Toronto-Dominion Profit Rises on U.S. Lending Business

Toronto-Dominion Bank (TD), the first Canadian lender to report second-quarter results, said profit rose 1.8 percent on record earnings from U.S. consumer lending.

Net income for the period ended April 30 climbed to C$1.72 billion ($1.67 billion), or C$1.78 a share, from C$1.69 billion, or C$1.78, a year earlier, the Toronto-based bank said today in a statement. Revenue rose 4.3 percent to C$6 billion.

U.S. consumer banking profit jumped 12 percent as lending growth there topped domestic gains, Toronto-Dominion said. The firm now has more bank branches in the U.S. than in Canada. Earnings from investment banking also rose, boosted by trading.

“We’ve had consistently strong volume growth in the United States and for some time now the U.S. has outpaced Canada,” Chief Financial Officer Colleen Johnston said in a telephone interview. “We’re seeing fundamentals strengthen in the United States versus our expectations.”

Adjusted earnings, which exclude some items, were C$1.90 a share, missing the C$1.91 average estimate of 13 analysts surveyed by Bloomberg.

“A solid quarter, but little to get excited about in terms of a step-up in valuation or drastically improved outlook,” John Aiken, a Barclays Plc analyst, said today in a note.

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Toronto-Dominion Bank's TD Canada Trust Tower stands next to a building under construction in Toronto, Ontario. Close

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Photographer: Pawel Dwulit/Bloomberg

Toronto-Dominion Bank's TD Canada Trust Tower stands next to a building under construction in Toronto, Ontario.

Toronto-Dominion, Canada’s second-largest lender by assets, fell 0.5 percent to close at C$83.65 in Toronto. The shares have declined 0.1 percent this year, trailing the 2.5 percent gain of the eight-company Standard & Poor’s/TSX Banks Index.

Low Expectations

“Expectations in my view are relatively low for the Canadian banks,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion including bank stocks. “The housing market continues to weigh on investors’ expectations.”

Toronto-Dominion said it plans to buy back as many as 12 million shares, or 1.3 percent of its outstanding stock, starting in June. It’s the first buyback for the bank in almost seven years.

“We’re now in the position where we can start thinking about capital deployment,” Johnston said.

The lender set aside C$417 million for bad loans, up from C$388 million a year earlier.

U.S. Earnings

U.S. consumer banking earnings jumped to C$398 million and domestic banking profit rose 4.8 percent to C$847 million, Toronto-Dominion said. Wholesale banking increased 12 percent to C$220 million. Profit from wealth management and insurance was C$364 million, compared with C$365 million a year earlier.

Toronto-Dominion still expects Canadian personal and commercial banking earnings to grow 7 percent to 10 percent this year, even with slowing loan growth and low interest rates, Johnston said.

“We continue to face headwinds from slower loan growth in Canada and lower interest rates globally,” Chief Executive Officer Ed Clark said today in a conference call.

Government efforts to cool housing are helping reduce risks of a major drop in prices, he said.

“Given the structure of Canadian lending, Canadians do not need to worry that we will see the type of meltdown that has occurred in other countries,” Clark said. “We may see a softening of prices, but this would be a good thing, not a prelude to a major correction.”

Cost Cutting

Toronto-Dominion is “reviewing all opportunities” to cut costs across the bank, Clark said. The bank said it seeks to keep expense growth below 3 percent this year.

“Finding current-year cost savings is not enough,” Clark said. “We continue to focus on more permanent cost reductions.”

The eight biggest Canadian banks are expected to report a 7 percent increase in adjusted per-share earnings for the quarter from a year earlier, Sumit Malhotra, an analyst with Macquarie Capital Markets in Toronto, said in a May 21 note.

National Bank of Canada (NA) reports results tomorrow, followed by Bank of Nova Scotia (BNS) on May 28 and Bank of Montreal (BMO) on May 29. Royal Bank of Canada, the country’s largest lender, and Canadian Imperial Bank of Commerce, the fifth-biggest, report on May 30.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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