PrivateBank purchase pays off for CIBC.

TORON TO • Another earnings season for Canada’s biggest banks kicked off Thursday, with Canadian Imperial Bank of Commerce reporting that business in the United States picked up as mortgage growth at home slowed down.

Toronto-based CIBC, Canada’s fifth- largest lender, announced net income of nearly $ 1.33 billion for the quarter ended Jan. 31, down from approximately $ 1.41 billion for the same period a year ago.

CIBC’s first quarter, however, reflected one- t i me items such as a $299-million gain on the sale and leaseback of retail properties the bank had realized for last year’s first quarter, as well as an $88-million charge tied to recent U. S. tax reforms that were booked for this year’s quarter.

The bank’s focus on the U. S. helped it overall. CIBC reported $134 million in net income from its U. S. commercial banking and wealth management unit for the first quarter of 2018, an increase of $ 105 million — or 362 per cent — from last year’s first quarter.

The U. S.- based earnings for CIBC were driven by the bank’s $5-billion purchase of Chicago- based PrivateBancorp Inc., and its subsidiary, The PrivateBank, in June 2017. The PrivateBank was rebranded as CIBC Bank USA.

“One of the reasons that we invested in The PrivateBank was to get diversification, and clearly that’s paying off,” said Kevin Glass, senior executive vice-president and chief financial officer of CIBC, in an interview.

As business south of the border improved, CIBC said Thursday that mortgage balances grew by about one per cent from the previous quarter, and about nine per cent compared to the same period last year, pushing the total up to approximately $ 203 billion. Originations of new mortgages fell to $ 9 billion for the first quarter, from $12 billion a year ago.

The pace was a relatively slower one for CIBC, which reported a year- over- year increase in its mortgage balances of about 12 per cent for the first quarter of 2017. CIBC and the other banks are dealing with new rules around uninsured mortgages that came into effect in January and could make it more difficult for would-be borrowers to qualify for loans.

“We have seen mortgage growth slowing, but that’s largely an industry slowing, and also a slowing that’s been guided to some time ago, in terms of our sales force and the maturing of our mortgage sales force,” Glass said.

While saying it was too early to comment on the effects of the new uninsured mortgage rules, Christina Kramer, senior executive vice- president and group head of personal and small business banking, noted CIBC had previously indicated that its rate of mortgage growth would come closer to the industry average.

“And that’s exactly what we’re seeing,” Kramer said. “So our overall outlook for the year in terms of revenue growth will continue to offset slower mortgage growth.”

CIBC said adjusted net income for the first quarter was approximately $1.43 billion, up from about $1.17 billion for the same three months last year.

“Overall, they were good results,” said Robert Colangelo, senior vice-president of Canadian banking financial institutions at DBRS. “We did notice that residential mortgage growth did slow on a quarter- over- quarter basis … but I think our view is that CIBC’s mortgage growth had previously outpaced that of its peers, so ( it’s) not unexpected.”

Eight Capital analyst Steve Theriault said in a note that “the new(ish) U.S. operations are outperforming our expectations and we expect this quarter’s results will continue to sway those of the view that CIBC can’t grow earnings this year and that U. S. banking will underwhelm.”

The bank also fielded questions from analysts on the switch to a new accounting standard, called IFRS 9, which CIBC and other banks are using for the first time.

“It sort of reminds me of the Rubik’s Cube when it first came out: Lots of questions, but all solvable,” said Victor Dodig, CIBC’s president and chief executive.

CIBC reported that money earmarked for credit losses decreased 28 per cent for the quarter, to $153 million, an outcome the lender said was helped by IFRS changes, an improved economic outlook, and lower writeoffs in its credit card and personal lending portfolios.

“While positive, we note that such shifts in allowances are part of the volatility that should be expected under IFRS 9,” said National Bank Financial analyst Gabriel Dechaine. “If the bank’s outlook for unemployment, commodity prices, etc. changes in any given quarter, the result could go the other way.”