TD Bank Quarterly Earnings Buoyed by Sale of Schwab Stake
Toronto-Dominion (TD) Bank has reported a significant surge in its earnings for the recent fiscal quarter, driven largely by its decision to sell its investment in Charles Schwab. However, the bank also noted a rise in loan-loss provisions and warned of a weakened economic outlook due to ongoing tariff issues initiated by President Trump’s administration.
The bank’s net income soared to 11.13 billion Canadian dollars (approximately $8.03 billion USD), or C$6.27 per share, for the fiscal second quarter. This is a notable increase from C$2.56 billion, or C$1.35 per share, recorded in the same quarter the previous year.
Excluding factors that TD believes don’t accurately reflect the core performance of its business, like restructuring costs, earnings per share were C$1.97. This figure surpassed the market analysts’ mean estimate of C$1.77, although it marked a decrease from C$2.04 reported in the same period last year.
TD Bank’s overall revenue grew by 66% to C$22.94 billion for the quarter ended in April. Net interest income rose by 8.8% to C$8.13 billion, exceeding the C$8.11 billion expected by analysts. Moreover, non-interest income more than doubled, reaching C$14.81 billion.
The increase in revenue was primarily driven by the gain of C$8.57 billion resulting from TD’s sale of its Schwab stake earlier in the quarter. This gain offset C$122 million in restructuring charges and a C$1.13 billion expense related to the restructuring of its U.S. operations’ balance sheet. It also compensated for an increase in provisions for potential loan losses.
As the first major Canadian bank to announce earnings for this quarter, TD sets a precedent for other big lenders like Bank of Nova Scotia, Bank of Montreal, National Bank of Canada, Canadian Imperial Bank of Commerce, and Royal Bank of Canada, which are all slated to release their results soon.
These financial institutions face an uncertain future, compounded by global trade tensions and aggressive U.S. import tariffs, which have clouded the global economic outlook. Consequently, banks are likely to encounter rising loan-loss reserves and diminished borrowing activity, as both households and businesses curb spending due to uncertain job security and economic forecasts.
As part of its strategic adjustments, TD divested its approximately 10% stake in Charles Schwab for C$21 billion. Of this, C$8 billion was allocated for a share buyback program, and the remaining funds will be reinvested into the bank’s operations.
This divestiture marked the first significant move by Chief Executive Raymond Chun, who assumed leadership in February. Chun is currently navigating a strategic review as TD endeavors to restore investor confidence and address compliance and risk procedure issues. This follows a historic settlement with U.S. authorities, where TD acknowledged shortcomings in its anti-money-laundering controls and agreed to a $3.09 billion fine, alongside accepting limitations on its U.S. growth.
In the latest quarter, the bank reported a credit loss provision of C$1.34 billion, aligning with economists’ expectations. This represented an increase from C$1.07 billion a year ago and C$1.21 billion from the preceding quarter.
The provision for impaired loans increased by C$176 million year-over-year, attributed to credit migration within TD’s wholesale and Canadian consumer lending portfolios. Additionally, the provision for performing loans rose by C$194 million, reflecting policy uncertainty and shifting economic predictions.
TD’s earnings from Canadian personal and commercial banking operations declined by about 4%, primarily due to higher provisioning costs. However, increased revenue, driven by loan and deposit growth, somewhat mitigated these effects.
In contrast, U.S. retail income dropped by 76%, influenced by the Schwab sale. Meanwhile, wealth management and insurance revenue grew by 14% year-on-year, and TD’s wholesale banking division saw a 16% income rise, although it was tempered by increased credit loss provisions and higher non-interest expenses.
TD acknowledged the global economic outlook has deteriorated following the imposition of historically high U.S. import tariffs. The bank indicated that these tariffs, alongside retaliatory measures, are anticipated to drive up prices and disrupt global supply chains. TD also projected a mild recession for the Canadian economy starting this calendar quarter, with a rising unemployment rate.
Despite these challenges, TD highlighted its robust capital position, with its common equity Tier 1 capital ratio standing at 14.9% at the end of April, up from 13.1% in the previous quarter. This improvement is attributed to the sale of the Schwab stake. This capital ratio is well above the minimum 11.5% of risk-weighted assets required by Canada’s banking regulator.
Overall, while TD Bank has benefited greatly from its strategic sale of the Schwab stake, it continues to face challenges posed by global economic uncertainties and tariff impacts. The bank remains vigilant in managing these risks and maintaining financial stability.
