By Nichola Saminather
TORONTO (Reuters) - Toronto-Dominion Bank beat analysts' estimates for quarterly profit on Thursday, helped by strong trading revenues, although higher variable expenses and weaker growth in interest income than peers left some analysts underwhelmed.
Net income excluding one-off items rose to C$2.08 per share in the three months ended Jan. 31 from C$1.83 a year earlier and versus analysts' estimates of C$2.04 a share.
While TD's capital markets earnings fell from a year ago due to higher expenses, trading revenues beat expectations -- but to a lesser degree than its competitors.
TD's "net interest income growth was weaker than the peer average," analysts at CIBC Capital Markets wrote in a note. "Capital Markets (were) better than expected, but not as good as peers."
The results of Canada's second-largest lender round out a strong quarter for the country's Big Six banks, with many reporting loan growth, higher fees and continued strength in trading and investment banking all helping to soften the impact of higher expenses and margin pressures.
Canadian banks' capital markets businesses have been a boon during the pandemic, and continued to flout expectations for more muted results during the quarter, despite outsized earnings a year earlier.
"I've been wondering, how long does this gift keep on giving? They've been coining (strong) profits for four to six quarters in a row now," said Brian Madden, chief investment officer at First Avenue Investment Counsel.
"Prudence would suggest tempering enthusiasm for capital markets," he said.
While continued improvement elsewhere, most notably domestic business lending, could offset a smaller contribution from capital markets, rising interest rates may crimp loan volumes, particularly mortgages.
The Bank of Canada raised its benchmark rate by 25 basis points on Wednesday, and flagged more hikes as soon as next month.
TD reported 14% growth in Canadian business loans from a year earlier and an 8% rise in personal loans, although net interest margins shrank by 12 basis points.
The impact of higher rates on loan volumes would depend on several factors, including the number and pace of hikes, TD's Chief Financial Officer Kelvin Tran said in an interview.
Even so, "the fundamentals of the economy are strong and there's a lot of pent-up demand," he said.
TD's U.S. banking unit reported earnings growth of 27% from a year earlier, helped by increased revenues and lower provisions for loan losses.
Earlier this week, TD said it had agreed to buy First Horizon (NYSE:FHN) Corp for $13.4 billion to expand its U.S. presence.
($1 = 1.2638 Canadian dollars)