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Canadian Imperial Bank of Commerce’s second-quarter profit rose sharply as better results from the bank’s key businesses more than offset notably slower growth in its mortgage portfolio.

Profit rose 26 per cent to $1.3-billion, compared with the same quarter last year, boosted in part by CIBC’s acquisition of Chicago-based PrivateBancorp Inc. last summer. In the key Canadian retail banking arm, higher fees and wider spreads – helped by rising interest rates – also contributed to stronger profit.

But the bank also felt the effects of a mortgage market that has been dampened by new regulations requiring tougher stress testing on uninsured loans. CIBC’s total residential mortgages totalled $208-billion, up 5.5 per cent from a year earlier, but flat when compared with the first quarter of this year. That may be comforting to some investors: CIBC had been growing its mortgage book much faster than its peers in recent years as it built up a roster of mobile mortgage advisers, and that rate of growth had raised concerns.

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But if a softer housing market persists, CIBC expects it may issue roughly 50 per cent fewer new home loans this year than it did in 2017, and would need to find growth in other areas to fill the gap and keep profits rising at a healthy pace.

“It is a slower market,” said Christina Kramer, CIBC’s group head of personal and small business banking in Canada, on a Wednesday conference call. “We’re still seeing growth, year over year. It’s just not what it was last year.”

But she tempered concerns about sluggish mortgage growth by pointing to “growth across all aspects of our business,” which she described as “very balanced across the portfolio.”

Canada’s biggest banks have been tweaking mortgage rates of late, raising fixed rates but, in some cases, offering aggressive discounts as low as 2.45 per cent on variable rates. CIBC’s chief financial officer, Kevin Glass, said in an interview that the jostling on mortgage rates is typical of the spring buying season, when “there’s always a bit of noise.”

CIBC’s shares fell about 1.3 per cent in early trading on the Toronto Stock Exchange.

For the quarter that ended Apr. 30, CIBC reported profit of $1.32-billion, or $2.89 a share, compared with $1.05-billion or $2.59 a year earlier.

Adjusted to exclude certain items, CIBC earned $2.95 a share. Analysts surveyed by Bloomberg LP had expected earnings of $2.81.

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CIBC held its quarterly dividend steady at $1.33 a share, and has applied for permission to buy back as many as nine million shares, or about 2 per cent of the outstanding, over the next year. Once approved, “we will be executing on that imminently,” said chief executive officer Victor Dodig.

Profit from CIBC’s Canadian personal and small business banking division was $584-million, up 16 per cent from a year earlier, despite slower growth in mortgages. Canadian commercial banking and wealth management produced $310-million in profit, which was 9 per cent higher than last year, as growing deposits and lending combined with higher revenue from fees.

On the heels of a fiscal first quarter in which U.S. banks collectively reported record profits, CIBC’s revamped U.S. commercial banking and wealth management division produced strong growth. Profit was $138-million, up sharply as a result of the inclusion of the former PrivateBancorp, which has been rebranded as CIBC Bank USA, and contributed $98-million in profit.

“That performance is ahead of what we would have originally modeled when we did the acquisition,” Mr. Glass said.

But CIBC could face stiffer competition in the United States after U.S. regional bank Fifth Third Bancorp paid US$4.7-billion to acquire rival MB Financial Inc. The deal struck by Fifth Third alters the competitive dynamic in the Chicago banking market – home to CIBC’s U.S. headquarters – and could signal more U.S. bank mergers as American lawmakers ease some regulatory restrictions on small and mid-sized banks.

Larry Richman, the group head of CIBC’s U.S. operations, said the deal “reflects a real strong market in Chicago.” He added: “We also believe that disruption and change sometimes creates an opportunity. We’ve made a living, so to speak, on seizing those opportunities over time, and we’re very optimistic that will continue.”

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Profit from capital markets fell 7 per cent, year over year, as the bank spent more on technology and compensation. Analysts had predicted a softer quarter for capital markets results across the Canadian banking industry.

“Once again, the company reported strong results across most business segments,” said Scott Chan, an analyst at Canaccord Genuity Group Inc., in a research note. “As the first bank out of the gate, we see good read-throughs for the rest of bank reporting season.”

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