CIBC Q2 2012 Earnings

Scotia Capital, 1 June 2012

• CM cash operating EPS increased 9% YOY to $2.00, a solid beat.

• Operating ROE (industry high): 23.3%, RRWA (highest): 2.91%, CET1 (highest): 8.5%.

Implications

• Earnings were driven by strong results from Retail & Business Banking, up 12% YOY, with Wealth Management also solid, up 8% YOY and rebounding 23% sequentially. Wholesale earnings declined 11% YOY and 3% QOQ.

Recommendation

• Our 2012E and 2013E EPS are unchanged at $8.05 per share and $8.80 per share. Our one-year share price target is unchanged at $93 per share based on a target P/E multiple of 10.6x our 2013 earnings estimate.

• We believe CIBC has upside potential to gain market share in various retail and business banking products as it has an 18.6% market share in terms of a domestic branch network, yet only 8.1% market share in CIBC branded mortgages. Clearly the CIBC branch channel is underutilized and has significant upside potential. We reiterate our 1-Sector Outperform rating based on upside potential from retail branch network, industry high profitability and capital, large valuation discount, as well as prospects for significant accretive share buybacks.

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National Bank Q2 2012 Earnings

Scotia Capital, 1 June 2012

NA cash operating earnings increased 10% year over year (YOY) to $1.95 per share, a solid beat. NA increased its annual dividend by 5% to $3.16 per share and announced the intention to reactivate a 2% share buyback program.

• Operating ROE: 21.3%, RRWA: 2.42%, CET1: 8.0%.

Implications

• Operating earnings were strong, driven by a 14% YOY increase in Retail earnings, with strong loan growth at 12% YOY with deposit growth trailing at 4%. Retail NIM was down 7 bps sequentially to 2.19%. Wholesale earnings were relatively stable at $126 million, flat quarter over quarter (QOQ) and YOY. Wealth Management earnings were weak, declining 15% YOY, although up 8% sequentially.

Recommendation

• We are increasing our 2012E and 2013E EPS to $7.90 and $8.50 from $7.75 and $8.40, respectively, due to strong results this quarter and strong momentum in retail. Our share price target to remains unchanged at $88.

• We maintain our 3-SU rating due to high relative valuation versus its earnings mix, although the bank has done an excellent job of sustaining its earnings with low volatility.

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