TD Bank Earnings: Weak Results Due to US Operations and High Insurance Expenses

Toronto-Dominion Bank TD reported weaker-than-expected fiscal fourth-quarter results on higher costs as it works to put its regulatory issues in the US behind it. Adjusted net revenue increased 12.5% to C$14.9 billion while adjusted net income fell 8% from last year to C$3.2 billion. These results translate to a return on equity of 11.7%, below the firm’s historical performance. TD Bank also suspended its medium-term financial targets of 7%-10% earnings per share growth and a 16% return on equity. While this was unsurprising after the asset cap placed on its US operations, which will be a headwind for growth, it is still disappointing. That said, we do not expect to materially alter our fair value estimate of C$88 per share.

Key Morningstar Metrics for TD Bank

Once again, the Canadian personal and commercial banking segment was a source of strength, with net income rising 9% to C$1.8 billion. This was entirely due to higher net interest income, which increased 9.5% to C$4.06 billion. The segment saw solid loan growth, with average loans rising just under 5% to C$578 billion. Additionally, net interest margin expanded to 2.80% from 2.78%. This is below the high of 2.84% seen earlier in the year, but as interest rates in Canada fall, we expect the bank’s net interest margin to stay relatively stable.