Shares of The Toronto-Dominion Bank (TD), also known as TD Bank, rose 1.4% following the company’s robust first-quarter fiscal 2014 earnings (ended Jan 31) on Feb 27. Adjusted earnings of C$1.06 per share compared favorably with C$1.00 earned in the prior-year quarter. Moreover, adjusted net income was C$2.02 billion ($1.89 billion), up 6.0% year over year.
TD Bank’s results were driven by increased revenues, which were partly offset by higher operating expenses. While a rise in provision served as a headwind for the quarter, rise in asset holdings was a positive.
After taking into consideration certain non-recurring items, net income for the quarter came in at C$2.04 billion ($1.91 billion), up 14.5% year over year.
Total revenue (on an adjusted basis) was C$7.6 billion ($7.1 billion), up 15.2% on a year-over-year basis. The rise was driven by growth in net interest income and non-interest income.
Adjusted net interest income rose 11.9% year over year to C$4.3 billion ($4.0 billion). Adjusted non-interest income came in at C$3.3 billion ($3.1 billion), up 19.9% from the year-ago quarter.
Adjusted non-interest expenses were C$4.1 billion ($3.8 billion), rising 17.0% on a year-over-year basis. Adjusted efficiency ratio improved to 41.8% at the quarter-end from 42.0% as of Jan 31, 2013. A decline in efficiency ratio indicates rise in profitability.
Total provision for credit losses came were C$456 million ($427 million), up 18.4% from the comparable quarter in the previous fiscal.
Total assets were C$908.9 billion ($813.0 billion) as of Jan 31, 2013, marking a year-over-year increase of 11.1%. Return on common equity, as adjusted, was 16.2% in the reported quarter, down from 16.7% as of Jan 31, 2013.
In November, TD Bank’s subsidiary – TD Waterhouse Canada Inc. – divested TD Waterhouse Institutional Services to a subsidiary of National Bank of Canada (NTIOF). The divestiture generated a pre-tax gain of C$231 million ($216.4 million) in the reported quarter.
In December, TD Bank closed the deal with Aimia Inc. (Aimia) and Canadian Imperial Bank of Commerce (CM) related to the acquisition of Aeroplan Visa credit cards’ portfolio. As per the deal, TD Bank acquired 50% of Canadian Imperial Bank of Commerce’s existing Aeroplan Visa credit cards for nearly C$3.3 billion ($3.1 billion).
Capital Deployment Update
Along with the earnings release, TD Bank declared a dividend of 47 Canadian cents per share, which was 9% higher than the prior-quarter payout. The dividend will be paid on and after Apr 30, 2014, to shareholders of record at the close of business on Apr 3, 2014.
We believe that TD Bank will continue with its efficient capital deployment activities supported by continuous top-line growth. Moreover, meaningful acquisitions will boost the company’s financials in the long run.
However, rising expenses and stringent regulatory requirements remain drags on the company’s profitability. Further, since the U.S is the largest trade partner of Canada, the sluggish pace of growth in the country is likely to continue impacting the trade-driven Canadian economy.
TD Bank currently carries a Zacks Rank #3 (Hold). A better-ranked foreign bank is Hang Seng Bank Limited (HSNGY) with a Zacks Rank #1 (Strong Buy).
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