Net Interest Income Growth Still Not Showing Up for Canadian Imperial Bank of Commerce in Q1

Narrow-moat-rated Canadian Imperial Bank of Commerce CM, or CIBC, reported mixed fiscal first-quarter earnings. We expect this quarter and ultimately this year to be a bit of a transition year for the Canadian banks. Loan growth is likely to slow, more credit strain is likely to emerge, and net interest income remains in a state of flux as rate changes slowly feed through the balance sheets. Many of these patterns were present for CIBC in the quarter, with loan growth slowing to less than 1% sequentially, write-offs and delinquencies marching a bit higher, and net interest income, or NII, still struggling to show much growth (up only half a percent sequentially). CIBC is the first of the major Canadian banks to report, so we don’t have much data for peer comparisons yet, but we would imagine some of these trends will appear for other banks as well, although NII growth may be stronger for some peers. The second half of the year will be a key moment for CIBC, as management expects NII growth and NIM expansion will accelerate, which would be a change of pace from the current trends.

The bank recorded a one-time legal charge related to the settlement of a specific case in the quarter, which skewed results. We also wouldn’t expect the outsize trading fee revenue in the quarter to repeat indefinitely. The bank’s Canadian mortgage disclosures showed a slight increase in delinquencies and some shift in originations and overall balances toward higher loan/value distributions. Strain for Canadian consumers and within mortgages will be key trends to watch as billions in mortgages renew at higher rates this year.

Based on these results, we are lowering on NII outlook slightly to account for the lack of sensitivity to current rate movements. We also now expect expenses to come in more on the middle end of the mid-single-digit growth range guided by management. As a result, we are lowering our fair value estimate to CAD 69/USD 50 from CAD 73/54.