Canadian Imperial Bank of Commerce reported lower profit for the third quarter of 2023, dragged down by a significant jump in provisions for credit losses.

CIBC reported net income of $1.47 billion in the quarter ended July 31, down 15 per cent from the same quarter the year prior.

The bank’s total provision for credit losses increased to $736 million, up 203 per cent from $243 million in 2022 and up 68 per cent from the previous quarter. Analysts had been expected PCLs of $444 million.

“We saw two rate hikes in the market, one of which I would say was not necessarily widely expected. And we see that playing out in debt service ratios that have an impact on all of our consumer lending products,” senior executive vice-president Frank Guse told analysts on a Thursday morning call.

On an adjusted basis, CIBC earned $1.52 per diluted share, down from $1.85 per diluted share a year earlier and a miss from consensus expectation of $1.68.

Analyst Gabriel Dechaine from National Bank said the miss was tied to the higher loan loss provision and offset by outperformance on pre-tax, pre-provision earnings and taxes.

CIBC said the increase in total provisions for the quarter was primarily due to “a more unfavourable change in our economic outlook” and higher impairments across all business units. Most of this came from provisions on performing loans.

“We continue to operate in an uncertain macroeconomic environment due to concerns related to higher levels of interest rates and inflation, geopolitical events and slower economic growth,” the bank said. “There is considerable judgment involved in the estimation of credit losses in the current environment.”

In a note to clients, Barclays analyst John Aiken said the bank’s big headline miss will garner some negative attention but that it all related to the higher-than-anticipated provisions, which cost the bank approximately $0.24 per share.

“The spike in provisions will garner the lion’s share of attention but, if one is willing to look past the increase of reserves on performing loans, CIBC carved out an impressive quarter,” Aiken wrote.

By segment, CIBC said PCL was higher by $223 million in Canadian personal and business banking from the same quarter last year and up by $30 million in its unit for Canadian commercial banking and wealth management. PCL was also up US$163 million in U.S. commercial banking and wealth management.

Its Canadian personal and business banking unit reported net income of $497 million for the third quarter, down $98 million from the previous year. The decline was primarily due to significantly higher provisions and lower card fees, it said, and came despite higher revenue.

The bank also reported a six per cent annual increase in adjusted expenses to $3.28 billion, which it said was due to higher spending on strategic initiatives and employee-related costs.