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TD Bank Shares Rise on Strong Q4 Earnings

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Shares of The Toronto-Dominion Bank (TD - Free Report) , also known as TD Bank, rose 2.2% following the company robust fourth-quarter fiscal 2013 earnings (ended Oct 31) on Dec 5. Adjusted earnings of C$1.90 per share compared favorably with C$1.83 earned in the prior-year quarter. Moreover, adjusted net income was C$1.82 billion ($1.75 billion), up 3.6% year over year.

For fiscal 2013, adjusted net income was C$7.2 billion ($7.1 billion), up 1.2% year over year.

TD Bank’s results were driven by increased revenues, which were partly offset by higher operating expenses. Moreover, rise in asset holdings was a tailwind for the quarter.

After taking into consideration certain non-recurring items, net income for the quarter came in at C$1.62 billion ($1.56 billion), up 1.6% year over year.

Quarterly Highlights

Total revenue (on an adjusted basis) was C$7.0 billion ($6.7 billion), up 6.1% on a year-over-year basis. The rise was driven by growth in net interest income and non-interest income.

Total revenue for fiscal 2013 was C$ 27.2 billion ($26.7 billion), up 5.9% year over year.

Adjusted net interest income rose 8.9% year over year to C$4.2 billion ($4.0 billion). However, adjusted non-interest income came in at C$2.8 billion ($2.7 billion), up 2.2% from the year-ago quarter.

Adjusted non-interest expenses were C$3.9 billion ($3.7 billion), rising 11.2% on a year-over-year basis. Adjusted efficiency ratio improved to 46.5% at the quarter-end from 47.7% as of Oct 31, 2012. Decline in efficiency ratio indicates rise in profitability.

Total provision for credit losses came were C$352 million ($339.0 million), down 37.7% from the comparable quarter in the previous fiscal.

Total assets were C$862.5 billion ($812.30 billion) as of Oct 31, 2013, marking a year-over-year increase of 3.6%. Return on common equity, as adjusted, was 15.0% in the reported quarter, down from 15.5% as of Oct 31, 2012.

Other Developments

In September, TD Bank entered into a definite agreement with Aimia Inc. (Aimia) and Canadian Imperial Bank of Commerce (CM - Free Report) to become the primary issuer of Aeroplan Visa credit cards with effect from Jan 1, 2014. Moreover, last month, the company declared another deal with Aimia, which entitles TD Bank to be the key issuer of Aeroplan credit cards. However, CIBC, the sole issuer of the particular cards at the time raised objections.

As per the mutual agreement, 50% of CIBC’s Aeroplan credit cards will be acquired by TD Bank for $162.5 million. Of the total amount, $50 million will be paid when the deal closes and the remainder over the next 3 years).

In December, U.S. based TD Ameritrade Holding Corp. (AMTD - Free Report) modified its agreement with TD Bank. The amendment extends the existing agreement’s date of expiry from Jan 24, 2016 to Jan 24, 2021. It also enables TD Ameritrade to carry out more share buybacks. According to the amended agreement, if any share repurchases by TD Ameritrade leads to Toronto-Dominion Bank having more than 45% interests, the latter will have to shed its stake. Notably, as of Sep 30, Toronto-Dominion Bank owned 42% stake in the brokerage firm.

Capital Deployment Update

Along with the earnings release, TD Bank announced payment of a stock dividend of one common share for each issued and outstanding common share, which implies a two-for-one stock split. The payment of the stock dividend will be made on Jan 31, 2014 to shareholders of record as of Jan 23.

Additionally, TD Bank declared a quarterly dividend of 86 Canadian cents per share, which was 1.2% higher than the prior-quarter payout. The dividend will be paid on and after Jan 31, 2014, to shareholders of record at the close of business on Jan 6, 2014.

Our Viewpoint

We expect TD Bank’s acquisition activities to boost its financials in the long run. Further, the company’s capital deployment activities are expected to raise investors’ confidence. However, increasing expenses, weak economic recovery and stringent regulatory requirements will likely weigh on the company’s profitability.

TD Bank currently carries a Zacks Rank #3 (Hold). A better-ranked foreign bank is HDFC Bank Ltd. (HDB - Free Report) with a Zacks Rank #1 (Strong Buy).

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