TD tops analysts' forecasts as improved margins offset higher provisions for bad loans – The Globe and Mail

Toronto-Dominion Bank TD-T reported first-quarter profit that beat analyst expectations as the it benefited from wider lending margins even after it set aside more money than anticipated for potentially sour loans.

TD earned $1.58-billion, or 82 cents per share, in the three months that ended Jan. 31. That compared with $3.73-billion, or $2.02 per share, in the same quarter last year.

Excluding certain items, the bank said it earned $2.23 per share. That beat the $2.19 per share analysts expected, according to Refinitiv.

The bank’s earnings for the quarter were affected by three large, unusual items. It took a previously announced legal provision of $1.6-billion to settle a lawsuit from investors accusing it of contributing to one of the world’s largest Ponzi schemes by former Texas billionaire Allen Stanford. The bank denies any allegations of liability.

It also recorded a $876-million loss on an interest rate hedging strategy on its US$13.4-billion acquisition of First Horizon Corp. In the previous quarter, the bank took a $2.3-billion gain on the same hedge.

“TD had a strong start to 2023 with Canadian and U.S. retail businesses delivering robust revenue growth and record earnings, demonstrating the benefits of our diversified business mix,” TD chief executive officer Bharat Masrani said in a statement.

In an annual filing Wednesday, Tennessee-based First Horizon disclosed that TD recently told its management team that the Canadian bank does not expect to receive the required regulatory approvals in time to complete the deal before May 27, which is when their merger agreement is set to expire.

“TD is fully committed to the transaction and we are in discussions with First Horizon about a potential further extension beyond May 27th,” Mr. Masrani said in a statement. “This is a great transaction that offers scale and new capabilities for the U.S. bank.”

The bank maintained its quarterly dividend at 96 cents per share.

Toronto-Dominion Bank is the final lender of the Big Six banks to report first quarter earnings. Royal Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank of Canada posted lower profit that still beat analyst estimates, while Bank of Nova Scotia reported lower-than-expected results.

In the quarter, TD set aside $690-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $137-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, TD reserved $72-million in provisions.

Total revenue rose 8 per cent in the quarter to $12.2-billion, bolstered by stronger margins in its Canadian retail division. But expenses surged 39 per cent to $8.32-billion, which the bank said was driven by settlement costs, compensation and investments across its business. Adjusted to exclude certain items, expenses increased 11 per cent.

Profit from Canadian personal and commercial banking was $1.73-billion, an increase of 7 per cent from a year earlier, on higher lending margins.

It’s U.S. arm earned $1.59-billion, up 25 per cent, as personal loans grew 11 per cent while deposits remained flat.

Wealth management and insurance profit fell 14 per cent to $550-million, as market volatility put pressure on trading and offset an increase in revenue.

Wholesale banking net income dropped 24 per cent to $331-million as higher expenses, rising loan loss provisions and lower underwriting and trading revenues offset a stronger quarter for global markets.

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