Toronto-Dominion Bank (TD) joined its peers in reporting earnings Thursday that surpassed expectations, wrapping up a quarter that saw most of the country’s five biggest banks benefit from stronger trading revenues and moderating loan losses.
With broader economic growth picking up and stock markets rallying, the five — TD, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Bank of Montreal and Royal Bank of Canada — earned $10.46 billion during the quarter. That was up from $8.53 billion in profits a year ago.
“The banks continue to do a much better job than what we are expecting, forecasting or pricing in,” said Barclays banking analyst John Aiken.
“What it speaks to is not only the strength of the operations but the diversification that they have.”
TD reported $2.53 billion of net income during its first quarter ended Jan. 31, up 13.9% from a year ago. The earnings amounted to $1.32 per diluted share, up from $1.17 during the same quarter last year.
After adjustments, the bank had $1.33 of earnings per diluted share — better than the $1.27 that analysts estimated, according to data compiled by Thomson Reuters.
Even so, shares of TD closed down 0.75%, or 52¢, to $68.98 on the S&P/TSX composite index.
TD’s results cap off an earnings season that has seen all five big banks beat consensus estimates.
Their collective revenues came to $35.15 billion, up from just under $33 billion a year ago.
Read: Bright outlook for Canada’s Big Six banks
Aiken said the results suggest that 2017 could be a better year for the banks than previously anticipated, particularly as expectations rise that growth in the U.S. could lift the Canadian economy and cause interest rates to rise.
“The outlook is beginning to brighten,” said Aiken.
“What it’s all going to hinge on is, essentially, will Canadian consumer sentiment remain positive? Will they still spend, will they still borrow? And it does look like that’s not going to change — so yes, it does look like the results that we’re seeing out of the Canadian banks are repeatable, within certain parameters.”
Analysts had been expecting loan losses to rise from their recent levels, which are below historical norms. But the first quarter of the year saw most of the banks report improved credit trends, causing Aiken to question whether this could be the “new normal” for the sector.
“Maybe the banks truly have found the secret sauce and have learned to adjudicate (risk) even better than in the past,” Aiken said.
Unlike its peers, who generally reported lower provisions for credit losses, TD Bank set aside more money for bad loans.
TD said provisions for credit losses were $633 million, up from $548 million during the previous quarter, as more money was set aside in its auto lending portfolio.
But in spite of the uptick the bank — which reported $9.12 billion of revenue during the quarter, up from $8.61 billion a year ago — was optimistic about the remainder of the year ahead.
“Our U.S. bank’s robust fundamentals are being amplified by accelerating U.S. economic growth and the prospect of higher rates,” president and CEO Bharat Masrani said during a conference call to discuss the bank’s results.
“Our Canadian retail franchise continues to deliver solid results and is well-positioned to benefit from a firming outlook for the Canadian economy.”
TD also announced plans to return capital to shareholders by buying back 15 million of its common shares and raised its quarterly dividend by 5¢ to 60¢ per share.