TD Tops Earnings Estimates as Bank's Swelling Margins Get Fatter

(Bloomberg) -- Toronto-Dominion Bank’s key to Canadian banking success: fat margins. And they’re only getting fatter.

• TD has long been the leader among Canadian banks in terms of domestic net interest margins, the difference between what a bank charges for loans and pays for deposits. The country’s second-largest lender posted a NIM of 2.87% in its domestic personal-and-commercial banking division in the fiscal second quarter, the highest in at least two years.

Key Insights

• Canadian banking head Teri Currie predicted on a February earnings call that NIMs would be higher this year than in 2018, though the back half of the year would see some compression. Those margins helped Toronto-Dominion post earnings growth of 4.2% for its largest business, as Canadian banking reached C$1.4 billion and helped the bank top analysts’ estimates.
• Unexpectedly higher loan losses contributed to a rare earnings miss for Toronto-Dominion in its first quarter as credit provisions jumped 23% to C$850 million, its highest level in at least two years. In the second quarter, credit improved, with the bank setting aside C$633 million for soured loans, down from the first quarter but up 14% from a year earlier.
• Toronto-Dominion’s 42% stake in the TD Ameritrade Holding Corp. brokerage has provided a streak of record contributions to the U.S. retail segment since the second quarter of 2018. That streak ended in the most recent quarter, though TD Ameritrade still added C$258 million, its second-best quarterly contribution in the 13 years of the bank’s investment in the U.S. discount brokerage.

Market Reaction

• Toronto-Dominion shares have risen 8.8% this year, less than the 10% return for the eight-company S&P/TSX Commercial Banks Index.

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• Second-quarter net income rose 8.8% to C$3.17 billion, or C$1.70 a share, from C$2.92 billion, or C$1.54, a year earlier, the company said Thursday in a statement. Adjusted per-share earnings totaled C$1.75, beating the C$1.68 average estimate of 14 analysts in a Bloomberg survey.
• Toronto-Dominion has a significant retail-banking operation in the U.S., boasting more bank branches than in Canada with a network that stretches from Maine to Florida. The U.S. retail division posted a 29% second-quarter earnings increase, to a record C$1.26 billion.
• TD Securities posted earnings of C$221 million, marking a recovery from the first quarter, when the division posted its first loss in years. Wholesale banking head Bob Dorrance called that period “a tough quarter” hurt by declining client activity amid volatile markets and weaker trading.
• Read more about Toronto-Dominion’s quarterly results here.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve Dickson

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