Toronto-Dominion Has Record U.S. Profit Even Before Tax Cut

(Bloomberg) -- The booming U.S. economy continues to fuel earnings at Toronto-Dominion Bank -- and Donald Trump's tax cuts will only make things better.

The Canadian lender, which has more branches in the U.S. than its home country, had record profit of C$952 million ($741 million) from its U.S. retail business in the fiscal first quarter, a 19 percent surge from a year earlier. Earnings will get a further boost from a tax bill President Trump signed into law in December, adding about $300 million to the bottom line this year.

“To the extent that their objective might have been to earn a more competitive tax environment internationally, one would have to agree that this package certainly achieved that,” Chief Financial Officer Riaz Ahmed said in a phone interview Thursday after the Toronto-based lender posted profit that beat analysts' estimates.

TD is set to get the biggest boost among Canadian lenders from Republicans' tax overhaul. Those lower rates may boost annual profits at Wall Street's biggest banks by more than $10 billion, based on what they paid in taxes over the past three years.

Toronto-Dominion's lower U.S. retail bank tax rate suggests a benefit of $55 million to $60 million a quarter this year, Ahmed said. The annual windfall rises to $300 million after including the bank's stake in TD Ameritrade and its capital markets business, he added.

Shares rose 1 percent to C$74.81 at 10:23 a.m. trading in Toronto, leading Canada's other lenders and lifting the stock's performance this year to a 1.6 percent gain. Ahmed said if the environment from last quarter continues, the bank could exceed its target of 7 percent to 10 percent growth in adjusted earnings per share.

"A good quarter," CIBC Capital Markets analyst Rob Sedran said in a note, adding his firm recently upgraded the shares. “We thought the bank would be fine in Canada (which it was, even with the higher loan losses) and show well in the United States (which it did, with good revenue and earnings growth).”

Royal Bank of Canada anticipates an annual benefit of C$250 million from the tax changes, CFO Rod Bolger said in a Feb. 23 earnings call. Bank of Montreal, whose U.S. exposure includes its Chicago-based BMO Harris Bank and capital markets operations, estimates an additional $100 million to its U.S. earnings this year.

Here's a summary of Toronto-Dominion's quarterly results:

• Net income fell 7 percent to C$2.35 billion, or C$1.24 a share, from C$2.53 billion, or C$1.32, a year earlier. Adjusted earnings, which exclude a C$453 million charged tied to the tax changes and other one-time items, were C$1.56 a share, the bank said. That beat the C$1.46 average estimate of 12 analysts surveyed by Bloomberg.
• The bank raised its quarterly dividend 12 percent to 67 cents.
• Canadian retail earnings, which includes banking and wealth management, rose 12 percent to C$1.76 billion.
• Earnings from wholesale banking rose 4.1 percent to C$278 million.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Michael J. Moore at mmoore55@bloomberg.net, Steven Crabill

©2018 Bloomberg L.P.