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The Globe and Mail

TD profit hits $1.5-billion despite insurance loss; boosts payout

File photo of a customer entering a TD branch in Toronto.

Deborah Baic/The Globe and Mail

In a quarter mired by a preannounced insurance loss, Toronto-Dominion Bank still managed to post a profit of $1.53-billion.

The earnings amounted to $1.58 per share, far surpassing analyst estimates of $1.42. However, profit dropped 11 per cent from the same quarter in 2012, when TD posted record earnings.

Canadian personal and commercial banking was a bright spot for the bank, with record earnings of $973-million. The equivalent divisions across the Big Six banks have also been strong this reporting season. Much likes its peers, TD's saw loan growth, but was also aided by lower loss provisions, a non-cash benefit.

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However, TD noted that the operating environment "remains challenging" because of the low-interest rate environment and the slowing economy in Canada.

TD's U.S personal and commercial banking unit also reported a solid profit. After adjusting for one-time items, the division made $432-million, 22 per cent more than the same period in 2012. U.S. loan volumes were very encouraging, climbing 18 per cent from the year prior.

The struggle this quarter was experienced in the insurance unit. The bank preannounced in July that it would set aside $292-million in after-tax reserves stemming from higher costs of settling personal injury automobile claims in Ontario.

That provision comes on top of a $125-million after-tax charge related to insuring homes affected by floods in southern Alberta and the Greater Toronto Area this summer, as well as a $48-million loss on its real estate loan portfolio this quarter, related to the Alberta floods.

Wholesale banking also had a tough third quarter, posting its lowest profit in two years. Much of the drop stemmed from a tough trading environment.

TD hiked its dividend by 4 cents per share, a move that many investors expected. It is the second time this year that the bank has raised its payout to shareholders. "This means that our fiscal 2013 paid dividend will increase 12 per cent since 2012, demonstrating the board's confidence in our continuing ability to deliver long-term earnings growth," chief executive officer Ed Clark said in a statement.

Of all the Canadian bank chiefs, Mr. Clark has been the most vocal about his fears of a retail and commercial banking slowdown in Canada, publicly saying that this concern has prompted him to look more closely at expanding in the U.S. TD announced last quarter that it's interested in acquiring health care, asset-based lending and auto dealer financing in the U.S.

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TD's U.S. operations are expected to boost the bank's profits more than any other Canadian bank over the coming quarters as the U.S. economy continues to recover from the financial crisis that has curtailed household and commercial spending since 2008. While Bank of Montreal also has a U.S. retail presence in the Midwest, TD's is the biggest after Royal Bank of Canada sold its U.S. retail arm in 2012.

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