What happened
Toronto-Dominion Bank (TD 0.46%) is growing more cautious about the economy, and earnings missed expectations as a result. Shares of Toronto-Dominion fell about 3% on Thursday on the miss it reported, and also what it implies about where things go from here.
So what
Toronto-Dominion, like most bank stocks, has had a rocky 2023. Rising rates provide opportunities for banks to boost income by charging more for loans, but the rates can also put stress on consumers and corporate customers.
TD earned 1.99 Canadian dollars in its fiscal third quarter ended July 31 on revenue of CA$13.01 billion. The sales number came in ahead of expectations and was up by about CA$1.5 billion year over year, but the earnings missed estimates by about CA$0.04 per share and was down from a year prior.
The reason for the earnings miss is Toronto-Dominion is setting aside extra cash for potential defaults. Provisions for credit losses totaled CA$766 million in the quarter, up from CA$599 million three months ago and CA$351 million last year.
The quarter also included expenses related to Toronto-Dominion's acquisition of Cowen, and expenses related to the termination of its planned acquisition of First Horizon due to regulatory concerns.
Now what
An unfortunate fact about bank investing is sometimes shares get punished when the bank does the right thing. There are no signs of trouble at Toronto-Dominion; in fact, the company put together a fantastic quarter. But the prudent act of putting cash aside in case the economy falls from here means those strong operations did not translate to the bottom line.
There is ample reason for Toronto-Dominion to be cautious. Rising rates are likely to hit Canadian homeowners hard over the next year, and the U.S. economy is showing mixed signs. The good news is that Toronto-Dominion is well managed and should be able to navigate through whatever comes. The bad news for investors is that in the near term, those concerns could weigh on quarterly results.
