Best Consumer Internet Bank” in Canada for the third year in a row by Global Finance magazine;
– CIBC recognized and thanked its 11 million clients across Canada during CIBC’s National Customer Appreciation Day on June 11th. Client celebrations from coast-to-coast at CIBC’s more than 1,070 branches included refreshments, activities and exciting soccer-themed contests and giveaways to show CIBC’s appreciation towards its clients; and
– CIBC employees joined Canadians from coast-to-coast to cheer for their favourite teams as part of CIBC’s exclusive television broadcast sponsorship of the 2010 FIFA World Cup(TM). CIBC’s sponsorship included a 2-month national tour, branch events, street celebrations and extensive broadcast, print and online advertising.
Wholesale Banking reported net income of $25 million for the third quarter.
Revenue of $315 million was down from $548 million in the prior quarter, primarily driven by a loss from the structured credit run-off business compared to a gain in the prior quarter.
In CIBC’s core Capital Markets and Investment Banking businesses, combined revenue of $387 million was down from $407 million in the prior quarter.
Credit quality in the corporate loan portfolios remained strong. Provision for credit losses of $29 million was up slightly from $27 million in the prior quarter, driven entirely by higher losses in the run-off businesses. In core businesses, losses were from CIBC’s U.S. commercial real estate portfolio. Losses in this portfolio were down from the prior quarter and the third quarter of 2009.
Against the backdrop of a challenging environment and low levels of client activity across the industry, core business results in Wholesale Banking were solid. This performance reflects the consistency and risk control that the business set out to achieve two years ago with its renewed client-focused strategy.
Wholesale Banking had several notable achievements during the third quarter:
– CIBC acted as joint lead manager on a $5.1 billion, 2-tranche offering from Canada Housing Trust No. 1 in May;
– CIBC acted as joint lead and joint bookrunner on a 10-year, $1.0 billion bond offering from TELUS Corporation. This offering is the largest single tranche corporate offering completed to date in 2010 and the first investment grade telecom issue of the year;
– CIBC acted as exclusive financial advisor to Quadra Mining Ltd. on its $3.5 billion merger with FNX Mining Company Inc.;
– CIBC acted as sole bookrunner on a US$376 million treasury offering for Central Fund of Canada, the largest physical gold and silver bullion fund in North America. This is the largest of the 25 transactions CIBC has completed for the Central Fund Group; and
– CIBC acted as sole lead arranger and bookrunner on a corporate revolver for Enerplus of $1.0 billion, as well as co-lead arranger and joint bookrunner on revolving credit facilities for Teck Resources, Hydro One and Taqa North of US$1.0 billion, $1.25 billion and $1.0 billion, respectively.
Structured credit run-off progress
In an environment where credit market conditions were the most challenging since early 2009, CIBC continued to reduce exposure in its structured credit run-off business:
– We redeemed the underlying security of a $138 million (US$134 million) written credit derivative with no impact on earnings. As a result, the written credit derivative and related hedging contract with a financial guarantor matured. We recognized a gain of $51 million (US$50 million) from the reversal of the credit valuation adjustment against the financial guarantor;
– We terminated $343 million (US$328 million) of hedging contracts with a financial guarantor with no financial impact. As a result, an underlying trading security with a notional of $166 million (US$156 million) and a fair value of $66 million (US$62 million), as well as a written credit derivative with a notional of $177 million (US$172 million) and a nominal fair value, became unhedged;
– We terminated a $231 million (US$225 million) written credit derivative and assumed the related loan of the same amount. The loan was subsequently delivered under the terms of the related hedging contract with a financial guarantor with no significant impact on earnings;
– We sold an unhedged collateralized loan obligation classified as a loan with a notional of $227 million (US$221 million) and a carrying value of $214 million (US$208 million) with no significant impact on earnings;
– We assumed underlying securities of written credit derivatives with a notional of $883 million (US$829 million) and a fair value of $92 million (US$86 million) with no significant impact on earnings; and
– Normal amortization reduced the notional of our purchased credit derivatives with financial guarantors by $151 million (US$146 million).
As at July 31, 2010, the fair value, net of valuation adjustments, of purchased protection from financial guarantor counterparties was $1.1 billion (US$1.0 billion). Further significant losses could result, depending on the performance of both the underlying assets and the financial guarantors.
CIBC in our communities
In addition to generating strong returns for our shareholders, CIBC is committed to supporting causes that matter to our clients, our employees and our communities. This past quarter included several notable achievements:
– CIBC clients and employees in British Columbia and the Yukon Territories raised $435,000 for the B.C. Children’s Hospital Foundation. Corporate donations and the generosity of CIBC employees and clients have contributed $6 million since 1995 to support the growing needs of the hospital;
– CIBC clients and employees raised $370,000 for Fondation Centre de cancérologie Charles-Bruneau at the 15th annual Tour CIBC Charles-Bruneau in Montreal to raise money for kids with cancer. This amount represents a 50% increase over last year and 35% of the Tour’s 2010 fundraising goal;
– CIBC was named one of Canada’s 50 Most Socially Responsible Corporations in the annual Jantzi-Maclean’s Corporate Social Responsibility Report. The report recognizes the top 50 corporations that perform best across a broad range of environmental, social, and governance indicators as tracked by Jantzi Research;
– CIBC was selected by Corporate Knights as one of the Best 50 Corporate Citizens for 2010, marking the sixth time the bank has made the list since the annual ranking began in 2002. Corporate Knights analyzed 118 significant Canadian companies on corporate sustainability initiatives and responsible business practices;
– CIBC hosted its first external Diversity Roundtable in June as part of its 18th annual Diversity month. More than 60 human resources professionals from a range of companies, that included financial services, telecommunications, government, and professional consulting services, participated in the roundtable to share and discuss emerging ideas on diversity issues and trends;
– CIBC employees and Canadians across the country celebrated National Aboriginal Day, honouring the heritage, culture, and achievements of Aboriginal peoples. Over the past five years, CIBC has committed $4.5 million to organizations and programs that support our Aboriginal communities, including Job Readiness Training and National Aboriginal Achievement Foundation scholarships and bursaries for young Aboriginals;
– CIBC committed $125,000 to the Children’s Hospital of Eastern Ontario (CHEO) Foundation’s BIG STEPS campaign. The campaign aims to attract the best research minds, physicians and health care providers to CHEO and equip them with the advanced tools and technologies they need to care for and cure kids from Eastern Ontario and Western Quebec; and
– CIBC delivered a commitment of $200,000 to help the Hincks-Dellcrest Centre continue supporting the mental health needs of Ontario’s infants, children and youth, and their families. Hincks-Dellcrest Centre also acknowledged the bank’s 35 years of giving and for providing $1 million of consistent financial support to one of the largest charitable mental health organizations in Ontario.
(1) For additional information, see the “Non-GAAP measures” section.