TD Beats Estimates as Economic Rebound Boosts Canadian Loans

(Bloomberg) -- Toronto-Dominion Bank’s focus on consumer banking paid off last quarter, with a reopening of the economy in Canada boosting lending results. 

Net income in the Toronto-based bank’s Canadian retail segment rose 68% to C$2.13 billion ($1.69 billion), helped by a 7.7% gain in person loans, according to a statement Thursday. Overall profit for the fiscal third quarter topped analysts’ estimates. Canadian Imperial Bank of Commerce saw similar trends in its results for the three months through July, which also exceeded projections.

The Canadian economy’s comeback in recent months, even as Covid-19 lingers, fueled strong domestic lending results at the country’s banks during the third quarter, with personal loans gaining momentum and highly profitable credit cards starting to see an uptick after a year of declines. That’s building on the solid foundation of mortgage growth, spurred by Canada’s hot housing market, that has helped the nation’s banks weather the pandemic.

“It’s been good to see the reopening take hold, and as vaccination rates improve, customers and Canadians are beginning to resume their normal lives and habits,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in an interview. “We’re seeing as a result record sales on credit cards and balances starting to edge upward.”

Toronto-Dominion’s sizable U.S. operations, meanwhile, saw loan balances decline as continued government stimulus programs, including the Paycheck Protection Program, reduced clients’ need to take on new borrowings. Personal loan balances in the U.S. retail segment slid 0.7% from the previous quarter and 1.5% from a year earlier.

“The U.S. relief programs for Americans have been quite attractive, including a very significant PPP loan-forgiveness program,” Ahmed said. “That has resulted in a tremendous amount of liquidity built up in the U.S., which we see in our balance sheet as growth in deposits and cash, and, as a result, we see that loan growth has yet to materialize.”

Toronto-Dominion’s net income rose 58% to C$3.55 billion, or C$1.92 a share. Profit excluding some items was C$1.96 a share. Analysts estimated C$1.92, on average.

CIBC’s results followed a similar trajectory, with profit in its Canadian personal and business banking division rising 40% to C$642 million, helped by gains in mortgages and personal loans. 

In contrast to Toronto-Dominion’s U.S. retail presence, CIBC’s exposure to the U.S. is focused on commercial lending and wealth management. While profit in that unit rose more than fivefold from a year earlier, loan balances for both businesses and wealth clients were down from both a year earlier and from the second quarter. Companywide, profit excluding some items was C$3.93 a share, topping analysts’ forecast of C$3.41.

The lender has been working to bulk up its capital-markets business and presence in the U.S., announcing in June the purchase of a minority stake in Chicago-based Loop Capital. CIBC’s capital-markets division boosted net income 11% to C$491 million last quarter.

The Toronto-based bank also announced a plan to achieve net-zero greenhouse-gas emissions from its operations and financing activities by 2050, and set a goal of reaching C$300 billion in sustainable financing by 2030.
 
The spread of Covid-19’s highly contagious delta variant has prompted concerns about the durability of the recovery in both the U.S. and Canada. Delta contributed to Toronto-Dominion’s decision to reduce its recovery of set-asides for potential loan losses in the three months through July to C$37 million, down from a C$377 million release in the previous quarter, Ahmed said. 

CIBC recovered C$99 million in provisions for credit losses in the third quarter, compared with set-asides of C$32 million in the second quarter.

Shares of CIBC gained 0.9% to C$152.77 at 9:34 a.m. in Toronto, while Toronto-Dominion slipped 0.6% to C$85.24. Toronto-Dominion has risen 19% this year and CIBC has advanced 40%, compared with a 26% increase for the S&P/TSX Commercial Banks Index.

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