A TD Canada Trust branch is shown in the financial district in Toronto on Tuesday, Aug. 22, 2017. TD Bank Group beat expectations as it reported a third-quarter profit of $3.55 billion, up from $2.25 billion in the same quarter last year. THE CANADIAN PRESS/Nathan Denette

TORONTO - TD Bank Group shares closed down more than two per cent Thursday as the company reported a third quarter profit of $3.55 billion, up from $2.25 billion in the same quarter last year.

Adjusted earnings of $1.96 per diluted share were higher than the $1.92 analysts had expected, but the beat was largely due to a boost from reversed credit loss provisions, said John Aiken, head of research for Canada at Barclays, in a research note.

"TD is the only bank this quarter that was not able to exceed expectations outside of the benefit of lower than forecast provisions."

The company reported a recovery of credit losses of $37 million in its latest quarter, compared with a provision for credit losses of $2.19 billion a year ago, which added about $0.07 per share compared with analyst expectations, said Aiken.

The bank's shares closed down $2.05, or 2.39 per cent, at $83.70 on the Toronto Stock Exchange.

Aiken said loan growth in TD's U.S. portfolio continues to struggle, with average loan growth on the retail side down 3.8 per cent sequentially and down 15 per cent from a year earlier.

Slower loan growth in the U.S. is in part a result of government programs, said Greg Braca, head of U.S. retail banking at TD.

"You're seeing pressure on loan growth because of all of the government stimulus and that's showing up in our deposit balances," he said on an earnings call Thursday.

"On the consumer side, there's been a whole host of programs that continue to play out and are providing liquidity and you're seeing pressure on cards balances. And on the commercial side, starting on the low end on the small business side, PPP has had just a tremendous impact with the hundreds of billions of dollars of liquidity that's put into the system."

He said businesses are paying down loans because of the cheap money and access to capital markets, though there are signs of "green shoots" for loan growth in the U.S., with more expected in the latter half of the year.

Consumer banking was significantly higher than the same period in 2020, during the height of pandemic-driven economic lockdowns.

TD said its Canadian retail business earned $2.13 billion in its latest quarter, up from $1.26 billion in the same quarter last year.

In the U.S., TD said its retail business earned $1.3 billion, up from $673 million a year ago.

TD said wholesale banking, which includes its capital markets and corporate and investment banking business, earned $330 million, down from $442 million in the same quarter last year.

The bank also announced Thursday the appointment of Cherie Brant, a partner and national leader for the Indigenous law group at Borden Ladner Gervais LLP, to its board of directors.

Brant, who is both Mohawk from Mohawks of the Bay of Quinte and Ojibway from Wikwemkoong Unceded Indian Reserve, also serves on the board of Hydro One Ltd.

This report by The Canadian Press was first published Aug. 26, 2021.

Companies in this story: (TSX:TD)

News from © The Canadian Press, 2021