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Toronto-Dominion Bank (TD - Free Report) shares have declined 3.5% since the release of its third-quarter fiscal 2023 (ended Jul 31) results. Quarterly adjusted net income of C$3.73 billion ($2.80 billion) decreased 2.2% from the prior-year quarter.
The company recorded a rise in net interest income on the back of higher interest rates and decent loan demand. Also, the company’s capital ratios were solid during the quarter. However, an increase in expenses and higher provision for credit losses were major headwinds.
Net income of C$2.96 billion ($2.22 billion) decreased 7.8% year over year.
Adjusted Revenues & Expenses Rise
Quarterly adjusted revenues came in at C$13.01 billion ($9.75 billion), increasing 12.2% on a year-over-year basis.
Net interest income (NII) jumped 3.5% year over year to C$7.29 billion ($5.46 billion). Non-interest income of C$5.49 billion ($4.11 billion) increased 41.5% year over year.
Adjusted non-interest expenses rose 15.2% year over year to C$6.95 billion ($5.21 billion).
The adjusted efficiency ratio was 53.4% as of Jul 31, 2023, up from 52% recorded in the prior-year period.
In the reported quarter, Toronto-Dominion recorded a provision of credit losses of C$766 million ($574 million) compared with C$351 million recorded in the year-ago quarter.
Balance Sheet Decent
Total assets were C$1.89 trillion ($1.43 trillion) as of Jul 31, 2023, declining 2% from the end of the second quarter of fiscal 2023. Net loans rose 2.1% on a sequential basis to C$867.8 billion ($656.8 billion) and deposits decreased 2.5% to C$1.16 trillion ($0.88 trillion).
Capital Ratios Improve & Profitability Ratio Weaken
As of Jul 31, 2023, the common equity Tier I capital ratio was 15.2%, up from 14.9% as of Jul 31, 2022. The total capital ratio was 19.6% compared with the prior-year quarter's 18.8%.
Toronto-Dominion’s return on common equity (on an adjusted basis) was 14.1%, down from 16.1% as of Jul 31, 2023.
Concurrent with the earnings release, the company announced that it is expecting to face fines and "non-monetary" penalties as a result of investigations conducted by U.S. authorities regarding its anti-money laundering compliance program.
In the filing, Toronto-Dominion stated that the outcome of these inquiries and investigations is unknown at this time.
Notably, In February 2022, the bank announced an agreement to acquire First Horizon Corporation (FHN). But the deal seems to have fallen victim to the regional banking crisis in the United States. In May 2023, both companies announced the mutual termination of the transaction as “TD does not have a timetable for regulatory approvals to be obtained for reasons unrelated to First Horizon.”
Per the terms of the termination agreement, TD paid C$306 million ($225 million) to First Horizon in cash on May 5, 2023.
On Jun 26, 2023, according to the terms of the preferred share purchase agreement, the preferred stock was converted into about 19.7 million common shares of First Horizon. At the time of conversion, the bank recognized a loss of other comprehensive income of C$166 million (US$126 million) based on First Horizon's common share price.
Our Take
Supported by a diverse geographical presence, Toronto-Dominion’s efforts toward improving revenues and market share, both organically and inorganically, seem impressive. Also, rising interest rates will support the company’s financials.
Toronto Dominion Bank (The) Price, Consensus and EPS Surprise
Itau Unibanco Holding S.A. (ITUB - Free Report) posted recurring managerial results of R$8.74 billion ($1.78 billion) for second-quarter 2023, up 13.8% year over year.
The results were supported by higher revenues and an increase in managerial financial margin. Rising total deposits and assets reflected a strong balance sheet position. However, an escalation in non-interest expenses was an offsetting factor.
Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) reported profits attributable to owners of the parent for first-quarter fiscal 2023 (ended Jun 30) of ¥558.3 billion ($3.91 billion), up significantly year over year.
Increased gross profits, a rise in net fees and commissions and net trading profits acted as tailwinds. Also, a rise in loan and deposit balances was positive. On the flip side, a decline in NII was a dampener.
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Toronto-Dominion (TD) Stock Falls Despite Decent Q3 Earnings
Toronto-Dominion Bank (TD - Free Report) shares have declined 3.5% since the release of its third-quarter fiscal 2023 (ended Jul 31) results. Quarterly adjusted net income of C$3.73 billion ($2.80 billion) decreased 2.2% from the prior-year quarter.
The company recorded a rise in net interest income on the back of higher interest rates and decent loan demand. Also, the company’s capital ratios were solid during the quarter. However, an increase in expenses and higher provision for credit losses were major headwinds.
Net income of C$2.96 billion ($2.22 billion) decreased 7.8% year over year.
Adjusted Revenues & Expenses Rise
Quarterly adjusted revenues came in at C$13.01 billion ($9.75 billion), increasing 12.2% on a year-over-year basis.
Net interest income (NII) jumped 3.5% year over year to C$7.29 billion ($5.46 billion). Non-interest income of C$5.49 billion ($4.11 billion) increased 41.5% year over year.
Adjusted non-interest expenses rose 15.2% year over year to C$6.95 billion ($5.21 billion).
The adjusted efficiency ratio was 53.4% as of Jul 31, 2023, up from 52% recorded in the prior-year period.
In the reported quarter, Toronto-Dominion recorded a provision of credit losses of C$766 million ($574 million) compared with C$351 million recorded in the year-ago quarter.
Balance Sheet Decent
Total assets were C$1.89 trillion ($1.43 trillion) as of Jul 31, 2023, declining 2% from the end of the second quarter of fiscal 2023. Net loans rose 2.1% on a sequential basis to C$867.8 billion ($656.8 billion) and deposits decreased 2.5% to C$1.16 trillion ($0.88 trillion).
Capital Ratios Improve & Profitability Ratio Weaken
As of Jul 31, 2023, the common equity Tier I capital ratio was 15.2%, up from 14.9% as of Jul 31, 2022. The total capital ratio was 19.6% compared with the prior-year quarter's 18.8%.
Toronto-Dominion’s return on common equity (on an adjusted basis) was 14.1%, down from 16.1% as of Jul 31, 2023.
Concurrent with the earnings release, the company announced that it is expecting to face fines and "non-monetary" penalties as a result of investigations conducted by U.S. authorities regarding its anti-money laundering compliance program.
In the filing, Toronto-Dominion stated that the outcome of these inquiries and investigations is unknown at this time.
Notably, In February 2022, the bank announced an agreement to acquire First Horizon Corporation (FHN). But the deal seems to have fallen victim to the regional banking crisis in the United States. In May 2023, both companies announced the mutual termination of the transaction as “TD does not have a timetable for regulatory approvals to be obtained for reasons unrelated to First Horizon.”
Per the terms of the termination agreement, TD paid C$306 million ($225 million) to First Horizon in cash on May 5, 2023.
On Jun 26, 2023, according to the terms of the preferred share purchase agreement, the preferred stock was converted into about 19.7 million common shares of First Horizon. At the time of conversion, the bank recognized a loss of other comprehensive income of C$166 million (US$126 million) based on First Horizon's common share price.
Our Take
Supported by a diverse geographical presence, Toronto-Dominion’s efforts toward improving revenues and market share, both organically and inorganically, seem impressive. Also, rising interest rates will support the company’s financials.
Toronto Dominion Bank (The) Price, Consensus and EPS Surprise
Toronto Dominion Bank (The) price-consensus-eps-surprise-chart | Toronto Dominion Bank (The) Quote
TD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Foreign Banks
Itau Unibanco Holding S.A. (ITUB - Free Report) posted recurring managerial results of R$8.74 billion ($1.78 billion) for second-quarter 2023, up 13.8% year over year.
The results were supported by higher revenues and an increase in managerial financial margin. Rising total deposits and assets reflected a strong balance sheet position. However, an escalation in non-interest expenses was an offsetting factor.
Mitsubishi UFJ Financial Group, Inc. (MUFG - Free Report) reported profits attributable to owners of the parent for first-quarter fiscal 2023 (ended Jun 30) of ¥558.3 billion ($3.91 billion), up significantly year over year.
Increased gross profits, a rise in net fees and commissions and net trading profits acted as tailwinds. Also, a rise in loan and deposit balances was positive. On the flip side, a decline in NII was a dampener.