Toronto-Dominion Bank (TSX: TD, NYSE: TD) reported solid, if unexciting results for the third quarter of their 2016 financial year, with adjusted earnings per share rising 5% from a year ago. The dividend per share was 8% higher.

At the overall level, the bank performed well, with higher net interest revenues and trading and brokerage income. Expenses were well controlled, though provisions for credit losses were higher than last year, as some energy-related exposures turned sour.

Canada Retail banking, the main contributor to profits, reported 3% lower net income mainly as a result of insurance claims from the Fort McMurray wildfires.

The U.S. Retail operation had an excellent quarter, with profits in U.S. dollar terms improving by 14% due to higher loan volumes, growth in credit cards and better lending margins. However, this division’s profitability still remains substantially lower than the Canadian operation. While progress has been evident over the past several quarters, much work still needs to be done to narrow the gap.  

A key risk for Canadian banks is the country’s housing bubble and the possible negative impact on balance sheets and profits should the real estate market deteriorate. Fortunately, TD remains relatively well positioned compared to the other members of Canada’s Big Six thanks to a conservatively managed mortgage book, of which 53% is insured.

TD is currently our only holding among the Canadian banks, and with a 2016 forward price-to-earnings ratio of 11.8 times and a dividend yield of 3.8%, we intend to remain shareholders. We estimate the fair value of the stock, at C$61, or US$47.