CIBC profit up 20%, TD up 25% as bank earnings stay strong

Two more of Canada's big banks reported earnings Thursday, with CIBC saying net income for the fourth quarter is up 20 per cent and TD Bank with net income up 25 per cent.

Bank earnings stay strong despite moribund economy and low rates

TD Bank is reporting fourth-quarter net income of $2.30 billion, up 25 per cent from a year ago. All the banks reporting so far this week have healthy profit. (Canadian Press)

Two more of Canada's big banks reported earnings Thursday, with CIBC saying net income for the fourth quarter is up 20 per cent and TD Bank with net income up 25 per cent.

Despite low interest rates and a slow economy, Canada's big five banks are turning in solid earnings. Scotiabank, which reported two days ago, saw a nine per cent rise in profit to $2.01 billion. RBC saw its profit slide compared to a year earlier, but still earned more than $2.5 billion in the quarter.

CIBC is reporting $931 million of net income in its fourth quarter, up 20 per cent from $778 million in the same period last year.

The Toronto-based bank is also raising its quarterly dividend by three cents per share to $1.24 per share, with the first payment at the higher rate coming on Jan. 31.

CIBC says its net income amounted to $2.32 per share for the three months ended Oct. 31. That included 25 cents per share of restructuring charges, totalling $98 million after taxes, primarily due to employee severance.

On an adjusted basis, CIBC's profit amounted to $2.60 per share — up from $2.36 per share in the fourth quarter of 2015.

Revenue for the quarter was $3.68 billion, up from $3.48 billion a year earlier.

For its full 2016 financial year, CIBC's net income was $4.30 billion, up from $3.59 billion in 2015, while revenue was $15.04 billion, up from $13.86 billion.

More exposure to mortgage market

CIBC's exposure to the residential mortgage market has increased, raising concerns among some analysts who say it comes at a time when Canada's real estate market is at risk of a correction.

But the bank said its loan delinquencies remain low and stable, including in the hot housing markets of Toronto and Vancouver.

Edward Jones analyst Jim Shanahan said CIBC's portfolio of uninsured mortgage and home equity loans is 5.4 times its regulatory capital.

That's up from a year ago, when CIBC's mortgage loan book was 4.7 times its regulatory capital, said Shanahan, adding that the bank is more at risk in the event of a correction than its peers.

The average for the four banks that have reported so far — Scotiabank, Royal Bank, CIBC, and TD Bank — is 3.3 times their regulatory capital.

"It's clear that they're more exposed to a sharp reduction in real estate values in Canada than any of the other major banks," Shanahan said.

The bank's exposure to residential mortgage loans is already "extraordinarily high," and the fact that it has continued to grow is alarming, Shanahan said.

"They've continued to layer on more risk at a time when there are a lot of warning bells going off and regulators are expressing concern."

Ottawa tightened mortgage lending rules in October in a bid to ensure that Canadians are not taking on more debt than they can handle.

TD Bank's 4th quarter

TD Bank is reporting fourth-quarter net income of $2.30 billion, up 25 per cent from a year ago when it had $1.84 billion in profits.

The earnings amounted to $1.20 per diluted share, compared with 96 cents per share during the same period last year.

The bank earned $8.75 billion of revenue during the three-month period ended Oct. 31, up from $8.05 billion a year ago.

For the full year, TD Bank had net income of $8.94 billion, or $4.67 per share, compared with $8.02 billion, or $4.21 per share, a year ago.

The bank's annual revenue was $34.32 billion, up from $31.43 billion last year.