Both Canadian and U.S. retail businesses deliver record earnings

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Toronto-Dominion Bank posted first quarter earnings that beat expectations on growth in its Canadian and U.S. retail banking operations, results that came amid new uncertainty over the fate of its blockbuster acquisition of First Horizon Corp.

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TD’s net income fell nearly 58 per cent to $1.58 billion for the three months ending Jan. 31. On an adjusted basis, the bank’s profit grew eight per cent to $4.16 billion, or $2.23 per share. On average, Bloomberg analysts were expecting $2.20 per share.

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Adjusted earnings excluded the cost of settling a lawsuit related to the Allen Stanford Ponzi scheme and costs tied to TD’s US$13.4 billion takeover of First Horizon announced in February 2022.

Revenue grew by eight per cent year-over-year to $12.2 billion and included a net loss from the boost in closing capital from the First Horizon acquisition as interest rates rose.

In the same week TD reported earnings, First Horizon announced it doesn’t expect to close the deal by the May 27 deadline. When asked about the new expected closing date, TD chief executive Bharat Masrani said the conversation with First Horizon had just started and that it was too soon to give specific details. Masrani added that executives would share details when the timing was right.

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“TD is fully committed to the transaction and we are in discussions with First Horizon about a potential further extension beyond May 27,” Masrani said in a press release accompanying the results. “This is a great transaction that offers scale and new capabilities for the U.S. bank.”

Profit in TD’s core personal and commercial banking business rose seven per cent year-over-year to $1.73 billion on higher margins and loan volume growth. Revenue grew 17 per cent to $4.59 billion.

South of the border, the bank’s net income in retail banking grew by 25 per cent to $1.59 billion as loans rose by nine per cent. The bank said those figures included acquisition costs for First Horizon.

The wealth management segment’s profit fell 14 per cent year-over-year to $550 million amid market volatility.

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TD joined other banks in being affected by the Canada Recovery Dividend, taking a $585 million tax hit.

Masrani attributed the profit growth to stronger volume growth and a diversified business mix.

“We took advantage of this environment to continue to invest in our business to drive future growth while delivering robust operating leverage,” he said during the Mar. 2 conference call. “The personal bank continued to demonstrate momentum with sales of our everyday banking products up over 20 per cent year-over-year and industry leading market share gains in non-term deposits again this quarter driven by strength in branch banking.”

It also set more funding aside for bad loans with credit loss provisions increasing to $690 million from $72 million a year ago.

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National Bank of Canada analyst Gabriel Dechaine attributed the beat to a lower tax rate. He also noted that loan growth in Canadian personal and commercial banking rose eight per cent year-over-year fuelled by commercial loan growth.

John Aiken, senior analyst and head of research at Barclays Bank PLC, said observers would likely focus on the U.S. retail business results but that he’s looking for more clarity on the First Horizon transaction.

“TD came in ahead of expectations as it had a strong performance in its U.S. retail segment,” Aiken said in a Mar. 2 note. “While TD benefited from stronger trading, it was not to the same degree as peers this quarter and managed to earn through higher-than-expected provisions.”

Aiken added that his team believes TD’s valuation will get a boost for its solid quarter.

Shares of TD slipped nearly three per cent by the late afternoon to $88.25 by shortly before 3 p.m. Toronto time.

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