TD’s Rapid Growth in Home-Equity Loans Shows Signs of Cooling

(Bloomberg) -- Toronto-Dominion Bank’s rapid growth in Canadian home-equity loans has eased up just a bit.

After posting year-over-year growth of more than 30 percent in hybrid home loans pitched as mortgage substitutes for the past five quarters, Toronto-Dominion’s growth streak in its fiscal first quarter cooled slightly. Amortizing home equity line of credit balances totaled C$51.3 billion, up 28 percent from C$40 billion a year earlier.

Despite the growth, Toronto-Dominion’s earnings in its Canadian retail division fell, contributing to overall fiscal first-quarter profit that missed analysts’ estimates.

Key Insights

  • The bank’s push to win back customers for home-equity loans, after years of ceding market share to rivals, comes amid extra scrutiny. Credit agency DBRS Ltd., for one, is concerned that growth of such debt is adding to the vulnerability of over-leveraged Canadians and already-elevated home prices. There are some signs of eroding credit, as the bank set aside C$310 million for soured loans in Canadian banking, up 15 percent from a year ago.
  • Toronto-Dominion has a sizable business in the U.S., with more bank branches than in Canada in a network that stretches from Maine to Florida. The U.S. retail segment posted a 30 percent gain in first-quarter earnings, to C$1.24 billion.
  • Canada’s big banks all suffered declines in their capital-markets operations in the first quarter, which provided a damper on first-quarter earnings. Toronto-Dominion performed even worse than its peers, with its TD Securities division posting C$17 million loss, “reflecting lower trading-related revenue and origination activity, and higher expenses,” the company said in a statement.

Market Reaction

  • Toronto-Dominion shares rose 2.7 percent in the 12 months through Wednesday, outperforming the 0.9 percent decline in the eight-company S&P/TSX Commercial Banks index.

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  • First-quarter net income rose 2.4 percent to C$2.41 billion, or C$1.27 a share, from C$2.35 billion, or C$1.24 a share, a year earlier. Adjusted per-share earnings totaled C$1.57, missing the C$1.71 estimate of 12 analysts in a Bloomberg survey.
  • Toronto-Dominion raised its quarterly dividend 10 percent to 74 cents.
  • Read more about Toronto-Dominion’s earnings here.

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