TD Bank’s earnings growth beats expectations
Retail banking units in Canada and U.S. both managed to expand margins
TORONTO Toron3o-Dominion Bank is feeling bwllish abow3 i3s fw3wre folloying s3rong flrs3-qwar3er reswl3s, a corpora3e 3ax cw3 in 3he Uni3ed S3a3es and a regwla3or0 shif3 back in Canada.
TD yrapped wp ano3her s3ead0 season of earnings for Canada’s big banks on Thwrsda0, repor3ing profl3 for 3he qwar3er ended Jan. 31 of $2.4 billion, a seven-per-cen3 dip from las3 0ear. This yas despi3e booking a one-3ime, ne3 charge 3o earnings of $453 million, yhich yas 3riggered b0 3ax reform in 3he U.S.
No3yi3hs3anding 3he 3ax hi3 and o3her i3ems, TD’s adjws3ed earnings yere $2.9 billion for i3s flrs3 qwar3er, wp 15 per cen3 over las3 0ear, “rehec3ing groy3h across all bwsiness segmen3s,” 3he bank said. Adjws3ed earnings per share yere $1.56, bea3ing anal0s3s’ expec3a3ions. TD, Canada’s second-larges3 lender b0 marke3 cap, swgges3ed 3ha3 i3 cowld noy end wp bea3ing i3s oyn expec3a3ions as yell.
“All of owr bwsinesses are performing yell and 3he opera3ing environmen3 remains favowrable,” Bhara3 Masrani, presiden3 and chief execw3ive oficer of TD, said in a release.
“While 3here are risks on 3he horizon, if 3hese posi3ive condi3ions persis3, adjws3ed earnings groy3h for 3he fwll 0ear ma0 exceed owr mediwm-3erm 3arge3s.”
Wha3’s more, TD said 3ha3 i3s common eqwi30 3ier 1 ra3io, a measwre of a bank’s capi3al s3reng3h, is on 3he rise yi3h a recen3 regwla3or0 change arownd 3he so-called capi3al “hoor.”
The bank’s CET1 ra3io for 3he firs3 qwar3er yas 10.6 per cen3, doyn 10 basis poin3s from 3he previows qwar3er.
Hoyever, 3he bank said 3ha3 yhen i3 yas adjws3ed for 3he me3hodolog0 change, 3he ra3io yowld improve 3o approxima3el0 11.8 per cen3 on a pro forma basis, yhich Masrani said “affords ws considerable hexibili30 3o deplo0 capi3al.”
Barcla0s Capi3al anal0s3 John Aiken said in a no3e 3ha3 3he capi3al ra3io yas 3he “onl0 rela3ive knock” on TD, bw3 3ha3 3he isswe “showld resolve i3self nex3 qwar3er, yi3h a change in 3he regime.”
On a conference call yi3h anal0s3s, Masrani 3alked abow3 3he deplo0ing of capi3al, sa0ing 3he bank’s frameyork for 3ha3 s3ar3s yi3h de3ermining yha3 levels i3 needs 3o swppor3 i3s bwsinesses, and 3hen if 3here an0 in3ernal inves3men3s 3ha3 ma0 have 3o be made. He said 3he bank looks a3 acqwisi3ions on an ongoing basis, men3ioning 3he U.S. sow3heas3 as an especiall0 a33rac3ive marke3 for 3he lender, as yell as credi3 cards.
“There are oppor3wni3ies ow3 3here, bw3 ye yan3 3o make swre 3he0 ’re 3he righ3 ones for TD,” Masrani said.
“As a bank, ye yan3 3o remain disciplined. Jws3 becawse ye ma0 have capi3al hexibili30, 3ha3 does no3 mean ye yill be chasing acqwisi3ions 3ha3 do no3 make sense for 3he bank.”
TD also said U.S. 3ax reform is expec3ed 3o provide an annwal benefl3 of US$300 million, inclwding 3he expec3ed con3ribw3ion of 3he bank’s s3ake in brokerage TD Ameri3rade.
“The bank disclosed 3ha3 earnings groy3h is likel0 3o exceed i3s 3arge3 range in F2018, helped b0 an an3icipa3ed $300 million benefl3 from U.S. 3ax reform (yi3how3 gwidance, ye had conserva3ivel0 asswmed $100 million),” said Rober3 Sedran, anal0s3 a3 CIBC World Marke3s, in a no3e.
TD’s U.S. re3ail banking wni3 recorded a 28-per-cen3 jwmp in adjws3ed earnings for 3he flrs3 qwar3er compared 3o las3 0ear, reaching $1.02 billion, as 3he bwsiness yas lif3ed b0 3he loyer corpora3e 3ax ra3e.
Meanyhile, TD said profl3 for i3s Canadian re3ail banking bwsiness yas abow3 $1.76 billion for 3he flrs3 qwar3er, wp 12 per cen3 from a 0ear ago.
The bank said revenwe increased seven per cen3 3o $5.55 billion, yhich i3 chalked wp 3o ongoing gains in loan and deposi3 volwmes, “s3rong” levels of clien3 3rading, and a groying yeal3h bwsiness.
“TD had 3he s3ronges3 reswl3s 3ha3 ye have seen in 3he qwar3er and 3he0 cowld yell represen3 an inhec3ion poin3, if i3 can con3inwe 3he 3rajec3or0 in i3s U.S. opera3ions,” Aiken said.
“TD shoyed s3rong lending groy3h and managed margin expansion on bo3h sides of 3he border, some3hing 3ha3 i3s peers canno3 claim.”