SCHW Charles Schwab Corporation

By Vipal Monga 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 6, 2019).

Toronto-Dominion Bank Group said it remains poised to take advantage of acquisition opportunities in the U.S. despite a profit slump prompted by declining interest rates and worsening credit quality.

TD reported net income of $2.86 billion Canadian dollars ($2.17 billion), or C$1.54 a share, for the three months ended Oct. 31. Earnings fell from C$2.94 billion, or C$1.58 a share, in the like period a year earlier. Adjusted earnings of C$1.59 a share were down from a year earlier. They missed analysts' projection of C$1.74 a share, according to FactSet.

Earnings at TD's U.S. subsidiary, which ranks as the 10th-largest U.S. bank by assets, rose 7% from a year earlier to $900 million. The figure included $219 million in reported earnings from the bank's 43% stake in broker TD Ameritrade. TD agreed to back an acquisition of the broker by Charles Schwab Corp. last month.

Excluding the Ameritrade income, TD's U.S. retail-bank earnings totaled $681 million, unchanged from last year. Net interest margin -- the difference between how much the bank pays out for deposits and how much it charges for loans -- fell 0.09 of a percentage point to 3.18% in the U.S. The margin will continue to fall on the back of recent rate cuts by the Federal Reserve, said TD Chief Financial Officer Riaz Ahmed.

TD will continue to hold a 13.4% stake in a merged Schwab-Ameritrade entity, and the reported contribution from a larger firm will likely add more to TD's earnings after a deal is completed, said Mr. Ahmed. "We think those earnings will grow substantially," he said.

TD, like its Canadian peers, noted an increase in the capital it held to meet regulatory requirements. Its capital ratio of 12.1% is up from 12% a year earlier. The capital buffer, above the minimum 10% required by Canadian regulators, gives TD a cushion it could deploy for other uses, including acquisitions, said Chief Executive Bharat Masrani.

"We'll always make sure we have capital flexibility should some opportunities present themselves," Mr. Masrani said in a call with analysts. "I'm sure with the type of environment we are seeing and what we are calling for -- which is challenging -- that certainly may give us opportunities more so than it might have previously."

TD increased its provision for credit losses by about one-third to C$891 million. TD executives called the increase in the provision "normalization" after several years of historically low levels. The trend toward weaker credit quality could continue, said Ajai Bambawale, the bank's chief risk officer.

"Looking to the year ahead, the period of cyclically low loss rates are likely behind us," he said.

--Allison Prang contributed to this article.

Write to Vipal Monga at vipal.monga@wsj.com

(END) Dow Jones Newswires

December 06, 2019 02:47 ET (07:47 GMT)

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