Wasn't TD Bank's Q3 Earnings Enough to Boost Shares Price?

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Shares of The Toronto-Dominion Bank (TD), also known as TD Bank, fell 1.1% despite posting robust fiscal third-quarter 2014 earnings (ended Jul 31) on Aug 28 before the opening bell. Adjusted earnings of C$1.15 per share compared favorably with C$0.82 earned in the prior-year quarter. Moreover, adjusted net income was C$2.18 billion ($2.02 billion), up 36.8% year over year.

A rise in the top-line and lower provision for credit losses helped the company post strong earning. Moreover, rise in asset holdings was a tailwind for the quarter. On the other hand, a rise in expenses not only offset the earning to some extent, but might have led the shares to fall.

After considering certain non-recurring items, net income came in at C$2.11 billion ($1.95 billion), up 38.3% year over year.

Quarterly Highlights

Total revenue (on an adjusted basis) was C$7.48 billion ($6.91 billion), up 6.8% on a year-over-year basis. The increase was driven by growth in net interest income and non-interest income.

Adjusted net interest income rose 7.0% year over year to C$4.44 billion ($4.10 billion). Moreover, adjusted non-interest income came in at C$3.05 billion ($2.82 billion), up 6.6% from the year-ago quarter.

Adjusted non-interest expenses stood at C$3.91 billion ($3.61 billion), rising 6.6% on a year-over-year basis. Adjusted efficiency ratio was 52.3% at the quarter-end from 52.4% as of Jul 31, 2013. Rise in efficiency ratio indicates a fall in profitability.

Total provision for credit losses were C$338 million ($312 million), down 29.1% from the comparable prior-year quarter.

Total assets were C$921.75 billion ($847.73 billion) as of Jul 31, 2014, marking a year-over-year increase of 10.4%. Return on common equity, as adjusted, was 16.8% in the reported quarter, up from 13.3% as of Jul 31, 2013.

Our Viewpoint

TD Bank’s organic and inorganic growth strategies are expected to improve the top line going forward. Moreover, the company’s efficient capital deployment activities will continue to boost investors’ confidence.

However, sluggish economic growth, increasing expenses and stringent regulatory environment will weigh on the company’s profitability in the forthcoming quarters. Further, the subdued economic scenario in the U.S. (the largest trade partner of Canada) will add to the troubles.

TD Bank currently carries a Zacks Rank #3 (Hold).

Performance of Other Foreign Banks

Among other foreign banks, Royal Bank of Canada (RY) reported strong fiscal third-quarter 2014 (ended Jul 31) net income of C$2.4 billion ($2.2 billion), increasing 4% year over year.

Canadian Imperial Bank of Commerce (CM) reported fiscal third-quarter adjusted earnings per share of C$2.23, compared with $2.26 earned a year ago.

The Bank of Nova Scotia (BNS) posted adjusted earnings per share of $1.86 for the same quarter, up 34.8% year over year.

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