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Toronto-Dominion Posts Robust Earnings

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The Toronto-Dominion Bank (TD - Snapshot Report) reported its fiscal second-quarter 2013 (ended Apr 30) adjusted earnings of C$1.98 per share, which compared favorably with the year-ago earnings of C$1.82. Moreover, adjusted net income came in at C$1.83 billion ($1.80 billion), up 5.6% from the year-ago period.

Improved results were driven by growth in revenues as well as strong assets and profitability ratio in the quarter. However, higher operating expenses were the primary headwinds.

After taking into consideration certain non-recurring items, net income for fiscal second quarter came in at C$1.72 billion ($1.69 billion), inching up 1.8% year over year.

Behind the Headlines

In the reported quarter, total revenues (on an adjusted basis) were C$6.03 billion ($5.93 billion), up 4.3% year over year. The rise was driven by growth in both net interest income and fee revenues.

Adjusted net interest income surged 5.4% year over year to C$3.90 billion ($3.83 billion). Moreover, adjusted non-interest income came in at C$2.12 billion ($2.08 billion), rising 2.2% from the year-ago quarter.

Adjusted non-interest expenses were C$3.52 billion ($3.46 billion), rising 7.3% year over year. Adjusted efficiency ratio was 58.4%, deteriorating from 56.8% as of Apr 30, 2012. A rise in efficiency ratio indicates fall in profitability.

Total provision for credit losses was C$417 million ($410 million), increasing 7.5% from the comparable quarter last year.

Total assets came in at C$826.4 billion ($814.4 billion) as of Apr 30, 2013, up 12.7% year over year. Return on common equity, as adjusted, was 15.8% in the reported quarter, down from 16.6% as of Apr 30, 2012.

Acquisitions during the Quarter

In Mar 2013, Toronto-Dominion announced a deal with HSBC Retail Services Limited – an indirect wholly-owned subsidiary of HSBC Holdings plc – to acquire its consumer private label credit card portfolio. The transaction, still subject to regulatory approval, is expected to be completed in the second half of fiscal 2013.

Moreover, in the same month, Toronto-Dominion completed 2 acquisitions. On Mar 27, the company acquired Epoch Holding Corporation and its subsidiary Epoch Investment Partners, Inc. Further, on Mar 13, the company acquired substantially all of Target Corp.’s (TGT - Analyst Report) U.S. Visa and private label credit card portfolio.

Capital Deployment Activities

Along with its earnings release, Toronto-Dominion declared a quarterly dividend of C$0.81 per share. The dividend will be paid on Jul 31 to shareholders of record at the close of business on Jul 9.

In addition, Toronto-Dominion announced the repurchase of nearly 12 million of its common shares. As on May 21, 2013, the company had approximately 9.23 billion common shares outstanding.

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. However, the persistently low interest rate environment, weak economic recovery and stringent regulatory requirements will remain a drag on its financials.

Another Canadian bank, Canadian Imperial Bank of Commerce (CM - Snapshot Report) is scheduled to announce its fiscal second-quarter results on May 30.

Toronto-Dominion currently carries a Zacks Rank #2 (Buy).

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