Classic Banking Doesn’t Pay Off – TD And CIBC Q3 2020 Earnings Review

After reviewing Q3 2020 earnings for BMO and ScotiaBank, and then for National Bank and Royal Bank, it is time to look at what TD and CIBC had for us in their pockets.

Oh my, this is definitely not my best picture… but I did it on purpose mostly because TD and CIBC Q3 earnings have not been really exciting, to say the least. And this is exactly the kind of goofy faces I do when I’m bored.

I’ll tell you upfront, TD, and CIBC are not my favorites mostly because they are more targeted to classic banking, savings and loans. TD is doing well, CIBC not so much.

The Toronto-Dominion Bank (TD) (TD.TO)

Business Model

TD is the second largest Canadian bank by market cap and is often jockeying side-by-side for the 1st position with Royal Bank (RY). TD is the most classic bank in Canada with its business model focusing a lot on retail banking. Its portfolio is well diversified between Canada (61%) and the U.S. (30%). TD operates three business segments: Canadian retail banking, U.S. retail banking, and wholesale banking. The bank’s U.S. operations span from Maine to Florida, with a strong presence in the Northeast. It also has a 42% ownership stake in TD Ameritrade, a discount brokerage.

What’s the Story?

“TD colleagues around the world continued to deliver for our customers, clients, and each other throughout a period of unprecedented disruption. As economies across our footprint begin to re-open, the wellbeing and safety of our customers, colleagues and communities remains a top priority,” said Bharat Masrani, Group President and CEO, TD Bank Group.

Source: TD Press release

In the second part of his statement, TD CEO mentions their position of strength, their prudency, their good capital, and their strong liquidity.

To be honest, I’m pretty sure that they’re going to do well. They experienced good volume growth and properly managed credit provision. Overall, we got the same comments we had from Royal Bank and National Bank.

Now let’s dig into the numbers.

  • Net income $2.3B, -30%
  • Adjusted EPS $1.25, -30%
  • CET ratio is at 12.5 (12 in 2019)

As it’s the case for most banks, net income earnings are down mostly because of the huge credit provision for credit losses ($2B). While it was at $3.2B in April, last year was at $655 million. This quite a number to digest for such business!

I’m impressed by their common equity tier 1 capital ratio, the highest of all banks. As it was at 12% last year, TD managed to improve it even during a recession.

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Disclaimer: I do not hold shares of TD or CM.

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