The Toronto-Dominion Bank’s second-quarter earnings beat analysts’ estimates on the back of growth in Canadian personal and commercial banking, improved lending spreads and lower loan losses – all common themes across the big six banks this earnings season.
TD TD-T reported net income of $3.8 billion, or $2.07 per share, up 3% from a year earlier. However, the bank’s total profit included a one-time increase of $224 million resulting from a lawsuit settlement. Adjusting for one-time items, TD’s earnings were $2.02 per share, down slightly from a year earlier but beating analysts’ estimates of $1.93 per share.
Like many of its big six rivals, TD generated strong earnings in its Canadian personal and commercial banking division as loan growth rose 9% from a year earlier, boosted by residential real estate and commercial loans.
TD’s residential real estate lending business in Canada grew 9% year over year, while its commercial lending division grew 16%. Net interest margins, or the spread between the rates at which TD borrows money and then lends it to customers, have also increased, allowing the bank to earn more money per loan.
However, TD’s spending in this division also rose 9%, offsetting some of those gains as the bank spends to upgrade its technology and increase employee compensation.
In the United States, TD’s retail segment also saw earnings growth, although at a slower pace than in Canada. The U.S. division includes TD’s stake in Charles Schwab Corp., and the investment hurt the division’s earnings this quarter as profits fell 9% from a year earlier.
The second quarter of 2021 was an unusually busy time for discount brokers as retail traders piled into the stock market. Many of these traders have since pulled back now that the market is correcting, reducing trading revenue.
Improved earnings from TD’s traditional banking divisions helped offset lower earnings from wholesale banking.
Heading into earnings season, Canadian banks’ capital market earnings are expected to fall due to a sharp decline in transactions over the past few months. The tough stock market has made it difficult for companies to raise funds because investors are shy to back funding, and merger and acquisition activity has slowed significantly because it’s unclear how to properly value a company. potential acquisition.
TD, however, is partially immune to this slowdown because its capital markets division typically generates a slower portion of its total profit than some big rivals. TD was also able to partially offset lower advisory fees with strong trading revenue. TD’s wholesale banking profits fell 6% from a year earlier.
TD’s $224 million one-time gain, reported as part of its U.S. retail profit, is a recapture of losses from an alleged Ponzi scheme at Commerce Bank, which TD acquired in 2008 TD has already paid hundreds of millions of dollars to settle the lawsuits. , and she was seeking partial reimbursement of the insurance policies she had taken out.
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