Noah Zivitz

Managing Editor, BNN Bloomberg

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The Toronto-Dominion Bank beat profit expectations in its latest quarter despite muted performances across its major divisions. It also became the only major bank thus far this earnings season to not raise its quarterly dividend.

TD said its net income in the fiscal second quarter, which ended April 30, rose three per cent year-over-year to $3.81 billion. On an adjusted basis, its profit fell to $2.02 per share from $2.04 a year earlier. Analysts, on average, expected $1.93 in adjusted earnings per share. Overall credit quality improved sequentially, as TD set aside $27 million for loans that could go bad, compared to $72 million in the prior quarter.

Revenue and expenses in TD's Canadian retail banking unit both rose nine per cent year-over-year, while profit inched up two per cent to $2.24 billion. Lending activity ramped up in the quarter, with the total personal loan book hitting an average of $402.7 billion, compared to $373.3 billion a year earlier, while business loans jumped 16 per cent to almost $101 billion.

A number of one-time items affected profit in TD's U.S. retail banking unit. On an adjusted basis, net income in that business fell 10 per cent year-over-year to $769 million. TD said the downturn was caused in part by a much more moderate release of funds from loan loss provisions (US$15 million, compared to US$173 million a year earlier).

TD is awaiting final regulatory approvals to proceed with its US$13.4-billion takeover of Memphis, Tenn.-based First Horizon Corp. That transaction was announced in February; at the time, TD said the deal would make it a top-six bank in the United States thanks to the addition of First Horizon's 412 branches and more than 1 million customers. It also said it hoped to close the deal in the first quarter of fiscal 2023, which is a period that ends Jan. 31, 2023.

Meanwhile, similar to many of its peers that reported earlier this week, TD's wholesale banking unit (which includes capital markets activity) suffered profit erosion as net income fell six per cent year-over-year to $359 million.

"As we continue to emerge from the COVID-19 pandemic we face new economic uncertainties and growing geopolitical tensions. TD has proven its ability to adapt to changing circumstances and deliver performance and progress," said Bharat Masrani, TD's president and chief executive officer, in a release.

TD most recently announced a dividend hike (to $0.89 per share) in December; before that, the last hike was announced in February 2020. Shortly thereafter, Canada’s banks were told by their regulator (the Office of the Superintendent of Financial Institutions) to hold off on dividend hikes and share buybacks due to the pandemic. That guidance was lifted in November.  

Prior to OSFI’s intervention, TD regularly raised its dividend on an annual basis. However, Masrani has indicated dividend hikes aren’t on a pre-set schedule.

“It's not a bad assumption that we like to look at this on an annual basis, and then hopefully we get into that cycle. But it doesn't mean that we will not periodically look at it on a different cycle based on circumstance and the environment we might be in,” he said during a conference call with analysts on Dec. 2.

“Generally, our cycle has been annual and that has worked out reasonably well for us, but it will depend on the environment going forward.”