Noah Zivitz

Managing Editor, BNN Bloomberg

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Canadian Imperial Bank of Commerce became the latest Big Six lender to announce a dividend hike, despite a drop in profit drop in its latest quarter.

The bank's net income fell eight per cent year-over-year to $1.52 billion in the fiscal second quarter, which ended April 30. On an adjusted basis, it earned $1.77 per share; analysts, on average, anticipated $1.78 in per-share profit.

While CIBC bucked a trend by posting profit growth in its capital markets division during the quarter, its overall profitability took a hit as credit quality deteriorated.

Across the entire institution, CIBC booked $303 million in loan loss provisions during the fiscal second quarter. That's almost a 10-fold increase from a year earlier when it had $32 million in provisions. In the preceding quarter, CIBC logged $75 million in provisions.

In a release, CIBC said its acquisition of Costco's Canadian credit card portfolio was one of the reasons for the surge in money set aside for loans that could go bad. That deal with Costco was announced last September; at the time, CIBC said the portfolio (which was previously owned by Capital One Financial Corp.) had about $3 billion in balances. Analysts suggested the primary motivation for the deal was an opportunity for CIBC to cross-sell customers.

“On the face of it, CIBC reported an in-line result, but dig a little deeper and the moving parts are interesting,” wrote Meny Grauman, an analyst with Scotiabank’s global equity research team, in a report to clients. He said the loan loss provisions “masked” revenue that rose nine per cent year-over-year.

The profit deterioration was most pronounced in CIBC's core Canadian personal and business banking unit, where net income slid 18 per cent year-over-year to $496 million. Loan loss provisions in the division almost tripled sequentially to $273 million from $98 million in the fiscal first quarter.

In addition to the downturn in credit quality in the latest quarter, CIBC also saw its non-interest expenses jump 13 per cent year-over-year to $3.11 billion.

“We delivered well-diversified growth across our bank in the second quarter as we continued to invest to execute our client-focused strategy and further build on our momentum. … As we go forward, we'll continue to take a purpose-led approach as we navigate the evolving operating environment,” said CIBC Chief Executive Officer Victor Dodig in a release.

CIBC also said Thursday its Common Equity Tier 1 capital ratio dipped to 11.7 per cent from 12.2 per cent in the prior quarter.

However, in news that's likely to be welcomed by investors, the bank announced its quarterly dividend will rise to $0.83 per share from $0.805 as of the July 28 payment. BMO Financial Group and Bank of Nova Scotia announced dividend hikes Wednesday when they launched earnings season for the country’s big banks.