TD Bank’s second-quarter profit beat estimates, boosted by mortgage lending and better loan margins

Toronto Dominion Bank’s second-quarter earnings beat analyst estimates thanks to growth in Canadian personal and business banking, improved loan margins and reduced loan losses — all popular topics across the big six banks this earnings season.

TD-T reported net income of $3.8 billion, or $2.07 per share, up three percent from the previous year. However, the bank’s total profit included a one-time payment of $224 million resulting from the settlement of a lawsuit. Adjusted for one-time items, TD earnings were $2.02 per share, down slightly from the prior year, but beating analysts’ estimates of $1.93 per share.

Like many of its Big Six competitors, TD generated strong returns in its Canadian personal and commercial banking arm, with loan growth up 9 percent from the previous year, driven by residential real estate and commercial lending.

TD Canada’s residential mortgage lending business grew 9 percent over the previous year, while its commercial lending division grew 16 percent. Net interest margins, or the difference between the rates at which TD borrow money and then lend it to customers, have also grown, allowing the bank to make more money for each loan.

However, TD expenditures in this division also grew 9 percent offsetting some of those gains, as the bank spends on upgrading its technology and increasing staff salaries.

In the US, TD’s retail segment also posted earnings growth, albeit at a slower rate than in Canada. The US division includes TD’s stake in Charles Schwab Corp. The investment hurt the division’s earnings this quarter because its earnings fell 9 percent from a year earlier.

The second quarter of 2021 was an unusually busy period for discount brokerages because retailers were piling into the stock market. Many of these traders have since retreated after the market corrected, reducing trading returns.

Better earnings from TD’s traditional banking divisions helped offset twice as much earnings from wholesale banking.

As earnings season approaches, capital market earnings across Canadian banks have been expected to decline due to a sharp drop in deal closings in recent months. A faltering stock market has made it difficult for companies to raise money because investors are shy about backing funding, and M&A activity has slowed dramatically because it’s hard to know how to adequately assess a potential acquisition.

However, TD is partially insulated from this slowdown because its capital markets division typically delivers a slower portion of its gross profit relative to some of its major competitors. TD has also partially offset the lower advisory fees with strong trading returns. TD’s wholesale banking profit was down six percent from a year earlier.

TD’s one-time $224 million profit, reported as part of US retail earnings, is a recovery of losses related to Commerce Bank’s alleged Ponzi scheme, which TD acquired in 2008. TD previously paid hundreds of millions of dollars to settle lawsuits, She was seeking partial payment from the insurance policies she had obtained.

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