Canada's TD, CIBC profits beat estimates; strong lending offsets higher costs, provisions

By Nichola Saminather

TORONTO (Reuters) -Toronto-Dominion Bank and Canadian Imperial Bank of Commerce on Thursday posted better-than-expected third-quarter profits lifted by higher revenues as lending grew strongly.

Canadian banks have seen strong loan growth and margin expansion in the third quarter. But that has been countered to some degree by higher provisions for credit losses to protect against souring economic conditions and lower capital markets revenues amid market turmoil and a dearth of deals.

TD, Canada's second-largest lender, is predicting slower economic growth for both Canada and the United States due to higher interest rates, TD's Chief Financial Officer Kelvin Tran told Reuters. It has also adopted a more severe downside scenario, based on a potential recession, he added.

TD shares rose 1.9% to C$86.65, while CIBC's increased 0.3% to C$65.66. The Toronto stock benchmark rose 0.3%.

Both TD and CIBC, the country's fifth-biggest bank, posted strong year-on-year growth in adjusted revenues - 8% at TD and 10% at CIBC - but expenses rose by similar magnitudes at both.

Business lending was particularly robust at CIBC, increasing 21% from a year earlier. But high costs offset loan growth to weigh on adjusted profit in its Canadian retail banking and U.S. commercial and wealth business.

Expense growth has outpaced revenue expansion in CIBC's U.S. unit, as the bank has been investing to set up for more organic growth there, but this is expected to reverse by the middle of next year, executives said on its analyst call.

CIBC's margin excluding trading rose 4 basis points from the previous quarter.

TD's Canadian and U.S. retail business also posted increased earnings, with margins up 8 basis points at the former and 41 basis points in the latter.

The bank attributed its higher expenses to investments in technology and employee-related costs.

TD, which is in the process of completing its C$13.4 billion acquisition of First Horizon Corp in the United States, reiterated that it expects the deal to close in the first quarter of its fiscal 2023, subject to regulatory approvals.

The process remains on track and market concerns about potential delays are speculative, Tran said.

TD has said the deal will be terminated if it does not close by Feb. 27, 2023, unless otherwise extended.

TD reported net income excluding one-off items of C$2.09 per share in the three months ended July 31, compared with C$1.96 a year earlier and analysts' expectations of C$2.04 a share.

At CIBC, adjusted net income fell to C$1.85 per share from C$1.96 per share a year earlier. Analysts had estimated C$1.83.

(Reporting By Nichola Saminather in Toronto; Additional reporting by Mehnaz Yasmin and Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri, Chizu Nomiyama and Jonathan Oatis)