TD Toronto Dominion Bank

By Vipal Monga and Kimberly Chin 

Toronto-Dominion Bank Group joined its largest Canadian rival in slowing spending during its fiscal third quarter amid macroeconomic uncertainty and falling interest margins.

TD, Canada's second-largest bank by market capitalization, reported quarterly profit growth of more than 4% from a year earlier, driven largely by higher loan and deposit volumes in its U.S. retail operations.

Meanwhile, noninterest expenses increased 4.7%, a slower pace than the 8.5% increase reported during its second quarter.

Overall, the bank reported a net income of 3.25 billion Canadian dollars ($2.44 billion), or C$1.74 a share, up from C$3.11 billion, or C$1.65 a share a year earlier. Analysts polled by FactSet were expecting C$1.77 a share.

"As we head into the final quarter of the year, the macroeconomic environment has become less supportive," said TD's Chief Executive Bharat Masrani.

The reduction in expense growth mirrored a similar trend at Royal Bank of Canada, the country's largest bank, which emphasized in its earnings report last week that it would be looking for ways to cut expenses.

"I think we'll see expenses become much more of a focus for Canadian banks," said James Shanahan, a banking analyst at Edward Jones. He noted that the banks' margins have been squeezed as interest rates have fallen, which is forcing them to focus on spending.

TD's net interest income was C$6.02 billion, up from C$5.66 billion in the comparable quarter a year ago. Meanwhile, net interest margin -- or the interest that banks take in from loans versus what they pay out in deposits -- fell 0.03 percentage point in Canada, compared with the second quarter, and fell 0.11 percentage point in the U.S.

Noninterest income was C$4.48 billion, a 5.4% increase from last year.

Profit at the bank's U.S. retail segment rose 13% from a year ago to C$1.29 billion.

The U.S. division includes bank and lender TD Bank and its stake in TD Ameritrade Holding Corp. TD Ameritrade contributed C$294 million to earnings in the fiscal third quarter, the Canadian bank said Thursday.

The bank reported that its capital ratio remained steady at 12%. Though the regulatory capital ratio is the highest among the large Canadian banks, TD won't rush to use any capital cushion to do deals, said the company's finance chief, Riaz Ahmed.

"It's important to remain patient," Mr. Ahmed said. "We'll continue to look for attractive opportunities."

TD's Canadian retail segment reported a 2% increase in profit in the quarter ended July 31, compared with a year earlier.

Earnings on an adjusted basis were C$1.79 a share, below analysts' estimates by 1 cent.

Total revenue at the bank rose 6.1% to C$10.5 billion. Analysts were looking for C$10.05 billion.

Write to Vipal Monga at vipal.monga@wsj.com and Kimberly Chin at kimberly.chin@wsj.com

(END) Dow Jones Newswires

August 29, 2019 12:32 ET (16:32 GMT)

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