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Canada's financial system got through the global meltdown relatively unscathed, and a couple banks are expanding their base and are worth looking at, writes Jack Adamo of Insiders Plus.

Canadian Imperial Bank of Commerce (CM) reported fourth-quarter and full-year earnings for the fiscal year ended October 31. Quarterly EPS were up 12.8% at $2.02. Excluding "items," the rise was 14.6%.

The great quarter helped pull up what had been a rather slow year. Full-year earnings were up 6.6% to $8.07 after reasonable adjustments. On a GAAP basis, they were up a rousing 17%, but the particulars in this case make that less meaningful than the adjusted comparison. Operating cash flow was four times higher than income, which is always a big plus.

Given the challenging economic and interest rate environment, these are excellent results, and the stronger Q4 numbers suggest things might improve further in 2013, although the environment will remain challenging.

In other metrics, CIBC's return on common equity was 22% for the year. Its Tier 1 capital ratio, measured by the stricter, soon-to-be-enacted Basel III accord, was 9%, well in excess of the 7% minimum requirement. To show you how strict the new accord is, the bank's Tier 1 capital under the current GAAP methodology is 13.8%.

Toronto-Dominion Bank (TD) also reported earnings. They didn't match CIBC's, but were good, considering the climate. Q4 GAAP EPS was $1.66 versus $1.68 last year, while adjusted earnings of $1.83 were 5% higher than the comparable quarter. Full-year EPS was $6.86 according to GAAP, up 5%, and adjusted earnings were $7.42, up 8%.

Tier 1 Capital according to Basel III was a very healthy 8.2%. Return on equity was 16.3%, comfortably above the 15% threshold that Warren Buffett considers the measure of an excellent company.

Note also that these return on equity measures are affected by the new Basel accord measurements of capital. The new figures are more conservative. Regardless of your political leanings, in accounting, conservative is good.

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