CIBC profit climbs 25%

The Canadian Imperial Bank of Commerce's latest quarterly earnings beat market expectations with a double-digit profit bump on strong earnings south of the border and at home, despite slowing domestic mortgage growth.

The Toronto-based lender, which was the first among Canada's biggest banks to report its results for the second quarter, saw its bottom line helped by its acquisition last June of Chicago-based PrivateBancorp which helped drive profits at its U.S. businesses.

"Our U.S. commercial banking and wealth management businesses are exceeding our expectations, as our team continues to expand the relationships with our clients and build out cross-border flows," CIBC chief executive Victor Dodig told analysts on a call discussing its latest results.

The lender said Wednesday it earned a profit attributable to common shareholders of $1.29 billion or $2.89 per diluted share during the quarter ended April 30, up from $1.04 billion or $2.59 per diluted share a year ago.

On an adjusted basis, Canada's fifth-largest bank said it earned $1.32 billion or $2.95 per diluted share for the quarter, up from $1.06 billion or $2.64 a year earlier. Analysts had expected a profit of $2.81 per share, according to Thomson Reuters Eikon.

CIBC's U.S commercial banking and wealth management arm saw net income in the second quarter climb 431 per cent year-over-year to $138 million. It was boosted by the acquisition of PrivateBancorp, which closed in June last year and was later rebranded as CIBC Bank USA. The bank also acquired Chicago-based private wealth management firm Geneva Advisors in the fourth quarter of 2017.

At home, the lender's Canadian personal and small business banking division reported a 16 per cent increase in net income to $584 million. The increase came despite slowing growth in mortgage lending amid tighter regulations, higher interest rates and April national housing sales activity at lows not seen in several years.

CIBC's spot mortgage balance for the second quarter was $203 billion, up 6.8 per cent from a year ago, but flat compared with the first quarter. By comparison, in the second quarter of 2017, CIBC's spot mortgage balance was $190 billion, up 12.4 per cent from the previous year and up 2.2 per cent from the previous quarter.

Mortgage rule changes

Christina Kramer, CIBC's group head of personal and small business banking for Canada, said while its early to gauge, most of the slowdown seen in the last few months is likely due to changes to mortgage underwriting guidelines, which introduced a new stress test for buyers with more than a 20 per cent down payment.

In the latest quarter, originations of uninsured residential mortgages at CIBC were $7 billion, down from $11 billion a year ago.

"We've actually seen a very soft start with the spring market," Kramer told analysts. "We don't know whether that's a bit of a pause in the market or consumers changing behaviour or waiting to see what happens... we still do see activity in the market, particularly in the condo space."

She expects the mortgage growth to moderate in the latter half of the year, and reach to "low single digits" by year's end.

Still, Dodig said the bank expects to continue generating strong earnings growth in excess of its five per cent target going forward, if macroeconomic environment conditions remain benign or relatively positive.

"Even if mortgage growth slows... I believe that we can continue to deliver in the five to seven per cent range or better," Dodig told analysts.

Meanwhile, the lender's domestic commercial banking and wealth management arm earned $310 million for the quarter, marking a nine per cent increase from the same period a year ago.

The lender's capital markets arm, however, saw a seven per cent decrease in net income to $249 million compared with one year ago "primarily due to higher non-interest expenses and a higher effective tax rate, partially offset by higher revenue."