TD, CIBC close out better-than-expected quarter for Canadian banks; outlook uncertain

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce beat analyst expectations for third-quarter profit on Thursday as strong earnings growth in their capital markets businesses helped offset weakness in almost every other unit.

The results close out a reporting season that saw all but one of Canada's six major banks beat expectations, as conservative provisions in the prior quarter and a jump in trading revenues helped limit the hit from the coronavirus pandemic.

Even so, the banks warned of an uncertain environment ahead as government assistance and loan deferral programs wind down in the fourth quarter. While they anticipate an increase in delinquencies as a result, the lenders said the allowances they have built up should cover an increase in bad loans, as long as current economic assumptions hold.

Shares of TD, Canada's second-largest lender, rose 0.9% to C$66.97 in Toronto, while CIBC shares climbed 2.15% to C$104.20, both on track for their highest close since early March.

The Canadian banks index is up 4.3% since Monday's close, compared with a 1% gain in the Toronto stock benchmark.

TD's provisions for credit losses (PCL) more than tripled to C$2.2 billion from a year earlier, although they were down from C$3.2 billion in the previous quarter.

"Over the last two quarters, we've added significantly to allowances for performing loans," TD Chief Financial Officer Riaz Ahmed said in an interview. "Our expectation is that the economic recovery will be a little bit uneven across regions and different businesses and we expect the recovery to be prolonged."

CIBC's PCL jumped 80% to C$525 million from a year earlier, although they were down from C$1.4 billion in the previous quarter. That was better than estimates of C$715.7 million.

The bank continues to see growth in deposits and loan growth, although that has moderated in some areas, but "going forward, it's hard to see how things will play out," CIBC chief financial officer, Hratch Panossian, told Reuters.

TD Bank posted an 81% increase in capital markets profit, while CIBC's rose 67%, in stark contrast to the performance of their Canadian and U.S. personal and commercial banking businesses, which saw earnings slide.

Higher loan-loss provisions in these units and lower net interest margins amid decade-low interest rates eroded gains from increased loan and deposit volumes.

With pandemic-driven loan deferral programs starting to wind down, CIBC's Canadian loan balances in deferral accounted for about 11% of the total, from about 14% in the prior quarter.

TD said total balances in deferral fell to 6% from 8% in the previous quarter.

($1 = 1.3144 Canadian dollars)

By Nichola Saminather