TORONTO (Reuters) - Canadian Imperial Bank of Commerce (CM.TO) and National Bank of Canada (NA.TO) capped off Canadian second-quarter bank results on a strong note on Thursday, exceeding estimates and sending their shares higher.
Shares of CIBC, Canada's No. 5 bank, jumped 2.2 percent to a two-week high after the company reported a 6 percent increase in net profit due partly to higher loan volumes.
Core profit was C$2.00 a share, topping estimates of C$1.88 a share. Analysts pegged the beat to strong cost containment coupled with modest growth in loans.
"CIBC managed to generate bank-wide operating leverage, despite a modest decline in core revenues as expenses in the quarter declined 1.5% sequentially. This is a strong performance and has been a consistent theme for CIBC for several quarters," Barclays Capital analyst John Aiken said in a note.
Smaller rival National Bank of Canada said core profit rose 6 percent, also beating estimates on stronger consumer loan and mortgage growth. The company raised its quarterly dividend by 5 percent.
National's stock pushed up 1 percent.
The results wrap up a quarter in which Canada's six biggest banks' earnings were largely ahead of expectations, but not to the same degree as in recent quarters.
And while consumer loans have continued to grow, underpinned by low interest rates, growth has slowed as Canadians deal with historically high debt levels.
CIBC warned it expects retail and business mortgage demand to slow in the second half of the year, echoing executives at banks that have already reported. This comes as lending margins keep shrinking due to low rates and rising funding costs.
CIBC has responded by trying to shift its business mix toward higher margin products, and stopped selling mortgages through its FirstLine broker unit, which offers heavily discounted margins through brokers.
"The beginning of the remixing out of the FirstLine broker channel into their own core branded mortgages, that should have a positive impact on the margins going forward," said Brian Klock, a San Francisco-based analyst with Keefe, Bruyette & Woods.
CIBC is looking to sell FirstLine, and is already seeing a positive impact on margins as clients renew with the bank's core-branded higher-margin mortgages, the bank said.
Retail and business banking income rose 12 percent to C$556 million in the fiscal second quarter ended April 30.
Overall, net profit rose to C$811 million, or C$1.90 per share, from C$767 million, or C$1.80 per share, a year earlier.
CIBC is the best capitalized of the Canadian lenders and estimates its Tier 1 common equity ratio under Basel III rules at 8.5 percent, well ahead of standards that will start being phased in next year.
Klock said he expects the bank to use the breathing room to make wealth management acquisitions, following the lead of last year's purchase of a minority stake in U.S. asset manager American Century Investments.
That acquisition helped drive wealth management income during the quarter up 8 percent to C$79 million.
A dividend hike may also be in the offing, as CEO Gerry McCaughey said in a conference call that the bank's dividend payout ratio was at the mid-point of its expected range, but left the door open to future moves.
"We will be in the process of reviewing our dividend for an increase in the coming months," he said.
While CIBC's wealth management focus may be in the United States, it said on Thursday it was selling its small Asian private wealth management business, which is based in Hong Kong and Singapore.
The bank did not provide financial details or identify the buyer. The unit, which caters to high net worth individuals, has assets under management of less than C$2 billion, the bank said.
National Bank's core income rose to C$347 million, or C$1.95 a share, from C$327 million, or C$1.78. The result topped analysts' average forecast for a profit of C$1.86 a share.
On a net basis, which included a C$198 million gain from the sale of the Natcan investment management unit and other one-time items, profit rose 69 percent to C$553 million.
The Montreal-based bank raised its quarterly dividend to 79 Canadian cents from 75 Canadian cents, the only one of Canada's six biggest banks to do so this quarter.
It also announced a normal course issuer bid for up to 2 percent of its outstanding shares.
Personal and commercial banking income rose 14 percent to C$166 million in the quarter, driven by stronger consumer loans and mortgages.
Excluding the Natcan gain, wealth management profit slid to C$41 million from C$49 million, while core financial markets profit slipped to C$126 million from C$127 million.
Additional reporting by Krishna N. Das in Bangalore; Editing by Jan Paschal