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Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T each reported soaring first-quarter profits underpinned by rising revenue across key business units and boosted by outsized trading revenue.

The two banks saw double-digit percentage increases in key loan categories, as economies reopen and consumers and businesses borrow more. And they capitalized on volatility in equity and foreign-exchange markets that kept trading desks busy.

Royal Bank of Canada started the sector’s earnings season with strong results on Thursday. With these latest results, all three major banks that have reported first-quarter earnings this week have beaten analysts’ profit expectations by wide margins. That has set a bullish tone to start the banks’ fiscal year. The lenders expect to benefit to varying degrees when central banks in Canada and the U.S. start announcing anticipated rate hikes over the course of the year.

But bank executives tempered their optimism with warnings about uncertainty over an array of risks that could derail a global economy that is still stabilizing from the COVID-19 pandemic. Political risk has skyrocketed with Russia’s invasion of Ukraine, adding to concerns about supply-chain disruptions, high inflation and continuing threats to public health.

“These factors may have an impact on economic growth and client activity in the near term,” CIBC chief executive Victor Dodig said on a conference call with analysts on Friday.

His counterpart at National Bank, Laurent Ferreira, said in an interview that he is “overall positive for North America in general, and the Canadian economy.” But banking leaders are watching closely for economic fallout from the conflict in Eastern Europe, even though Canadian banks have almost no direct exposure to Russia or Ukraine.

Mr. Ferreira said the war’s first impact will be market volatility affecting equities, foreign exchange and credit. The conflict also has the potential to cause clients to delay making deals. And it could exacerbate inflation and drive up energy prices, he said.

“Another concern that we have to think about is: Are we facing, potentially, an energy crisis in the foreseeable future?” Mr. Ferreira added. “Those are the things that we’re watching.”

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In the fiscal quarter that ended Jan. 31, CIBC earned $1.87-billion, or $4.03 a share, compared with $1.63-billion, or $3.55 a share, in the same period last year. Adjusted to exclude costs related to past acquisitions, CIBC said it earned $4.08 a share, well ahead of analysts’ consensus estimate of $3.68 a share, according to Refinitiv.

In the same quarter, National Bank earned $932-million, or $2.65 a share, compared with $761-million, or $2.15 a share, a year earlier. Analysts expected the bank to report adjusted earnings per share of $2.24.

Total revenue rose 11 per cent at both banks, to $5.5-billion at CIBC and $2.5-billion at National Bank.

Market volatility in the quarter provided a major boost to the banks’ earnings. Trading revenue, which was expected to soften, was instead up 70 per cent to $579-million at CIBC, and 62 per cent to $433-million at National Bank, compared with the previous quarter. That accounted for about two-thirds of the margin by which each bank beat analysts’ estimates.

At the same time, CIBC and National Bank made significant gains in their core retail banking, lending and wealth-management arms.

At CIBC, profit from retail banking increased 5 per cent year over year to $687-million, as loan balances swelled by 12 per cent, driven by demand for mortgages. And National Bank’s retail banking profit of $317-million marked an increase of 27 per cent from the same quarter last year. Both banks say they expect demand for mortgages to stay robust this year, even when rising interest rates increase borrowing costs.

Commercial lending was also a strong point, with National Bank’s loan balances up 21 per cent from a year earlier. And income from fees increased as client spending rebounded from pandemic lows and appreciation in markets boosted wealth-management returns.

Rising revenue was accompanied by higher costs, however, as inflation started to have an impact and banks paid out generous bonuses to reward bankers for a strong financial year in 2021. CIBC’s expenses increased by 10 per cent to nearly $3-billion, driven by performance-based pay as well as inflationary pressures and long-term investments the bank is making in technology and talent. National Bank’s costs rose by 8 per cent for many of the same reasons.

“We are seeing competition for talent,” said CIBC’s chief financial officer, Hratch Panossian, in an interview. “Over all, the impact of inflation has been relatively consistent with what we were expecting.”

With inflation running high, but North American central banks still waiting to hike interest rates, “we’re getting hit with costs first,” Mr. Ferreira said. As rates go up, tight profit margins on loans will start to expand, adding a tailwind to banks’ earnings. “I think you’ll see that this year.”

A 100-basis-point rise in rates – equivalent to four typical interest-rate hikes of 0.25 percentage points – would boost CIBC’s income from interest by $454-million in the first year and $840-million in the second year, according to the bank’s estimates.

CIBC and National Bank each kept their quarterly dividends unchanged from the previous quarter. But CIBC is proposing a two-for-one share split in May to make its stock more accessible to average investors, assuming shareholders approve it at the bank’s annual meeting in April.

National Bank also announced that Ghislain Parent, its chief financial officer for the past decade, is moving to a new role as executive vice-president of international, overseeing the bank’s U.S. and Cambodian subsidiaries, starting in April. Marie Chantal Gingras, a 24-year veteran of the bank who is currently senior vice-president of financial accounting, will take over as CFO.

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