TD profit falls shy of forecasts as loan-loss provisions weigh - The Globe and Mail

Toronto-Dominion Bank reported profit growth across all its major divisions in the third quarter but fell just shy of analysts’ expectations.

A 17-per-cent rise in provisions for credit losses – the funds banks set aside to cover bad loans – was a drag on TD’s results, continuing a trend among Canada’s largest banks as they see expected loan losses creep up from unusually low levels a year ago.

In TD’s core Canadian retail banking division, profit rose a modest 2 per cent, to $1.89-billion, as gains from increasing loan and deposit volumes were offset partly by higher loan loss provisions. TD adjusted its models in the quarter to account for the potential that more loans that are currently performing well may soon go sour.

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"I would say that we are continuing to see normalization in credit losses this year," said Riaz Ahmed, TD's chief financial officer, in an interview. "It feels more [like] business as usual to us."

TD reported profit of $3.25-billion, or $1.74 per share, for the three months ended July 31, compared with profit of $3.1-billion, or $1.65 a share, in the same quarter last year.

Adjusted to exclude certain one-time items, TD said it earned $1.79 per share. Analysts had expected $1.80 per share, on average, according to Refinitiv.

The results wrap up an earnings season characterized by mixed results, as higher loan losses, uneven capital markets performance and slower retail banking growth were partially offset by strong international results and healthy increases in loans and deposits.

TD’s U.S. retail division continues to be a source of strength for the bank, with profit up 13 per cent year over year, to $1.29-billion. That was driven in large part by strong contributions from the bank’s minority stake in TD Ameritrade, which contributed $294-million in profit in the third quarter. U.S. loans increased 6 per cent in the quarter, but margins were under heavy pressure, down 11 basis points, as U.S. interest rates have begun to fall amid uncertainty about trade tensions and the potential for a recession. (100 basis points equal one percentage point).

"I think there is a feeling on the ground [in the U.S.] that things continue to be okay so far, so we'll see how that develops as the macro and the political situations evolve," Mr. Ahmed said.

Profit from TD’s wholesale banking division was up 9 per cent, to $244-million, on the strength of strong trading-related revenue.

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“Overall, the results came in slightly below expectations despite a strong trading quarter,” said Robert Sedran, an analyst at CIBC World Markets, in a research note. “The strain from the lower interest rate environment was evident as it was for other banks this quarter.”

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August 29, 2019 at 07:45PM