(Toronto) TD Bank Group on Thursday reported lower third-quarter earnings as it made a significant adjustment related to its impending acquisition of U.S. bank First Horizon and set aside cash to possible loan losses due to the deterioration of the economic outlook.
Posted at 1:29 p.m.
The bank said it earned $3.21 billion in revenue for the quarter ended July 31, up from $3.55 billion over the same period last year. Earnings included a net loss of $678 million to account for interest rate volatility that could affect the cost of completing the $13.4 billion First Horizon deal.
While rising interest rates have pushed up the cost of the transaction, TD Chief Financial Officer Kelvin Tran said in an interview that the bank would benefit overall from higher rates.
“Rate hikes in general are good for TD because we have a strong consumer deposit allowance…sometimes too much of a good thing might not be so good from a demand slowdown perspective, but in the third quarter, we continued to see strong customer activity,” Mr. Tran explained.
The bank reported revenue of $10.93 billion, up from $10.71 billion a year ago, including record Canadian Retail revenue of $7 billion as loan volumes increased 9 %.
TD set aside $351 million in the last quarter for potential loan losses as raising interest rates to rein in inflation increases the chance of pushing the economy into a recession. Last year, the bank recovered 37 million in credit losses, as banks unwound provisions they had made at the start of the pandemic.
Its retail banking business in Canada brought in $2.25 billion, down from $2.13 billion in the same quarter last year, while its US counterpart earned $1.44 billion, down from $1.30 billion a year earlier.
The bank is actively pushing further in the United States, both through its First Horizon deal first proposed in February and its $1.3 billion deal announced Aug. 2 to buy the new brokerage firm. Cowen Inc.
TD has faced some setbacks in its expansion, however, including a letter released this week by the Center for Responsible Lending calling for the First Horizon deal to be blocked. The center and several other groups that have signed it have raised concerns about both increased consolidation in U.S. banking and TD’s track record of overdraft fees in recent years, where the bank reached a US$122 million settlement with regulators for unfair and deceptive practices.
Tran said he expects the merger to close on time by the end of January, while TD plans to invest to benefit communities.
“It’s about growth. It’s about investing in the community, and we look forward to our continued community engagement efforts and the announcement of our next community benefits program,” he said.
TD’s Wholesale Banking division posted a profit of $271 million, compared with a profit of $330 million a year ago. Its corporate segment recorded a loss of 752 million, largely related to the adjustment of First Horizon, against a loss of 205 million last year.
The bank said earnings were $1.75 per share for the quarter ended July 31, compared with $1.92 per share in the same quarter a year ago. On an adjusted basis, TD says it earned $2.09 per share in the third quarter, up from adjusted earnings of $1.96 per share in the same quarter last year.
Analysts on average had expected adjusted earnings of $2.04 per share, according to financial markets data firm Refinitiv.
Scott Chan, an analyst at Canaccord Genuity Corp., said in a note that the pace of earnings was driven by higher-than-expected revenue.