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Royal Bank of Canada Surpasses Toronto-Dominion Bank as Canada’s Largest Bank

Royal Bank of Canada (TSX:RY)(NYSE:RY) has reclaimed the title of largest bank in Canada for the first time in five quarters, dropping Toronto-Dominion Bank (TSX:TD)(NYSE:TD) to the number two spot, and it did so by adding approximately $146.15 billion of assets in the first quarter of fiscal 2015. Both banks became the first institutions in Canada to surpass the milestone of $1 trillion in total assets, but Royal Bank now has the edge to the tune of approximately $6.54 billion as of January 31.

Even though Royal Bank is now the country’s largest bank, this does not immediately make it the best investment option in the industry. Let’s take a closer look at the quarterly earnings results of both companies to determine which posted stronger first-quarter earnings, and then use valuations to determine which stock represents the better long-term investment opportunity today.

Royal Bank of Canada: $1.09 trillion in assets

At the conclusion of the first quarter of fiscal 2015, Royal Bank of Canada’s assets totaled approximately $1.09 trillion, an increase of 15.5% from the fourth quarter and 20.1% from the year-ago quarter. The bank’s total deposits increased 10.1% to $654.71 billion, its total loans and acceptances increased 7.9% to $459.99 billion, and its total common equity increased 13.7% to $51.31 billion compared to the year-ago period.

Here’s a summary of five other key statistics and ratios from the report compared to the year-ago period:

  1. Adjusted earnings per share increased 14.6% to $1.65
  2. Revenue increased 14% to $9.64 billion
  3. Adjusted efficiency ratio contracted 50 basis points to 52.1%
  4. Return on common shareholders’ equity improved 40 basis points to 19.3%
  5. Book value per share increased 13.7% to $35.59

Toronto-Dominion Bank: $1.08 trillion in assets

Toronto-Dominion Bank’s total assets rose to $1.08 trillion in the first quarter of fiscal 2015, an increase of 12.5% from the fourth quarter and 17.4% from the year-ago quarter. The company’s total deposits increased 19.7% to $672.77 billion, its total loans managed increased 12% to $507.65 billion, and its total common equity increased 16.2% to $62.63 billion compared to the year-ago period.

Here’s a summary of the same five key statistics and ratios from the report compared to the year-ago period:

  1. Adjusted earnings per share increased 5.7% to $1.12
  2. Adjusted revenue increased 4.1% to $7.61 billion
  3. Adjusted efficiency ratio improved 130 basis points to 53.8%
  4. Adjusted return on common shareholders’ equity contracted 110 basis points to 15.1%
  5. Book value per share increased 17.4% to $31.60

Which bank should you invest in today?

Royal Bank of Canada and Toronto-Dominion Bank are the two largest banks in Canada in terms of total assets, and both posted very strong first-quarter earnings results. However, when directly comparing the results, I think Royal Bank of Canada’s quarter was more impressive, especially in terms of earnings per share, revenue, and total asset growth.

In order to determine which stock represents the better long-term investment opportunity today, let’s take a look at a chart of each stock’s forward price-to-earnings multiples based on fiscal 2015’s and fiscal 2016’s earnings per share estimates, their five-year average price-to-earnings multiples, their market-to-book ratios, and their dividend yields at current levels.

Metric Royal Bank of Canada Toronto-Dominion Bank
Forward P/E Multiple – 2015 11.8 12.0
Forward P/E Multiple – 2016 11.2 11.3
Market-to-Book Ratio 2.2 1.7
Dividend Yield 4% 3.8%

Sources: Royal Bank of Canada and Toronto-Dominion Bank

With all of the information provided above, I think Royal Bank of Canada posted stronger first-quarter results and I think its stock represents the better long-term investment opportunity today. Foolish investors should take a closer look and strongly consider establishing long-term positions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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