TD Bank Posts Increase in Q3 Profits on Strong Retail Earnings Growth

Sep. 3.10 | About: Toronto-Dominion Bank (TD)

TD Bank Financial Group (NYSE:TD) (TDBFG) [TSX:TD] has increased its quarterly profits to $1.18 billion Cdn, compared with $912 million one year earlier - an increase of 29% on account of strong retail earnings growth. Diluted earnings per share were $1.29, versus $1.01 in the bank`s third quarter last year.

"Our third quarter results really tell the growth story of our retail businesses on both sides of the border, with our total adjusted retail earnings hitting a new high of $1.3 billion, up 21% from last year," said president and CEO Ed Clark.

Not including one-time items of note in the quarter, adjusted diluted earnings per share were $1.43, missing analyst estimates by one cent. The bank had an amortization charge of $117 million after tax during the quarter.

Provisions for credit losses improved to $339 million in the quarter from $557 million a year ago as customers were better able to repay their loans.

The Canadian personal and commercial banking division posted yet another record quarter - its third in a row. The segment recorded earnings of $841 million in the third quarter, up 24% from the same period last year, while revenue grew 8% to around $2.6 billion, largely due to TD Canada Trust (TDCT) reporting strong volume growth, in particular in real estate secured lending and business deposits. Compared with the third quarter last year, real estate secured lending volume, including securitized assets, increased $20 billion, or 12%.

This trend is not expected to last, however: "We expect continued strong earnings growth, but not at the rate we've seen this year, as the Canadian housing market cools and a competitive environment continues to put pressure on margins," said CEO of TDCT Tim Hockey.

South of the border, the US retail banking division reported net income of $282 million in Canadian dollar terms, an increase of $110 million or 64% from the same period last year, on account of new branch aquisitions. The strengthening of the Canadian dollar against the US dollar no doubt had a negative impact on profits - decreasing the total net income for the segment by $24 million.

"We remain pleased with the pace of our organic growth as we continue to lend to our customers. In fact, since the downturn started in 2007, we've grown our lending by 20%," said CEO of TD Bank, America's Most Convenient Bank, Bharat Masrani.

However, reflecting a trend seen among most Canadian banks this summer, the wholesale banking division reported profits of $179 million, down a whopping 45% from the same period last year. The segment was affected by "the sovereign debt crisis in Europe and the significant equity market disruption in early May", it said in a statement. This resulted in lower fixed income, credit and currency trading as well as lower underwriting fees.

Most banks have suffered from poor trading revenues this quarter - a clear contrast to this time last year, as the previous year`s gains reflected the broad-based market rebound following the financial crisis.

"We expect markets to remain challenging in the short term while we continue to build our franchises and strengthen our platforms for future success," said CEO of TD Securities Bob Dorrance.

Wealth management posted profits of $117 million in the quarter - reflecting an increase of 23%, largely driven by fee revenue from higher client assets. The third quarter represents the sixth quarter in a row in which the segment saw an improvement in profits.

The bank remains cautious about the next several quarters for the division, however, given the potential of a slowing US economy on the equity markets, it said.

TDBFG's Tier 1 capital ratio hit another high, at 12.5%, up 50 basis points from last quarter, with tangible common equity comprising about 75% of Tier 1 capital.

"We'll have to wait to see the full scope and impact of proposed capital reforms," Clark said.

"However, we hope that by the first quarter of fiscal 2011, we'll be in a position, in the context of the Board's outlook on earnings and the Bank's dividend policy, to provide some guidance."

TDBFG is the sixth largest bank in North America by branches and serves more than 18 million customers. It also has more than 6 million online customers. TDBFG had $603 billion in assets on July 31, 2010.

Disclosure: No position