The Toronto-Dominion Bank last Thursday said its profit increased about five percent for the third quarter, but that uncertainty continues to loom over the economy, leaving the lender facing challenging conditions as it tries to hit its earnings growth target.

TD reported net income of nearly $3.25 billion for the three months ended July 31, up from approximately $3.1 billion a year earlier. Adjusted earnings per share were $1.79, up from $1.66 a year ago, and just shy of what analysts had been expecting.

TD chief executive Bharat Masrani said the bank’s earnings-per-share growth for its fiscal year is now up to 6%, one percentage point below its medium-term target range of seven to 10%.

Masrani said it was a “good result” given the current economic environment and the investment-banking unit’s tough start to the year.

According to TD’s current economic outlook, global real gross domestic product is expected to grow 2.9% in 2019, “a tepid pace” and a drop from the 3.6% growth seen in 2018.

“However, our diversified, retail-focused model has demonstrated its resilience in a variety of operating environments,” Masrani said.

Macroeconomic factors can still affect the bank “in a variety of ways,” said Riaz Ahmed, TD’s CFO. For example, interest rate cuts can improve credit performance and increase loan volumes, but also weigh on margins. The state of the economy is also making it tougher to forecast those rates.

TD’s results still fell within the bank’s target range for earnings per share, which grew by approximately 8% year over year for the third quarter.

“We continue to feel good about the performance and continue to look to position the bank to earn through that medium-term target that we have for ourselves,” Ahmed said in a phone interview.

Eight Capital analyst Steve Theriault noted Masrani had said last quarter that the bank was capable of hitting its earnings target this year despite growth of just four percent at that point.

TD’s U.S. retail division led the way for the bank in the third quarter, recording a profit of nearly $1.29 billion, up 13% from a year ago. TD Ameritrade Holding Corp., the U.S.-based retail brokerage, contributed $294 million in earnings, a 31% increase. TD owns more than 40% of TD Ameritrade.

In Canada, TD’s retail division reported a third-quarter profit of $1.89 billion, up two percent. Its wholesale unit reported net income of $244 million, an increase of 9% compared to the same quarter in 2018.

TD’s provisions for credit losses, which can be affected by the economic outlook, were $655 million for the quarter, an increase from the $561 million reported for the same three months a year ago.

Source: Financial Post