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Toronto-Dominion Reports Strong Q3

TD BMO

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The Toronto-Dominion Bank (TD - Snapshot Report) reported its fiscal third quarter 2012 (ended July 31, 2012) adjusted earnings per share of C$1.91, which compares favorably with the prior quarter earnings of C$1.82 as well as the year-ago earnings of C$1.75. Adjusted net income came in at C$1.82 billion ($1.79 billion) up 4.8% from the previous quarter and 11.3% year over year.

Better-than-expected results were driven by enhanced net interest revenue and non-interest income. The total assets and profitability ratio also remained strong in the quarter. However, elevated operating expenses were the primary headwinds.

On GAAP basis, net income came in at C$1.70 billion ($1.67 billion), up 0.6 sequentially and 14.3% on a year-over-year basis.

Behind the Headlines

Toronto-Dominion reported adjusted revenue of C$5.84 billion ($5.74 billion), up 1.0% from the prior quarter and 8.3% year over year. Operating revenue came in at C$5.84 billion ($5.74 billion), up 1.6% from the last quarter and 8.5% year over year.

For the reported quarter, adjusted net interest income grew 3.1% sequentially and 8.6% year over year to C$3.82 billion ($3.75 billion). Adjusted non-interest revenue came in at C$2.02 billion ($1.99 billion), declining 2.7% from the previous quarter but up 7.6% year over year.

Adjusted non-interest expenses were C$3.23 billion ($3.18 billion), falling 1.4% from the prior quarter but surging 7.4% year over year. Adjusted efficiency ratio stood at 55.4% as against 56.8% as of April 30, 2012 and 55.8% as of July 31, 2011.

Total provision for credit losses were C$479.0 million ($471.05 million), up 2.4% from the last quarter and 26.0% from the comparable quarter last year.

Total assets came in at C$806.28 billion ($792.62 billion) as of July 31, 2012, jumping 4.3% from C$773.19 billion ($760.36) as of April 30, 2012 and 13.0% from C$713.64 billion as of July 31, 2011.  Return on common equity, as adjusted, was 16.4% in the reported quarter as against 16.6% in the prior quarter and 17.7% in the year-ago period.

Dividend

Concurrent with the earnings release, Toronto-Dominion declared fourth-quarter dividend of C$0.77 per share. This represents a 6.9% hike from the third quarter dividend.

Peer Performance

Bank of Montreal (BMO - Snapshot Report) reported its third-quarter 2012 adjusted earnings per share of C$1.49, which compares favorably with the previous-quarter earnings of C$1.44 and the year-ago earnings of C$1.34. The improvement in results came on the back of enhanced net interest revenue and non-interest income.

The total assets and capital ratios also remained strong in the quarter. However, increased operating expenses were the primary headwinds.

Our Viewpoint

We expect Toronto-Dominion’s acquisition activities to positively impact its financials in the long run. Further, investors’ confidence is expected to be boosted since the company has announced a dividend hike. However, a persistent low interest rate environment, weak economic recovery and stringent regulatory requirements will remain a drag on its financials.

Toronto-Dominion currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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