TD Bank's (TD) Q2 Earnings Improve Y/Y, Expenses Increase

The Toronto-Dominion Bank’s (TO:TD) shares gained nearly 1.1% following the announcement of the company’s second-quarter (ended Apr 30) fiscal 2017 results. Adjusted earnings came in at C$1.34 per share, up 11.7% year over year.

Improvement in net interest income and lower provisions were partially offset by higher operating expenses. Also, growth in capital and profitability ratios was impressive.

After considering certain non-recurring items, net income for the quarter was C$2.50 billion ($1.88 billion), up 22% year over year.

Revenues & Expenses Increased

Total revenue (on an adjusted basis) came in at C$8.47 billion ($6.36 billion), up 1.9% year over year. The rise was attributable to growth in net interest income, partially offset by a fall in non-interest income.

Adjusted net interest income for the quarter increased 4.7% year over year to C$5.11 billion ($3.84 billion). However, adjusted non-interest income came in at C$3.36 billion ($2.52 billion), decreasing 2.1% year over year.

Adjusted non-interest expenses increased 3.7% to C$4.72 billion ($3.55 billion) from the prior-year quarter.

Adjusted efficiency ratio was 55.8% at the quarter end, up from 54.8% as of Apr 30, 2016. An increase in efficiency ratio indicates lower profitability.

Total provision for credit losses declined 14.4% year over year to C$500 million ($376 million).

Profitability and Capital Ratios Improve

Return on common equity, on an adjusted basis, came in at 14.8%, up from 14.0% as of Apr 30, 2016.

As of Apr 30, 2017, common equity Tier I capital ratio came in at 10.8%, up from 10.1% in the prior-year quarter. Total capital ratio came in at 14.9% for the reported quarter, up from 14.4% as of Apr 30, 2016.

Our Viewpoint

Despite TD Bank’s efforts toward improving revenues, both organically as well as inorganically, the company’s mounting expenses and a stringent regulatory environment are likely to strain its profitability in the near term.

TD Bank currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Barclays (LON:BARC) PLC’s (NYSE:BCS) first-quarter 2017 net income from continuing operations was £1.21 billion ($1.50 billion), which more than doubled from £545 million recorded in the prior-year quarter. Encouraging underwriting performance and significant drop in losses in Non-Core division were the primary reasons for the drastically improved results. However, an unexpected fall in trading revenues, lower net interest income and rise in credit impairment charges were the undermining factors.

HSBC Holdings (LON:HSBA) plc (NYSE:HSBC) reported first-quarter 2017 net profit attributable to shareholders of $3.5 billion, declining 19% from the year-ago quarter. Basically, the decline reflected absence of Brazil business results, which was divested last July. Despite witnessing steady success in its cost-saving initiatives, HSBC’s results were hampered by streamlining operations. Further, a rise in operating expenses acted as a headwind.

UBS Group AG (NYSE:UBS) reported first-quarter 2017 pre-tax operating profit of CHF 1.93 billion ($1.92 billion) on an adjusted basis, up 40.9% from the prior-year quarter. Results reflected increase in net trading income, along with net fee and commission income. Notably, the quarter benefited from the company’s consistent focus on expense management.

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