Toronto-Dominion Bank continued a trend among Canada's big banks this week, reporting strong profit growth in the third quarter despite widespread concerns about the impact of low oil prices and a contracting Canadian economy.
TD said its quarterly profit rose to almost $2.3-billion, up about 7.5 per cent from last year. After making some adjustments, earnings were $1.20 a share, modestly ahead of the $1.18 that analysts had forecast.
The shares rose 1.3 per cent in late morning trading Thursday but lagged a far larger stock market rally. The broad S&P/TSX composite index rose 2.4 per cent.
"TD's third-quarter performance demonstrates the strength of our diversified business model," said Bharat Masrani, the bank's chief executive officer.
But the results reflected strength in areas that are exposed to the struggling domestic economy, which has contracted for five straight months. Canadian retail banking, for example, reported an 8-per-cent increase in operating income. Wholesale banking rose almost 11 per cent.
At the same time, bad loans associated with the oil and gas sector haven't become an issue: Impairments rose by just $13-million in the quarter – a tiny fraction of TD's $4-billion in loans to the sector, representing about 1 per cent of its total loan portfolio.
Colleen Johnston, TD's chief financial officer, acknowledged in an interview that the economic environment is challenging. But she added: "We're not seeing any of those concerns imbedded in our numbers."
Still, TD has been responding to difficult conditions in recent months, largely by cutting staff levels. The number of employees within its Canadian retail banking arm fell by 132 from the previous quarter; in the United States, the employee count fell by about 230.
Despite the bank's strong financial performance, analysts remained largely cautious in reports issued shortly after the earnings release.
"Low single-digit growth in the two key operating segments (personal and commercial banking in Canada and the United States) is unlikely to do much to lift the multiple or growth expectations from here," said Robert Sedran, an analyst at CIBC World Markets, in a note. "As such, we are inclined to a neutral view on the quarter."
Meny Grauman, an analyst at Cormark Securities, noted that Canadian retail earnings were 3 per cent after stripping out wealth and insurance operations, reflecting margin pressure. And the U.S. retail operations, where TD has more branches than in Canada, benefited from a strong U.S. dollar; if you ignore currency changes, earnings growth was just 1 per cent.
"We believe that TD's results put it towards the bottom of the pecking order this quarter, and see flows heading into some of the names with more attractive valuations … at least in the short run," he said in a note.