Front exterior view of the CIBC Banking Centre in Jasper, Alberta.
iStock/Ceri Breeze

Higher expenses, lower interest margins and more money set aside for potentially bad loans all weighed on CIBC’s earnings, which declined in the fourth quarter from a year ago.

The bank saw its net interest margin, a key measure of loan profitability, slip in the quarter in part from the trend of more clients shifting to higher-interest, and therefore higher-cost, term deposits like guaranteed investment certificates.

CIBC profits were also hit as it set provisions for credit losses for the three-month period of $436 million, up from $78 million in the same quarter last year.

Provisions, including in performing loans, rose based on the bank’s economic outlook, even as the underlying credit quality remained strong, said chief risk officer Frank Guse on an analyst call.

“What’s driving that performing build is really our forward-looking indicators,” he said, noting that the bank sees both Canadian and U.S. GDP growth coming down to affect especially personal lending books in Canada and commercial loans in the U.S.

Expenses also weighed as they rose 12%, including about 2% from severance payments as the bank prepared for a more uncertain economic picture ahead.

“As we look ahead to 2023, global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation,” said chief executive Victor Dodig on an earnings call.

“In response to these headwinds … we are going to continue to take actions to reposition our business to adjust to these new realities, but also continue to grow our client franchise and moderate our expense growth.”

Fourth quarter earnings came in at $1.19 billion, compared with $1.44 billion in the same quarter last year, while revenue totalled $5.39 billion for the quarter compared with $5.06 billion a year ago.

On an adjusted basis, CIBC said it earned $1.39 per diluted share in its fourth quarter, down from an adjusted profit of $1.68 per diluted share a year ago.

Analysts on average had expected to the bank to earn $1.72 per diluted share, according to estimates compiled by financial markets data firm Refinitiv.

“A miss to the street of 19% is likely to be punished by the market regardless of the details,” said Scotiabank analyst Meny Grauman in a note. “That said, the details don’t appear to soften the blow all that much.”

He said that while credit provisions were part of the miss, the bank also disappointed on revenue as margins were down more than peers so far and expenses were elevated.

Revenue in Canadian wealth management was $715 million in Q4, down 4.8% from $751 million a year ago, due to the impact of market depreciation on assets under management and assets under administration “and lower commission revenue from decreased client activity, partially offset by the impact of volume growth and favourable rates in private banking,” CIBC said in a release.

Canadian AUM was $208.8 billion on Oct. 31, down 9.3% from $230.3 billion a year ago. Growth in AUM “has been challenged over the past few quarters as a result of volatile markets caused by global concerns surrounding inflation, supply chain issues and geopolitical uncertainty,” said CIBC management’s discussion and analysis report.

For its full year, CIBC reported a profit of $6.24 billion or $6.68 per diluted share on $21.83 billion in revenue compared with a profit of $6.45 billion of $6.96 per diluted share on $20.02 billion in revenue a year earlier.

The bank also raised its quarterly dividend to shareholders by two cents to 85 cents per share.

The discussion and analysis report noted that the bank supported displaced Ukrainians in 2022 by helping them find Ukrainian-speaking advisors, among other things.