TD reports earnings up as it sees growth in margins and loans

TD Bank Group saw earnings climb in the fourth quarter, despite setting aside more money for potentially bad loans, as it benefited in part from higher interest margins on its loans.

The bank, with a substantial deposit base that gives it access to cheaper funding, has benefited more than some other banks from rising interest rates.

TD saw margins both in Canadian and U.S. banking rise, along with growth in average loans up 9.5% and 11% respectively from a year ago, to help drive earnings in the segments.

“We had record earnings in Canadian personal and commercial banking, and a record quarter in the U.S. retail bank,” said chief financial officer Kelvin Tran in an interview.

The bank has also continued to invest in growing its deposit and client base, with expenses up 10% in the quarter compared with a year ago — including on staff, despite concerns of a slowdown ahead.

“We saw it as an important opportunity for us to invest strategically in our people in our businesses,” said Tran. “We’re putting more bankers on the street, more advisors on the street to help our customers as it’s a very challenging environment and we want to be there for them.”

He said the bank remains nimble and could respond to changing economic conditions as needed, but that it’s still focused on growth.

One of the biggest sources of growth for the bank will be its pending US$13.4 billion acquisition of First Horizon bank in the U.S., but it may have to wait longer as it is now guiding a close of the deal in the first half of the 2023 fiscal year, rather than the first quarter as it previously said.

Tran said that the timing of regulatory approvals is not within its control.

“We continue to work toward closing the transaction, and working very hard at it, and we’re making progress.”

Financial moves in anticipation of the acquisition, including a hedge against interest rate volatility and the sale of some shares of Charles Schwab Corp. to fund the deal, made for a significant top-line earnings growth for the quarter at $6.67 billion, up from $3.78 billion in the same quarter last year.

Adjusted earnings to remove the takeover-related prep came in at $4.07 billion, or $2.18 per diluted earnings per share, up 5% from $3.87 billion or $2.04 per diluted share a year earlier.

Analysts on average had expected a profit of $2.06 per share, according to estimates compiled by financial markets data firm Refinitiv.

The census beat came despite higher-than-expected provisions for credit losses, which totalled $617 million in its latest quarter compared with a $123-million recovery of credit losses in the same quarter last year, said Barclays analyst John Aiken in a note.

“Not only did TD come in ahead of expectations but it managed to earn through higher than forecast provisions,” he said.

“TD saw strong performances in both of its retail businesses and the performances on both sides of the border.”

Revenue totalled $15.56 billion, up from $10.94 billion a year ago.

TD said its Canadian personal and commercial banking business earned $1.69 billion in its latest quarter, up from $1.53 billion in the same quarter last year.

TD’s U.S. retail business, which includes its investment in the Charles Schwab Corp., earned $1.54 billion, up from $1.37 billion a year ago.

Meanwhile, TD’s wealth management and insurance segment earned $516 million, down 15% from $608 million in the same quarter last year. Insurance claims and related expenses rose 11%, reflecting increased driving activity and more severe weather-related events, the bank said.

The segment’s quarterly results also highlighted the benefits of its “diversified business model, as higher net interest income and insurance revenue largely offset the impact of market volatility and trading normalization,” it said.

The bank noted that TD Insurance continued its digital transformation, with more than 20% of new sales in the quarter completely digitally.

Within wealth management and insurance, assets under administration were $517 billion as at Oct. 31, a decrease of $40 billion, or 7%, from the same quarter last year. Assets under management were $397 billion, a decrease of $30 billion, or 7%. These figures reflected market depreciation, partially offset by net asset growth, the bank said.

TD’s wholesale banking business earned $261 million, down from $420 million in the fourth quarter last year.

TD’s corporate segment reported a profit of $2.66 billion, compared with a loss of $150 million a year ago as it saw a gain related to its First Horizon acquisition and a lift from the Schwab shares in its most recent quarter.

For its full year, TD reported a profit of$17.43 billion or $9.47 per diluted share on $49.03 billion in revenue compared with a profit of $14.30 billion or $7.72 per diluted share on $42.69 billion in revenue in the previous year.