TD hikes dividend as Q1 earnings beat estimates, AUM grows

TD Bank’s adjusted earnings came in ahead of analyst estimates Thursday, rising 15% from the year-earlier period after excluding the impact of U.S. tax reform and other items.

The Canadian lender had $2.946 billion, or $1.56 per share, in adjusted diluted earnings per share for the fiscal first quarter ended Jan. 31.

That was above the analyst estimate of $1.46 per share of adjusted earnings for TD, according to Thomson Reuters.

Including the impact of a $405-million charge related to U.S. tax reform and other items, TD’s net income was down from last year, but each of its main operating units showed year-over-year increases.

Net income under international financial reporting standards was $2.353 billion, down from $2.533 billion in the first quarter of fiscal 2017. Net income per share dropped to $1.24 from $1.32.

“All of our businesses are performing well and the operating environment remains favourable,” TD chief executive officer Bharat Masrani said in a statement.

“While there are risks on the horizon, if these positive conditions persist, adjusted earnings growth for the full year may exceed our medium-term targets.”

The bank, Canada’s second largest by market capitalization, also raised its quarterly payment to common shareholders by seven cents, or 11.7%, to 67 cents per share.

TD Bank is the last of Canada’s six biggest lenders to report its results for the fiscal first quarter, and like the others, the bank’s earnings got a lift from strong growth at home and internationally.

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Its Canadian retail banking arm reported net income of $1.757 billion, up 12% from a year ago, while its wholesale banking division reported net income of $278 million, up 4% compared to the first quarter of fiscal 2017. The bank’s Q1 report to shareholders says assets under management for Canadian retail grew to $289 billion from $266 billion a year earlier.

Meanwhile, TD Bank’s U.S. retail banking arm posted a 19% jump in net income to $952 million. On an adjusted basis, stripping out some one-time items, TD Bank’s U.S. retail division reported $1.024 billion in net income up 28% from a year earlier.

This quarter, the bank recorded several one-time charges, the largest of which was a $405 million tax charge in connection with a cut to the U.S. corporate tax rate from 35% to 21% as of Jan. 1. In turn, TD and other Canadian banks with a U.S. presence recorded a one-time adjustment to deferred tax assets held on company balance sheets. However, these banks are also expecting the tax reform to provide a long-term boost to earnings, and benefits from an increase in economic activity south of the border.

TD Bank’s Common Equity Tier 1 ratio, a key measure of its financial health, was 10.6%, marking a decrease from 10.9% a year ago and 10.7% in the previous quarter.

The lender also reported provisions for credit losses, or money set aside for bad loans, of $693 million, compared to $633 million a year earlier. However, the latest quarter was the first to be subject to a new accounting standard, known as IFRS 9. The new guidelines increase the emphasis on banks’ expected losses over the life of the loan, and in turn, introduce more volatility to the measure and make it difficult to compare with the same period last year.

Darko Mihelic, an analyst with RBC Dominion Securities, said TD Bank’s first-quarter results were positive overall.

“Revenue, expenses and efficiency were all better than expected, although PCLs were higher than we had expected this quarter […] but given that it seems to be seasonal and IFRS 9 related we are not too fussed with this development,” he said in a note to clients Thursday.