What happened

Shares of the large Canadian-based lender Toronto-Dominion Bank (TD 0.46%) saw its stock fall more than 6% in the first half of 2023, according to data compiled by S&P Global Market Intelligence. There were several different events that led to the decline in the stock price.

So what

TD Bank is one of the largest banks in Canada and also one of the largest banks in the U.S. The first issue TD ran into this year involved its planned acquisition of First Horizon Corp (FHN 0.07%), which looked like it would be a nice addition to its U.S. franchise.

But like most large bank mergers this year, TD dealt with pushback and delays from regulators, and eventually the bank chose to call off the acquisition and pay a termination fee. 

While TD didn't have some of the balance-sheet issues that got several U.S. banks into trouble earlier this year, the bank does have a minority stake in Charles Schwab (SCHW 0.13%), which it obtained through its sale of Ameritrade to Schwab. Schwab has seen its stock decline significantly this year due to investor concerns about its balance sheet, unrealized bond losses, and significant deposit outflows.

Investors might have also been concerned about TD's potential exposure to First Horizon when the acquisition was still pending because U.S. regional banks have come under a lot of fire this year.

At one point, TD was the most shorted bank stock. Investors were worried about the bank's exposure to U.S. commercial real estate and Canada's housing market, where there are concerns over falling housing prices and variable-rate mortgages.

Now what

Even though TD might have been the most shorted bank stock at one point this year, it wasn't a huge amount of the total shares outstanding being sold short. 

I think the termination of the First Horizon acquisition ended up working out in TD's favor. It alleviated any capital concerns investors may have had at the time or exposure to U.S. regional banks, which have a challenging near-term outlook.

TD also paid a much higher price for First Horizon when they initially announced the acquisition. Down the road, I think TD will have plenty of opportunities to purchase U.S. banks if it wants to try again, and at better prices.

Finally, while I think there could be more loan losses to come in U.S. commercial real estate or the Canadian housing market, loans have been better underwritten this time around, and I suspect the losses will be manageable. Given all of this, I see TD's stock as a reasonable buy at these levels.