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TD Bank's fourth-quarter results were boosted by unusually good conditions for credit as well as rebounding activity among the retail banking customers that form the core of its business.JEENAH MOON/Reuters

Fourth-quarter profits moved in opposite directions at Toronto-Dominion Bank and Canadian Imperial Bank of Commerce , continuing a string of mixed earnings for Canada’s banks as they respond to an uncertain economic outlook.

TD stole the spotlight on Thursday, reversing a string of underwhelming financial results with fourth-quarter profit that topped analysts’ expectations. The bank’s results were boosted by unusually good conditions for credit as well as rebounding activity among the retail banking customers that form the core of its business.

As CIBC wrapped up a resurgent year that has improved its fortunes, its quarterly earnings faltered. The bank’s costs ballooned, rising 13 per cent year over year to nearly $3-billion, as it ramped up spending to improve its retail banking performance, upgrade technology and revitalize its image with a new logo and brand.

Investors responded to the divergent trajectories of each bank’s earnings by rewarding TD and punishing CIBC. On closer inspection, however, both banks’ results were shaped by similar trends. TD and Bank of Nova Scotia, which reported better-than-expected earnings on Tuesday, both beat analysts’ estimates largely on the strength of reducing the amount of money they had set aside early in the COVID-19 pandemic to cover potential loan losses. And neither bank was immune to broader challenges that caused earnings at CIBC, Royal Bank of Canada and National Bank to fall short: shrinking margins on lending, lower trading revenues and persistent uncertainty about the path of the economic recovery from COVID-19.

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“We continue to be in an environment that is uncharted territory and uncertain,” Hratch Panossian, CIBC’s chief financial officer, said in an interview. “We’re positive in terms of our outlook, and I think generally the market outlook is positive. But there’s always the possibility for risks on the horizon.”

The price of TD’s shares jumped 4.9 per cent higher to $96.50 on the Toronto Stock Exchange on Thursday, while CIBC’s shares initially fell more than 4 per cent before recovering some lost ground to close down 2.8 per cent at $137.28.

For CIBC, “the details are better than the headline suggests,” Meny Grauman, an analyst at Scotia Capital Inc., said in a note to clients. Most notably, the bank’s total revenue was up 10 per cent year over year – the largest increase among the five banks that have reported so far – even as it remained flat when compared with the third quarter.

The bank has invested in a strategy to revamp its personal and commercial banking unit, which included retooling its mortgage business to catch up to rivals. Earnings were hampered by one-time items, including a $109-million real estate charge as the bank moves to a new Toronto headquarters. And CIBC set aside $78-million in new provisions for credit losses – the funds that banks earmark in case loans default – while TD reclaimed $123-million in provisions that are no longer needed, boosting its profits. But CIBC’s loan losses are still near historic lows.

In the fiscal fourth quarter that ended Oct. 31, CIBC earned $1.44-billion, or $3.07 a share, compared with $1.02-billion, or $2.20 a share, in the same period last year. Adjusted to exclude certain items, CIBC said it earned $3.37 a share, well below the $3.53 predicted by analysts, according to Refinitiv.

Although TD’s better-than-expected profit of $3.8-billion stands out in comparison, “the real question ... is how sustainable this year-end improvement truly is” after the bank’s results lagged for most of the year, Mr. Grauman said.

TD’s core retail banking profits from operations in Canada and the United States rebounded from low levels a year ago, and edged higher when compared with the third quarter. Customers are starting to spend and borrow more, and lending activity has risen accordingly. Balances on credit cards – which are highly profitable and a competitive advantage for TD’s large retail banking business – increased for the second straight quarter as travel restrictions eased, but are still lower than they were before the pandemic.

“Any economic recovery is never in a straight line. But what we saw in Q4 is strong customer activity,” Kelvin Tran, TD’s chief financial officer, said in an interview.

For the fiscal fourth quarter that ended Oct. 31, TD earned $3.8-billion, or $2.04 a share, compared with $5.1-billion, or $2.80 a share, a year earlier, when profits were inflated by a gain from the bank’s sale of its stake in TD Ameritrade to Charles Schwab Corp.

On an adjusted basis, profit was higher year over year and TD said it earned $2.09 a share. On average, analysts expected adjusted earnings per share of $1.96.

Both banks announced substantial increases to quarterly dividends and plans to buy back shares after the federal banking regulator recently lifted pandemic-related restrictions. TD raised its dividend by 13 per cent from 79 cents a share to 89 cents, and could repurchase up to 2.7 per cent of its shares this year.

CIBC hiked its dividend by 10 per cent, from $1.46 a share to $1.61, announcing a program to buy back up to 2.2 per cent of its shares.

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