Performance Analysis of CIBC (Canadian Imperial Bank of Commerce)

Compared to its Competitor Bank of Nova Scotia (Scotiabank)

Company Overview:

Canadian Imperial Bank of Commerce, Ticker: CM, primarily listed in Toronto Stock Exchange

(TSX), is one of Canada's largest banks, offering a wide range of financial services, including retail

banking, wealth management, and commercial banking. Headquartered in Toronto, CIBC operates

in Canada, the U.S., and select international markets. The bank has a strong track record of

profitability and shareholder returns, underpinned by its diversified business model and stable

market position in Canada (Bloomberg, Reuters).

Investment Summary:

CIBC is currently trading at a valuation that appears attractive based on key valuation metrics,

Price to Earnings (P/E) ratio. The bank’s solid financial ratios, such as Return on Equity (ROE),

Capital Adequacy Ratio (CAR), and consistent earnings growth, suggest that it is in a strong

position for continued performance. Based on recent financial trends, CIBC’s profitability may

face short-term pressure due to rising costs and declining NIM. However, strong liquidity and a

stable Tier 1 capital ratio should support long-term resilience. While economic uncertainty and

interest rate changes could pose risks, CIBC's diversified operations and sound risk management

practices provide stability.

Financial Analysis:

This report analyzes CIBC's financial performance compared to its competitor Scotiabank based

on key ratios from 2019 to 2023. Emphasis is placed on the Price-to-Earnings (P/E) ratio, Net

Interest Margin (NIM), and Return on Equity (ROE), Return on Assets (ROA), Non-performing

Loan (NPL), Capital Adequacy Ratio (CAR), alongside other important metrics to assess the

bank’s overall performance.

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Key Profitability Ratios

Return on Assets (ROA): CIBC’s ROA declined from 0.80% in 2019 to 0.53% in 2023,

indicating a gradual decrease in the bank’s ability to generate income from its assets. This decline

reflects heightened operational costs and margin pressures. Scotia Bank’s ROA also decreased

from 0.77% in 2019 to 0.53% in 2023, although it consistently remained higher than CIBC until

2023. This suggests that Scotiabank managed its assets more efficiently in earlier years but faced

similar recent pressures.

Return on Equity (ROE): CIBC’s ROE dropped significantly from 16.1% in 2021 to 10.2% in

2023. While the 2019 figure was strong at 14.5%, recent years show declining profitability, likely

due to rising costs and lower NIM. Scotiabank’s ROE decreased from 13.59% in 2021 to 9.63%

in 2023, although it was more stable than CIBC over the period. Despite this, Scotiabank’s ROE

consistently trailed behind CIBC, highlighting a relatively weaker return on shareholders’ equity.

Net Interest Margin (NIM): CIBC’s NIM decreased from 1.65% in 2019 to 1.35% in 2023,

reflecting declining loan profitability amid increasing funding costs and competitive pressures.

Scotiabank’s NIM also declined, from 1.24% in 2019 to 1.33% in 2023. While Scotiabank’s 2019

NIM was lower than CIBC’s, it narrowed the gap in recent years, showing slightly better resilience

in maintaining margins.

Key Asset Utilization/Efficiency Ratios

Asset Utilization Ratio: CIBC's ratio (2.43% in 2023) is higher than Scotia's (2.18% in 2023),

indicating that CIBC has been slightly more efficient in generating revenue from assets. Both

banks, however, show a decline from their 2019 levels, reflecting reduced efficiency in utilizing

assets.

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Non-Performing Loan (NPL) Ratio: CIBC's NPL ratio of 0.72% is marginally lower than

Scotia's 0.73% in 2023. Both banks have seen increases from 2019, but the ratios remain low,

indicating manageable credit risk despite a slight deterioration in asset quality.

Key Solvency Ratios

Equity to Asset Ratio: The equity-to-asset ratio for CIBC decreased from 5.56% in 2019 to 5.07%

in 2023. This decline indicates a reduction in the proportion of the bank’s assets financed by equity,

which suggests a slightly higher reliance on debt over time. Scotia’s equity-to-asset ratio has also

declined from 6.22% in 2019 to 5.45% in 2023, though it remains higher than CIBC’s. Despite the

downward trend, Scotia continues to maintain a stronger equity base relative to its assets, which

indicates slightly better financial stability.

Tier 1 Capital Ratio: CIBC’s Tier 1 capital ratio improved from 12.7% in 2019 to 13.5% in 2023,

showing a positive trend in its capital strength. The higher the Tier 1 ratio, the more resilient a

bank is to economic shocks, so this indicates CIBC's ability to absorb losses has strengthened in

recent years. Scotia's Tier 1 capital ratio also improved, from 11.1% in 2019 to 13.0% in 2023.

While it has shown positive growth, its capital ratio is lower than CIBC's, suggesting CIBC has a

relatively stronger capital buffer against potential risks.

Key Liquidity Ratio

Current Ratio: CIBC has an exceptionally high current ratio, reaching 241% in 2023, though

slightly down from 242% in 2022. This indicates that CIBC holds far more current assets than

current liabilities, demonstrating a very strong short-term liquidity position. This is significantly

higher than industry norms, suggesting that CIBC is highly liquid and could easily meet short-term

obligations. Scotia's current ratio is much lower, standing at 46.69% in 2023, up from 42.36% in

2022. This indicates that Scotia has far less liquidity relative to its current liabilities compared to

CIBC.

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Valuation Metric (Price to Earnings Ratio): Upon analyzing, Price-to-Earnings (P/E) ratio of

CIBC, we can draw the following insights:

P/E based on Last Year end EPS of CIBC 17.60

Projected Basic EPS 9.96

Current Price of CIBC 90.88

Industry Current P/E 15.2

Based on P/E the price should be 151.35

The current P/E ratio based on last year's earnings is 17.6. This suggests that the market is willing

to pay 17.6 times the earnings per share (EPS) for CIBC's stock. The industry average P/E is 15.2,

which is lower than CIBC's current P/E of 17.6. Therefore, based on the industry P/E with a

projected EPS of 9.96, CIBC’s stock should be priced around CAD 151.35, which is significantly

higher than its current market price of CAD 90.88.

Recommendation and Conclusion:

CIBC's current stock price of CAD 90.88 is undervalued compared to its fair value of CAD 151.35

based on the P/E ratio. Despite a higher-than-industry P/E, the stock appears to be trading at a

discount compared to its higher earning potential, indicating potential upside if the market adjusts

its valuation. This provides an opportunity for long-term investors to capitalize on the price

discrepancy, provided the bank can sustain its earnings growth. However, there are several risks,

including interest rate fluctuations, cost management challenges, and competitive pressures, that

could affect its short-term profitability.

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References:

Canadian Imperial Bank of Commerce. (n.d.). About CIBC. Retrieved from

https://www.cibc.com/en/about-cibc.html

Canadian Imperial Bank of Commerce. (2023). Annual report 2023. Retrieved from

https://www.cibc.com/en/about-cibc/investor-relations/financial-reports.html

Bloomberg. (n.d.). Canadian Imperial Bank of Commerce (CIBC). Retrieved from

https://www.bloomberg.com/quote/CM:CN

Reuters. (n.d.). Canadian Imperial Bank of Commerce (CIBC). Retrieved from

https://www.reuters.com/companies/CM.TO

Canadian Imperial Bank of Commerce. (2023). Market outlook 2023: Economic conditions

and banking sector outlook. Retrieved from

https://www.cibc.com/en/about-cibc/investor-relations/financial-reports.html
Appendix 1: Ratio Calculations

CIBC
Category Ratios 2023 2022 2021 2020 2019
Profitability Return on Average Assets (ROA) 0.53% 0.69% 0.79% 0.52% 0.80%
Ratio Return on Equity (ROE) 10.2% 14.0% 16.1% 10.0% 14.5%
Net Interest Margin (NIM) 1.35% 1.40% 1.42% 1.50% 1.65%

Cost to Income Ratio 61.0% 58.1% 57.1% 57.3% 57.9%

Asset Loan to Deposit Ratio 74.7% 75.8% 74.5% 73.0% 82.0%
Management Asset Utilization Ratio 2.43% 2.40% 2.47% 2.54% 2.89%
Ratio NPL Ratio 0.72% 0.58% 0.62% 0.85% 0.48%
Solvency Equity to Asset Ratio 5.07% 5.03% 5.10% 5.11% 5.56%
Ratio Tier 1 Capital Ratio (Leverage Ratio) 13.5% 13.2% 14.0% 13.1% 12.7%
Liquidity Current Ratio 241% 242% 124% 166% 141%
Ratio Cash Ratio 39.3% 49.7% 34.8% 42.5% 17.8%

Bank of Nova Scotia

Category Ratios 2023 2022 2021 2020 2019
Profitability Return on Average Assets 0.53% 0.73% 0.81% 0.60% 0.77%
Ratios (ROA)
Return on Equity (ROE) 9.63% 13.5% 13.6% 9.95% 12.4%
Net Interest Margin (NIM) 1.33% 1.43% 1.46% 1.56% 1.24%
Cost to Income Ratio 57.1% 52.1% 52.8% 54.1% 53.6%
Asset Loan to Deposit Ratio 135% 143.7% 110.7% 81.5% 121.5%
Management Asset Utilization Ratio 2.18% 2.21% 2.61% 2.74% 2.80%
Ratios NPL Ratio 0.73% 0.64% 0.58% 0.81% 0.55%
Solvency Equity to Asset Ratio 5.45% 5.43% 5.98% 5.99% 6.22%
Ratios Tier 1 Capital Ratio 13.0% 11.5% 12.30% 11.80% 11.1%
Liquidity Current Ratio 46.7% 42.4% 115.1% 127.6% 92.8%
Ratios Cash Ratio 10.4% 7.96% 36.4% 34.10% 18.9%
 Appendix 2: Projected Income Statement for CIBC

Fiscal Year ends in October CAD in Millions except per share data

Particulars 24-Oct 24-Oct 24-Oct

Growth Rate (What if Analysis) 23.03% -10.00% 28.03%
Interest Income 48,784.37 35,687.29 50,767.16
Interest Expense 22,359.68 16,356.80 23,268.46
Net Interest Income 26,424.69 19,330.49 27,498.70
Non-Interest Income 19,517.97 14,278.01 20,311.26
Total Revenue 68,302.34 49,965.30 71,078.42
Net Revenue 45,942.66 33,608.50 47,809.95
Credit Losses Provision 3,012.96 2,204.07 3,135.42
Non-Interest Expense (Operating Cost)
Occupancy Cost 2,070.03 1,514.29 2,154.16
Computer, Software & Office Equipment 4,656.54 3,406.40 4,845.80
Professional Expense 577.40 422.39 600.87
Salaries And Wages 14,710.93 10,761.51 15,308.84
Communication 790.15 578.02 822.27
Advertising and business development 630.23 461.03 655.84
Business and capital taxes 277.11 202.71 288.37
Other Non Interest Expense 3,400.39 2,487.49 3,538.59
Total Non-Interest Expense (Operating Cost) 27,112.79 19,833.85 28,214.76
Income before income taxes 15,816.92 11,570.57 16,459.78
Income taxes 3,570.17 2,611.69 3,715.28
Net Income 12,246.75 8,958.88 12,744.50
Net income attributable to
Non-controlling interests 42.36 30.99 44.08
Preferred shareholders and other equity instruments 352.22 257.66 366.53
Common shareholders 11,852.17 8,670.23 12,333.89
Net income attributable to equity shareholders 12,204.39 8,927.89 12,700.42
Basic EPS 9.96 7.28 10.36
Basic Average Shares 1,190.32 1,190.32 1,190.32
Current Market Price 90.88 90.88 90.88
P/E based on Last Year end EPS 17.60 17.51 17.51
Industry Current P/E 15.2 15.2 15.2
Estimated Price 151.35 110.72 157.50