Toronto-Dominion Bank hiked its dividend Thursday as it reported first-quarter earnings that topped expectations, signs of a new era in the wake of the banking crisis.
The bank has raised its dividend by five cents, or 8.2 per cent, to 66 cents per share, making it the first of the Big Five banks to bolster its payout. National Bank of Canada, the country's sixth largest bank, increased its dividend in December after a period of nearly three years in which dividends remained static. The return of dividend increases shows that bank executives and directors, as well as regulators, are no longer on high alert about bank capital levels.
Barclays Capital analyst John Aiken said that the dividend hike was much larger than the two-cents-per-share increase that he was anticipating.
TD made the move, which shareholders and analysts had been eagerly awaiting, as its first quarter profits came in at $1.54-billion, up from $1.3-billion a year ago.
The earnings amounted to $1.69 per share, up from $1.44 per share. The bank said that adjusted for unusual items, including the ongoing restructuring of its U.S. operations due to recent acquisitions, its earnings amounted to $1.74 per share, compared to $1.60 per share in the first quarter last year. Analysts were expecting earnings of about $1.54 per share.
Royal Bank of Canada said Thursday that its profits rose 23 per cent during the period to $1.84-billion, also topping the Street's estimates.
The key driver of profits for TD this quarter was its core Canadian and U.S. consumer banking operations, which brought in record earnings.
The Canadian personal and commercial banking operations earned $905-million, showing growth of 26 per cent from a year ago. But Tim Hockey, the head of that business, cautioned that the pace of growth will not continue. "Year-over-year earnings growth will moderate starting in the second quarter, with slowing volume growth in personal banking and continuing margin pressure," he stated in a press release.
The pressure on profit margins has spurred competition, and TD recently started opening more than 300 of its Canadian branches on Sundays.
The U.S. lending operations showed a significant rebound, posting profits of $332-million (U.S.) after one-time items, 54 per cent higher than a year ago. The bank said that the performance of recent acquisitions has been "better than expected."
"Based on our growth expectations, we expect our net quarterly earnings to be approximately $300 million (U.S.) for the remainder of the year," the bank said of its U.S. operations.
But TD's wholesale banking operations saw profits drop 36 per cent as trading revenues continued to soften. Last year's results had marked a record, and TD appeared to signal Thursday that the lower earnings from this division were not temporary, characterizing them as "solid results." Royal Bank, on the other hand, showed strong trading results again this quarter, worrying some analysts who feel that those revenues are not sustainable.