CBA share price on watch following $2.4bn Q3 cash profit

CBA has released its Q3 results this morning. How did it perform?

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Key points

  • CBA has released its eagerly anticipated third quarter update
  • Australia's largest bank has reported a cash profit of $2.4 billion for the three months
  • This appears to have come in ahead of the market's expectations

The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Thursday.

This follows the release of the banking giant’s third quarter update this morning.

CBA share price on watch following third-quarter update

  • Operating income down 1% to $6,103 million
  • Cash profit flat compared to first half quarterly average at $2,400 million
  • Expenses down 2% or 1% excluding remediation costs
  • Loan impairment benefit of $48 million
  • CET1 ratio down 9 basis points to 11.1% after interim dividend payment

What happened during the quarter?

For the three months ended 31 March, CBA reported a 1% decline in operating income compared to the first half quarterly average to $6,103 million.

Though, this would have been up 1% when adjusted for the two fewer days in the quarter. Management advised that this reflects 3% volume growth and higher non-interest income helping to offset continued margin pressure from elevated swap rates, mix effects, and competition.

In respect to volume growth, household deposits grew 1.1x system, home lending grew in line with system, business lending grew 1.5x system, and business deposits grew 1.4x system. The release notes that home lending was impacted by the bank’s decision to lead the market on fixed home loan interest rate increases (in response to rising swap rates).

Thanks to a 2% reduction in expenses driven by higher annual leave usage and two fewer days, partly offset by increased staffing levels, CBA’s cash earnings came in flat at $2,400 million.

How does this compare to expectations?

The good news for the CBA share price on Thursday is that this appears to have been better than the market was expecting.

For example, Citi was ahead of consensus with its estimate for cash earnings to be down 10% versus the quarterly average of the first half.

It commented: “Our 3Q cash earnings estimate is ~3% ahead of consensus driven by better BDDs (77% lower). Compared to 1H22 quarterly average, we expect 3Q cash earnings to be ~10% lower. Pre-provision profit is expected to be in-line with consensus with slightly higher NIMs and improved OOI, offset by higher costs.”

Management commentary

CBA’s CEO, Matt Comyn, appeared pleased with the bank’s performance during the quarter.

The March quarter underlined the disciplined execution of the Group’s strategy, focused on our core banking franchises, which delivered continued volume growth, sound portfolio credit quality and ongoing support for our customers and communities, in particular to those most affected by extreme weather events in many parts of the country including the catastrophic East Coast floods and WA bushfires.

Continued growth in household deposits, home loans, business lending and business deposits was a feature of the quarter. The Group maintained strong balance sheet settings and paid $3 billion in half-year dividends to shareholders.

The previously announced on-market share buy-back of up to $2 billion will be conducted across the remainder of this calendar year, and last week regulatory approval was obtained from the China Banking and Insurance Regulatory Commission in respect of our previously announced partial sale of shares in the Bank of Hangzhou Co., Ltd.

Looking ahead, we are well positioned to support business investment to build Australia’s future economy. Through disciplined execution of our strategic agenda, we will continue to deliver for our customers, communities and shareholders as we build tomorrow’s bank today.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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