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People wait outside of a TD Bank branch on April 16, 2020, in the Harlem neighbourhood of New York City.

David Dee Delgado/Getty Images

Toronto-Dominion Bank will set aside $1.1-billion to cover loans that could go sour in its U.S. retail banking division in the second fiscal quarter – a 345-per-cent increase from the previous three months.

The Toronto-based bank pre-announced its provisions for credit losses within its U.S. retail arm for the quarter that ended April 30. TD will report its full second-quarter results on May 28.

The early announcement provides a narrow glimpse of how large an expected surge could be in Canadian banks’ provisions – the money they must set aside to cover loans that could go bad – because of the damage done by a broad economic shutdown to curb the spread of the novel coronavirus.

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In the second quarter a year ago, TD reported $226-million in provisions for credit losses for its U.S. retail division. That figure will increase 487 per cent, year-over-year. In the first fiscal quarter of 2020, U.S. retail provisions were $319-million.

TD did not disclose second-quarter provisions for the rest of the bank, including its Canadian operations.

The bank released the $1.1-billion figure early after filing call reports to the U.S. Federal Deposit Insurance Corporation (FDIC), which include information on the condition and income of TD’s U.S. operations. That information is compiled using a different accounting standard than Canadian bank earnings, however, and covers a different fiscal quarter.

“Within this context, and considering the economic impact of the COVID-19 pandemic,” TD decided that releasing additional information on its U.S. retail-banking provisions “would be beneficial to shareholders at this time,” the bank said in a statement on Friday.

TD also revealed it will take $600-million in provisions in its corporate segment for the second quarter. But most of those provisions are fully offset by the terms of partnerships the bank has with U.S. retailers to offer credit cards, “and therefore will result in no impact to Corporate or total bank earnings,” the bank’s statement said.

Of all the major Canadian banks, TD has by far the largest retail-banking network in the United States, with more than 1,200 branches spread across the eastern part of the country.

Eight Capital analyst Steve Theriault had estimated the bank would report $868-million in U.S. retail-banking provisions for the second quarter and $2.2-billion in provisions for TD as a whole. “On balance we now believe that risk is to the upside,” he said in a research note on Friday, but he cautioned that estimates vary widely “and that this gives insight primarily to one piece of the puzzle.”

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Major U.S. banks have already reported results for their first quarter, which ended March 31, including massive increases in provisions for credit losses. Yet most of those provisions were taken based on forward-looking models and economic projections, rather than on loans that are currently impaired.

The first Canadian banks to report fiscal second-quarter earnings will be Bank of Nova Scotia and National Bank of Canada on May 26.


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