Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Toronto-Dominion Bank TD reported fiscal second-quarter results that were basically in line with our expectations. Adjusted EPS came in at C$1.97, down 3% from a year ago. That said, investors should be aware that the trajectory of the Canadian economy still has heightened uncertainty related to tariffs.
Why it matters: TD Bank is still going through US retail balance sheet restructuring and optimization efforts, with the segment posting a 23% decline in adjusted net income from a year ago. Wealth and insurance segment earnings were up 14%, helping overall bank results.
Total provisioning was up 11% sequentially to C$1.3 billion, largely driven by a C$399 million increase in performing provisioning related to tariffs. The bank also slightly increased its loan loss allowance coverage ratio to 1.01% of loans, compared with 0.99% in the last quarter.TD maintained its guidance for total provisioning of 45-55 basis points of loans for 2025, but also noted the tariff uncertainty could lead to higher credit costs above the current guidance range.
The bottom line: We maintain our C$93 per share fair value estimate for wide-moat TD Bank, and we view shares as fairly valued. Our Medium Uncertainty Rating for the bank reflects the heightened uncertainty in the Canadian economy related to tariffs.
Valuations for the Canadian bank have largely recovered from April lows after some deescalation in tariffs, particularly between the United States and China.We still think the Canadian economy has significant uncertainty, with negotiations for the United States-Mexico-Canada Agreement ongoing. Non-USMCA-compliant goods already face significantly higher tariff rates.
Coming up: The bank announced another restructuring program, expecting to incur costs of C$600 million-C$700 million the next several quarters, which is expected to deliver annual savings of C$550 million-C$650 million. The bank expects to reduce its total workforce headcount by 2%.
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