TD reports higher profit on Canadian banking and capital markets strength, raises dividend

Toronto-Dominion Bank TD-T -0.31%decrease posted earnings that topped analysts’ expectations on higher profit from its Canadian banking and capital markets units as the lender set aside fewer provisions for sour loans.

The bank said it earned $2.38 a share on an adjusted basis for the second quarter ended April 30. That beat the $2.26 a share analysts estimated, according to Bloomberg data.

TD chief executive officer Raymond Chun said it was “another strong quarter for TD.”

“We also continue to make consistent progress on our AML remediation and enhancements, which remain our top priority,” he said.

The bank raised its quarterly dividend 4 cents to $1.12 a share. TD has also been buying back shares as it sits on a substantial amount of excess capital.

TD is betting on its Canadian businesses to prop up its growth ambitions as it cuts costs and remediates its anti-money-laundering failures in the United States.

Canadian personal and commercial banking profit was $1.93-billion, up 15 per cent from a year earlier on higher revenue and lower provisions. Loan balances were up 6 per cent year over year as deposits rose 3 per cent.

Economic uncertainty, inflation and higher interest rates have weighed on the housing market and business sentiment, tempering demand for lending, in particular in real estate secured lending (RESL).

“The consumer continues to be resilient; however, when you look at RESL, the rates are a little bit higher than a few months ago, and that is putting pressure on volume for RESL,” TD chief financial officer Kelvin Tran said in an interview.

“On the business side, anecdotally, when you talk to clients over time, they say, well I’ve been pausing for some time now and I’m ready to invest. So there’s confidence in the outlook of Canada.”

Adjusted net income from the bank’s U.S. arm was up 8 per cent at $960-million. Expenses climbed 10 per cent from the year prior as TD spends to fix gaps in its risk governance and controls. The bank has been restructuring its balance sheet and operations to cut costs.

TD has previously said it expects expense growth this year to land in the mid-single-digit range. Mr. Tran said despite the higher costs this quarter, the bank is still comfortable with its previous guidance.

“Our focus is reducing structural costs, and that’s the same approach for the entire bank, whether it’s in Canada or in the U.S.,” Mr. Tran said. “In the U.S., even though this quarter the expenses were on the high side, we do expect the full year will be at the mid-single-digit growth range.”

TD is the final major Canadian bank to report earnings for the fiscal second quarter. Bank of Montreal BMO-T -1.14%decrease, Bank of Nova Scotia BNS-T -1.50%decrease and National Bank of Canada NA-T +0.39%increase reported earnings on Wednesday. Royal Bank of CanadaRY-T +0.09%increase and Canadian Imperial Bank of CommerceCM-T -1.70%decrease also posted earnings on Thursday.

TD set aside $1-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was lower than analysts anticipated, and included $973-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, TD set aside $1.34-billion in provisions.

Capital markets profit climbed 46 per cent to $612-million, driven by higher revenue and lower provisions.

The wealth management and insurance division generated $837-million of profit, up 18 per cent on higher assets, insurance premiums and deposit volume growth.