Toronto-Dominion (TD) Q4 Earnings Fall On Higher Expenses

Shares of The Toronto-Dominion Bank (TSX:TD) declined around 3.4% on the NYSE, following the announcement of its fourth-quarter fiscal 2019 (ended Oct 31) results on Thursday. Investors’ concerns were visible on rising expenses and higher provisions.

Adjusted earnings of C$1.59 per share were down 2.5% year over year. Also, adjusted net income declined 3.3% year over year to C$2.95 billion ($2.23 billion).

Rise in revenues was partly offset by higher operating expenses and provisions. Growth in assets was impressive, while profitability ratios displayed weakness.

After considering certain non-recurring items, net income summed C$2.86 billion ($2.16 billion), down 3.4% year over year.

For fiscal 2019, adjusted earnings came in at C$6.69 per share, up 3.4% year over year, while adjusted net income was up 2.5% year over year to C$12.5 billion ($9.4 billion). After considering certain non-recurring items, net income summed C$11.7 billion ($8.8 billion), up 3.5% year over year.

Revenues Improve, Expenses & Provisions Rise

Total revenues (on an adjusted basis) amounted to C$10.3 billion ($7.8 billion), up 2% on a year-over-year basis. This upside resulted from growth in net interest income, partly offset by lower non-interest income.

Adjusted net interest income rose 6.9% year over year to C$6.2 billion ($4.7 billion). Yet, adjusted non-interest income came in at C$4.2 billion ($3.2 billion), down 4.5% year over year.

Adjusted non-interest expenses flared up 3.8% year over year to C$5.5 billion ($4.2 billion). Adjusted efficiency ratio stood at 42.5% at the quarter-end as against 43.2% on Oct 31, 2018. Fall in efficiency ratio indicates a rise in profitability.

Total provision for credit losses surged 52% year over year to C$400 million ($302 million).

Balance Sheet & Capital Ratios Strong, Profitability Ratios Weaken

Total assets came in at C$1.42 trillion ($1.08 trillion) as of Oct 31, 2019, up 1.4% from the prior quarter. Net loans inched up 1.3% on a sequential basis to C$684.6 billion ($519.9 billion), while deposits escalated 1.9% to C$887 billion ($673.6 billion).

As of Oct 31, 2019, common equity Tier I capital ratio was 12.1%, up from 12%. Total capital ratio was 16.3% compared with the prior year’s 16.2%.

Return on common equity, on an adjusted basis, came in at 14%, down from 16.3% as of Oct 31, 2018.

Our Viewpoint

While TD Bank’s efforts toward improving revenues, both organically and inorganically, are supported by its diverse geographical presence, rising operating expenses deter bottom-line growth to some extent. Further, rising provisions for credit losses poses a near-term concern.

TD Bank 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

Royal Bank of Canada (NYSE:RY) reported fourth-quarter fiscal 2019 (ended Oct 31, 2019) net income of C$3.2 billion ($2.4 billion), down 1% from the prior-year quarter’s reported tally. The bank witnessed higher revenues and strong capital position in the quarter. Notably, elevated loans and deposit balances were on the positive side. However, escalating expenses and provisions were undermining factors.

Bank of Montreal’s (TSX:BMO) fourth-quarter fiscal 2019 (ended Oct 31) adjusted net income was C$1.61 billion ($1.22 billion), up 5% year over year. Results were primarily driven by rise in net interest income, and higher loan and deposit balances. Further, capital and profitability ratios remained strong.

The Bank of Nova Scotia (TSX:BNS) reported fourth-quarter fiscal 2019 (ended Oct 31) adjusted net income of C$2.4 billion ($1.8 billion), up 2% year over year. Results excluded acquisition- and divestiture-related costs.

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