Commonwealth Bank of Australia (ASX: CBA) shares are sinking on Tuesday morning.
At the time of writing, the banking giant's shares are down 5% to $166.31.
This follows the release of its first quarter update before the market open.
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CBA shares sink on results day
For the three months ended 30 September, CBA reported operating income growth of 3%. Management notes that this was driven by lending and deposit volume growth, higher non-interest income, and 1.5 additional days in the quarter.
However, the bank's headline net interest margin has reduced due to the mix effects of strong growth in lower yielding liquid assets and institutional repos. Excluding these items, its underlying margin was only slightly lower due to deposit switching, competition, and the lower cash rate environment.
Improved momentum
Management notes that improved momentum in volume growth was delivered across home lending and household deposits in the quarter. This saw retail transaction accounts increase by more than 175,000 in the quarter, primarily driven by new-to-bank account openings, with strong retail transaction balance growth.
Home loans grew $9.3 billion at 1.1x system for the three months to 30 September. Proprietary mix for CBA home loans represented 68% of new business flows for the quarter. Household deposits grew $17.8 billion in the quarter at 1.2x system.
Cash profit growth
CBA's operating expenses (excluding restructuring and notable items) increased by 4% in the first quarter. This was mainly driven by wage and IT vendor inflation and the 1.5 additional days, which were offset by seasonally lower IT vendor spend and the benefit of ongoing productivity initiatives.
This ultimately led to CBA reported an unaudited statutory net profit after tax of $2.5 billion and a cash net profit after tax of $2.6 billion. The latter is up 1% on quarterly average during the second half of FY 2025 and up 2% on the prior corresponding period.
However, this appears to have fallen short of the market's expectations. This is putting pressure on CBA's shares today, especially given their lofty valuation.
Commenting on the bank's performance, CBA's CEO, Matt Comyn, said:
We have maintained strong balance sheet settings. We remain conservatively positioned for the long term. CET1 remains well above the regulatory minimum. Strong provision coverage has been maintained. Deposit funding now represents 79% of total funding. We are well progressed on our FY26 funding requirements with A$16 billion in long-term wholesale funding raised to date.
Speaking about CBA's outlook, Comyn adds:
We recognise cost-of-living pressures remain a challenge for many. Despite escalating geopolitical and macroeconomic uncertainty, we are optimistic on the outlook for the country. We are closely watching the increased competitive intensity and implications across the financial system, and we will continue to adjust our settings as appropriate. The Australian economy remains resilient. Economic growth is recovering and disposable income is rising for many households. We remain focused on our strategy to build a brighter future for all.
