Canadian Imperial Bank of: Cibc Announces Fourth Quarter And Fiscal 2013 Results

The following excerpt is from the company's SEC filing.

CIBC’s 2013 audited annual consolidated financial statements and accompanying management’s discussion & analysis (MD&A) will be available today at www.cibc.com, along with the supplementary financial information report which includes fourth quarter financial information.

(Toronto, ON – December 5, 2013) – CIBC (TSX: CM) (NYSE: CM) announced net income of $836 million for the fourth quarter ended October 31, 2013, compared with $852 million for the fourth quarter of 2012. Adjusted net income(1) of $905 million for the quarter was up from $858 million for the fourth quarter of 2012. Reported diluted earnings per share (EPS) of $2.05 and adjusted diluted EPS(1) of $2.22 for the fourth quarter of 2013, compared with reported diluted EPS of $2.02 and adjusted diluted EPS(1) of $2.04, respectively, for the same period last year.

CIBC’s results for the fourth quarter of 2013 were affected by the following items of note aggregating to a negative impact of $0.17 per share:

•   $35 million ($19 million after-tax, or $0.05 per share) impairment of an equity position associated with our exited U.S. leveraged finance portfolio;

•   $24 million ($18 million after-tax, or $0.05 per share) expenses relating to the development and marketing of our enhanced proprietary travel rewards program and to the proposed Aeroplan transactions with Aimia Canada Inc. (Aimia) and The Toronto-Dominion Bank Group (TD) in the first quarter of 2014;

CIBC’s reported net income of $836 million and adjusted net income(1) of $905 million for the fourth quarter of 2013 compared with reported net income of $890 million and adjusted net income(1) of $943 million for the third quarter ended July 31, 2013. Reported diluted EPS of $2.05 and adjusted diluted EPS(1) of $2.22 for the fourth quarter of 2013 compared with reported diluted EPS of $2.16 and adjusted diluted EPS(1) of $2.29 for the prior quarter.

For the year ended October 31, 2013, CIBC reported net income of $3.4 billion and adjusted net income(1) of $3.6 billion, compared with reported net income of $3.3 billion and adjusted net income(1) of $3.4 billion for 2012. Reported diluted EPS of $8.23 and adjusted diluted EPS(1) of $8.78 for 2013 compared with reported diluted EPS of $7.85 and adjusted diluted EPS(1) of $8.07 for 2012.

CIBC’s adjusted return on common shareholders’ equity(1) was 22.3% for the year ended October 31, 2013 and the Basel III Common Equity Tier 1 ratio was 9.4% as at October 31, 2013.

“CIBC reported another year of solid progress in 2013,” says Gerry McCaughey, CIBC President and Chief Executive Officer. “Our results reflect the strength of our client-focused strategy.”

“Within an environment that continues to be challenging, CIBC has the right strategy to continue to deliver value,” adds McCaughey. “In 2014, we will continue to focus on cultivating deeper relationships with our clients and pursing strategic growth.”

Adjusted Earnings per share (EPS) (1) growth    Adjusted EPS growth of 5%-10% per annum, on average, over the next 3-5 years    2013: $8.78, up 9% from 2012

Capital Strength    Basel III Common Equity Tier 1 ratio to exceed the regulatory target set by Office of the Superintendent of Financial Institutions (OSFI)    Basel III Common Equity Tier 1 ratio of 9.4%

Risk (3)    Maintain provision for credit losses as a percentage of average loans and acceptances (loan loss ratio) between 45 and 60 basis points through the business cycle    44 basis points

Adjusted Dividend payout ratio (1)    40%-50% (common share dividends as a percentage of adjusted net income after preferred share dividends and premium on redemptions)    43.2%

Total shareholder return    Outperform the S&P/TSX Composite Banks Index (dividends reinvested) on a rolling five-year basis    Five years ended October 31, 2013: CIBC – 109.3% Index – 99.0%

Retail and Business Banking reported net income of $2.5 billion in 2013, up from $2.3 billion in 2012, as a result of wider spreads, volume growth across most retail products and higher fees.

Retail and Business Banking continued to make strategic investments throughout 2013 in areas that are enhancing the relationship we have with, and the value we provide to, our clients:

•   As part of CIBC’s commitment to provide our clients with the market leading travel rewards credit card, CIBC launched an enhanced Aventura card and signed a 10-year extension with Aimia to continue to offer our clients Aeroplan credit cards. Combined, our clients have the largest offering of choice in the Canadian marketplace.

•   We became the first and remain the only bank to launch a new mobile payments App for clients, the CIBC Mobile Payment App.

•   More than one million active clients are now using our award-winning mobile banking App to perform many of their everyday banking transactions from their mobile device.

•   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.

•   The ongoing conversion of our FirstLine mortgage clients into CIBC-brand mortgages continues to exceed targets, and supports our focus on client retention by introducing these clients to the benefits of a broader banking relationship with CIBC.

Today, CIBC and the Greater Toronto Airport Authority (GTAA) announced an innovative multi-year partnership that establishes CIBC as the exclusive financial services provider of full service banking for the 35 million people who pass through Toronto Pearson Airport each year.

“We made good progress against our priorities in 2013 of building deeper relationships with our clients, enhancing our sales and service capabilities, and acquiring and retaining clients,” says David Williamson, Group Head, Retail and Business Banking. “As a result, we accelerated revenue, increased our margins and improved our client satisfaction scores.”

Wealth Management reported net income of $388 million in 2013, compared with $339 million in 2012. Adjusting for items of note(1), net income of $392 million was up $87 million from $305 million in 2012. Net income increased as a result of higher revenue across all businesses.

Wealth Management strengthened its business on many fronts in 2013 in support of our strategic priorities to attract and deepen client relationships, seek new sources of domestic assets and pursue acquisitions and investments. Key highlights included:

•   Announcement of our intent to acquire Atlantic Trust, a U.S. private wealth management firm, as part of our strategic plan to grow our North American wealth management business. We are on track with our transition plans and expect to complete this acquisition in the first quarter of fiscal 2014 following regulatory approvals.

•   We achieved our 19th consecutive quarter of positive retail net sales of long-term mutual funds and had record long-term net sales of $4.8 billion.

•   CIBC Private Wealth Management and CIBC Wood Gundy successfully attracted new clients and assets to the Wealth Management platform at an accelerated rate during the second half of the year.

•   We made significant enhancements to the CIBC Investor’s Edge platform, with the launch of a new online interface to provide clients with additional tools and functionality to monitor their investment portfolios, including a new Exchange Traded Funds (ETF) Centre and enhanced research centre that includes equity reports from Morningstar and Thomson-Reuters.

“We will continue to invest in our Wealth Management platform, domestically and internationally, to enhance the client experience and strengthen shareholder returns,” says Victor Dodig, Group Head, Wealth Management.

Despite ongoing uncertainty in global markets, Wholesale Banking delivered strong results, reporting net income of $716 million, compared with $613 million in 2012. Adjusting for items of note(1), net income of $834 million in 2013 compared with net income of $680 million in 2012.

Wholesale Banking’s objective is to be the premier client-focused wholesale bank centred in Canada, with a reputation for consistent and sustainable earnings, for sound risk management, and for being a well-managed firm known for excellence in everything we do. During 2013, Wholesale Banking:

•   Ranked as #1 in Canadian equity markets in the annual Brendan Wood International survey by institutional investors who recognized the leadership demonstrated by CIBC’s equity research, sales and trading teams and investor conferences.

•   Ranked #1 in Canadian equity trading by volume, value and number of trades by TSX and ATS Market Share Report, 2009-present.

•   Led or co-led several key transactions, most notably Choice Properties Real Estate Investment Trust’s $460 million IPO of Trust Units, $600 million inaugural bond offering and $500 million senior unsecured credit facility.

Subsequent to the quarter-end, on November 29, 2013, CIBC sold an equity investment that was previously acquired through a loan restructuring in CIBC’s exited European leveraged finance business. The transaction will result in an after-tax gain, net of associated expenses, of approximately $50 million in the first quarter of 2014.

“Wholesale Banking delivered high quality and consistent performance in 2013, despite continued challenging market conditions globally,” says Richard Nesbitt, Chief Operating Officer.

While investing in our core Wholesale Banking strategy, CIBC continued to actively manage and reduce its structured credit run-off portfolio. In 2013, notional exposures declined by $5.5 billion as a result of sales and terminations of positions, as well as normal amortization.

(2) For the purpose 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.

While investing in its core businesses, CIBC has continued to strengthen its key fundamentals. In 2013, CIBC maintained its capital strength, competitive productivity and sound risk management:

•   CIBC’s capital ratios are strong, including Basel III Common equity Tier 1 ratio of 9.4%, and Tier 1 and Total capital ratios of 11.6% and 14.6% at October 31, 2013;

•   Credit quality has remained stable, with CIBC’s loan loss ratio of 44 basis points compared with 53 basis points in 2012; and

As a leader in community investment, CIBC is committed to supporting causes that matter to its clients, employees and communities. During the fourth quarter of 2013:

•   CIBC continued its long-term commitment to supporting breast cancer initiatives. The 2013 Canadian Breast Cancer Foundation CIBC Run for the Cure raised $27 million, including more than $3 million contributed by Team CIBC through pledges, fundraising activities and donations to the CIBC Pink Collection and close to $500,000 raised by students across Canada as part of the Post Secondary Challenge. CIBC was also proud to co-sponsor the Pink Tour, which made its final stop in October after bringing breast health education to 90 communities across Ontario.

•   CIBC marked its fourth year as title sponsor of the CIBC 401 Bike Challenge, a three-day, 576-kilometre ride from Toronto’s Hospital for Sick Children to the Montreal Children’s Hospital. A number of CIBC employees and their fellow riders raised more than $274,000 to support kids with cancer and their families through the Sarah Cook Fund of the Cedars Cancer Institute.

•   In support of Canada’s para athletes, CIBC marked the two-year countdown to the 2015 TORONTO Parapan Am Games and announced its multi-year commitment as the Official Banking Partner of the Canadian Paralympic Committee.

During the quarter, CIBC was ranked among the top 10 Safest Banks in North America by Global Finance magazine. CIBC was recognized by Mediacorp as one of Canada’s Top 100 Employers for a second consecutive year and as one of Canada’s Top Employers for Young People. CIBC was also once again named a constituent of the following widely regarded indices:

•   Dow Jones Sustainability World Index for a 12th consecutive year, and in the Dow Jones Sustainability North American Index since its inception in 2005;

“We are proud of the contributions we have made and the recognition we have received,” says Mr. McCaughey. “I would like to thank our employees for the work that they do in serving our clients, supporting our communities and helping CIBC achieve business success.”

Net income was $610 million, up $41 million from the fourth quarter of 2012. Adjusted net income (1) was $629 million, up $58 million from the fourth quarter of 2012.

Revenue of $2,104 million was up $68 million from the fourth quarter of 2012. Excluding the impact of Treasury allocations, revenue was up $75 million from the fourth quarter of 2012. Personal banking and business banking revenue increased primarily due to volume growth across most products and higher fees, partially offset by lower spreads in business deposits. Other revenue was down primarily due to lower treasury allocations and lower revenue in our exited FirstLine mortgage broker business.

Provision for credit losses of $215 million was down $40 million from the fourth quarter of 2012, primarily due to lower write-offs in cards, partially offset by higher losses in commercial banking.

Non-interest expenses of $1,085 million were up $55 million from the fourth quarter of 2012, mainly due to higher employee-related compensation relating to an increased number of client-facing employees, and expenses relating to the development and marketing of our enhanced proprietary travel rewards program and to the proposed Aeroplan transactions with Aimia and TD in the first quarter of 2014.

Revenue of $470 million was up $50 million from the fourth quarter of 2012, primarily due to higher average client assets under management driven by market appreciation and higher net sales of long-term mutual funds, higher contribution from our investment in American Century Investments, and higher fee-based revenue.

Non-interest expenses of $334 million were up $26 million from the fourth quarter of 2012, primarily due to higher performance-based compensation.

(1) Revenue and income taxes are reported on a taxable equivalent basis (TEB). Accordingly, revenue and income taxes include a TEB adjustment of $78 million for the quarter ended October 31, 2013 (July 31, 2013: $90 million; October 31, 2012: $92 million).

Net income for the quarter was $210 million, compared with net income of $217 million for the third quarter of 2013. Adjusted net income (1) for the quarter was $218 million, compared with $223 million for the prior quarter.

Revenue of $522 million was down $74 million from the third quarter, primarily due lower Capital Markets revenue and a loss related to impairment of an equity position associated with our exited U.S. leveraged finance portfolio, partially offset by higher revenue in U.S. Real Estate Finance and the Structured Credit Run-Off business.

Net reversal of credit losses of $1 million compared with a provision for credit losses of $14 million from the third quarter, mainly due to losses in our U.S. Leveraged Finance portfolio in the prior quarter.

Income tax expense of $41 million was down $21 million from the third quarter, due to lower income and a decrease in the relative proportion of income earned in higher tax jurisdictions.

Net income was down $94 million from the fourth quarter of 2012 as a result of lower Other revenue, a higher provision for credit losses and higher non-interest expenses.

Provision for credit losses was up $49 million from the fourth quarter of 2012 primarily due to higher losses in CIBC FirstCaribbean.

Non-interest expenses were up $13 million from the fourth quarter of 2012 mainly due to a restructuring charge relating to CIBC FirstCaribbean.

Income tax benefit was down $8 million from the fourth quarter of 2012 mainly due to a lower TEB adjustment.

We use a number of financial measures to assess the performance of our business lines. Some measures are calculated in accordance with International Financial Reporting Standards (IFRS or GAAP), 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, see the “Non-GAAP measures” section of CIBC’s 2013 Annual Report.

The following table provides a quarterly reconciliation of non-GAAP to GAAP measures related to CIBC on a consolidated basis. For an annual reconciliation of non-GAAP to GAAP measures, see the “Non-GAAP measures” section of CIBC’s 2013 Annual Report.

The interim consolidated financial information in this news release is prepared in accordance with IFRS and is unaudited whereas the annual consolidated financial information is derived from audited financial statements. These interim financial statements follow the same accounting policies and methods of application as CIBC’s consolidated financial statements for the year ended October 31, 2013.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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