Toronto-Dominion's U.S. Lender Outshines Domestic Bank Gains

(Bloomberg) -- Toronto-Dominion Bank’s U.S. consumer-banking business is outshining its Canadian operations.

Canada’s largest lender by assets had a 44 percent jump in earnings from the U.S. retail segment in the fiscal fourth quarter, helped by improving net interest margins, record contributions from its stake in the TD Ameritrade brokerage and the federal tax overhaul, the bank said Thursday in a statement. Profit from U.S. retail rose to C$1.11 billion ($840 million), outpacing the 4.6 percent growth in Canadian retail and 24 percent gain in wholesale banking.

“The U.S. economy has been advancing quite smartly for a number of quarters now, and that always helps volumes,” Chief Financial Officer Riaz Ahmed said in a phone interview. “We had the benefit of U.S. tax reform, which reduced our income tax rates in the United States, and finally a year ago TD Ameritrade completed the acquisition of Scottrade and the integration of that has been very beneficial.”

Toronto-Dominion joins Royal Bank of Canada in beating analysts’ expectations for the quarter. Earlier Thursday, Canadian Imperial Bank of Commerce reported profit that fell short of expectations, marking the Toronto-based lender’s first miss in almost four years. Bank of Montreal and National Bank of Canada report results next week.

Key Insights

• Despite its roots, Toronto-Dominion has more branches in the U.S. than in Canada. Its U.S. lender, TD Bank, had 1,257 locations in a network stretching from Maine to Florida, compared with 1,098 branches in its domestic market at the end of October.
• About 20 percent of U.S. retail earnings in the quarter came from its 41 percent stake in Omaha, Nebraska-based TD Ameritrade. The firm’s contribution of C$228 million was the most since the Canadian lender sold its U.S. brokerage to Ameritrade Holding Corp. 12 years ago, taking a stake in the combined company.
• Chief Executive Officer Bharat Masrani warned in a May earnings call that he expected a higher rate of expense growth in the second half of the year. His prediction was right, with non-interest expenses climbing 11 percent to C$5.35 billion in the fourth quarter, compared with 5.4 percent growth in the third quarter. Expenses in the first half were little changed from a year earlier.
• “Expense spike weighs on performance,” National Bank Financial analyst Gabriel Dechaine said in a note to clients, noting that Canadian personal-and-commercial growth “was weighed down by negative operating leverage while U.S. P&C continues to shine.”

Market Reaction

• Toronto-Dominion rose 0.1 percent at 10:05 a.m. in Toronto, extending its performance as Canada’s best-performing bank stock this year. The stock is little changed for the year, compared with a 4.5 percent decline for Canada’s eight-company S&P/TSX Commercial Banks Index. CIBC shares fell 3 percent and are down 8.1 percent for the year.

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• Net income for the quarter ended Oct. 31 rose 9.1 percent to C$2.96 billion, or C$1.58 a share. Adjusted earnings were C$1.63 a share, beating the C$1.60 average estimate of 14 analysts surveyed by Bloomberg.
• Toronto-Dominion saw gains in all of its three main business lines, and the wholesale business that includes TD Securities posted a 24 percent jump in profit to C$286 million.
• The Canadian division, which includes wealth management, posted profit of C$1.74 billion, accounting for nearly 60 percent of total earnings.
• Read the quarterly statement here.

--With assistance from Karen Lin.

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, Steven Crabill

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