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Toronto-Dominion (TD) Stock Falls Despite Q1 Earnings Growth

Zacks Equity Research

The Toronto-Dominion Bank’s TD first-quarter fiscal 2019 (ended Jan 31) adjusted earnings came in at C$1.57 per share, marginally increasing on a year-over-year basis. Also, adjusted net income rose marginally from the prior-year quarter to C$2.95 billion ($2.22 billion).

The results reflect a rise in revenues on the back of higher interest rates, coupled with growth in the bank’s retail segment in both United States and Canada. Also, strong capital position remains a tailwind.

However, loan and deposit witnessed a decline in the reported quarter. Higher provisions and a rise in operating expenses were other offsetting factors. These factors may be attributed to 2.3% decline in shares of the bank on NYSE following the earnings release.

After considering certain non-recurring items, net income was C$2.41 billion ($1.81 billion), up 2.4% from the prior-year quarter.

Rise in Revenues Partially Offset by Higher Provisions & Expenses

Total revenues (on an adjusted basis) came in at C$10 billion ($7.51 billion), up 5.6% year over year. The rise was attributable to growth in net interest income and non-interest income.

Adjusted net interest income grew 7.9% year over year to C$5.86 billion ($4.40 billion). Also, adjusted non-interest income came in at C$4.14 billion ($3.11 billion), increasing 2.6% from the year-ago quarter.

Adjusted non-interest expenses rose 7.7% year over year to C$5.16 billion ($3.88 billion).

Adjusted efficiency ratio was 51.6% at the end of the quarter, up from 50.6% as of Jan 31, 2018. A rise in efficiency ratio indicates a decline in profitability.

Total provision for credit losses increased 22.7% year over year to C$850 million ($638.4 million).

Balance Sheet & Profitability Weakens, Capital Ratios Remain Strong

Total assets came in at C$1.32 trillion ($1.01 trillion) as of Jan 31, 2019, down nearly 1% from the prior quarter. Net loans grew marginally on a sequential basis to C$648.5 billion ($494 billion), while deposits declined slightly to C$849.3 billion ($646 billion).

Return on common equity, on an adjusted basis, came in at 15%, down from 16.6% as of Jan 31, 2018.

As of Jan 31, 2019, common equity Tier I capital ratio was 12%, up from 10.6% in the prior-year quarter. Total capital ratio came in at 15.9% in the reported quarter, up from 14.2% as of Jan 31, 2018.

Our Viewpoint

TD Bank’s efforts toward improving revenues, both organically and inorganically, are supported by its diverse geographical presence. The company’s focus on strengthening digital capabilities bodes well for long-term growth. However, the wholesale banking segment continues to be impacted by lower client activities. Also, rising expenses deter bottom-line growth to some extent. 

Toronto Dominion Bank (The) Price, Consensus and EPS Surprise

Toronto Dominion Bank (The) Price, Consensus and EPS Surprise | Toronto Dominion Bank (The) Quote

The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Canadian Banks

Canadian Imperial Bank of Commerce CM reported first-quarter fiscal 2019 (ended Jan 31) adjusted earnings per share of C$3.01, down 5% from the prior-year period. The results were largely impacted by a decline in non-interest income and significant rise in provisions. However, lower expenses and higher net interest income acted as tailwinds.

Bank of Montreal BMO reported first-quarter fiscal 2019 (ended Jan 31) adjusted net income of C$1.54 billion ($1.16 billion), up 8% year over year. The results were primarily driven by a rise in revenues and lower provisions. Moreover, increase in loans and deposits supported the results. However, higher expenses were an undermining factor.

The Bank of Nova Scotia BNS reported first-quarter fiscal 2019 (ended Jan 31) adjusted net income of C$2.3 billion ($1.7 billion), down 3% year over year. The results excluded acquisition-related costs. Elevated expenses and provisions were on the downside. However, revenue growth along with strong capital and profitability ratios were tailwinds.

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