CIBCHave a $97.00 target. GLTA
EQUITY RESEARCH
May 25, 2023 Flash Research
TORONTO-DOMINION BANK
FQ2 First Look: EPS Miss; Capital Advantage Is A Positive
Our Take: Negative. EPS was lower than our estimate and consensus. We
thought TD could outperform peers on NIM this quarter but that didn’t
happen. The updated capital position following termination of the First
Horizon acquisition confirms TD’s capital advantage vs. peers, and TD
outperformed on credit trends.
Overview of results: TD reported Adjusted EPS of $1.94, below our
estimate of $2.00 and consensus of $2.06. Adjusted ROE was 14.1% and
BVPS of $57.04 was up 3.7% from last quarter. TD announced its intention
to initiate a new NCIB for the repurchase of up to 30MM common shares
(1.6% of o/s). Also the DRIP discount will be terminated.
Sources of variance: Negative sources of variance include lower fee-based
income (-$0.17/share) and lower net interest income (-$0.05/share). The
main positive variances were lower PCLs (+$0.14/share), lower non-interest
expenses (+$0.04/share) and better capital markets revenue (+$0.03/share).
NII below our forecast on NIM contraction: Net interest income, excluding
trading, of $7,365MM was down 3.8% from last quarter, and below our
estimate of $7,492MM. We estimate NIM of 1.92% excluding trading, down
2bps Q/Q. We had expected NIM expansion of 3bps.
Negative operating leverage, but better than peers: Non-interest
expenses totalled $6,745MM on an adjusted basis, up 12.3% Y/Y, slightly
below our estimate of $6,841MM. Variable expenses were $933MM, up 7.7%
Y/Y and 1.2% above our forecast. We estimate FQ2 adjusted operating
leverage of negative 2%, better than the peer average of negative 6.6%.
PCLs come in below our forecast: The total PCL ratio came in at 28bps,
compared to 32bps last quarter and well below our forecast of 38bps. The
impaired PCL ratio came in at 26bps, unchanged from 26bps last quarter,
and the performing PCL ratio was 2bps versus 6bps last quarter.
Capital update: CET1 finished the quarter at 15.3% compared to 15.5% last
quarter and the consensus estimate of 15.4%. The LCR ratio finished the
quarter at 144%, up from 141% as of FQ1.
Deposit growth: Total deposits decreased 2.5% from last quarter versus
growth of -0.8% in FQ1.
FHN impacts: TD announced that its merger agreement with First Horizon
was terminated effective May 4. US$225MM in break fees will be included in
FQ3 results. TD incurred $227MM of pre-merger costs associated with the
transaction in this quarter’s results.
Conference call: We will be publishing a more detailed look following the
conference call at 1:30 p.m. ET (416-641-6150; 2727354#, 1-866-696-5894).