TORONTO, May 30, 2013 /CNW/ - CIBC (TSX: CM) (NYSE: CM) today announced its financial results for the second quarter ended April 30, 2013.
Second quarter highlights
- Reported net income was $876 million, compared with $811 million for the second quarter a year ago, and $798 million for the prior quarter.
- Adjusted net income was $876(1) million, compared with $840(1) million for the second quarter a year ago, and $895(1) million for the prior quarter.
- Reported diluted earnings per share was $2.12, compared with $1.90 for the prior year quarter, and $1.91 for the prior quarter.
- Adjusted diluted earnings per share was $2.12(1), compared with $2.00(1) for the prior year quarter, and $2.15(1) for the prior quarter.
Results for the second quarter of 2013 were affected by the following items of note:
- $27 million ($20 million after-tax or $0.05 per share) income from the structured credit run-off business;
- $21 million ($15 million after-tax or $0.04 per share) loan losses in our exited European leveraged finance portfolio; and
- $6 million ($5 million after-tax or $0.01 per share) amortization of intangible assets.
CIBC's Basel III Common Equity Tier 1 ratio at April 30, 2013 was 9.7%, and our Tier 1 capital ratio and Total capital ratio were 12.2% and 15.5%, respectively, on an all-in basis compared to Basel III Common Equity Tier 1 ratio of 9.6%, Tier 1 capital ratio of 12.0% and Total capital ratio of 15.3% in the prior quarter.
Return on common shareholders' equity for the second quarter was 22.3%.
CIBC announced a quarterly dividend increase of 2 cents per common share to 96 cents per share.
"CIBC delivered solid results this quarter across our core businesses in Retail and Business Banking, Wealth Management and Wholesale Banking," says Gerald T. McCaughey, President and Chief Executive Officer. "These results reflect our strong focus on our clients as well as our underlying business fundamentals."
Core business performance
Retail and Business Banking reported net income of $604 million for the second quarter, up $48 million or 9% from the same quarter last year.
Revenue of $2.0 billion was up $32 million or 2% from the second quarter of 2012, primarily due to volume growth across most products, wider spreads, and higher fees. Provision for credit losses of $233 million was down $38 million, or 14%, from the same quarter last year due to lower write-offs and bankruptcies in the cards portfolio.
During the second quarter of 2013, Retail and Business Banking continued to make progress against our objectives of accelerating profitable revenue growth and enhancing client experience:
- We continued to invest in our distribution platform, opening 10 branches in the first half of fiscal 2013 to better serve our clients. We now offer expanded evening and Saturday hours at over 650 of our branches, as well as Sunday hours at over 100 branches;
- In April, we launched the CIBC Everyday Banking Bundle and the CIBC Premium Banking Bundle to make it easier for our clients to bank with us and reward them for doing so;
- We launched Break Away to our Imperial Service teams across the country. Break Away, a leadership training program to support frontline best practices, has successfully demonstrated that through a consistent approach to sales and service delivery we can significantly improve sales and client experience results; and
- Post quarter-end, we announced the availability of CIBC Mobile Payments to Android smartphones, starting with the Samsung Galaxy S3 from Rogers. This builds on our leadership in the mobile payments space. Last October, CIBC became the first bank in Canada to provide consumers with the ability to complete credit card transactions via their smartphone.
Wealth Management reported net income of $92 million for the second quarter, up 16% from the same quarter last year.
Revenue of $443 million was up $25 million or 6% compared to the second quarter of 2012, primarily due to higher client assets under management driven by higher long-term net sales of mutual funds.
During the second quarter of 2013, Wealth Management continued its progress in support of our strategic priority to build our wealth management platform:
- We announced our intention to acquire Atlantic Trust Private Wealth Management from its parent company Invesco Ltd. as part of our strategic plan to grow our North American wealth management business; and
- We continue to maintain momentum in our retail fund business with 17 consecutive quarters of positive long-term net sales.
Wholesale Banking reported net income of $198 million for the second quarter, up $107 million from the prior quarter, which included a settlement charge shown as an item of note. Excluding items of note, adjusted net income was $193(1) million, down $7 million from the prior quarter.
Revenue of $580 million was up $17 million or 3% from the prior quarter, primarily due to higher revenue in the structured credit run-off business and U.S. real estate finance, partially offset by lower capital markets revenue.
In support of its objective to be the premier client-focused wholesale bank centred in Canada, Wholesale Banking acted as:
- Financial advisor to Inmet Mining on its sale to First Quantum Minerals for $4.6 billion;
- Joint bookrunner and administrative agent in the refinancing of Hydro-Québec's US$2.0 billion revolving credit facility;
- Joint bookrunner of TELUS Corporation's $1.7 billion dual-tranche bond offering;
- Financial advisor, joint underwriter, joint bookrunner and administrative agent for Leon's Furniture Limited's $500 million acquisition financing to acquire The Brick; and
- Joint lead and joint bookrunner on the Province of Manitoba's US$500 million global debt offering.
In summary, CIBC delivered solid performance during the second quarter.
"The investments we are making in our retail and business banking, wealth management and wholesale banking businesses are furthering our strength and positioning us well for the future," says Mr. McCaughey.
CIBC in our communities
CIBC is committed to supporting organizations that help make our communities stronger and healthier. During the quarter CIBC announced:
- A $1 million sponsorship of the National Arts Centre (NAC) Gala in support of the National Youth and Education Trust;
- A $500,000 donation to London Health Sciences Foundation;
- A $250,000 donation to the Ottawa Hospital to support the hospital's Breast Health Centre; and
- A $250,000 donation to the IWK's Women's & Newborn Health Program in Halifax to help redevelop the operating suites and recovery area at the IWK Health Centre.
As the official Canadian bank in association with VISA of the 2014 FIFA World Cup Brazil™, CIBC hosted the 2014 FIFA World Cup Winner's Trophy at an event for more than 4,000 clients, employees and the public to celebrate Canada's diverse communities and passion for sports.
For a second consecutive year, CIBC was ranked as the strongest bank in Canada, strongest in North America and third strongest in the world by Bloomberg Markets. During the quarter, CIBC was also named as one of the:
- Best Workplaces in Canada 2013 by the Great Place to Work Institute;
- Best Employers for New Canadians 2013 and Canada's Best Diversity Employers 2013 by Mediacorp; and
- Top Brands 2013 in Canada by the Reputation Institute.
"These awards reflect our strategy to be a lower risk bank that generates consistent and sustainable earnings over the long term, while achieving strategic growth; and demonstrate our commitment to creating an environment where all employees can excel," adds Mr. McCaughey.
(1) For additional information, see the "Non-GAAP measures" section.
The information on the following pages forms a part of this press release.
(The board of directors of CIBC reviewed this press release prior to it being issued. CIBC's controls and procedures support the ability of the President and Chief Executive Officer and the Chief Financial Officer of CIBC to certify CIBC's second quarter financial report and controls and procedures. CIBC's CEO and CFO will voluntarily provide to the Securities and Exchange Commission a certification relating to CIBC's second quarter financial information, including the attached unaudited interim consolidated financial statements, and will provide the same certification to the Canadian Securities Administrators.)
Management's discussion and analysis
Management's discussion and analysis (MD&A) is provided to enable readers to assess CIBC's financial condition and results of operations as at and for the quarter and six months ended April 30, 2013, compared with corresponding periods. The MD&A should be read in conjunction with our 2012 Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of May 29, 2013. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC) website at www.sec.gov. No information on CIBC's website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 182 to 185 of our 2012 Annual Report.
External reporting changes
We adopted the Office of the Superintendent of Financial Institution's (OSFI) revised Capital Adequacy Requirements (CAR) Guideline effective January 2013. The revised CAR Guideline reflects the changes to capital requirements, commonly referred to as Basel III, that have been issued by the Basel Committee on Banking Supervision (BCBS).
A NOTE ABOUT FORWARD-LOOKING STATEMENTS: From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including in this report, in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission and in other communications. These statements include, but are not limited to, statements made in the "Overview - Income taxes", "Overview - Outlook for calendar year 2013", "Review of quarterly financial information", "Capital resources", "Management of risk - Credit risk", "Management of risk - Market risk", "Management of risk - Liquidity risk", and "Accounting and control matters" sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for 2013 and subsequent periods. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate" and other similar expressions or future or conditional verbs such as "will", "should", "would" and "could". By their nature, these statements require us to make assumptions, including the economic assumptions set out in the "Overview - Outlook for calendar year 2013" section of this report, and are subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond our control, affect our operations, performance and results, and could cause actual results to differ materially from the expectations expressed in any of our forward-looking statements. These factors include: credit, market, liquidity, strategic, insurance, operational, reputation and legal, regulatory and environmental risk; the effectiveness and adequacy of our risk management models and processes; legislative or regulatory developments in the jurisdictions where we operate; amendments to, and interpretations of, risk-based capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; changes to our credit ratings; political conditions and developments; the possible effect on our business of international conflicts and the war on terror; natural disasters, public health emergencies, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; the accuracy and completeness of information provided to us by clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; changes in monetary and economic policy; currency value fluctuations; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations; changes in market rates and prices which may adversely affect the value of financial products; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; our ability to successfully execute our strategies and complete and integrate acquisitions and joint ventures; and our ability to anticipate and manage the risks associated with these factors. This list is not exhaustive of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements. We do not undertake to update any forward-looking statement that is contained in this report or in other communications except as required by law.
Second quarter financial highlights
|As at or for the||As at or for the|
|three months ended||six months ended|
|Unaudited||Apr. 30||Jan. 31||Apr. 30||Apr. 30||Apr. 30|
|Financial results ($ millions)|
|Net interest income||$||1,823||$||1,855||$||1,753||$||3,678||$||3,595|
|Provision for credit losses||265||265||308||530||646|
|Income before taxes||1,053||929||1,012||1,982||2,040|
|Net income attributable to non-controlling interests||$||2||$||2||$||1||$||4||$||4|
|Net income attributable to equity shareholders||$||874||$||796||$||810||$||1,670||$||1,642|
|Reported efficiency ratio||58.0||%||62.5||%||57.2||%||60.3||%||57.0||%|
|Adjusted efficiency ratio (1)||56.6||%||56.1||%||55.1||%||56.3||%||55.2||%|
|Loan loss ratio (2)||0.47||%||0.42||%||0.53||%||0.44||%||0.53||%|
|Return on common shareholders' equity||22.3||%||19.9||%||22.1||%||21.1||%||22.2||%|
|Net interest margin||1.85||%||1.83||%||1.82||%||1.84||%||1.84||%|
|Net interest margin on average interest-earning assets (3)||2.14||%||2.12||%||2.11||%||2.13||%||2.13||%|
|Return on average assets (4)||0.89||%||0.79||%||0.84||%||0.84||%||0.84||%|
|Return on average interest-earning assets (3)(4)||1.03||%||0.91||%||0.98||%||0.97||%||0.98||%|
|Total shareholder return||(2.02)||%||7.13||%||(1.12)||%||4.97||%||1.63||%|
|Common share information|
|Per share ($)||- basic earnings||$||2.12||$||1.91||$||1.90||$||4.03||$||3.84|
|- reported diluted earnings||2.12||1.91||1.90||4.03||3.83|
|- adjusted diluted earnings (1)||2.12||2.15||2.00||4.27||3.97|
|- book value||39.11||38.07||35.22||39.11||35.22|
|Share price ($)||- high||84.70||84.10||78.00||84.70||78.00|
|Shares outstanding (thousands)||- weighted-average basic||400,400||403,332||403,058||401,890||402,068|
|- weighted-average diluted||400,812||403,770||403,587||402,315||402,590|
|- end of period||399,811||401,960||404,945||399,811||404,945|
|Market capitalization ($ millions)||$||32,213||$||33,443||$||30,181||$||32,213||$||30,181|
|Dividend yield (based on closing share price)||4.8||%||4.5||%||4.9||%||4.7||%||4.9||%|
|Reported dividend payout ratio||44.2||%||49.2||%||47.4||%||46.6||%||46.9||%|
|Adjusted dividend payout ratio (1)||44.2||%||43.7||%||45.0||%||43.9||%||45.3||%|
|Market value to book value ratio||2.06||2.19||2.12||2.06||2.12|
|On- and off-balance sheet information ($ millions)|
|Cash, deposits with banks and securities||$||78,361||$||72,656||$||68,695||$||78,361||$||68,695|
|Loans and acceptances, net of allowance||252,292||251,139||251,487||252,292||251,487|
|Common shareholders' equity||15,638||15,303||14,260||15,638||14,260|
|Average interest-earning assets (3)||350,136||347,020||337,852||348,552||338,718|
|Average common shareholders' equity||15,583||15,361||14,095||15,470||13,959|
|Assets under administration (5)||1,468,429||1,429,049||1,397,624||1,468,429||1,397,624|
|Balance sheet quality measures (7)|
|Basel III - Transitional basis|
|Risk-weighted assets (RWA) ($ billions)||$||138.3||$||134.8||n/a||$||138.3||n/a|
|Common Equity Tier 1 (CET1) ratio||11.5||%||11.5||%||n/a||11.5||%||n/a|
|Tier 1 capital ratio||12.4||%||12.4||%||n/a||12.4||%||n/a|
|Total capital ratio||15.2||%||15.3||%||n/a||15.2||%||n/a|
|Basel III - All-in basis|
|RWA ($ billions)||$||125.9||$||126.4||n/a||$||125.9||n/a|
|Tier 1 capital ratio||12.2||%||12.0||%||n/a||12.2||%||n/a|
|Total capital ratio||15.5||%||15.3||%||n/a||15.5||%||n/a|
|RWA ($ billions)||n/a||n/a||$||113.3||n/a||$||113.3|
|Tier 1 capital ratio||n/a||n/a||14.1||%||n/a||14.1||%|
|Total capital ratio||n/a||n/a||17.7||%||n/a||17.7||%|
|Retail / wholesale ratio (1)(6)||78 % / 22||%||78 % / 22||%||76 % / 24||%||78 % / 22||%||76 % / 24||%|
|Full-time equivalent employees (8)||43,057||42,793||42,267||43,057||42,267|
|(1)||For additional information, see the "Non-GAAP measures" section.|
|(2)|| The ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses.
The provision for credit losses on impaired loans includes provision for: individual allowance; collective allowance on personal, scored small business
and mortgages that are greater than 90 days delinquent; and net credit card write-offs.
|(3)|| Average interest-earning assets include interest-bearing deposits with banks, securities, securities borrowed or purchased under resale agreements,
and loans net of allowances.
|(4)||Net income expressed as a percentage of average assets or average interest-earning assets.|
|(5)||Includes the full contract amount of assets under administration or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon.|
|(6)|| For the purposes of calculating this ratio, Retail includes Retail and Business Banking, Wealth Management, and International banking operations
(reported as part of Corporate and Other). The ratio represents the amount of economic capital attributed to these businesses as at the end of the period.
|(7)||Capital measures for fiscal year 2013 are based on Basel III whereas fiscal 2012 measures are based on Basel II.|
|(8)|| Full-time equivalent employees is a measure that normalizes the number of full-time and part-time employees, base plus commissioned employees,
and 100% commissioned employees into equivalent full time units based on actual hours of paid work during a given period.
Reported net income for the quarter was $876 million, compared to $811 million for the same quarter last year and $798 million for the prior quarter. Net income for the six months ended April 30, 2013 was $1,674 million, compared to $1,646 million for the same period in 2012.
Reported diluted earnings per share (EPS) for the quarter was $2.12, compared to $1.90 for the same quarter last year and $1.91 for the prior quarter. Reported diluted EPS for the six months ended April 30, 2013 was $4.03 compared to $3.83 for the same period in 2012.
Adjusted diluted EPS for the quarter was $2.12(1), compared to $2.00(1) for the same quarter last year and $2.15(1) for the prior quarter.
Adjusted diluted EPS for the six months ended April 30, 2013 was $4.27(1), compared to $3.97(1) for the same period in 2012.
Net income for the current quarter was affected by the following items of note:
- $27 million ($20 million after-tax) income from the structured credit run-off business (Wholesale Banking);
- $21 million ($15 million after-tax) loan losses in our exited European leveraged finance portfolio (Wholesale Banking); and
- $6 million ($5 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management, and $3 million after-tax in Corporate and Other)
The above items of note increased revenue by $29 million, provision for credit losses by $21 million and non-interest expenses by $8 million. In aggregate, the impact of these items of note on net income was nil.
Net interest income(2)
Net interest income was up $70 million or 4% from the same quarter last year, primarily due to higher trading-related net interest income and wider retail spreads, partially offset by lower treasury-related net interest income. The prior year quarter included the hedge accounting loss on leveraged leases, shown as an item of note.
Net interest income was down $32 million or 2% from the prior quarter primarily due to fewer days in the quarter.
Net interest income for the six months ended April 30, 2013 was up $83 million or 2% from the same period in 2012, primarily due to higher trading-related net interest income, wider retail spreads, and volume growth across most retail products, partially offset by lower treasury-related net interest income. The same period in 2012 included the hedge accounting loss on leveraged leases shown as an item of note.
Non-interest income was down $15 million or 1% from the same quarter last year, primarily due to trading losses in the current quarter compared to trading income in the prior year quarter, partially offset by higher mutual fund fees.
Non-interest income was down $10 million or 1% from the prior quarter primarily due to trading losses in the current quarter compared to trading income in the prior quarter, partially offset by higher gains net of write-downs on available-for-sale (AFS) securities and higher mutual fund fees. The prior quarter had a gain on sale of the private wealth management business, included as an item of note.
Non-interest income for the six months ended April 30, 2013 was comparable to the same period in 2012. Higher mutual fund and credit fees were largely offset by lower trading income. The current year period had the gain on sale of the private wealth management business included as an item of note, while the prior year period had a gain relating to an equity-accounted investment in our Wealth Management strategic business unit (SBU), also included as an item of note.
Provision for credit losses
Provision for credit losses was down $43 million or 14% from the same quarter last year. In Retail and Business Banking, provisions were down mainly due to lower write-offs and bankruptcies in the cards portfolio. In Wholesale Banking, provisions were up due to losses in the exited European leveraged finance portfolio in the current quarter, partially offset by lower losses in the U.S. real estate finance portfolio. In Corporate and Other, provisions were down due to lower losses in CIBC FirstCaribbean International Bank (CIBC FirstCaribbean).
Provision for credit losses was the same as the prior quarter. In Retail and Business Banking, provisions were down mainly due to lower bankruptcies and write-offs in the cards portfolio. In Wholesale Banking, provisions were up due to losses in the exited European leveraged finance portfolio, partially offset by lower losses in the U.S. real estate finance portfolio. In Corporate and Other, the provision for collective allowance reported in this segment was lower.
Provision for credit losses for the six months ended April 30, 2013 was down $116 million or 18% from the same period in 2012. In Retail and Business Banking, provisions were down mainly due to lower write-offs and bankruptcies in the cards portfolio. In Wholesale Banking, provisions were down due to lower losses in the U.S. real estate finance portfolio, partially offset by losses in the exited European leveraged finance portfolio. In Corporate and Other, provisions were down due to lower losses in CIBC FirstCaribbean and the provision for collective allowance reported in this segment was lower.
Non-interest expenses were up $57 million or 3% compared to the same quarter last year, primarily due to higher employee compensation and benefits.
Non-interest expenses were down $166 million or 8% from the prior quarter, primarily due to lower expenses in the structured credit run-off business, which included a settlement charge in the prior quarter shown as an item of note, and lower employee compensation.
Non-interest expenses for the six months ended April 30, 2013 were up $253 million or 7% from the same period in 2012, primarily due to higher expenses in the structured credit run-off business in the current period, which included a settlement charge shown as an item of note, and higher employee compensation and benefits.
|(1)||For additional information, see the "Non-GAAP measures" section.|
|(2)||Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance.|
Income tax expense was down $24 million or 12% from the same quarter last year. The impact of higher income was more than offset by the impact of higher tax-exempt income.
Income tax expense was up $46 million or 35% from the prior quarter, mainly due to higher income.
Income tax expense for the six months ended April 30, 2013 was down $86 million or 22% from the same period in 2012, mainly due to higher tax-exempt income and an increase in the relative proportion of income subject to lower income tax rates.
In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3.0 billion of the 2005 Enron settlement payments and related legal expenses. The matter is currently in litigation and on December 21, 2011 (and reconfirmed on July 5, 2012), in connection with a motion by CIBC to strike the Crown's replies, the Tax Court of Canada (TCC) struck certain portions of the replies and directed the Crown to submit amended replies. Both the Crown and CIBC appealed the ruling to the Federal Court of Appeal (FCA) and on May 6, 2013, the FCA found in CIBC's favour on all grounds. If the Crown does not seek to appeal these rulings, we would expect the TCC trial on the deductibility of the Enron charges to commence in the latter part of 2014 or 2015.
Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $189 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million.
The estimated impact of U.S. dollar translation on key lines of our interim consolidated statement of income, as a result of changes in average exchange rates, is as follows:
|For the three||For the six|
|months ended||months ended|
|Apr. 30, 2013||Apr. 30, 2013||Apr. 30, 2013|
|$ millions||Apr. 30, 2012||Jan. 31, 2013||Apr. 30, 2012|
|Estimated increase in:|
|Provision for credit losses||1||1||-|
|Average US$ appreciation relative to C$||2.7||%||2.3||%||0.4||%|
Impact of items of note in prior periods
Net income for the prior quarters was affected by the following items of note:
- $148 million ($109 million after-tax) loss from the structured credit run-off business, including the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. (Wholesale Banking);
- $16 million ($16 million after-tax) gain, net of associated expenses, on the sale of our Hong Kong and Singapore-based private wealth management business (Corporate and Other); and
- $5 million ($4 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $2 million after-tax in Corporate and Other).
The above items of note increased revenue by $28 million, non-interest expenses by $165 million, and decreased income tax expenses by $40 million. In aggregate, these items of note decreased net income by $97 million.
- $28 million ($16 million after-tax) hedge accounting loss on leveraged leases (Wholesale Banking);
- $10 million ($7 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
- $7 million ($6 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management and $3 million after-tax in Corporate and Other).
The above items of note decreased revenue by $29 million, increased non-interest expenses by $16 million, and decreased income tax expenses by $16 million. In aggregate, these items of note decreased net income by $29 million.
In addition, net income attributable to common shareholders was also affected by the following item of note:
- $12 million premium paid on preferred share redemptions.
- $37 million ($35 million after-tax) gain relating to an equity-accounted investment (Wealth Management);
- $35 million ($26 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
- $9 million ($7 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $5 million after-tax in Corporate and Other).
The above items of note increased revenue by $10 million, non-interest expenses by $17 million, and decreased income tax expenses by $9 million. In aggregate, these items of note increased net income by $2 million.
In addition, net income attributable to common shareholders was also affected by the following item of note:
- $18 million premium paid on preferred share redemptions.
Atlantic Trust Private Wealth Management
On April 11, 2013, CIBC announced that it entered into a definitive agreement to acquire Atlantic Trust Private Wealth Management (Atlantic Trust) from its parent company, Invesco Ltd., for US$210 million. Atlantic Trust, which has approximately US$20 billion in assets under management, provides integrated wealth management solutions for high-net-worth individuals, families, foundations and endowments. The transaction is subject to regulatory approval and is expected to close in early fiscal 2014. The results of the acquired business will be consolidated from the date of close and will be included in the Wealth Management SBU.
Private wealth management (Asia)
On January 25, 2013, CIBC sold its stand-alone Hong Kong and Singapore-based private wealth management business. This niche advisory and brokerage business, which was included in International banking within Corporate and Other, provided private banking services to a small number of high-net-worth individuals in the Asia-Pacific region and had assets under management of approximately $2 billion. As a result, CIBC recognized a gain, net of associated expenses, of $16 million ($16 million after-tax) during the quarter ended January 31, 2013. CIBC's other businesses in Asia were unaffected by this transaction.
Lehman Brothers bankruptcy proceedings
During the quarter ended January 31, 2013, CIBC recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note as further detailed in Note 23 of the 2012 consolidated financial statements.
Outlook for calendar year 2013
Moderate economic growth is likely to continue in both Canada and the U.S. in 2013. Real GDP gains are likely to be in the vicinity of 2% in the U.S. and slightly below that pace in Canada, in the face of soft growth overseas, and ongoing fiscal tightening. We expect European governments will prevent sovereign debt troubles from spilling over into a larger Eurozone banking crisis but fiscal tightening has left Europe in a mild recession. In the U.S., improving household credit fundamentals and continued recovery in home building will help offset the drag from tighter fiscal policy.
Canada's economy will benefit from a pick-up in oil output, but will see somewhat less robust domestic demand. Government spending will remain a slight negative for growth as fiscal tightening continues. Consumer demand will be supported by ongoing job creation, but will be held close to income gains as the appetite for credit is held in check by existing high debt levels, even with the Bank of Canada avoiding interest rate increases through 2013. Housing is turning from a strong growth contributor to a slight negative this year as the impact of softer sales shows up in a modest retreat in construction activity.
Retail and Business Banking is expected to face slightly slower growth in demand for mortgages, while consumer credit demand could continue to see limited growth. Demand for business credit should continue at a healthy growth rate. Slightly slower economic growth is unlikely to result in deterioration in household credit quality, with the unemployment rate holding nearly steady.
Wealth Management should see an improvement in demand for equities and other risk assets over the course of 2013 as global uncertainties are gradually resolved.
Wholesale Banking will continue to benefit from a healthy pace of debt financings as both governments and corporations take advantage of low interest rates and robust market conditions. Equity issuance could improve over the course of the year as global growth uncertainties are gradually resolved, a trend that should also support merger activity. Corporate credit demand should be supported by growth in capital spending, although the public debt market and internal cash flows will be a competitive source of funding.
Review of quarterly financial information
|$ millions, except per share amounts,|
|for the three months ended||2013||2012||2011|
|Apr. 30||Jan. 31||Oct. 31||Jul. 31||Apr. 30||Jan. 31||Oct. 31||Jul. 31|
|Retail and Business Banking||$||2,036||$||2,065||$||2,036||$||2,085||$||2,004||$||2,029||$||2,076||$||2,035|
|Wholesale Banking (1)||580||563||575||527||463||495||561||503|
|Corporate and Other (1)||80||121||128||136||199||198||162||189|
|Net interest income||$||1,823||$||1,855||$||1,848||$||1,883||$||1,753||$||1,842||$||1,776||$||1,785|
|Provision for credit losses||265||265||328||317||308||338||306||310|
|Net income attributable to:|
|(1)|| Wholesale Banking revenue and income taxes are reported on a taxable equivalent basis (TEB) with an equivalent offset in the revenue
and income taxes of Corporate and Other.
Our quarterly results are modestly affected by seasonal factors. The second quarter has fewer days as compared with the other quarters, generally leading to lower earnings. The summer months (July - third quarter and August - fourth quarter) typically experience lower levels of capital markets activity, which affects our brokerage, investment management, and wholesale banking activities.
Retail and Business Banking revenue has benefitted from volume growth across most retail products, offset to some extent by the continued low interest rate environment and attrition in our exited FirstLine mortgage business.
Wealth Management revenue has benefitted from continued strong net sales of long-term mutual funds and higher average assets under management. Income from our proportionate share in American Century Investments (ACI) is included from September 1, 2011 and a gain related to this equity-accounted investment was included in the first quarter of 2012.
Wholesale Banking revenue is influenced to a large extent by capital market conditions, and growth in the equity derivatives business which has resulted in higher tax-exempt income. Revenue has also been impacted by the volatility in the structured credit run-off business. The second quarter of 2012 included the hedge accounting loss on leveraged leases. The fourth quarter of 2012 included a gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. by Maple Group Acquisition Corporation and a loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis.
Corporate and Other includes the offset related to tax-exempt income noted above. The second half of 2012 and first half of 2013 had lower unallocated treasury revenue. The first quarter of 2013 included a gain on sale of the private wealth management business (Asia).
Provision for credit losses
Provision for credit losses is dependent upon the credit cycle in general and on the credit performance of the loan portfolios. Losses in the cards portfolio declined in 2012 and the first half of 2013. In Wholesale Banking, the fourth quarter of 2011 had higher losses in the exited European leveraged finance portfolio. During 2012, we had higher losses in the U.S. real estate finance portfolio and the fourth quarter included losses in the exited U.S. leveraged finance portfolio. The current quarter had losses in the exited European leveraged finance portfolio.
Non-interest expenses have fluctuated over the period largely due to changes in employee compensation and benefits, including pension expense. An impairment loss relating to CIBC FirstCaribbean goodwill was recognized in the third quarter of 2011. The first quarter of 2013 had higher expenses in the structured credit run-off business.
Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items. Tax-exempt income has been trending higher for the periods presented in the table above. The above-noted impairment loss relating to CIBC FirstCaribbean goodwill was not tax-effected.
We use a number of financial measures to assess the performance of our business lines. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures useful in analyzing financial performance. For a more detailed discussion on our non-GAAP measures, see page 19 of the 2012 Annual Report. The following table provides a reconciliation of non-GAAP to GAAP measures related to CIBC on a consolidated basis.
|As at or for the||As at or for the|
|three months ended||six months ended|
|$ millions||Apr. 30||Jan. 31||Apr. 30||Apr. 30||Apr. 30|
|Reported and adjusted diluted EPS|
|Reported net income attributable to diluted common shareholders||A||$||849||$||771||$||766||$||1,620||$||1,542|
|After-tax impact of items of note (1)||-||97||41||97||57|
|Adjusted net income attributable to diluted common shareholders (2)||B||$||849||$||868||$||807||$||1,717||$||1,599|
|Diluted weighted-average common shares outstanding (thousands)||C||400,812||403,770||403,587||402,315||402,590|
|Reported diluted EPS ($)||A/C||$||2.12||$||1.91||$||1.90||$||4.03||$||3.83|
|Adjusted diluted EPS ($) (2)||B/C||2.12||2.15||2.00||4.27||3.97|
|Reported and adjusted efficiency ratio|
|Reported total revenue||D||$||3,139||$||3,181||$||3,084||$||6,320||$||6,241|
|Pre-tax impact of items of note (1)||(29)||(28)||29||(57)||19|
|Adjusted total revenue (2)||E||$||3,207||$||3,245||$||3,174||$||6,452||$||6,378|
|Reported non-interest expenses||F||$||1,821||$||1,987||$||1,764||$||3,808||$||3,555|
|Pre-tax impact of items of note (1)||(8)||(165)||(16)||(173)||(33)|
|Adjusted non-interest expenses (2)||G||$||1,813||$||1,822||$||1,748||$||3,635||$||3,522|
|Reported efficiency ratio||F/D||58.0||%||62.5||%||57.2||%||60.3||%||57.0||%|
|Adjusted efficiency ratio (2)||G/E||56.6||%||56.1||%||55.1||%||56.3||%||55.2||%|
|Reported and adjusted dividend payout ratio|
|Reported net income attributable to common shareholders||H||$||849||$||771||$||766||$||1,620||$||1,542|
|After-tax impact of items of note (1)||-||97||41||97||57|
|Adjusted net income attributable to common shareholders (2)||I||$||849||$||868||$||807||$||1,717||$||1,599|
|Dividends paid to common shareholders||J||$||376||$||379||$||364||$||755||$||724|
|Reported dividend payout ratio||J/H||44.2||%||49.2||%||47.4||%||46.6||%||46.9||%|
|Adjusted dividend payout ratio (2)||J/I||44.2||%||43.7||%||45.0||%||43.9||%||45.3||%|
|$ millions, for the three months ended||Banking||Management||Banking||and Other||Total|