TD, CIBC see profit bump helped by U.S. operation but analyst reaction mixed

FILE - A photograph of the CIBC sign in Toronto's financial district in downtown Toronto on Thursday, Feb. 26, 2009. (THE CANADIAN PRESS/Nathan Denette)

Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce each got a quarterly profit boost from their U.S. footholds, but the latter lender's shares slipped after its latest earnings fell shy of analyst estimates for the first time in four years.

TD Bank Group and CIBC both reported financial fourth-quarter net income increases of roughly nine per cent to $2.96 billion and $1.27 billion, respectively.

Both Toronto-based banks benefited from a presence south of the border, as TD and CIBC's American operations delivered double-digit increases in net income during the three months ended on Oct. 31.

The quarter marked the end of a "tremendous year" for TD, with strong performances across all its businesses, said Bharat Masrani, the bank's president and chief executive.

The bank's U.S. retail operations, including TD Ameritrade, was a particular bright spot which earned $1.11 billion, up 44 per cent from $776 million a year ago.

"Our U.S. retail bank continued its strong momentum, building on our roots in retail, small business and commercial banking... We made significant investments to support this growth across all areas," said Masrani on a conference call with analysts on Thursday.

TD beat expectations with adjusted profit that it says amounted to $1.63 per share for the quarter, up from $1.36 per share a year ago. Analysts on average had expected a profit of $1.62 per share, according Thomson Reuters Eikon.

TD's American banking business, which has more than 1,200 locations along the U.S. East Coast, generated outsized earnings while its domestic operations were weighed down by higher expenses, analysts said.

"The U.S. business continues its excellent momentum and wholesale rebounded after a weaker Q3... Canadian retail performance looks to be tracking slightly below peers thus far," said Scott Chan, an analyst with Canaccord Genuity in a note to clients.

TD said its Canadian retail business earned $1.74 billion in its fourth quarter, up from $1.66 billion in the same quarter last year, boosted by strong volumes and market share gains.

For its full financial year, TD earned $11.33 billion, up from $10.52 billion in 2017.

TD's stock stayed relatively flat on Thursday, around the $73 mark on the Toronto Stock Exchange, but shares of CIBC fell as much as four per cent on Thursday to $111.41 from its previous close of $116.19.

CIBC's stock slipped despite a quarter which capped off a year of record net income for Canada's fifth-largest bank, up 12 per cent to $5.28 billion for the 12 months ended Oct. 31.

CIBC and TD's latest earnings come after peers Bank of Nova Scotia and Royal Bank of Canada reported their results for the financial fourth quarter and 2018 year earlier this week.

Scotiabank reported quarterly net income of $2.27 billion, falling just short of expectations, while RBC beat estimates with net income during the period of $3.25 billion.

On an annual basis, RBC saw net income increase eight per cent to a record $12.4 billion, while Scotiabank's profit for the financial 2018 year rose 5.8 per cent to $8.72 billion.

It was "a strong year" for CIBC, said its chief executive Victor Dodig, as the lender made progress on its strategy, including ramping up the proportion of earnings it derives from outside of Canada.

"Our U.S. region has grown from nine per cent of total CIBC earnings in 2017 to 16 per cent this year, showing we are well on our way to our target of 17 per cent in 2020," he said on a conference call Thursday.

CIBC's Canadian commercial banking and wealth management earned $333 million, up from $287 million, while the U.S. commercial banking and wealth management division earned $131 million, up from $107 million a year ago.

Still, the bank's performance fell short of expectations. On an adjusted basis, CIBC said it earned $3 per diluted share in the quarter, up from an adjusted profit of $2.81 per diluted share in the same quarter last year. Analysts on average had expected a profit of $3.04 for the quarter, according to Thomson Reuters Eikon.

This marked the first miss for CIBC in four years, said Gabriel Dechaine, an analyst with National Bank of Canada Financial Markets. CIBC's Canadian banking performance was "solid" but margins in its U.S. operations began to show "weakness," he said.

Canada's fifth-largest lender saw its U.S. commercial earnings retrace from a strong third quarter, down 19 per cent sequentially, said John Aiken, an analyst with Barclays in Toronto.

"Coupled with the overall miss against expectations was a surprising step back in profitability in CIBC's U.S. operations; its platform for future growth," he said in a note to clients.

Companies in this story: (TSX:CM, TSX:TD)