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TORONTO (Reuters) - Toronto Dominion Bank (TD.TO) and Canadian Imperial Bank of Commerce (CM.TO) on Thursday posted forecast-topping quarterly profits on robust growth in their domestic retail businesses even as both became the latest Canadian lenders to record jumps in bad loans tied to the energy sector.
CIBC, Canada's fifth-largest bank, also raised its quarterly dividend, and its stock rose nearly 6 percent. Shares of TD, the country's No. 2 bank, climbed 1 percent.
Fears about how the energy industry slowdown would affect Canadian lenders and worries about a slowing economy have been weighing on bank shares this year.
Early signs of an impact from the oil price selloff have been emerging in the third quarter ended on July 31. Energy-sector bad loans rose 59 percent for TD from the second quarter and climbed 36 percent for CIBC.
Banks are scrutinizing their energy industry clients for signs of credit weakness, and they could renegotiate loan terms that come up for renewal based on refreshed oil price projections.
However, less than 1 percent of TD’s loan book comes from the energy companies, making it among the least exposed of the major Canadian banks.
"The portfolio is performing very much in line with expectations,” Chief Financial Officer Colleen Johnston said in an interview. “If oil prices remain low and they remain low for longer, we will have increased credit losses, but we think those losses are very manageable."
TD reported earnings of C$1.20 per share, excluding special items, compared with the analysts' average estimate of C$1.18.
Because of its large U.S. retail banking operation, TD is likely to gain from strength in the U.S. economy and any rise in interest rates, Barclays analyst John Aiken said.
Data released on Thursday indicated that U.S. economic growth for the second quarter was stronger than previously anticipated.
TD has been expanding steadily in the United States and is deeply entrenched in the Northeast.
“Clearly several levers were working quite well,” said John Stephenson, president of Stephenson & Co Capital Management and a TD shareholder.
TD is “in the best U.S. markets,” he added. “Not only are they in the right country, they are in the right part of the country.”
CIBC’s profit of C$2.45 per share before special items beat expectations of C$2.31 per share.
Reporting by John Tilak; Editing by W Simon and Lisa Von Ahn