Toronto-Dominion Bank (NYSE:TD) has witnessed a 3.5% decline in its shares following the announcement of its third-quarter fiscal 2023 results ending on July 31. The bank’s adjusted net income for the quarter, standing at C$3.73 billion ($2.80 billion), marked a slight decrease of 2.2% compared to the same period last year.

The bank managed to achieve an increase in net interest income, benefiting from higher interest rates and healthy loan demand. Moreover, TD’s capital ratios exhibited strength during the quarter. However, elevated expenses and a rise in provisions for credit losses acted as significant challenges.

The net income for the quarter totaled C$2.96 billion ($2.22 billion), indicating a 7.8% decline year over year.

Adjusted Revenues & Expenses Show Uptick

TD reported adjusted revenues of C$13.01 billion ($9.75 billion), reflecting a notable 12.2% increase compared to the previous year.

Net interest income (NII) demonstrated a 3.5% rise year over year, amounting to C$7.29 billion ($5.46 billion). Non-interest income saw a substantial surge of 41.5% year over year, reaching C$5.49 billion ($4.11 billion).

However, adjusted non-interest expenses climbed by 15.2% to C$6.95 billion ($5.21 billion) compared to the same quarter in the previous year.

The adjusted efficiency ratio, measured at 53.4% as of July 31, 2023, increased from the 52% recorded in the corresponding period of the previous year.

During the reported quarter, TD recorded a provision for credit losses amounting to C$766 million ($574 million), indicating an increase compared to C$351 million in the same quarter last year.

Balance Sheet Overview

The bank’s total assets as of July 31, 2023, stood at C$1.89 trillion ($1.43 trillion), registering a decrease of 2% from the end of the second quarter of fiscal 2023. Net loans, on the other hand, experienced a sequential increase of 2.1% to reach C$867.8 billion ($656.8 billion), while deposits declined by 2.5% to C$1.16 trillion ($0.88 trillion).

Enhanced Capital Ratios & Profitability Ratio Decrease

As of July 31, 2023, the common equity Tier I capital ratio stood at 15.2%, showing an improvement from the 14.9% recorded as of July 31, 2022. The total capital ratio also exhibited growth, reaching 19.6% compared to the previous year’s 18.8%.

TD’s return on common equity, adjusted for the period, was noted at 14.1%, marking a decline from 16.1% as of July 31, 2023.

In a concurrent announcement, TD revealed its expectation of fines and “non-monetary” penalties due to ongoing investigations by U.S. authorities regarding its anti-money laundering compliance program. The outcome of these inquiries remains uncertain.

Notably, the bank’s plan to acquire First Horizon Corporation (FHN) faced obstacles due to the regional banking crisis in the United States. In May 2023, both parties mutually terminated the transaction due to regulatory approval delays unrelated to First Horizon.

Following the termination, TD paid C$306 million ($225 million) to First Horizon in cash on May 5, 2023.

On June 26, 2023, TD converted preferred stock into approximately 19.7 million common shares of First Horizon as per the preferred share purchase agreement. The bank recognized a loss of other comprehensive income amounting to C$166 million (US$126 million) based on First Horizon’s common share price during conversion.

In Conclusion

Toronto-Dominion Bank’s efforts to expand its revenues and market presence through diverse strategies, both organic and inorganic, appear promising. Additionally, the bank is anticipated to benefit from rising interest rates, which should support its financial performance.

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