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Toronto-Dominion Posts Strong 4Q

Zacks Equity Research

Last week, The Toronto-Dominion Bank (TD) reported its fiscal fourth quarter 2012 (ended Oct 31) adjusted earnings per share of C$1.83, which compared favorably with the year-ago earnings of C$1.77. Moreover, adjusted net income came in at C$1.76 billion ($1.78 billion), up 6.1% from the year-ago period.
Improved results were driven by enhanced revenue as well as strong assets and profitability ratio in the quarter. Yet, elevated operating expenses were the primary headwinds.

On GAAP basis, net income for fiscal fourth quarter came in at C$1.60 billion ($1.67 billion), marginally up by 0.5% on a year-over-year basis. For fiscal 2012, net income on GAAP basis stood at C$6.5 billion ($6.6 billion), up 7% from C$6.0 billion ($6.1 billion) in the prior-year quarter.

Behind the Headlines

In the reported quarter, Toronto-Dominion reported total revenue of C$5.93 billion ($6.00 billion), up 5.3% year over year. Operating revenue came in at C$5.89 billion ($5.96 billion), up 4.0% from the fiscal fourth quarter of 2011.

Adjusted net interest income grew 8.8% year over year to C$3.84 billion ($3.88 billion). While, adjusted non-interest income came in at C$2.08 billion ($1.99 billion), dipping 0.5% year over year.

Adjusted non-interest expenses were C$3.49 billion ($3.18 billion), rising 4.5% year over year. Adjusted efficiency ratio stood at 59.0% as against 55.4% as of Jul 31, 2012 and 59.4% as of Oct 31, 2011.

Total provision for credit losses were C$511.0 million ($516.89 million), surging 50.3% from the comparable quarter last year.

Total assets came in at C$811.11 billion ($810.66 billion) as of Oct 31, 2012, up 0.6% sequentially and 10.3% year over year. Return on common equity, as adjusted, was 15.5% in the reported quarter compared with16.4% in the prior quarter and 16.5% in the year-ago period.

Other Developments

Concurrent with the earnings release, Toronto-Dominion signed a definitive agreement to acquire Epoch Investment Partners, Inc. (EPHC), a fully owned subsidiary of Epoch Holding Corporation. The transaction is anticipated to close in the first half of 2013.

Toronto-Dominion will pay roughly $668 million in cash for the transaction. Further, upon closure, the acquisition is anticipated to be accretive to the company’s earnings in fiscal 2014 besides having a minimal impact on the earnings in fiscal 2013. Moreover, the company’s Basel III Tier 1 common equity ratio is expected to decline by around 24 basis points from 8.2% as of Oct 31, 2012.


Concurrent with the earnings release, Toronto-Dominion declared first-quarter dividend for the fiscal year 2013 of C$0.77 per share. The dividend will be paid on January 31, 2013, to shareholders of record at the close of business on January 4, 2013

Peer Performance

In November, Royal Bank of Canada (RY) reported net income from continuing operations of C$1.9 billion ($1.9 billion) for fiscal fourth quarter 2012 (ended on Oct 31), up 19% from C$1.6 billion ($1.6 billion) recorded in the year-ago period. Results reflect a rise in revenue and improved capital position. Moreover, lower interest expenses were a positive for the quarter. Yet, the key negatives were deteriorating credit quality and elevated non-interest expenses.

Our Viewpoint

We expect Toronto-Dominion’s acquisition activities to positively impact its financials in the long run. Further, the company’s capital deployment activities are going to boost investors’ confidence in it. However, the persistently low interest rate environment, weak economic recovery and stringent regulatory requirements will remain a drag on its financials.

Toronto-Dominion currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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