TD Bank Financial Group (TSX:TD) reported a decline in third-quarter profits Thursday and warned of trouble ahead as difficult economic conditions weakened the performance of some of the bank's U.S.-based operations.
"It's unlikely that this level of earnings can be maintained," admitted TD chief executive Ed Clark in a conference call Thursday.
"But we do have an excellent business that continues to perform well and produce solid returns on capital with very tight risk management."
TD's financial performance was "great" in the quarter, given the ongoing economic weakness around the world, said Clark.
"There probably aren't many people on this call frankly, including me, who thought we'd be having this kind of performance in the midst of a recession," he said.
"At the beginning of 2009, I would have found it hard to believe that by the third quarter I'd be talking about year-over-year increase on our earnings per share, even after issuing shares last year, but it certainly looks like we're going to be there."
The Toronto-based bank reported a profit of $912 million or $1.01 per share for the quarter ended July 31, down from year-earlier profits of $997 million or $1.21 per share.
The bank said adjusted earnings rose 17 per cent to $1.3 billion or $1.47 per share from $1.1 billion or $1.35 per share reported a year ago. The adjusted results beat the estimates of analysts surveyed by Thomson Reuters, who predicted earnings would come in at $1.23 per share.
TD said total quarterly revenue rose to $4.66 billion from $4.32 billion, while provision for credit losses declined to $557 million from $656 million.
TD's Tier 1 capital ratio, a key metric measuring the amount of money held in reserve, stood at 11.2 per cent at quarter's end.
Clark gave credit to governments and central banks around the world for responding "both quickly and appropriately" to the global economic crisis, but said there are concerns about the extent of the recovery.
"We have never been tested by conditions this tough, but we were up to it," he said.
"It seems like we're through the bottom, but there's clearly a debate going on about the strength of the subsequent economic recovery."
Results got a boost from TD's wholesale banking operations, where profits soared nearly 90 per cent to $327 million. Net income also improved five per cent in the Canadian personal and commercial segment, which recorded profit of $677 million.
Earnings in wealth management were dragged down by weak market conditions, while loan losses drove profits in U.S. personal and commercial banking down to $172 million.
Clark said TD didn't anticipate the resilience of the Canadian resale housing market.
"The structure of Canadian housing and mortgage markets provides an enduring strength for the economy and for our business," he said.
The bank also announced Thursday that Clark had advised of his intention to exercise up to 390,000 options for TD common shares, which represents 13 per cent of his outstanding options.
Clark intends to donate approximately 10 per cent of the pre-tax net proceeds to charity, and to sell the remaining acquired shares.
TD shares were up just over $2 in late Thursday trading at $62.62.
