Toronto-Dominion Posts Strong 1Q

The Toronto-Dominion Bank (TD - Snapshot Report) reported its fiscal first quarter 2013 (ended Jan 31) adjusted earnings of C$2.00 per share, which compared favorably with the year-ago earnings of C$1.86. Moreover, adjusted net income came in at C$1.92 billion ($1.93 billion), up 8.7% from the year-ago period.

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

On a GAAP basis, net income for fiscal fourth quarter came in at C$1.80 billion ($1.81billion), surging 21.1% year over year.

Behind the Headlines

In the reported quarter, total revenues (on adjusted basis) were C$5.94 billion ($5.98 billion), up 4.0% year over year. Operating revenue came in at C$5.97 billion ($6.01 billion), growing 5.8% from the prior-year quarter.

Adjusted net interest income surged 3.9% year over year to C$3.85 billion ($3.88 billion). Moreover, adjusted non-interest income came in at C$2.09 billion ($2.10 billion), advancing 4.2% from the year-ago quarter.

Adjusted non-interest expenses were C$3.30 billion ($3.32 billion), rising 4.5% year over year. Adjusted efficiency ratio stood at 55.6%, deteriorating marginally from 55.3% as of Jan 31, 2012. A rise in efficiency ratio indicates fall in profitability.

Total provision for credit losses were C$385 million ($387.6 million), falling 13.5% from the comparable quarter last year.

Total assets came in at C$818.5 billion ($816.7 billion) as of Jan 31, 2013, up 5.0% year over year. Return on common equity, as adjusted, was 16.4% in the reported quarter, marginally below 16.8% as of Jan 31, 2012.

Other Developments

In the reported quarter, 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 second quarter of 2013.

Dividend

Concurrent with the earnings release, Toronto-Dominion declared a quarterly dividend of C$0.81 per share. The dividend will be paid on Apr 30, to shareholders of record at the close of business on Apr 3. This represents an increase of C$0.04 per share from the prior dividend.

Performances of Other Canadian Banks

Royal Bank of Canada (RY) reported net income from continuing operations of C$2.1 billion ($1.9 billion) for fiscal first quarter 2013 (Jan 31), up 11% the year-ago period. Results reflect a rise in revenue aided by higher net interest and non-interest income. Yet, the key negatives were deteriorating credit quality and elevated non-interest expenses.

Canadian Imperial Bank of Commerce (CM - Snapshot Report) reported its fiscal first quarter 2013 (ended Jan 31) adjusted earnings per share of C$2.15. This was up 5.4% from the prior-quarter earnings of C$2.04. Augmented top-line and robust asset position were the primary earnings drivers. Yet, rising operating expenses partially dented the results.

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 Rank #3 (Hold).