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TD Bank's (TD) Upbeat Q3 Earnings Failed to Cheer Investors

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The Toronto-Dominion Bank (TD - Free Report) shares lost 1% since it announced the fiscal third-quarter 2016 (ended Jul 31) results on Thursday, before the opening bell. Adjusted earnings of C$1.27 per share were up 5.8% year over year. Also, adjusted net income rose 5.7% year over year to C$2.42 billion ($1.87 billion).

Improvement in revenues was partly offset by higher operating expenses and provisions. Growth in capital ratios was impressive, but profitability ratios showed weakness. However, this was not enough to win investors’attention.

After considering certain non-recurring items, net income was C$2.36 billion ($1.82 billion), up 4.1% year over year.

Revenues, Expenses & Provisions Depict a Rise

Total revenue (on an adjusted basis) amounted to C$8.70 billion ($6.71 billion), up 9% year over year. The rise was attributable to growth in net interest income as well as non-interest income.

Adjusted net interest income rose 4.8% year over year to C$4.92 billion ($3.80 billion). Further, adjusted non-interest income came in at C$3.78 billion ($2.92 billion), up 14.9% year over year.

Adjusted non-interest expenses increased 7.4% year over year to C$4.58 billion ($3.53 billion). Adjusted efficiency ratio was 52.6% at the quarter end, down from 53.4% as ofJul 31, 2015. A decline in efficiency ratio indicates an improvement in profitability.

Total provision for credit losses surged 27.2% year over year to C$556 million ($429 million).

Profitability Declines While Capital Ratios Improve

Return on common equity, on an adjusted basis, came in at 14.5%, down from 15.0% as of Jul 31, 2015.

As of Jul 31, 2016, common equity Tier I capital ratio came in at 10.4%, slightly up from 10.1% in the prior-year quarter. Total capital ratio came in at 14.6% for the reported quarter, up from 13.9% as of Jul 31, 2015.

Our Viewpoint

TD Bank’s efforts are aligned with its organic and inorganic growth strategies, which will likely boost revenues in the upcoming quarters. Also, the company is focused on improving its productivity, adapting and innovating initiatives and investments. However, mounting expenses and a stringent regulatory environment continue to strain the company’s profitability.

TORONTO DOM BNK Price, Consensus and EPS Surprise

 

TORONTO DOM BNK Price, Consensus and EPS Surprise | TORONTO DOM BNK Quote

TD Bank currently holds a Zacks Rank #2 (Buy).

Performance of Other Foreign Banks

Royal Bank of Canada (RY - Free Report) reported third-quarter fiscal 2016 (ended Jul 31) net income of C$2.9 billion ($2.24 billion), up 17% from the prior-year quarter.

Canadian Imperial Bank of Commerce (CM - Free Report) reported fiscal third-quarter 2016 (ended Jul 31) adjusted earnings per share of C$2.67, up from C$2.45 in the prior-year quarter.

Bank of Montreal (BMO - Free Report) reported third-quarter fiscal 2016 (ended Jul 31) adjusted earnings of C$1.94 per share, which compared favorably with C$1.86 earned in the prior-year quarter. Moreover, adjusted net income came in at C$1.3 billion ($1 billion), up 5.3% year over year.

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