TD Bank Falls on Expense Worries Despite Strong Q4 Earnings
Shares of The Toronto-Dominion Bank (TD), also known as TD Bank, fell 5.1% in spite of posting sturdy fiscal fourth-quarter 2014 (ended Oct 31) earnings on Dec 4 before the opening bell. Adjusted earnings of C$0.98 per share compared favorably with C$0.95 earned in the prior-year quarter. Moreover, adjusted net income came in at C$1.86 billion ($1.68 billion), up 2.6% year over year.
For fiscal 2014, adjusted earnings totaled C$4.27 per share, up from C$3.71 earned in fiscal 2013.
Consistent improvement in the top line as well as assets continued to support the results. However, escalating expenses and rise in provisions acted as the headwinds. Also, profitability ratios showed weakness. This could have led to the sharp price decline of the stock.
After considering certain non-recurring items, net income summed C$1.75 billion ($1.58 billion), up 8.0% year over year.
Quarterly Highlights
Total revenue (on an adjusted basis) amounted to C$7.45 billion ($6.74 billion), up 6.2% on a year-over-year basis. The increase was driven by growth in net interest income and non-interest income.
Total revenue for fiscal 2014 summed C$30.0 billion ($27.2 billion), up 9.9% year over year.
Adjusted net interest income rose 6.6% year over year to C$4.46 billion ($4.04 billion). Moreover, adjusted non-interest income came in at C$3.00 billion ($2.72 billion), up 5.7% from the year-ago quarter.
Adjusted non-interest expenses climbed 7.7% year over year to C$4.19 billion ($3.79 billion). Adjusted efficiency ratio stood at 56.2% at the quarter-end compared to 55.4% as of Oct 31, 2013. Rise in efficiency ratio indicates a fall in profitability.
Total provision for credit losses were C$371 million ($336 million), up 5.4% from the corresponding prior-year quarter.
Total assets grew 9.6% year over year to C$944.7 billion ($843.90 billion) as of Oct 31, 2014. Return on common equity, as adjusted, came in at 14.0% in the reported quarter, down from 15.1% as of Oct 31, 2013.
Our Viewpoint
TD Bank’s focus and efforts stay aligned with its organic and inorganic growth strategies, which will boost revenue generation going forward. Also, the bank’s steady capital deployment activities will assist it in gaining investors’ confidence.
However, sluggish economic growth, mounting expenses and a stringent regulatory environment continue to strain the profitability. Moreover, the subdued economic scenario in the U.S. (the largest trade partner of Canada) may further aggravate the troubles.
TD Bank currently carries a Zacks Rank #4 (Sell).
Other Foreign Banks
Among other foreign banks, Royal Bank of Canada (RY) reported impressive fiscal fourth-quarter 2014 (ended Oct 31) net income of C$2.3 billion ($2.1 billion), increasing 11% year over year.
Canadian Imperial Bank of Commerce (CM) reported fiscal fourth-quarter adjusted earnings per share of C$2.24, compared with $2.19 earned a year ago.
Moreover, Banco Bradesco S.A. (BBD) is scheduled to report fiscal fourth-quarter earnings on Jan 29, 2015.
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