Toronto-Dominion Bank's U.S. operations turned a profit during the quarter ended April 30, despite a sharp increase in credit losses that the Toronto company attributed to "continued weakness in the real estate markets and the recession in the U.S."
Toronto-Dominion's U.S. arm, which includes about 1,100 branches from New Jersey to Maine under the TD Bank and TD Banknorth brands, reported net income of $207 million in the latest quarter, down 4% from the prior quarter but 131% more than a year earlier, according to the company's fiscal second-quarter report released Thursday.
The large increase from a year earlier was due to Toronto-Dominion's purchase of Commerce Bancorp in Cherry Hill, N.J., in March 2008, a deal that required a $45 million restructuring charge in the latest quarter.
Profits narrowed on a quarter-to-quarter basis largely due to a sharp increase in provisions to cover U.S. credit losses; the U.S. provision rose to $180.7 million in the latest quarter, up 45% from the prior quarter and 337% from a year earlier.
Toronto-Dominion said the bigger provisions were prompted by higher chargeoffs and an increase in reserves due to ratings downgrades on borrowers in its commercial real estate book.
It has opened 24 U.S. branches so far this fiscal year, up from 13 at the same point last year.
Net impaired loans, meanwhile, were $618 million, up 22% from the prior quarter and 152% from a year earlier.
"We remain cautious on the U.S. economic environment and so have increased our reserves prudently," Toronto-Dominion chief executive W. Edmund Clark said in a statement. Despite the narrowed earnings, Clark said that the company's U.S. operations had the "strength to take advantage of strategic opportunities."
Overall, the $517 billion-asset Toronto-Dominion's total earnings fell 27% from a year earlier, to $555.5 million, though this beat analysts' expectations. It bolstered the trend of Canadian banks' reporting of soft but solid profits in the latest quarter.