TORONTO - The introduction of TD Bank's Aeroplan Visa card is going better than expected and will add to earnings for the year, TD chief financial officer Colleen Johnston said Thursday as the bank reported stronger first-quarter results.
"The initial portfolio that we received, which is just over $3 billion from CIBC in early days, is performing well, but it was really a modest contribution to the quarter because we only had one month of earnings," Johnston said.
"What we've seen is that the new account openings have vastly exceeded our expectations in the first couple of months."
Johnston didn't say exactly how many new customers TD has signed up since launching four types of Aeroplan Visa credit cards this year, but said they were expected to add gradually to earnings "and add nicely to our bottom line."
TD reported Thursday a profit of $2.04 billion or $1.07 per share, up from $1.78 billion or 93 cents per share a year ago, and raised its quarterly dividend by four cents to 47 cents per share.
Excluding one-time costs, including $155 million related to the launch of the Aeroplan Visa cards, and a gain of$196 million on the sale of TD Waterhouse Institutional Services, the bank earned an adjusted profit of $2.02 billion or $1.06 per share, up from $1.91 billion or $1 per share a year ago.
Under a deal with CIBC, TD acquired about 540,000 cardholder accounts with an outstanding balance of $3.3 billion. The agreement was a compromise between the banks and Aeroplan's parent company Amia (TSX:AIM).
Johnston, who noted Aeroplan Visa users tend to be higher spending customers with good credit quality, said Canadians are loyal to the Aeroplan program even with the rise of more flexible travel reward credit cards and other programs.
"There's a lot of our competitors who are very interested in acquiring new accounts, but we think we are very well positioned competitively in terms of what we are offering to the customer," she said.
CIBC's sale of half its Aeroplan credit card business to TD helped boost its first-quarter results to $1.18 billion or $2.88 per share compared with $785 million or $1.88 per share a year ago.
Excluding the gain on the sale of the Aeroplan business and other one-time items, CIBC said it earned an adjusted profit of $951 million or $2.31 per share for the quarter compared with $882 million or $2.12 in the first quarter of 2013.
CIBC also raised its quarterly dividend by two cents to 98 cents per share.
"Our record results this quarter reflect the progress we continue to make in executing our client-focused strategy," CIBC president and chief executive Gerald McCaughey said.
"Each of our core businesses delivered strong results. The strength of our underlying fundamentals allows us to generate high returns for our shareholders."
Barclays analyst John Aiken noted the CIBC results felt the impact of the Visa card sale but, with only one month included, said it would carry over into the second quarter.
"That said, it was a reasonably strong quarter, on the back of lower provisions (for credit losses)," Aiken wrote.
For TD, Aiken the acquisition of the Visa portfolio implies further upside in the second quarter its domestic retail banking business.
"While the headline results may not capture the imagination of investors, similar to Royal's results yesterday, there is little denying the solid underlying results generated by TD this quarter," Aiken wrote.
"There is little reason to believe that TD should not be able to garner above average industry growth, and likely the greatest dividend increase reported this quarter amongst the group underscores management's confidence in its relative outlook."