Thursday morning, Canada-based Toronto-Dominion Bank (TD,TD.TO) reported a more than 9% decline in its profit for the third quarter as an 85% fall in earnings at its Wholesale banking segment more than offset higher earnings at its other segments. The company also increased its provision for loan losses for the quarter by 68%. Adjusted earnings per share for the latest quarter declined and came in below analysts' consensus estimate. However, the company raised its quarterly dividend for the fourth quarter. TD Bank's stock is currently up more than 3% on the Toronto Stock Exchange.
Third Quarter Results
For the third quarter, the company's net income declined to C$997 million, or C$1.21 per share, from C$1.10 billion, or C$1.51 per share, a year ago.
Results for the latest quarter include amortization of intangibles of C$111 million or C$0.13 per share, a gain of C$22 million after tax, or C$0.03 per share due to the change in the fair value of credit default swaps hedging the corporate loan book, net of provision for credit losses, and restructuring and integration charges of C$15 million after tax, or C$0.02 per share, related to the acquisition of Commerce Bancorp Inc. The company also reported a negative impact of C$14 million, or C$0.02 per share, on the provision for income taxes of a reduction in future income tax assets associated with the Commerce acquisition.
Adjusted net income for the latest quarter declined to C$1.12 billion, or C$1.35 per share, from C$1.16 billion, or C$1.60 per share in the same period last year. Analysts polled by First Call/Thomson Financial expected earnings of $1.37 per share for the quarter.
The decrease in adjusted net income was due to a decline in Wholesale Banking and Corporate segment earnings, partially offset by higher earnings generated from U.S. Personal and Commercial Banking, and Canadian Personal and Commercial Banking. Wholesale Banking net income declined due to the difficult capital markets environment resulting in lower trading revenue and securities gains.
Total revenue for the quarter increased 9.7% to C$4.04 billion from C$3.68 billion in the previous-year quarter.
Peer Performance
Among other Canadian banks, BMO Financial Group (BMO,BMO.TO) reported a 21% decline in its profit for the third quarter on a more than five-fold increase in its provisions for credit losses due to continued deterioration in U.S. housing markets. Bank of Nova Scotia (BNS,BNS.TO) too reported a decline in third quarter profit on a 73% increase in its provision for credit losses.
Meanwhile, Royal Bank of Canada (RY,RY.TO) reported a profit for the third quarter that declined 10% as a result of write-downs and higher provisions, mainly related to U.S. operations. Canadian Imperial Bank of Commerce (CM, CM.TO) reported a 91% drop in its profit for the third quarter as results for the quarter were impacted by a loss on structured credit run-off activities. However, National Bank of Canada (NA.TO) broke trend and reported an 18% rise in its earnings for the third quarter, driven by strong contribution from the financial markets segment and growth in business volumes at the company's personal and commercial segments.
Other Metrics
TD Bank's net interest income for the quarter surged 37% from a year ago to C$2.44 billion, largely driven by U.S. Personal and Commercial Banking, with positive contributions from the Canadian Personal and Commercial Banking as well as Wholesale Banking segments.
However, the company's reported other income for the third quarter declined 16% to C$1.60 billion. On an adjusted basis, other income was C$1.57 billion, also lower by 16%. The decrease in adjusted other income was driven by a C$494 million decline in Wholesale Banking due to lower trading revenue and advisory fees as the capital markets businesses were impacted by difficult market conditions.
Reported non-interest expenses for the quarter climbed 22% to C$2.70 billion.
Toronto-Dominion's provision for credit losses for the quarter was C$288 million, up 68% from C$171 million in the year-ago period. The increase in provisions was primarily due to higher specific provisions in the Canadian Personal and Commercial Banking as well as Wholesale Banking segments, in addition to higher general provisions in the U.S. Personal and Commercial Banking segment.
The company's efficiency ratio for the quarter was 66.9%, up from 60.2% in the year-ago period. Tier 1 capital to risk-weighted assets was 9.5%, down from 10.2% in the same period last year. Return on common equity dropped to 13.4% from 21.0% in the previous-year quarter.
Segmental Results
Canadian Personal and Commercial Banking
The segment reported an 8% increase in earnings from the previous-year quarter to C$644 million, led by growth in core banking, real estate secured lending, credit cards and business banking. Revenue for the quarter increased 8% to C$2.26 billion on strong volume growth across most banking products, particularly in deposits, real estate secured lending and credit cards.
Wealth Management
The segment's earnings for the quarter increased 9% from the prior-year period to C$201 million. The results for the segment include Toronto-Dominion's equity share in TD Ameritrade. The company noted that TD Ameritrade contributed C$74 million in earnings to the segment. In Canada, strong volumes in discount brokerage were moderated by a lower-commission strategy, while revenues in full-service brokerage were negatively impacted by current market conditions. Revenue increased 4% to C$609 million, primarily due to the inclusion of the U.S. wealth management business.
U.S. Personal and Commercial Banking
The segment's results include the earnings contribution from Commerce Bancorp Inc., which the company acquired in March 2008. The segment reported an increase in net income to C$244 million, as the results of Commerce operations were included for the first time in the quarter. Adjusted net income for the quarter was C$273 million. The combination of TD Banknorth and Commerce saw growth in commercial loans while overall asset quality remained solid. Revenue for the quarter more than doubled to C$543 million.
The company said that the rebranding of TD Bank will begin in the fall of 2008 and is expected to be completed in 2009.
Wholesale Banking
The segment's earnings plunged 85% from a year ago to C$37 million on lower equity trading revenues and securities gains. Results for the quarter include a cumulative impact of C$65 million after tax, related to incorrectly priced financial instruments and favorable tax items. Revenue for the quarter dropped 52.6% from a year ago to C$328 million. Capital markets revenue decreased from the third quarter last year, primarily due to the cumulative impact related to incorrectly priced financial instruments, weaker credit and equity trading revenue as well as lower advisory revenue, partially offset by higher revenue in interest rate trading.
Credit trading revenue declined from strong revenues in the prior year due to weakness in credit markets and lower liquidity. Equity trading revenue declined primarily due to weaker equity markets and lower non-taxable transaction revenue. In addition, a decline in overall capital markets activity led to lower advisory revenue.
Corporate
The segment reported a net loss that widened to C$129 million from C$41 million in the previous-year quarter. Adjusted net loss for the quarter was C$40 million, compared with adjusted net income of C$20 million in the prior-year period, driven by higher unallocated corporate expenses and costs associated with increased corporate financing activity, partially offset by tax benefits.
dividend
Toronto-Dominion reported an increase in quarterly dividend to C$0.61 per share payable on and after October 31, to shareholders of record at the close of business on October 3, 2008. The dividend represents an increase of 3.4% from C$0.59 per share earlier.
Ed Clark, TD Bank Financial Group President and Chief Executive Officer said, "We've said all along that our dividend will grow in line with our earnings over the medium term. The increase this quarter demonstrates the Board's confidence in the strength and stability of our earnings as we head into 2009."
Year-To-Date Results
For the nine months, the company's reported net income declined to C$2.82 billion, or C$3.65 per share, from C$2.90 billion, or C$3.98 per share in the same period last year.
Adjusted net income for the period was C$3.15 billion, or C$4.12 per share, down compared to C$3.17 billion, or C$4.34 per share a year ago. The decline in adjusted earnings was due to lower Wholesale Banking earnings and a higher loss recorded in the Corporate segment.
Total revenue for the nine-month period increased to C$11.03 billion from C$10.73 billion in the prior-year period.
Stock Quotes
In Thursday's regular trading on the NYSE, TD is trading at $58.59, up $1.82 or 3.21% on a volume of 0.17 million shares. The stock has been trading in a range of US$53.01-US$77.63 in the past 52 weeks.
On the Toronto Stock Exchange, TD.TO is currently trading at C$61.31, up C$1.97 or 3.32% on a volume of 0.99 million shares. In the 52-week period, the stock has been trading in a range of C$53.05-C$77.10.
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