TD Bank Group Newsroom
TD Bank Financial Group Delivers Very Strong Second Quarter 2007 Earnings
SECOND QUARTER FINANCIAL HIGHLIGHTS, compared with the second quarter a
year ago:
- Reported diluted earnings per share(1) were $1.20, compared with
$1.01.
- Adjusted diluted earnings per share(2) were $1.36, compared with
$1.09.
- Reported net income(1) was $879 million, compared with $738 million.
- Adjusted net income(2) was $995 million, compared with $780 million.
YEAR-TO-DATE FINANCIAL HIGHLIGHTS, six months ended April 30, 2007,
compared with the corresponding period a year ago:
- Reported diluted earnings per share(1) were $2.46, compared with
$4.21. The same period last year included a dilution gain of
$2.31 per share from sale of TD Waterhouse U.S.A. to Ameritrade.
- Adjusted diluted earnings per share(2) were $2.74, compared with
$2.25.
- Reported net income(1) was $1,800 million, compared with
$3,045 million. The same period last year included a $1,665 million
after-tax dilution gain from sale of TD Waterhouse U.S.A. to
Ameritrade.
- Adjusted net income(2) was $2,004 million, compared with
$1,615 million.
SECOND QUARTER ADJUSTMENTS (ITEMS OF NOTE)
The second quarter reported diluted earnings per share figures above
include the following items of note:
- Amortization of intangibles of $80 million after tax (11 cents per
share), compared with $86 million after tax (11 cents per share) in
the second quarter last year.
- A gain of $7 million after tax (1 cent per share) due to the change
in fair value of credit default swaps hedging the corporate loan
book, compared with a gain of $10 million after tax (1 cent per
share) in the second quarter last year.
- A $43 million after-tax charge (6 cents per share) related to the TD
Banknorth restructuring, privatization and merger-related costs. This
consists of $39 million related to TD Banknorth and $4 million
related to TD Bank USA.
All dollar amounts are expressed in Canadian currency unless otherwise
noted.
(1) Reported results are prepared in accordance with Canadian generally
accepted accounting principles (GAAP).
(2) Adjusted earnings and reported results referenced in this Press
Release and Report to Shareholders are explained in detail on page 5
under the "How the Bank Reports" section.
TORONTO, May 24 /CNW/ - TD Bank Financial Group (TDBFG) today announced
its financial results for the second quarter ended April 30, 2007. Results for
the quarter reflect a very strong overall performance driven by broad-based
contributions across the Bank's businesses.
"TD delivered another excellent earnings performance in the second
quarter," said Ed Clark, TD Bank Financial Group President and Chief Executive
Officer. "We continue to focus on delivering superior short-term performance
while investing for the future. Clearly this strategy is working," Clark
added.
SECOND QUARTER BUSINESS SEGMENT PERFORMANCE
Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking saw robust volume and revenue
growth across its operating businesses which led to very strong earnings in
the quarter. Earnings were up 16% compared with the second quarter of last
year. TD Canada Trust continued to demonstrate particular strength in
real-estate secured lending, small business banking, life insurance and credit
card products, while showing overall margin improvement.
"Our Canadian Personal and Commercial business generated another
outstanding quarter and is clearly firing on all cylinders," said Clark.
"Impressive revenue growth combined with expense discipline drove significant
operating leverage and record productivity," Clark noted. "TD Canada Trust's
industry leading branch hours and continued focus on adding new branches and
customer-facing roles, are all contributing to delivering a better customer
experience," added Clark.
Wealth Management
Wealth Management, including the Bank's equity share of TD Ameritrade,
produced a very strong quarter with a 30% increase in earnings compared with
the second quarter of last year. Domestically, the quarter saw strong growth
in client assets across the mutual fund and advice-based businesses. The
second quarter also saw good progress in Wealth Management's plan to increase
the number of client-facing advisors in its Canadian network.
TD Ameritrade contributed $63 million in net income to the Bank's Wealth
Management segment. TD Ameritrade operating highlights from the quarter
included solid growth in average trades per day and an increase in total
client assets. In May, subsequent to the quarter, TD Ameritrade successfully
completed the conversion of 2.7 million TD Waterhouse U.S.A. clients to one
clearing platform.
"We're confident we'll continue to see progress across our diversified
wealth offering," said Clark. "In Canada we're really starting to get traction
from the investments we've made in our client-facing advisor network and
supporting infrastructure. This business is showing it can generate some
impressive results with continuing upside for the future," Clark added.
U.S. Personal and Commercial Banking
TD Banknorth's first quarter earnings translated into second quarter net
income for TDBFG's U.S. Personal and Commercial Banking segment of $23 million
on a reported basis and $62 million on an adjusted basis. Adjusted net income
for the segment this quarter excludes $39 million (after tax) related to
restructuring, privatization and other merger-related charges flowing from TD
Banknorth. As previously announced, TD Banknorth became a wholly-owned
subsidiary of TDBFG on April 20, 2007.
"The successful privatization of TD Banknorth was a major milestone for
TD Bank," said Clark. "We're continuing to tackle a tough banking and credit
environment head on while leveraging some of TD's industry leading practices
in Canada to improve growth at TD Banknorth," Clark continued. "We're very
positive about TD Banknorth's long-term potential to grow organically and
deliver value to our shareholders," Clark added.
Wholesale Banking
Wholesale Banking delivered exceptional results in the second quarter
with earnings up 55% year-over-year to $217 million. Increased performance in
trading and in the domestic franchise businesses, including investment
banking, fixed income and institutional equities, were complemented by a very
strong contribution from the equity investment portfolio.
"Wholesale Banking had a fantastic quarter, producing results ahead of
our expectations based on historical trends," said Clark. "With TD Securities
emerging as number one in Canadian equity underwriting and merger and
acquisitions this quarter, we're showing continued momentum as a top three
dealer in Canada," Clark added.
Conclusion
"This quarter was another clear example of how all our businesses are
focused on delivering short-term results while positioning TD to create
long-term value for our shareholders," said Clark. "A very strong second
quarter highlights what has been an exceptional year to date, and I'm
confident that we'll well exceed our earnings objectives for 2007," Clark
concluded.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
From time to time, the Bank makes written and oral forward-looking
statements, including in this report, in other filings with Canadian
regulators or the U.S. Securities and Exchange Commission (SEC), and in other
communications. All such statements are made pursuant to the "safe harbour"
provisions of the U.S. Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation. Forward-looking statements
include, among others, statements regarding the Bank's objectives and targets
for 2007 and beyond and strategies to achieve them, the outlook for the Bank's
business lines, and the Bank's anticipated financial performance. The economic
assumptions for 2007 for each of the business segments are set out in the 2006
Annual Report under the headings "Economic Outlook" and "Business Outlook and
Focus for 2007". Forward-looking statements are typically identified by words
such as "believe", "expect", "anticipate", "intend", "estimate", "plan", "may"
and "could". By their very nature, these statements require the Bank to make
assumptions and are subject to inherent risks and uncertainties, general and
specific, which may cause actual results to differ materially from the
expectations expressed in the forward-looking statements. Some of the factors
that could cause such differences include: credit, market (including equity
and commodity), liquidity, interest rate, operational, reputational,
insurance, strategic, foreign exchange, regulatory, legal and other risks
discussed in the management discussion and analysis section in regulatory
filings made in Canada and with the SEC, including the Bank's 2006 Annual
Report; general business and economic conditions in Canada, the U.S. and other
countries in which the Bank conducts business, as well as the effect of
changes in monetary policy in those jurisdictions and changes in the foreign
exchange rates for the currencies of those jurisdictions; the degree of
competition in the markets in which the Bank operates, both from established
competitors and new entrants; the accuracy and completeness of information the
Bank receives on customers and counterparties; the development and
introduction of new products and services in markets; developing new
distribution channels and realizing increased revenue from these channels; the
Bank's ability to execute its integration, growth and acquisition strategies,
including those of its subsidiaries, particularly in the U.S.; changes in
accounting policies and methods the Bank uses to report its financial
condition, including uncertainties associated with critical accounting
assumptions and estimates; the effect of applying future accounting changes;
global capital market activity; the Bank's ability to attract and retain key
executives; reliance on third parties to provide components of the Bank's
business infrastructure; the failure of third parties to comply with their
obligations to the Bank or its affiliates as such obligations relate to the
handling of personal information; technological changes; the use of new
technologies in unprecedented ways to defraud the Bank or its customers;
legislative and regulatory developments; change in tax laws; unexpected
judicial or regulatory proceedings; continued negative impact of the U.S.
securities litigation environment; unexpected changes in consumer spending and
saving habits; the possible impact on the Bank's businesses of international
conflicts and terrorism; acts of God, such as earthquakes; the effects of
disease or illness on local, national or international economies; the effects
of disruptions to public infrastructure, such as transportation,
communication, power or water supply; and management's ability to anticipate
and manage the risks associated with these factors and execute the Bank's
strategies. A substantial amount of the Bank's business involves making loans
or otherwise committing resources to specific companies, industries or
countries. Unforeseen events affecting such borrowers, industries or countries
could have a material adverse effect on the Bank's financial results,
businesses, financial condition or liquidity. The preceding list is not
exhaustive of all possible factors. Other factors could also adversely affect
the Bank's results. For more information, see the discussion starting on page
56 of the Bank's 2006 Annual Report. All such factors should be considered
carefully when making decisions with respect to the Bank, and undue reliance
should not be placed on the Bank's forward-looking statements. The Bank does
not undertake to update any forward-looking statements, whether written or
oral, that may be made from time to time by or on its behalf.
As in prior quarters, this document was reviewed by the Bank's Audit
Committee and was approved by the Bank's Board of Directors, on the Audit
Committee's recommendation, prior to its release.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
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This Management's Discussion and Analysis (MD&A) is presented to enable
readers to assess material changes in the financial condition and operational
results of TD Bank Financial Group (the Bank) for the three and six months
ended April 30, 2007, compared with the corresponding periods. This MD&A
should be read in conjunction with the Bank's unaudited Interim Consolidated
Financial Statements and related Notes included in this Report to Shareholders
and with our 2006 Annual Report. This MD&A is dated May 23, 2007. Unless
otherwise indicated, all amounts are expressed in Canadian dollars and have
been primarily derived from the Bank's Annual or Interim Consolidated
Financial Statements prepared in accordance with Canadian generally accepted
accounting principles (GAAP). Certain comparative amounts have been
reclassified to conform to the presentation adopted in the current period.
Additional information relating to the Bank is on the Bank's website
www.td.com, as well as on SEDAR at www.sedar.com.
FINANCIAL HIGHLIGHTS (unaudited)
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For the six
For the three months ended months ended
(millions of ----------------------------- -------------------
Canadian dollars, Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
except as noted) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Results of operations
Total revenues $3,499 $3,473 $3,118 $6,972 $6,522
Dilution gain, net - - (5) - 1,559
Provision for
credit losses 172 163 16 335 130
Non-interest expenses 2,252 2,189 2,103 4,441 4,393
Net income - reported 879 921 738 1,800 3,045
Net income - adjusted(1) 995 1,009 780 2,004 1,615
Economic profit(2) 421 442 271 864 629
Return on common equity 17.1% 18.2% 16.5% 17.6% 35.5%
Return on invested
capital(2) 16.4% 16.8% 14.6% 16.6% 15.6%
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Financial position
Total assets $396,734 $408,216 $388,596 $396,734 $388,596
Total risk-weighted
assets 149,391 149,090 135,763 149,391 135,763
Total shareholders'
equity 21,775 21,017 19,283 21,775 19,283
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Financial ratios -
reported
Efficiency ratio 64.4% 63.0% 67.6% 63.7% 54.4%
Tier 1 capital to
risk-weighted assets 9.8% 11.9% 12.1% 9.8% 12.1%
Tangible common equity
as a % of risk-weighted
assets 7.0% 9.0% 9.0% 7.0% 9.0%
Provision for credit
losses as a % of net
average loans 0.41% 0.38% 0.04% 0.39% 0.16%
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Common share information
- reported (Canadian
dollars)
Per share
Basic earnings $1.21 $1.27 $1.02 $2.49 $4.25
Diluted earnings 1.20 1.26 1.01 2.46 4.21
Dividends 0.53 0.48 0.44 1.01 0.86
Book value 29.66 28.64 26.24 29.66 26.24
Closing share price 67.80 69.88 62.45 67.80 62.45
Shares outstanding
(millions)
Average basic 719.1 718.3 715.7 718.7 714.1
Average diluted 725.9 724.9 722.5 725.4 720.7
End of period 719.9 719.0 718.8 719.9 718.8
Market capitalization
(billions of
Canadian dollars) $48.8 $50.2 $44.9 $48.8 $44.9
Dividend yield 2.8% 2.7% 2.6% 2.8% 2.7%
Dividend payout ratio 43.8% 37.7% 43.0% 40.7% 20.3%
Price to earnings
multiple 14.8 15.9 11.1 14.8 11.1
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Common share information
- adjusted
(Canadian dollars)
Per share
Basic earnings $1.37 $1.40 $1.10 $2.77 $2.27
Diluted earnings 1.36 1.38 1.09 2.74 2.25
Dividend payout ratio 38.7% 34.4% 40.7% 36.5% 38.3%
Price to earnings
multiple 13.2 14.3 14.4 13.2 14.4
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(1) Reported and adjusted results are explained on page 5 under the "How
the Bank Reports" section, which includes a reconciliation between
reported and adjusted results.
(2) Economic profit and return on invested capital are non-GAAP financial
measures and are explained in detail on page 7 under the "Economic
Profit and Return on Invested Capital" section.
HOW WE PERFORMED
Corporate Overview
The Toronto-Dominion Bank and its subsidiaries are collectively known as
TD Bank Financial Group. The Bank serves more than 14 million customers in
four key businesses operating in a number of locations in key financial
centres around the globe: Canadian Personal and Commercial Banking, including
TD Canada Trust as well as the Bank's global insurance operations (excluding
the U.S.); Wealth Management, including TD Waterhouse Canada, TD Waterhouse
U.K. and the Bank's investment in TD Ameritrade; U.S. Personal and Commercial
Banking through TD Banknorth; and Wholesale Banking, including TD Securities.
The Bank also ranks among the world's leading on-line financial services
firms, with more than 4.5 million on-line customers. The Bank had $397 billion
in assets as at April 30, 2007. The Bank is headquartered in Toronto, Canada.
The Bank's common stock is listed on the Toronto Stock Exchange and the New
York Stock Exchange under symbol: TD, as well as on the Tokyo Stock Exchange.
How the Bank Reports
The Bank's financial results, as presented on pages 21 to 37 of this
Report to Shareholders, have been prepared in accordance with GAAP. The Bank
refers to results prepared in accordance with GAAP as "reported" results. The
Bank also utilizes non-GAAP financial measures referred to as "adjusted"
results to assess each of its businesses and to measure overall Bank
performance. To arrive at adjusted results, the Bank removes "items of note",
net of income taxes, from reported results. The items of note are listed in
the table on the following page. The items of note relate to items which
management does not believe are indicative of underlying business performance.
The items of note include the Bank's amortization of intangible assets which
primarily relate to the Canada Trust acquisition in 2000, the TD Banknorth
Inc. (TD Banknorth) acquisition in 2005, and the acquisitions by TD Banknorth
of Hudson United Bancorp (Hudson) in 2006 and Interchange Financial Services
Corporation (Interchange) in 2007, and the amortization of intangibles
included in equity in net income of TD Ameritrade. The Bank believes that
adjusted results provide the reader with a better understanding of how
management views the Bank's performance. As explained, adjusted results are
different from reported results determined in accordance with GAAP. Adjusted
results and related terms used in this report are not defined terms under
GAAP, and, therefore, may not be comparable to similar terms used by other
issuers.
The tables below provide a reconciliation between the Bank's reported and
adjusted results.
Operating Results - Reported (unaudited)
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For the six
For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Net interest income $1,662 $1,671 $1,427 $3,333 $3,034
Other income 1,837 1,802 1,691 3,639 3,488
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Total revenues 3,499 3,473 3,118 6,972 6,522
Provision for
credit losses (172) (163) (16) (335) (130)
Non-interest expenses (2,252) (2,189) (2,103) (4,441) (4,393)
Dilution gain, net - - (5) - 1,559
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Income before provision
for income taxes,
non-controlling
interests in
subsidiaries and
equity in net income of
an associated company 1,075 1,121 994 2,196 3,558
Provision for
income taxes (234) (218) (244) (452) (464)
Non-controlling interests
in subsidiaries, net
of income taxes (27) (47) (47) (74) (84)
Equity in net income of
an associated company,
net of income taxes 65 65 35 130 35
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Net income - reported 879 921 738 1,800 3,045
Preferred dividends (7) (6) (6) (13) (11)
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Net income available to
common shareholders -
reported $872 $915 $732 $1,787 $3,034
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Reconciliation of Non-GAAP Financial Measures(1) (unaudited)
Adjusted Net Income to Reported Results
-------------------------------------------------------------------------
Operating results For the six
- adjusted For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Net interest income $1,662 $1,671 $1,427 $3,333 $3,034
Other income(2) 1,826 1,810 1,675 3,636 3,509
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Total revenues 3,488 3,481 3,102 6,969 6,543
Provision for
credit losses(3) (172) (163) (76) (335) (190)
Non-interest expenses(4) (2,054) (2,071) (1,978) (4,125) (4,090)
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Income before provision
for income taxes,
non-controlling
interests in
subsidiaries and equity
in net income of an
associated company 1,262 1,247 1,048 2,509 2,263
Provision for
income taxes(5) (298) (264) (260) (562) (588)
Non-controlling interests
in subsidiaries, net
of income taxes(6) (46) (51) (50) (97) (102)
Equity in net income of
an associated company,
net of income taxes(7) 77 77 42 154 42
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Net income - adjusted 995 1,009 780 2,004 1,615
Preferred dividends (7) (6) (6) (13) (11)
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Net income available to
common shareholders -
adjusted 988 1,003 774 1,991 1,604
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Items of note affecting
net income, net of
income taxes:
Amortization of
intangibles (80) (83) (86) (163) (168)
TD Banknorth
restructuring,
privatization and
merger-related
charges(8) (43) - - (43) -
Dilution gain on
Ameritrade transaction,
net of costs - - (5) - 1,665
Dilution loss on the
acquisition of Hudson
by TD Banknorth - - - - (72)
Balance sheet
restructuring charge
in TD Banknorth - - - - (19)
Wholesale Banking
restructuring charge - - - - (35)
Change in fair value of
credit default swaps
hedging the corporate
loan book(9) 7 (5) 10 2 20
General allowance release - - 39 - 39
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Total items of note (116) (88) (42) (204) 1,430
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Net income available to
common shareholders -
reported $872 $915 $732 $1,787 $3,034
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(1) Certain comparative amounts have been reclassified to conform to the
presentation adopted in the current period.
(2) Adjusted other income excludes the following items of note: second
quarter 2007 - $11 million gain due to change in fair value of credit
default swaps (CDS) hedging the corporate loan book; first quarter
2007 - $8 million loss due to change in fair value of CDS hedging the
corporate loan book; second quarter 2006 - $16 million gain due to
change in fair value of CDS hedging the corporate loan book; first
quarter 2006 - $15 million gain due to the change in fair value of
CDS hedging the corporate loan book; and $52 million balance sheet
restructuring charge at TD Banknorth.
(3) Adjusted provision for credit losses excludes the following item of
note: second quarter 2006 - $60 million general allowance release.
(4) Adjusted non-interest expenses excludes the following items of note:
second quarter 2007 - $112 million amortization of intangibles;
$86 million due to TD Banknorth restructuring, privatization and
merger-related charges; first quarter 2007 - $118 million
amortization of intangibles; second quarter 2006 - $125 million
amortization of intangibles; first quarter 2006 - $128 million
amortization of intangibles and $50 million restructuring charge in
connection with the decision to reposition the Bank's global
structured products businesses.
(5) For reconciliation between reported and adjusted provision for income
taxes, please refer to the reconciliation table on page 11.
(6) Adjusted non-controlling interests excludes the following items of
note: second quarter 2007 - $4 million amortization of intangibles;
$15 million due to TD Banknorth restructuring, privatization and
merger-related charges; first quarter 2007 - $4 million amortization
of intangibles; second quarter 2006 - $3 million amortization of
intangibles; first quarter 2006 - $15 million balance sheet
restructuring charge at TD Banknorth.
(7) Adjusted equity in net income of an associated company excludes the
following items of note: second quarter 2007 - $12 million
amortization of intangibles; first quarter 2007 - $12 million
amortization of intangibles; second quarter 2006 - $7 million
amortization of intangibles.
(8) The TD Banknorth restructuring, privatization and merger-related
charges include the following: $31 million restructuring charge,
primarily consisted of employee severance costs, the costs of
amending certain executive employment and award agreements and write-
down of long-lived assets due to impairment, included in U.S.
Personal and Commercial Banking; $4 million restructuring charge
related to the transfer of functions from TD Bank USA to TD
Banknorth, included in the Corporate segment; $5 million
privatization charges, which primarily consisted of legal and
investment banking fees, included in U.S. Personal and Commercial
Banking; and $3 million merger-related charges related to conversion
and customer notices in connection with the integration of Hudson and
Interchange with TD Banknorth, included in U.S. Personal and
Commercial Banking. In the Interim Consolidated Statement of Income,
the restructuring charges are included in the restructuring costs
while the privatization and merger-related charges are included in
other non-interest expenses.
(9) The Bank purchases CDS to hedge the credit risk in Wholesale
Banking's corporate lending portfolio. These CDS do not qualify for
hedge accounting treatment and they are measured at fair value with
changes in fair value recognized in current period's earnings. The
related loans are accounted for at amortized cost. Management
believes that this asymmetry in the accounting treatment between CDS
and loans would result in periodic profit and loss volatility which
is not indicative of the economics of the corporate loan portfolio or
the underlying business performance in Wholesale Banking. As a
result, the CDS are accounted for on an accrual basis in the
Wholesale Banking segment and the gains and losses on the CDS, in
excess of the accrued cost, are reported in the Corporate segment.
Adjusted earnings excludes the gains and losses on the CDS in excess
of the accrued cost. Previously, this item was described as "Hedging
impact due to AcG-13". As part of the adoption of the new financial
instruments standards, the guidance under Accounting Guideline 13:
Hedging Relationships (AcG-13) was replaced by Canadian Institute of
Chartered Accountants (CICA) Handbook Section 3865, Hedges.
Reconciliation of Reported Earnings per Share (EPS) to Adjusted EPS(1)
(unaudited)
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For the six
For the three months ended months ended
----------------------------- -------------------
Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
(Canadian dollars) 2007 2007 2006 2007 2006
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Diluted - reported $1.20 $1.26 $1.01 $2.46 $4.21
Items of note affecting
income (as above) 0.16 0.12 0.06 0.28 (1.98)
Items of note affecting
EPS only(2) - - 0.02 - 0.02
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Diluted - adjusted $1.36 $1.38 $1.09 $2.74 $2.25
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Basic - reported $1.21 $1.27 $1.02 $2.49 $4.25
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(1) EPS is computed by dividing income by the weighted-average number of
shares outstanding during the period. As a result, the sum of the
quarterly EPS figures may not equal year-to-date EPS.
(2) Second quarter 2006 - one-time adjustment for the impact of TD
Ameritrade earnings, due to the one month lag between fiscal quarter
ends. The results of the Bank include its equity share in TD
Ameritrade from January 25, 2006 to March 31, 2006. As a result of
the one month lag, the impact on earnings per share was approximately
2 cents per share.
Amortization of Intangibles, Net of Income Taxes (unaudited)
-------------------------------------------------------------------------
For the six
For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
TD Canada Trust $45 $49 $60 $94 $124
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TD Banknorth:
Reported amortization
of intangibles 20 20 17 40 31
Less: non-controlling
interest 4 4 3 8 4
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Net amortization of
intangibles 16 16 14 32 27
TD Ameritrade (included
in equity in net income
of an associated company) 12 12 7 24 7
Other 7 6 5 13 10
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Amortization of
intangibles, net of
income taxes(1) $80 $83 $86 $163 $168
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(1) Amortization of intangibles is included in the Corporate segment.
Economic Profit and Return on Invested Capital
The Bank utilizes economic profit as a tool to measure shareholder value
creation. Economic profit is adjusted net income available to common
shareholders less a charge for average invested capital. Average invested
capital is equal to average common equity for the period plus the average
cumulative after-tax goodwill and intangible assets amortized as of the
reporting date. The rate used in the charge for capital is the equity cost of
capital calculated using the capital asset pricing model. The charge
represents an assumed minimum return required by common shareholders on the
Bank's invested capital. The Bank's goal is to achieve positive and growing
economic profit.
Return on invested capital (ROIC) is adjusted net income available to
common shareholders divided by average invested capital. ROIC is a variation
of the economic profit measure that is useful in comparison to the equity cost
of capital. Both ROIC and the cost of capital are percentage rates, while
economic profit is a dollar measure. When ROIC exceeds the equity cost of
capital, economic profit is positive. The Bank's goal is to maximize economic
profit by achieving ROIC that exceeds the equity cost of capital.
Economic profit and ROIC are non-GAAP financial measures as these are not
defined terms under GAAP. Securities regulators require that companies caution
readers that earnings and other measures adjusted to a basis other than GAAP
do not have standardized meanings under GAAP and therefore, may not be
comparable to similar terms used by other issuers.
The following table reconciles between the Bank's economic profit, return
on invested capital and adjusted net income. Adjusted results and related
terms are discussed in the "How the Bank Reports" section.
Reconciliation of Economic Profit, Return on Invested Capital and
Adjusted Net Income (unaudited)
-------------------------------------------------------------------------
For the six
For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Average common equity $20,940 $19,969 $18,183 $20,435 $17,227
Average cumulative
goodwill/intangible
assets amortized, net
of income taxes 3,784 3,715 3,511 3,750 3,471
-------------------------------------------------------------------------
Average invested
capital $24,724 $23,684 $21,694 $24,185 $20,698
Rate charged for
invested capital 9.4% 9.4% 9.5% 9.4% 9.5%
-------------------------------------------------------------------------
Charge for invested
capital $(567) $(561) $(503) $(1,127) $(975)
-------------------------------------------------------------------------
Net income available
to common shareholders
- reported 872 915 732 1,787 3,034
Items of note impacting
income, net of income
taxes 116 88 42 204 (1,430)
-------------------------------------------------------------------------
Net income available to
common shareholders -
adjusted $988 $1,003 $774 $1,991 $1,604
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Economic profit $421 $442 $271 $864 $629
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Return on invested
capital 16.4% 16.8% 14.6% 16.6% 15.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Significant Events in 2007
TD Banknorth
Going-private transaction
-------------------------
On April 20, 2007, the Bank announced that it had obtained all approvals
necessary to complete its privatization of TD Banknorth. As at January 31,
2007, the Bank's ownership interest in TD Banknorth was 59.4%. Under this
transaction, the Bank acquired all of the outstanding common shares of TD
Banknorth that it did not already own for US$32.33 per TD Banknorth share for
a total cash consideration of $3.7 billion (US$3.3 billion). The acquisition
has been accounted for by the purchase method. On closing, TD Banknorth became
a wholly-owned subsidiary of the Bank and TD Banknorth's shares were delisted
from the New York Stock Exchange.
As a result of the transaction, there was a net increase in goodwill and
intangibles on the Bank's Consolidated Balance Sheet of approximately
$1.5 billion. The allocation of the purchase price is subject to finalization.
In the normal course of the Bank's financial reporting, TD Banknorth is
consolidated on a one month lag basis. However, $43 million before-tax
restructuring, privatization and merger-related costs incurred in April 2007
were included in the Bank's results for the quarter ended April 30, 2007
because in aggregate they represent material TD Banknorth events for the
quarter ended April 30, 2007.
Acquisition of Interchange Financial Services Corporation
---------------------------------------------------------
TD Banknorth completed its acquisition of Interchange on January 1, 2007
for a total cash consideration of $545 million (US$468.1 million), financed
primarily through TD Banknorth's sale of 13 million of its common shares to
the Bank for $472 million (US$405 million). As a result, $1.9 billion of
assets and $1.4 billion of liabilities were included in the Bank's Interim
Consolidated Balance Sheet. TD Banknorth consolidates the financial results of
Interchange. As the Bank consolidates TD Banknorth on a one month lag,
Interchange's income/(loss) for the quarter ended March 31, 2007 has been
included in the Bank's results for the quarter ended April 30, 2007.
TD Ameritrade
TD Ameritrade announced two common stock repurchase programs in 2006 for
an aggregate 32 million shares. As a result of TD Ameritrade's repurchase
activity, the Bank's direct ownership position in TD Ameritrade has increased
to 40.3% as at April 30, 2007 from 40.2% as at January 31, 2007. The Bank
intends to sell shares of TD Ameritrade to bring its direct ownership position
under the ownership cap of 39.9% in accordance with the Stockholders'
Agreement.
Moreover, as a result of consolidation of financial statements of
Lillooet Limited (Lillooet) in the Interim Consolidated Financial Statements
for the quarter ended April 30, 2007, TD Ameritrade shares held by Lillooet
have been included in the Bank's reported investment in TD Ameritrade. The
Bank has recognized income of TD Ameritrade related to the TD Ameritrade
shares owned by Lillooet for the period ended March 31, 2007.
For more details, see Note 14 to the Interim Consolidated Financial
Statements for the quarter ended April 30, 2007.
FINANCIAL RESULTS OVERVIEW
-------------------------------------------------------------------------
Performance Summary
An overview of the Bank's performance on an adjusted basis for the second
quarter of 2007 against the financial shareholder indicators included in the
2006 Annual Report is outlined below. Shareholder performance indicators help
guide and benchmark the Bank's accomplishments. For the purposes of this
analysis, the Bank utilizes adjusted earnings, which exclude items of note
from the reported results that are prepared in accordance with Canadian GAAP.
Adjusted earnings and reported results are explained in detail on page 5 under
the "How the Bank Reports" section.
- Adjusted diluted earnings per share for the first six months of 2007
were up 22% from the same period last year. The Bank's goal is to
grow adjusted earnings per share by 7% to 10% over the longer term.
- Adjusted return on risk-weighted assets for the first six months of
2007 was 2.74%, up from 2.42% in the first half of 2006.
- Total shareholder return for the twelve months ended April 30, 2007
was 11.8%, below the peer average of 19.0%.
Net Income
Year-over-year comparison
-------------------------
Reported net income for the current quarter was $879 million, up
$141 million compared with the second quarter last year. Adjusted net income
increased $215 million, or 28%, to $995 million. Strong year-over-year
earnings growth in Canadian Personal and Commercial Banking, Wealth Management
and Wholesale Banking was the primary driver for the increase. TD Ameritrade's
contribution also increased from the prior year due to higher earnings and the
inclusion of only two months of TD Ameritrade results in the prior year.
Prior quarter comparison
------------------------
Reported net income decreased $42 million, or 5%, compared with the prior
quarter. The lower reported result was primarily due to the restructuring
charges recorded in the quarter for TD Banknorth and for the transfer of
functions of TD Bank USA to TD Banknorth. These charges totalled $43 million
after tax and are disclosed as an item of note. Adjusted net income for the
second quarter decreased by $14 million or 1%. The decline was mainly due to
lower Corporate segment earnings related to favourable tax and other items
realized last quarter, partially offset by higher net income in Wealth
Management and Wholesale Banking.
Year-to-date comparison
-----------------------
On a year-to-date basis, reported net income of $1,800 million decreased
$1,245 million, or 41%, compared with the same period last year. The decrease
in reported net income was mainly due to the $1,665 million dilution gain on
the sale of TD Waterhouse U.S.A. to Ameritrade in 2006, partially offset by
higher operating earnings. Adjusted net income of $2,004 million increased by
$389 million, or 24%, compared with the same period last year. This increase
primarily reflects strong earnings growth in the Canadian Personal and
Commercial Banking, Wealth Management, Wholesale Banking and Corporate
segments.
Net Interest Income
Year-over-year comparison
-------------------------
Net interest income for the quarter was $1,662 million, an increase of
$235 million, or 16%, compared with the second quarter last year. The growth
was driven by increases in all of the operating business segments. Canadian
Personal and Commercial Banking was the largest contributor as net interest
income increased due to volume growth and a 7 basis point increase in margin
on average earning assets. U.S. Personal and Commercial Banking net interest
income rose primarily due to the Interchange and Hudson acquisitions. The
Wealth Management net interest income increase was due to higher margin loan
balances, customer deposits and margin improvements. Wholesale Banking net
interest income rose due to higher loan balances and higher trading-related
net interest income.
Prior quarter comparison
------------------------
Net interest income declined $9 million, or less than 1%, compared with
the previous quarter. The primary factor for the decrease was less interest
earning days in the quarter which was partially offset by continued
broad-based volume growth in Canadian Personal and Commercial Banking.
Year-to-date comparison
-----------------------
On a year-to-date basis, net interest income of $3,333 million increased
$299 million, or 10%, compared with the same period last year. The increase
was driven by higher volumes and net interest margin for Canadian Personal and
Commercial Banking, the acquisitions of Interchange and Hudson in U.S.
Personal and Commercial Banking, as well as higher trading-related net
interest income in Wholesale Banking. This was partially offset by lower net
interest income in Wealth Management related to the sale of TD Waterhouse
U.S.A. to Ameritrade.
Other Income
Year-over-year comparison
-------------------------
Reported other income for the second quarter was $1,837 million, up
$146 million, compared with the second quarter of last year. On an adjusted
basis, other income increased $151 million. Higher banking and insurance
volumes within Canadian Personal and Commercial Banking, as well as higher
assets under administration and assets under management within Wealth
Management generated higher other income. U.S. Personal and Commercial Banking
other income increased due to the acquisitions of Interchange and Hudson.
Wholesale Banking other income was up as lower trading revenue was more than
offset by increases in security gains as well as higher credit and
underwriting fees.
Prior quarter comparison
------------------------
Reported other income increased $35 million, or 2%, compared to the prior
quarter. Adjusted other income increased by $16 million from the first quarter
of 2007. The primary drivers for the increase were higher full service
brokerage revenues related to higher assets under administration and higher
security gains, partially offset by lower trading and securitization revenue.
Year-to-date comparison
-----------------------
Reported other income increased $151 million, or 4%, compared with the
same period last year. Year-to-date adjusted other income was up $127 million
from the previous year. Canadian Personal and Commercial Banking was the
largest contributor to the increase supported by higher volumes, pricing
initiatives and higher insurance revenue. The decline in Wealth Management
other income due to the sale of TD Waterhouse U.S.A. to Ameritrade was largely
offset by an increase in other income in U.S. Personal and Commercial Banking
related to the Hudson and Interchange acquisitions. Wholesale Banking other
income declined mainly due to lower trading income which was partially offset
by higher security gains as well as higher credit and underwriting fees.
Provision for Credit Losses
Year-over-year comparison
-------------------------
During the quarter, the Bank recorded a provision for credit losses of
$172 million, an increase of $156 million compared with the second quarter
last year, primarily due to higher specific provisions in the Canadian and
U.S. Personal and Commercial Banking segments year-over-year and the general
loan loss provision release of $60 million recorded in the second quarter of
2006.
Prior quarter comparison
------------------------
Provision for credit losses for the second quarter was up $9 million from
$163 million in the prior quarter. The increase was primarily due to higher
specific provisions in U.S. Personal and Commercial Banking, partially offset
by a reduction in the general allowance at TD Banknorth and lower provision
for credit losses in Wholesale Banking.
Year-to-date comparison
-----------------------
On a year-to-date basis, provision for credit losses increased
$205 million, from $130 million in the same period last year. The increase was
primarily due to higher specific provisions in Canadian and U.S. Personal and
Commercial Banking in 2007 and the general loan loss provision release of
$60 million recorded in the second quarter of 2006.
Provision for Credit Losses (unaudited)
-------------------------------------------------------------------------
For the six
For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Net new specifics
(net of reversals) $221 $184 $106 $405 $257
Recoveries (37) (31) (32) (68) (63)
-------------------------------------------------------------------------
Provision for credit
losses - specifics 184 153 74 337 194
Change in general allowance
TD Bank - - (60) - (60)
VFC 11 11 - 22 -
TD Banknorth (23) (1) 2 (24) (4)
-------------------------------------------------------------------------
Total $172 $163 $16 $335 $130
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-Interest Expenses and Efficiency Ratio
Year-over-year comparison
-------------------------
Reported non-interest expenses for the second quarter were
$2,252 million, up $149 million, or 7%, compared with the second quarter last
year. The current quarter included $86 million of restructuring, privatization
and merger-related charges attributable to TD Banknorth and the transfer of
functions of TD Bank USA to TD Banknorth. Adjusted non-interest expenses of
$2,054 million, were up $76 million, compared with the second quarter last
year. The increase in Canadian Personal and Commercial Banking expenses was
primarily driven by business initiatives, higher employee compensation and
business volume-related expenses. U.S. Personal and Commercial Banking
non-interest expenses rose mainly as a result of the Hudson and Interchange
acquisitions. Wealth Management increase in non-interest expenses of $44
million reflects investment in new advisors, higher sales force compensation,
and increased volume-related payments to sellers of the Bank's mutual funds.
Wholesale Banking expenses increased due to higher performance-based incentive
compensation consistent with stronger financial performance.
The reported efficiency ratio improved to 64.4% from 67.6% in the second
quarter last year. The Bank's adjusted efficiency ratio improved to 58.9% from
63.8% a year ago as revenue growth outpaced expense growth.
Prior quarter comparison
------------------------
Reported non-interest expenses of $2,252 million were up $63 million, or
3%, compared with the prior quarter, mainly due to the $86 million charge
recorded this quarter related to TD Banknorth and to the transfer of functions
from TD Bank USA to TD Banknorth. Total adjusted non-interest expenses were
$2,054 million, down $17 million mainly due to fewer days in the quarter.
The reported efficiency ratio was 64.4%, compared with 63.0% in the prior
quarter. The Bank's adjusted efficiency ratio improved to 58.9% from 59.5% in
the prior quarter.
Year-to-date comparison
-----------------------
On a year-to-date basis, reported non-interest expenses of $4,441 million
were up $48 million compared with the same period last year. Total adjusted
non-interest expenses were $4,125 million, up $35 million. Canadian Personal
and Commercial Banking expenses increased due to higher business initiative
spending, the acquisition of VFC, higher employee costs and increased
marketing spend. U.S. Personal and Commercial Banking expenses increased
primarily due to the Hudson and Interchange acquisitions. Total non-interest
expenses for Wealth Management declined as investments in advisors, higher
volume-related commissions and compensation were offset by the impact of the
sale of TD Waterhouse U.S.A. to Ameritrade. Wholesale Banking expenses
declined as lower operating expenses were partially offset by higher
performance based incentive compensation driven by stronger financial
performance.
The reported efficiency ratio was 63.7%, compared with 54.4% in the same
period last year. Last year's results included a net amount of $1,559 million
related to the dilution gain on the sale of TD Waterhouse U.S.A. and the
dilution loss related to the Hudson acquisition. The Bank's adjusted
efficiency ratio improved to 59.2%, from 62.5% in the same period last year as
revenue growth exceeded expense growth.
Taxes
As discussed in the "How the Bank Reports" section, the Bank adjusts its
reported results to assess each of its businesses and to measure overall Bank
performance. As such, the provision for income taxes is stated on a reported
and an adjusted basis.
The Bank's effective tax rate was 21.8% for the second quarter, compared
with 24.5% in the second quarter last year, and 19.4% in the prior quarter. On
a year-to-date basis, the Bank's effective tax rate was 20.6%, compared with
13.0% in the same period last year. The change was largely due to the
favourable tax impact from the TD Ameritrade dilution gain in the first
quarter of 2006.
Taxes(1) (unaudited)
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------
(millions of Apr. 30 Jan. 31 Apr. 30
Canadian dollars) 2007 2007 2006
-------------------------------------------------------------------------
Income taxes at
Canadian statutory
income tax rate $374 34.8% $392 34.9% $347 34.9%
Increase (decrease)
resulting from:
Dividends received (67) (6.2) (103) (9.2) (53) (5.3)
Rate differentials on
international operations (65) (6.0) (82) (7.4) (45) (4.5)
Items related to dilution
gains and losses - - - - 2 0.2
Other - net (8) (0.8) 11 1.1 (7) (0.8)
-------------------------------------------------------------------------
Provision for income taxes
and effective income tax
rate - reported $234 21.8% $218 19.4% $244 24.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six months ended
------------------------------
(millions of Apr. 30 Apr. 30
Canadian dollars) 2007 2006
---------------------------------------------------------
Income taxes at
Canadian statutory
income tax rate $766 34.9% $1,244 35.0%
Increase (decrease)
resulting from:
Dividends received (170) (7.8) (115) (3.2)
Rate differentials on
international operations (147) (6.7) (98) (2.8)
Items related to dilution
gains and losses - - (582) (16.4)
Other - net 3 0.2 15 0.4
---------------------------------------------------------
Provision for income taxes
and effective income tax
rate - reported $452 20.6% $464 13.0%
---------------------------------------------------------
---------------------------------------------------------
(1) Certain comparative amounts have been reclassified to conform to the
presentation adopted in the current period.
Reconciliation of Non-GAAP Provision for Income Taxes (unaudited)
-------------------------------------------------------------------------
For the six
For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Provision for income
taxes - reported $234 $218 $244 $452 $464
Increase (decrease)
resulting from items
of note:
Amortization of
intangibles 40 43 43 83 89
TD Banknorth
restructuring,
privatization and
merger-related charges 28 - - 28 -
Dilution gain on
Ameritrade, net of costs - - - - 34
Balance sheet
restructuring charge
in TD Banknorth - - - - 18
Wholesale Banking
restructuring charge - - - - 15
Change in fair value of
credit default swaps
hedging the corporate
loan book (4) 3 (6) (1) (11)
General allowance release - - (21) - (21)
-------------------------------------------------------------------------
Tax effect - items of note 64 46 16 110 124
-------------------------------------------------------------------------
Provision for income
taxes - adjusted $298 $264 $260 $562 $588
-------------------------------------------------------------------------
-------------------------------------------------------------------------
HOW OUR BUSINESSES PERFORMED
For management reporting purposes, the Bank's operations and activities
are organized around the following operating business segments: Canadian
Personal and Commercial Banking, Wealth Management, including TD Ameritrade,
U.S. Personal and Commercial Banking, and Wholesale Banking. The Bank's other
activities are grouped into the Corporate segment. Results of each business
segment reflect revenues, expenses, assets and liabilities generated by the
business in that segment. The Bank measures and evaluates the performance of
each segment based on adjusted results where applicable, and for those
segments the Bank notes that the measure is adjusted. Amortization of
intangible expense is included in the Corporate segment. Accordingly, net
income for the operating business segments is presented before amortization of
intangibles, as well as any other items of note not attributed to the
operating segments. For further details, see the "How the Bank Reports"
section on page 5, the "Business Focus" section in the 2006 Annual Report and
Note 24 to the 2006 audited Consolidated Financial Statements. For information
concerning the Bank's measures of economic profit and return on invested
capital, which are non-GAAP measures, see page 7. Segmented information also
appears in Note 12 on page 34.
Net interest income within Wholesale Banking is calculated on a taxable
equivalent basis (TEB), which means that the value of non-taxable or
tax-exempt income, including dividends, is adjusted to its equivalent
before-tax value. Using TEB allows the Bank to measure income from all
securities and loans consistently and makes for a more meaningful comparison
of net interest income with similar institutions. The TEB adjustment reflected
in the Wholesale Banking segment is eliminated in the Corporate segment. The
TEB adjustment for the quarter was $99 million, compared with $81 million in
the second quarter last year, and $157 million in the prior quarter. On a
year-to-date basis, the TEB adjustment was $256 million, compared with $162
million in the same period last year.
Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking net income for the quarter was
$540 million, an increase of $75 million, or 16%, compared with the second
quarter last year, and a decrease of $4 million, or 1%, compared with the
prior quarter. The annualized return on invested capital increased to 27%,
compared with 25% in the second quarter last year and 26% in the prior
quarter.
On a year-to-date basis, net income for the six months ended April 30,
2007 was $1,084 million, an increase of $143 million, or 15%, compared with
the same period last year. On a year-to-date basis, the return on invested
capital was 27%, up from 25% in same period last year.
Revenue grew by $215 million, or 12%, compared with the second quarter
last year, due to volume growth across most banking products, particularly in
real-estate secured lending, credit cards and deposits. Revenue decreased by
$24 million, or 1%, compared with the prior quarter, due mainly to fewer
calendar days in the current quarter. On a year-to-date basis, total revenue
increased by $421 million, or 12%, compared with the same period last year,
primarily due to volume growth across most banking products, particularly in
real-estate secured lending, credit cards and deposits. The acquisition of VFC
and sales and service fee income also contributed to revenue growth. Margin on
average earning assets increased by 7 bps from 2.98% to 3.05%, compared with
the second quarter last year, and increased 2 bps compared with the prior
quarter. On a year-to-date basis, margin on average earning assets increased
by 4 bps from 3.00% to 3.04%, compared with the same period last year.
Compared with the second quarter last year, real-estate secured lending
volume (including securitizations) grew by $13.2 billion or 11%, personal
deposit volume grew by $5.1 billion or 5%, and consumer loans volume grew by
$2.2 billion or 11%. The acquisition of VFC accounted for $0.6 billion, or 3%,
of consumer loans volume growth. Business deposits volume and business loans
and acceptances volume both grew by 9%. Gross originated insurance premiums
grew by $41 million or 7%. As at February 28, 2007, personal deposit market
share was 21.3%, down 7 bps compared with last year and down 8 bps compared
with the prior quarter, as a result of share decrease in term deposits.
Personal lending market share was 20.3%, up 17 bps compared with last year and
up 4 bps compared with the prior quarter. Small business lending (credit
limits of less than $250,000) market share as at December 31, 2006 was 18.1%,
up 80 bps compared with last year, and up 40 bps compared with the prior
quarter. Credit card market share, for the month of February 2007, measured by
the average outstanding balance, was 8.2%, up 83 bps compared with last year
and up 7 bps compared with the prior quarter.
Provision for credit losses for the quarter increased by $65 million, or
83%, compared with the second quarter last year. Personal banking provision
for credit losses of $139 million was $53 million higher than the second
quarter last year, primarily due to the inclusion of VFC, and higher personal
lending and credit card volumes. Business banking provision for credit losses
was $4 million for the quarter, compared with net reversals and recoveries of
$8 million in the second quarter last year. Annualized provision for credit
losses as a percentage of credit volume was 0.32%, an increase of 13 bps,
compared with the second quarter last year, primarily due to the acquisition
of VFC, a change in mix due to higher personal lending and credit card
volumes, and net reversals and recoveries in the second quarter last year.
Provision for credit losses increased by $5 million, or 4%, compared with the
prior quarter. Personal banking provisions increased $11 million, or 8%,
compared with the prior quarter, primarily due to higher volumes, while
business banking provisions decreased by $6 million, or 60%, compared with the
prior quarter, mainly due to reversals and recoveries in the current quarter.
On a year-to-date basis, provision for credit losses increased by
$104 million, or 59%, compared with the same period last year. Personal
provisions increased $88 million, or 49%, compared with the same period last
year, primarily due to the inclusion of VFC and higher personal lending and
credit card volumes, while business banking provisions amounted to
$14 million, compared with net reversals and recoveries of $2 million in the
same period last year.
Non-interest expenses increased by $39 million, or 4%, compared with the
second quarter last year, primarily due to business initiatives, higher
employee compensation and business volume-related expenses. Non-interest
expenses decreased by $26 million, or 2%, compared with the prior quarter,
mainly due to fewer calendar days in the current quarter and reduced spending
on business initiatives. On a year-to-date basis, non-interest expenses
increased by $113 million, or 6%, compared with the same period last year,
mainly due to the inclusion of VFC, higher employee compensation and business
volume-related expenses along with continued investment in infrastructure and
marketing. The full time equivalent (FTE) staffing levels increased by 736, or
3%, compared with the second quarter last year, primarily due to the inclusion
of VFC, the internal transfer of technology personnel, sales and service
personnel in branches and call centres, as well as continued growth in the
insurance business. FTE staffing levels decreased by 275, or 1%, compared with
the prior quarter, primarily due to fewer seasonal part-time staff and
reduction in head office support staff. On a year-to-date basis, FTE staffing
levels increased by 821, or 3%, compared with the same period last year, due
to the inclusion of VFC, the internal transfer of technology personnel, sales
and service personnel in branches and call centres, as well as continued
growth in the insurance business. The efficiency ratio for the current quarter
was at a five-year record level. It improved to 52.0%, compared with 56.1%, in
the second quarter last year and 52.7% in the prior quarter. On a year-to-date
basis, the efficiency ratio improved to 52.4%, compared with 55.4% in the same
period last year.
The outlook for year-over-year revenue growth remains solid for the
balance of the year but is expected to be lower compared to the first half of
the year. Provisions for credit losses on both personal and business banking
loans, in aggregate, are expected to grow modestly from current levels and in
line with the underlying volume growth. Expenses will continue to be closely
managed in the second half of the year to maintain a healthy gap between
revenue and expense growth.
Wealth Management
Wealth Management's net income for the second quarter was $197 million,
which represented a strong quarter and an increase of $45 million, or 30%,
compared with the second quarter last year, and an increase of $11 million, or
6%, compared with the prior quarter. The Bank's investment in TD Ameritrade
generated net income of $63 million, an increase of $24 million, or 62%,
compared with the second quarter last year, due to the inclusion of only two
months of results in the same period last year. Net income from the Bank's
reported investment in TD Ameritrade was comparable with the prior quarter as
lower earnings at TD Ameritrade were mostly offset due to an increase in the
Bank's investment in TD Ameritrade. The annualized return on invested capital
decreased to 22%, compared with 26% in the second quarter last year and
increased from 20% in the prior quarter.
On a year-to-date basis, net income for the six months ended April 30,
2007 was $383 million, an increase of $93 million, or 32%, compared with the
same period last year. The year-to-date increase in net income included
results from the Bank's reported investment in TD Ameritrade, which generated
$127 million of net income compared with $72 million in the same period last
year from the combined earnings of the Bank's investment in TD Ameritrade for
two months and TD Waterhouse U.S.A.'s net income for three months. On a
year-to-date basis, the return on invested capital was 21%, down from 23% in
the same period last year.
Revenue grew by $72 million, or 14%, compared with the second quarter
last year, primarily due to a combination of higher transaction volumes in
discount and full service brokerage, higher net interest and fee-based income,
strong mutual fund sales and solid growth in client assets. Commissions in the
discount brokerage business were negatively impacted by a decline in
commission per trade as a result of price reductions in the active trader and
affluent household segments. Revenue increased by $43 million, or 8%, compared
with the prior quarter, primarily due to solid growth in the advice-based and
mutual fund businesses and higher net interest income as a result of increases
in margin loan balances and improvement in spreads. On a year-to-date basis,
total revenue decreased $119 million, or 9%, compared with the same period
last year, primarily due to the sale of TD Waterhouse U.S.A. to Ameritrade.
The decline in revenue was partially offset by stronger results in Canadian
Wealth businesses. Revenues in the quarter were positively impacted by a new
fixed administration fee in TD Mutual Funds. Effective January 1, 2007, TD
Mutual Funds began absorbing the operating expenses of its individual funds in
return for a fixed administration fee. Previously, the costs were borne by the
individual funds. This had the impact of increasing both revenue and expenses
in the quarter.
Non-interest expenses increased by $44 million, or 13%, compared with the
second quarter last year, due to higher volume-related payments to sellers of
the Bank's mutual funds, higher sales force compensation in our advice-based
businesses driven by increased revenues, and continued investment in
client-facing advisors and related support staff. Non-interest expenses
increased by $29 million, or 8%, compared with the prior quarter, mainly due
to higher payments to sellers of the Bank's mutual funds and higher sales
force compensation. On a year-to-date basis, non-interest expenses decreased
by $117 million, or 13%, compared with the same period last year, mainly due
to the sale of TD Waterhouse U.S.A. to Ameritrade.
Assets under management of $163 billion at April 30, 2007 increased
$12 billion, or 8%, from October 31, 2006, due to market appreciation and the
addition of net new client assets. Assets under administration totalled
$175 billion at the end of the quarter, increasing $14 billion, or 9%, from
October 31, 2006 due to market appreciation and the addition of net new client
assets.
Wealth Management should continue to deliver strong earnings as growth in
client assets, client-facing advisors and mutual fund sales are expected to
remain strong. Pricing pressures will continue to be an ongoing factor in
discount brokerage from a North American standpoint.
Wealth Management (unaudited)
-------------------------------------------------------------------------
For the six
For the three months ended months ended
----------------------------- -------------------
(millions of Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Canadian Wealth 134 $122 $113 256 $218
TD Ameritrade/
TD Waterhouse U.S.A. 63 64 39 127 72
-------------------------------------------------------------------------
Net income 197 $186 $152 383 $290
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Personal and Commercial Banking
U.S. Personal and Commercial Banking reported net income for the quarter
was $23 million, compared with $59 million in the second quarter last year,
and $64 million in the prior quarter. Adjusted net income for the quarter was
$62 million, which excluded a $39 million after-tax charge, being the Bank's
share related to TD Banknorth's restructuring, privatization and
merger-related charges. There were no items of note affecting earnings in the
second quarter last year or the prior quarter. The annualized return on
invested capital declined to 3.8%, compared with 4.4%, in the second quarter
last year, and 4.3% in the prior quarter.
On a year-to-date basis, reported net income for the six months ended
April 30, 2007 was $87 million, compared with $105 million in the same period
last year. On a year-to-date basis, adjusted net income was $126 million,
compared with adjusted net income of $124 million in the same period last
year. On a year-to-date basis, the return on invested capital was 4.0%, down
from 4.9% in the same period last year. The decline in return on invested
capital was due to a decrease in earnings growth on an increased invested
capital base.
Revenue grew by $43 million, or 9%, compared with the second quarter last
year, and increased by $18 million, or 4%, compared with the prior quarter,
primarily due to the acquisition of Interchange and Hudson. On a year-to-date
basis, total revenue increased $172 million, or 21%, compared with the same
period last year, also due to the acquisition of Interchange and Hudson.
Margin on average earning assets increased by 6 bps from 3.83% to 3.89%,
compared with the second quarter last year, and decreased 6 bps compared with
the prior quarter. On a year-to-date basis, the margin on average earning
assets increased by 4 bps from 3.88% to 3.92%, compared with the same period
last year. Net interest income remains under pressure from a flat yield curve
and continued strong competition for deposits and high quality loans.
Provision for credit losses for the quarter increased by $27 million,
compared with the second quarter last year, and by $18 million, or 106%,
compared with the prior quarter. The increase in provision for credit losses,
compared with the second quarter last year and the prior quarter was due to
higher levels of impaired loans and increased net write-offs. Net impaired
loans increased by $110 million, or 167%, compared with the second quarter
last year, and by $70 million, or 66%, compared with the prior quarter,
primarily due to a slowdown in the residential real-estate construction
market. On a year-to-date basis, provision for credit losses increased by
$37 million, compared with the same period last year, due to higher levels of
impaired loans and increased net write-offs. Net impaired loans as a
percentage of total loans and leases was 0.57%, compared with 0.22% as at the
end of the second quarter last year, and 0.36% as at the end of the prior
quarter.
Reported non-interest expenses for the quarter were $384 million, an
increase of $100 million, or 35% compared with the second quarter last year.
Non-interest expenses, excluding the $78 million before-tax charge related to
TD Banknorth's restructuring, privatization and merger-related charges,
increased by $22 million, or 8%, compared with the second quarter last year,
primarily due to the acquisition of Interchange and Hudson, and a $9 million
contribution made to the TD Banknorth Charitable Foundation. Reported
non-interest expenses increased by $85 million, or 28% compared with the prior
quarter. On an adjusted basis, non-interest expenses increased by $7 million,
or 2%, compared with the prior quarter. On a year-to-date basis, reported
non-interest expenses were $683 million, an increase of $174 million, or 34%,
compared with the same period last year. On a year-to-date basis, excluding TD
Banknorth's restructuring, privatization and merger-related charges,
non-interest expenses increased by $96 million, or 19%, largely due to the
acquisition of Interchange and Hudson as well as the $9 million contribution
made to the TD Banknorth Charitable Foundation. The average FTE staffing
levels increased slightly compared with both the second quarter last year and
the prior quarter, primarily due the acquisition of Interchange, offset in
part by staff reductions related to improved business processes. As at
April 30, 2007 staffing levels declined 6% from the second quarter last year
and by 1% from the prior quarter. Reported efficiency ratio was 76.2%,
compared with 61.6%, in the second quarter last year, and 61.5%, in the prior
quarter. On a year-to-date basis, reported efficiency ratio was 69.0%,
compared with 62.2%, in the same period last year. On an adjusted basis, the
efficiency ratio for the quarter was 60.5%. On a year-to-date basis, the
adjusted efficiency ratio was 61.0%, compared with 58.4%, in the same period
last year.
TD Banknorth expects 2007 to continue to be a challenging year. Net
interest income is expected to grow slightly for the balance of the year as
competition for customers remains keen, while the interest rate environment is
not expected to improve. Although impaired loans appear to be levelling off,
they may increase depending on market conditions. Provisions for credit losses
may continue at or exceed current levels in the near term depending on
write-offs on current impaired loans. Revenue growth is expected to exceed
expense growth for the remainder of the year due to expense reduction
initiatives. Revenue initiatives are focused on the customer experience
including longer branch hours, filling product gaps in the Retail business
line (e.g. high rate money market product offering), simplifying fee
structure, and tailoring compensation programs to align incentives with
revenue growth and improved customer experience. To fund these revenue
initiatives, TD Banknorth has planned to reduce the expense base by 5% to 8%
(or approximately US$50 million to US$80 million); these plans include closing
certain branches, staff cuts and consolidation of facilities.
Wholesale Banking
Wholesale Banking reported net income for the quarter of $217 million, an
increase of $77 million, or 55%, compared with the second quarter last year,
and an increase of $20 million, or 10%, compared with the prior quarter. The
annualized return on invested capital was 34% in the current quarter, compared
with 25% in the second quarter last year, and 30% in the prior quarter.
On a year-to-date basis, reported and adjusted net income for the
six months ended April 30, 2007 was $414 million, up $110 million, or 36%, and
up $75 million, or 22%, respectively. Adjusted net income in the prior year
excluded the impact of a $35 million after-tax restructuring charge
($50 million before tax) in connection with the repositioning of the global
structured products businesses. There were no items of note affecting earnings
during the six months ended April 30, 2007. On a year-to-date basis, the
return on invested capital was 32%, compared with 30% in the same period last
year.
Wholesale Banking revenue was derived primarily from capital markets,
investing and corporate lending activities. Revenue for the quarter was
$642 million, compared with $534 million in the second quarter last year and
$635 million in the previous quarter. The capital markets businesses generate
revenue from advisory, underwriting, trading, facilitation and execution
services. Capital markets revenue increased from the second quarter last year,
primarily due to higher equity underwriting, advisory, interest rate and
credit, and equity trading, partially offset by lower foreign exchange
trading. Capital markets revenue decreased from the prior quarter, primarily
due to weaker equity and foreign exchange trading, partially offset by higher
equity underwriting. The equity investment portfolio delivered stronger
security gains compared with the second quarter last year and the prior
quarter. Corporate lending revenues were up from the second quarter last year
due to an increase in loans and commitments related primarily to mergers and
acquisitions activity, but down slightly compared with the prior quarter. On a
year-to-date basis, revenue was $1,277 million, an increase of $82 million, or
7%, compared with the same period last year, primarily due to higher security
gains, improved equity underwriting and equity trading, partially offset by
lower foreign exchange trading.
Provision for credit losses was comprised of allowances for credit losses
and accrual costs for credit protection. Provision for credit losses was
$12 million in the quarter, compared with $11 million in the second quarter
last year and $24 million in the prior quarter. The provision for the quarter
was entirely related to the cost of credit protection. Provision for credit
losses in the previous quarter included a $12 million specific allowance
related to a single credit exposure in the corporate lending portfolio. On a
year-to-date basis, provision for credit losses was $36 million, a reduction
of $4 million, or 10%, compared with the same period last year.
Wholesale Banking continues to proactively manage its credit risk and
currently holds $2.8 billion in notional credit default swap protection, a
decrease of $0.1 billion compared with the second quarter last year and down
$0.3 billion compared with the prior quarter.
Expenses were $329 million, an increase of $8 million compared with the
second quarter last year, primarily due to higher variable compensation,
partially offset by lower severance costs. Expenses decreased $3 million from
the last quarter. On a year-to-date basis, expenses were $661 million, a
decrease of $55 million, or 8%, compared with the same period last year as
prior year expenses included restructuring costs of $50 million.
Overall, Wholesale Banking had an excellent quarter driven by strong
domestic franchise and solid trading revenues, and a very strong contribution
from the equity investment portfolio. While Wholesale Banking had a very
strong performance in the first half of the year, it is not expected that this
performance will be repeated in the traditionally slower second half of the
year. Key priorities for 2007 continue to include: focus on being a top three
dealer in Canada, seek opportunities to grow proprietary trading in scalable
and liquid markets, maintain a superior rate of return on invested capital,
and enhance the efficiency ratio through improved cost control.
Corporate
Corporate segment reported a net loss of $98 million for the quarter,
compared with a reported net loss of $78 million in the second quarter last
year, and a reported net loss of $70 million in the prior quarter. On an
adjusted basis, the current quarter results reflected a net loss of
$21 million, compared with a net loss of $36 million in the second quarter
last year, primarily driven by lower unallocated corporate expenses. Adjusted
net loss for the quarter, compared with the adjusted net income of $18 million
in the prior quarter, was mainly due to favourable tax and other items
realized in the prior quarter and lower securitization gains, partially offset
by lower unallocated corporate expenses.
Adjusted net loss in the current quarter excluded amortization of
intangibles of $80 million after tax, a $4 million after-tax restructuring
charge related to the transfer of functions from TD Bank USA to TD Banknorth
and a $7 million after-tax gain in excess of accrued cost for the period in
credit default swaps (CDS) hedging the corporate loan book. Adjusted net
income in the second quarter last year excluded amortization of intangibles of
$86 million after tax, a $39 million after-tax general allowance release, a
$10 million after-tax gain in excess of accrued cost for the period in CDS
hedging the corporate loan book, and a $5 million dilution loss on the sale of
TD Waterhouse U.S.A. to Ameritrade. Adjusted net income in the prior quarter
excluded amortization of intangibles of $83 million after tax and a $5 million
after-tax loss, in excess of accrued cost for the period, on CDS hedging the
corporate loan book.
The Corporate segment reported a net loss of $168 million for the
six months ended April 30, 2007. On an adjusted basis, the year-to-date net
loss was $3 million, an improvement of $76 million over the same period in the
prior year, mainly driven by lower unallocated corporate expenses,
securitization gains, and some favourable tax and other items. Adjusted net
loss for the current year-to-date period excluded amortization of intangibles
of $163 million after tax, a $4 million after-tax restructuring charge related
to the transfer of functions from TD Bank USA to TD Banknorth, and a
$2 million after-tax gain in excess of accrued cost for the period in CDS
hedging the corporate loan book. Adjusted net loss for the year-to-date period
last year excluded a $1,665 million after-tax dilution gain on the sale of TD
Waterhouse U.S.A. to Ameritrade and a $72 million after-tax dilution loss
related to the acquisition of Hudson by TD Banknorth. Also excluded was a
general allowance release of $39 million after tax, amortization of
intangibles of $168 million after tax, and gains of $20 million on CDS in
excess of the accrued cost.
BALANCE SHEET REVIEW
Total assets were $396.7 billion as at April 30, 2007, $3.8 billion
higher than at October 31, 2006. The net increase was composed primarily of an
increase of $9.4 billion in loans and $5.0 billion in other assets, partially
offset by decreases of $5.9 billion in securities and $5.5 billion in
securities purchased under resale agreements. The increase in total loans is
attributable to higher loan balances in Canadian Personal and Commercial
Banking and Wholesale Banking, the acquisition of Interchange by TD Banknorth,
and growth in Wealth Management margin loans. The increase in other assets is
attributable to the gross-up of non-trading derivatives as required by the new
financial instruments standards, increase in goodwill and intangibles related
to the acquisition of Interchange by TD Banknorth as well as the privatization
of TD Banknorth, and an increase in the investment in TD Ameritrade. The
decrease in securities was due to lower trading securities which is influenced
by market movements, client flows, and proprietary trading strategies. The
decrease in securities purchased under reverse repurchase agreements reflects
reduced balances in this product within Wholesale Banking.
Total deposits were $270.2 billion at the end of the quarter, an increase
of $9.3 billion from October 31, 2006. Personal deposits increased
$4.6 billion primarily due to increased volumes in Canadian Personal and
Commercial Banking and the acquisition of Interchange by TD Banknorth. Other
deposits increased $4.6 billion, largely due to growth in term deposits in the
U.S. Wholesale business. Total other liabilities declined by $7.5 billion from
October 31, 2006. The net decrease was composed of declines in obligations
related to securities sold short and obligations related to securities sold
under repurchase agreements, partially offset by an increase in other
liabilities. Obligations related to securities sold under repurchase
agreements decreased by $7.3 billion consistent with the movement in reverse
repurchase agreements noted above. Obligations related to securities sold
short decreased by $2.0 billion reflecting market movements and trading
activities. Other liabilities increased $1.5 billion largely due to the gross
up of non-trading derivatives as required under the new financial instruments
standards. Subordinated notes and debentures increased $2.3 billion, primarily
as a result of a new issuance in December 2006. The Bank's non-controlling
interests in subsidiaries as at April 30, 2007 declined $2.4 billion from
October 31, 2006 due to the privatization of TD Banknorth in the current
quarter.
CREDIT PORTFOLIO QUALITY
Gross impaired loans were $554 million at April 30, 2007, $143 million
higher than at October 31, 2006, largely due to the addition of impaired loans
in U.S. Personal and Commercial Banking. Net impaired loans as at April 30,
2007, after deducting specific and general allowances, totalled
$(824) million, compared with $(906) million as at October 31, 2006.
The total allowance for credit losses of $1,378 million as at April 30,
2007 comprised total specific allowances of $227 million and a general
allowance of $1,151 million. Specific allowances increased by $55 million from
$172 million as at October 31, 2006, mainly due to higher specific provisions
in the Canadian and U.S. Personal and Commercial Banking segments. The general
allowance for credit losses as at April 30, 2007 was up by $6 million,
compared with October 31, 2006, mainly due to the inclusion of $22 million
general allowance related to VFC and the consolidation of Interchange,
partially offset by a $23 million reduction in the TD Banknorth general
allowance in the current quarter. The Bank establishes general allowances to
recognize losses that management estimates to have occurred in the portfolio
at the balance sheet date for loans or credits not yet specifically identified
as impaired.
Changes in Gross Impaired Loans and Acceptances (unaudited)
-------------------------------------------------------------------------
For the three months ended
-----------------------------
Apr. 30 Oct. 31 Apr. 30
(millions of Canadian dollars) 2007 2006 2006
-------------------------------------------------------------------------
Balance at beginning of period $462 $357 $365
Additions 416 299 214
Return to performing status, repaid or sold (130) (81) (97)
Write-offs (191) (164) (130)
Foreign exchange and other adjustments (3) - (3)
-------------------------------------------------------------------------
Balance at end of period $554 $411 $349
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for Credit Losses (unaudited)
-------------------------------------------------------------------------
As at
-----------------------------
Apr. 30 Oct. 31 Apr. 30
(millions of Canadian dollars) 2007 2006 2006
-------------------------------------------------------------------------
Specific allowance $227 $172 $135
General allowance 1,151 1,145 1,156
-------------------------------------------------------------------------
Total allowance for credit losses $1,378 $1,317 $1,291
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total net impaired loans $(824) $(906) $(942)
Net impaired loans as a percentage
of net loans (0.5)% (0.5)% (0.6)%
Provision for credit losses as a
percentage of net average loans 0.41% 0.40% 0.04%
-------------------------------------------------------------------------
CAPITAL POSITION
The Bank's capital ratios are calculated using the guidelines of the
Office of the Superintendent of Financial Institutions (OSFI). As at April 30,
2007, the Bank's Tier 1 capital ratio was 9.8%, compared with 12.0% at
October 31, 2006, and the total capital ratio was 12.3%, compared with 13.1%
at October 31, 2006. The Bank's overall Tier 1 capital was down $2.4 billion
from October 31, 2006. The decrease in the Tier 1 capital ratio from
October 31, 2006 was largely due to the privatization of TD Banknorth which
reduced Tier 1 capital by $3.7 billion due to the exclusion of non-controlling
interests and an increase in goodwill and intangibles assets. Total capital
was down $0.2 billion, compared with October 31, 2006, due to the
privatization of TD Banknorth, partially offset by the $2.25 billion Tier 2A
subordinated debt issue in December 2006. Risk-weighted assets were up
$7.5 billion from October 31, 2006, primarily due to TD Banknorth's
acquisition of Interchange and the overall growth in assets within the Bank,
including those resulting from changes in foreign exchange rates and the
implementation of the new financial instruments accounting standards. The Bank
continues to hold sufficient capital levels to ensure that flexibility is
maintained to grow operations, both organically and through strategic
acquisitions. The strong capital ratios are the result of the Bank's internal
capital generation, management of the balance sheet and periodic issuance of
capital securities.
During the prior quarter, the Bank issued $2.25 billion of medium-term
notes constituting subordinated indebtedness which qualify as Tier 2A
regulatory capital. During the six months ended April 30, 2007, no shares were
repurchased under the Bank's normal course issuer bid, which commenced on
December 20, 2006 to repurchase for cancellation, up to five million common
shares.
Capital Structure and Ratios (unaudited)
-------------------------------------------------------------------------
As at
-----------------------------
Apr. 30 Oct. 31 Apr. 30
(billions of Canadian dollars) 2007 2006 2006
-------------------------------------------------------------------------
Tier 1 capital $14.7 $17.1 $16.4
Tier 1 capital ratio 9.8% 12.0% 12.1%
Total capital $18.4 $18.6 $19.2
Total capital ratio 12.3% 13.1% 14.1%
Risk-weighted assets $149.4 $141.9 $135.8
Tangible common equity $10.5 $12.9 $12.3
Tangible common equity as a percentage
of risk-weighted assets 7.0% 9.1% 9.0%
-------------------------------------------------------------------------
Managing Risk
Interest Rate Risk
The objective of interest rate risk management for the non-trading
portfolio is to ensure that stable and predictable earnings are realized over
time. In this context, the Bank has adopted a disciplined hedging approach to
profitably manage its asset and liability positions, including a modeled
maturity profile for non-rate sensitive assets, liabilities and equity. Key
aspects of this approach are:
- minimizing the impact of interest rate risk on net interest income
and economic value within Canadian Personal and Commercial Banking;
and
- measuring the contribution of each product on a risk adjusted, fully-
hedged basis, including the impact of financial options granted to
customers.
The Bank uses derivative financial instruments, wholesale instruments and
other capital market alternatives and, less frequently, product pricing
strategies to manage interest rate risk. As at April 30, 2007, an immediate
and sustained 100 bps increase in rates would have increased the economic
value of shareholders' equity by $33 million after tax or 0.15%. An immediate
and sustained 100 bps decrease in rates would have decreased the economic
value of shareholders' equity by $43 million after tax or 0.20%.
Liquidity Risk
The Bank holds a sufficient amount of liquidity to fund its obligations
as they become due under normal operating conditions as well as under a base
case stress scenario that defines the minimum amount of liquidity that must be
held at all times. The surplus liquid asset position is defined as total
available liquid assets, less the Bank's total maturing wholesale funding,
potential non-wholesale deposit run-off and contingent liabilities, measured
at a number of points in time up to and including 90 days forward. As at
April 30, 2007, the Bank's consolidated surplus liquid asset position, on a
cumulative basis, up to 90 days forward, was $10.2 billion, compared with a
consolidated surplus liquid asset position of $18.8 billion as at October 31,
2006. The Bank ensures that funding obligations are fulfilled by managing its
cash flows and holding highly liquid assets that can be readily converted into
cash. The Bank manages liquidity on a global basis, ensuring prudent
management of liquidity risk in all its operations. In addition to a large
base of stable retail and commercial deposits, the Bank has an active
wholesale funding program, including asset securitization. This funding is
highly diversified as to source, type, currency and geographical location.
Market Risk
The Bank manages market risk in its trading books by using several key
controls. The Bank's market risk policy sets out detailed limits for each
trading business, including Value-at-Risk (VaR), stress test, stop loss, and
sensitivity to various market risk factors. Policy controls are augmented
through active oversight by independent market risk staff and frequent
management reporting. VaR is a statistical loss threshold, which should not be
exceeded, on average, more than once in 100 days. It is also the basis for
regulatory capital for market risk. The following table presents average and
end-of-quarter general market risk VaR usage for the three and six months
ended April 30, 2007, as well as average VaR for the three and six months
ended April 30, 2006. For the three and six months ended April 30, 2007, net
daily capital markets revenues were positive for 93.6% and 93.8% of the
trading days respectively. Losses in the second quarter did not exceed the
Bank's statistically predicted VaR for the total of the Bank's trading-related
businesses.
Value-at-Risk Usage (unaudited)
-------------------------------------------------------------------------
For the six
For the three months ended months ended
------------------------------------ -----------------
As at Average Average Average Average Average
(millions of Apr. 30 Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
Canadian dollars) 2007 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Interest rate risk $8.5 $7.0 $7.5 $10.8 $7.3 $9.4
Equity risk 9.4 10.3 7.2 5.3 8.7 5.1
Foreign exchange risk 2.8 2.0 2.0 1.9 2.0 2.1
Commodity risk 0.9 1.6 1.6 1.1 1.6 1.0
Diversification
effect (11.3) (10.8) (8.0) (8.1) (9.4) (7.1)
-------------------------------------------------------------------------
General market
Value-at-Risk $10.3 $10.1 $10.3 $11.0 $10.2 $10.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
QUARTERLY RESULTS
The following table provides summary information related to the Bank's
eight most recently completed quarters.
Quarterly Results (unaudited)
-------------------------------------------------------------------------
For the three months ended
---------------------------------------
(millions of 2007 2006
Canadian dollars) Apr. 30 Jan. 31 Oct. 31 July 31
-------------------------------------------------------------------------
Net interest income $1,662 $1,671 $1,714 $1,623
Other income 1,837 1,802 1,580 1,665
-------------------------------------------------------------------------
Total revenues 3,499 3,473 3,294 3,288
Provision for (reversal of)
credit losses (172) (163) (170) (109)
Non-interest expenses (2,252) (2,189) (2,187) (2,147)
Dilution gain, net - - - -
-------------------------------------------------------------------------
Income before provision for income
taxes, non-controlling interests
in subsidiaries and equity in net
income of an associated company 1,075 1,121 937 1,032
Provision for income taxes (234) (218) (175) (235)
Non-controlling interests in
subsidiaries, net of income taxes (27) (47) (48) (52)
Equity in net income of
an associated company,
net of income taxes 65 65 48 51
-------------------------------------------------------------------------
Net income - reported 879 921 762 796
Items of note affecting net income,
net of income taxes:
Amortization of intangibles 80 83 87 61
Dilution gain on Ameritrade
transaction, net of costs - - - -
Dilution loss on the acquisition
of Hudson by TD Banknorth - - - -
Balance sheet restructuring
charge in TD Banknorth - - - -
Wholesale Banking restructuring
charge - - - -
TD Banknorth restructuring,
privatization and merger-related
charges 43 - - -
Change in fair value of credit
default swaps hedging the
corporate loan book (7) 5 8 5
Non-core portfolio loan loss
recoveries (sectoral related) - - - -
Tax charge related to
reorganizations - - - -
Other tax items - - - 24
Loss on structured derivative
portfolios - - - -
Preferred share redemption - - - -
Initial set up of specific
allowance for credit card
and overdraft loans - - 18 -
General allowance release - - - -
Litigation charge - - - -
-------------------------------------------------------------------------
Total items of note 116 88 113 90
-------------------------------------------------------------------------
Net income - adjusted 995 1,009 875 886
Preferred dividends (7) (6) (5) (6)
-------------------------------------------------------------------------
Net income available to common
shareholders - adjusted $988 $1,003 $870 $880
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Canadian dollars)
-------------------------------------------------------------------------
Basic earnings per share
- reported $1.21 $1.27 $1.05 $1.10
- adjusted 1.37 1.40 1.21 1.22
Diluted earnings per share
- reported 1.20 1.26 1.04 1.09
- adjusted 1.36 1.38 1.20 1.21
Return on common shareholders'
equity 17.1% 18.2% 15.7% 16.8%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended
---------------------------------------
(millions of 2006 2005
Canadian dollars) Apr. 30 Jan. 31 Oct. 31 July 31
-------------------------------------------------------------------------
Net interest income $1,427 $1,607 $1,641 $1,563
Other income 1,691 1,797 1,442 1,535
-------------------------------------------------------------------------
Total revenues 3,118 3,404 3,083 3,098
Provision for (reversal of)
credit losses (16) (114) 15 (40)
Non-interest expenses (2,103) (2,290) (2,203) (2,577)
Dilution gain, net (5) 1,564 - -
-------------------------------------------------------------------------
Income before provision for income
taxes, non-controlling interests
in subsidiaries and equity in net
income of an associated company 994 2,564 895 481
Provision for income taxes (244) (220) (253) (12)
Non-controlling interests in
subsidiaries, net of income taxes (47) (37) (53) (58)
Equity in net income of
an associated company,
net of income taxes 35 - - -
-------------------------------------------------------------------------
Net income - reported 738 2,307 589 411
Items of note affecting net income,
net of income taxes:
Amortization of intangibles 86 82 86 91
Dilution gain on Ameritrade
transaction, net of costs 5 (1,670) - -
Dilution loss on the acquisition
of Hudson by TD Banknorth - 72 - -
Balance sheet restructuring
charge in TD Banknorth - 19 - -
Wholesale Banking restructuring
charge - 35 4 10
TD Banknorth restructuring,
privatization and merger-related
charges - - - -
Change in fair value of credit
default swaps hedging the
corporate loan book (10) (10) (7) 12
Non-core portfolio loan loss
recoveries (sectoral related) - - (60) (23)
Tax charge related to
reorganizations - - 138 -
Other tax items - - (68) (30)
Loss on structured derivative
portfolios - - 70 30
Preferred share redemption - - 13 -
Initial set up of specific
allowance for credit card
and overdraft loans - - - -
General allowance release (39) - - -
Litigation charge - - - 238
-------------------------------------------------------------------------
Total items of note 42 (1,472) 176 328
-------------------------------------------------------------------------
Net income - adjusted 780 835 765 739
Preferred dividends (6) (5) - -
-------------------------------------------------------------------------
Net income available to common
shareholders - adjusted $774 $830 $765 $739
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Canadian dollars)
-------------------------------------------------------------------------
Basic earnings per share
- reported $1.02 $3.23 $0.83 $0.58
- adjusted 1.10 1.16 1.08 1.04
Diluted earnings per share
- reported 1.01 3.20 0.82 0.58
- adjusted 1.09 1.15 1.06 1.04
Return on common shareholders'
equity 16.5% 55.4% 14.8% 10.4%
-------------------------------------------------------------------------
ACCOUNTING POLICIES AND ESTIMATES
The Bank's unaudited Interim Consolidated Financial Statements, as
presented on pages 21 to 37 of this Report to Shareholders, have been prepared
in accordance with GAAP. These Consolidated Financial Statements should be
read in conjunction with the Bank's audited Consolidated Financial Statements
for the year ended October 31, 2006. The accounting policies used in the
preparation of these Consolidated Financial Statements are consistent with
those used in the Bank's October 31, 2006 audited Consolidated Financial
Statements, except as described below.
Changes in Significant Accounting Policies
Financial Instruments, Hedges and Comprehensive Income
The Bank adopted the Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3855, Financial Instruments - Recognition and Measurement;
Section 3865, Hedges; Section 1530, Comprehensive Income and Section 3861,
Financial Instruments - Disclosure and Presentation on November 1, 2006. The
adoption of these new Financial Instruments standards resulted in changes in
the accounting for financial instruments and hedges as well as the recognition
of certain transition adjustments that have been recorded in opening retained
earnings or opening accumulated other comprehensive income. The comparative
Interim Consolidated Financial Statements have not been restated. With the
adoption of these standards, the Bank's accounting for financial instruments
is now largely harmonized with U.S. GAAP for this area. For a description of
the principal changes in the accounting for financial instruments and hedges
due to the adoption of these accounting standards and for further details on
changes in significant accounting policies, see Note 2 to the Interim
Consolidated Financial Statements for the quarter ended April 30, 2007.
Determining Variable Interest Entities
In September 2006, the Emerging Issues Committee of the CICA issued EIC-
163, Determining the Variability to be Considered in Applying AcG-15, which
provides additional guidance on how to analyze and consolidate variable
interest entities. The guidance became effective February 1, 2007 for the
Bank. The new guidance does not have a material effect on the financial
position or earnings of the Bank.
There were no other changes in the Bank's accounting policies during the
six months ended April 30, 2007.
Critical Accounting Estimates
The critical accounting estimates remain unchanged from those disclosed
in the Bank's 2006 Annual Report.
Future Changes in Accounting Policies
Capital Disclosures
The CICA issued a new accounting standard, Section 1535, Capital
Disclosures, which requires the disclosure of both qualitative and
quantitative information that enables users of financial statements to
evaluate the entity's objectives, policies and processes for managing capital.
This new standard is effective for the Bank beginning November 1, 2007.
Financial Instruments
The CICA issued two new accounting standards, Section 3862, Financial
Instruments - Disclosures, and Section 3863, Financial Instruments -
Presentation, which apply to interim and annual financial statements relating
to fiscal years beginning on or after October 1, 2007. The Bank intends to
adopt these new standards effective November 1, 2007.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the most recent interim period, there have been no changes in the
Bank's policies and procedures and other processes that comprise its internal
control over financial reporting, that have materially affected, or are
reasonably likely to materially affect, the Bank's internal control over
financial reporting.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
-------------------------------------------------------------------------
As at
-------------------
Apr. 30 Oct. 31
(millions of Canadian dollars) 2007 2006
-------------------------------------------------------------------------
ASSETS
Cash and due from banks $1,994 $2,019
Interest-bearing deposits with banks 9,796 8,763
-------------------------------------------------------------------------
11,790 10,782
-------------------------------------------------------------------------
Securities
Trading 69,093 77,482
Designated as trading under the fair value option 1,862 -
Available-for-sale 35,668 -
Held-to-maturity 11,887 -
Investment - 46,976
-------------------------------------------------------------------------
118,510 124,458
-------------------------------------------------------------------------
Securities purchased under reverse repurchase
agreements 25,434 30,961
-------------------------------------------------------------------------
Loans
Residential mortgages 53,997 53,425
Consumer instalment and other personal 65,370 63,130
Credit card 5,369 4,856
Business and government 45,081 40,514
Business and government designated as trading
under the fair value option 1,465 -
-------------------------------------------------------------------------
171,282 161,925
Allowance for credit losses (Note 4) (1,378) (1,317)
-------------------------------------------------------------------------
Loans, net of allowance for credit losses 169,904 160,608
-------------------------------------------------------------------------
Other
Customers' liability under acceptances 9,233 8,676
Investment in TD Ameritrade (Note 14) 5,131 4,379
Trading derivatives 27,569 27,845
Goodwill 8,940 7,396
Other intangibles 2,368 1,946
Land, buildings and equipment 1,905 1,862
Other assets 15,950 14,001
-------------------------------------------------------------------------
71,096 66,105
-------------------------------------------------------------------------
Total assets $396,734 $392,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------
Deposits
Personal $151,272 $146,636
Banks 12,681 14,186
Business and government 70,655 100,085
Trading 35,554 -
-------------------------------------------------------------------------
270,162 260,907
-------------------------------------------------------------------------
Other
Acceptances 9,233 8,676
Obligations related to securities sold short 25,143 27,113
Obligations related to securities sold under
repurchase agreements 11,322 18,655
Trading derivatives 29,143 29,337
Other liabilities 18,936 17,461
-------------------------------------------------------------------------
93,777 101,242
-------------------------------------------------------------------------
Subordinated notes and debentures (Note 6) 9,210 6,900
-------------------------------------------------------------------------
Liabilities for preferred shares and capital
trust securities (Note 7) 1,797 1,794
-------------------------------------------------------------------------
Non-controlling interests in subsidiaries 13 2,439
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common shares (millions of shares issued and
outstanding: April 30, 2007- 719.9;
Oct. 31, 2006 - 717.4) (Note 8) 6,455 6,334
Preferred shares (millions of shares issued and
outstanding: April 30, 2007- 17.0;
Oct. 31, 2006 - 17.0) (Note 8) 425 425
Contributed surplus 124 66
Retained earnings 14,865 13,725
Accumulated other comprehensive income (94) (918)
-------------------------------------------------------------------------
21,775 19,632
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $396,734 $392,914
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Interest income
Loans $3,117 $2,514 $6,191 $4,966
Securities
Dividends 189 190 462 412
Interest 919 776 1,905 1,813
Deposits with banks 111 78 158 158
-------------------------------------------------------------------------
4,336 3,558 8,716 7,349
-------------------------------------------------------------------------
Interest expense
Deposits 1,989 1,754 4,037 3,288
Subordinated notes and debentures 124 99 232 185
Preferred shares and capital
trust securities 32 28 62 67
Other liabilities 529 250 1,052 775
-------------------------------------------------------------------------
2,674 2,131 5,383 4,315
-------------------------------------------------------------------------
Net interest income 1,662 1,427 3,333 3,034
-------------------------------------------------------------------------
Other income
Investment and securities services 574 532 1,122 1,174
Credit fees 103 82 199 168
Net securities gains 102 82 172 105
Trading income 192 247 408 539
Income from financial instruments
designated as trading under the
fair value option 5 - (4) -
Service charges 244 220 493 441
Loan securitizations (Note 5) 97 72 231 164
Card services 108 86 218 167
Insurance, net of claims 251 228 505 452
Trust fees 38 37 69 66
Other 123 105 226 212
-------------------------------------------------------------------------
1,837 1,691 3,639 3,488
-------------------------------------------------------------------------
Total revenues 3,499 3,118 6,972 6,522
-------------------------------------------------------------------------
Provision for credit losses
(Note 4) 172 16 335 130
-------------------------------------------------------------------------
Non-interest expenses
Salaries and employee benefits 1,169 1,093 2,326 2,267
Occupancy, including depreciation 185 172 360 338
Equipment, including depreciation 153 138 297 285
Amortization of other intangibles 112 125 230 253
Restructuring costs 67 - 67 50
Marketing and business development 111 96 224 229
Brokerage-related fees 39 39 75 92
Professional and advisory services 98 126 215 231
Communications 49 48 98 97
Other 269 266 549 551
-------------------------------------------------------------------------
2,252 2,103 4,441 4,393
-------------------------------------------------------------------------
Dilution gain (loss), net - (5) - 1,559
-------------------------------------------------------------------------
Income before provision for income
taxes, non-controlling interests
in subsidiaries and equity in net
income of an associated company 1,075 994 2,196 3,558
Provision for income taxes 234 244 452 464
Non-controlling interests in
subsidiaries, net of income taxes 27 47 74 84
Equity in net income of an
associated company, net of
income taxes 65 35 130 35
-------------------------------------------------------------------------
Net income 879 738 1,800 3,045
Preferred dividends 7 6 13 11
-------------------------------------------------------------------------
Net income available to common
shareholders $872 $732 $1,787 $3,034
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of common shares
outstanding (millions)
Basic 719.1 715.7 718.7 714.1
Diluted 725.9 722.5 725.4 720.7
Earnings per share (in dollars)
Basic $1.21 $1.02 $2.49 $4.25
Diluted 1.20 1.01 2.46 4.21
Dividends per share (in dollars) 0.53 0.44 1.01 0.86
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
-------------------------------------------------------------------------
For the six
months ended
--------------------
April 30 April 30
(millions of Canadian dollars) 2007 2006
-------------------------------------------------------------------------
Common shares
Balance at beginning of period $6,334 $5,872
Proceeds from shares issued on exercise of options 53 80
Shares issued as a result of dividend reinvestment plan 40 207
Impact of shares sold (acquired) in Wholesale Banking 28 16
Issued on acquisition of VFC - 70
-------------------------------------------------------------------------
Balance at end of period 6,455 6,245
-------------------------------------------------------------------------
Preferred shares
Balance at beginning of period 425 -
Share issues - 425
-------------------------------------------------------------------------
Balance at end of period 425 425
-------------------------------------------------------------------------
Contributed surplus
Balance at beginning of period 66 40
Stock options (Note 9) 6 11
Conversion of TD Banknorth options on privatization
(Note 9) 52 -
-------------------------------------------------------------------------
Balance at end of period 124 51
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of period 13,725 10,650
Transition adjustment on adoption of Financial
Instruments standards (Note 2) 80 -
Net income 1,800 3,045
Common dividends (727) (615)
Preferred dividends (13) (11)
-------------------------------------------------------------------------
Balance at end of period 14,865 13,069
-------------------------------------------------------------------------
Accumulated other comprehensive income,
net of income taxes
Balance at beginning of period (918) (696)
Transition adjustment on adoption of Financial
Instrument standards (Note 2) 426 -
Other comprehensive income for the period 398 189
-------------------------------------------------------------------------
Balance at end of period (Note 17) (94) (507)
-------------------------------------------------------------------------
Total shareholders' equity at end of period $21,775 $19,283
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Net income $879 $738 $1,800 $3,045
Other comprehensive income (loss),
net of income taxes
Change in unrealized gains and
(losses) on available-for-sale
securities, net of cash flow
hedges(a) 87 - 140 -
Reclassification to earnings in
respect of available-for-sale
securities(b) (26) - (55) -
Change in foreign currency
translation gains and (losses)
on investments in subsidiaries,
net of hedging activities(c),(d) 97 159 420 189
Change in gains and (losses) on
derivative instruments
designated as cash flow hedges(e) 13 - (114) -
Reclassification to earnings of
gains and (losses) on cash
flow hedges(f) 3 - 7 -
-------------------------------------------------------------------------
Other comprehensive income
for the period 174 159 398 189
-------------------------------------------------------------------------
Comprehensive income
for the period $1,053 $897 $2,198 $3,234
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) Net of income tax expense of $38 million and $62 million for the
three and six months ended April 30, 2007 respectively.
(b) Net of income tax benefits of $6 million and $20 million for the
three and six months ended April 30, 2007 respectively.
(c) Net of income tax expense of $331 million for the three months ended
April 30, 2007 (three months ended April 30, 2006 - $80 million). Net
of income tax expense of $52 million for the six months ended
April 30, 2007 (six months ended April 30, 2006 - $252 million).
(d) Includes $681 million for the three months ended April 30, 2007
(three months ended April 30, 2006 - $166 million) of after-tax gains
(losses) arising from hedges of the Bank's investment in foreign
operations. Includes $112 million for the six months ended April 30,
2007 (six months ended April 30, 2006 - $522 million) of after-tax
gains (losses) arising from hedges of the Bank's investment in
foreign operations.
(e) Net of income tax expense of $8 million for the three months ended
April 30, 2007 and income tax benefit of $70 million for the six
months ended April 30, 2007.
(f) Net of income tax expense of $1 million and $4 million for the three
and six months ended April 30, 2007 respectively.
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash flows from (used in)
operating activities
Net income $879 $738 $1,800 $3,045
Adjustments to determine net cash
flows from (used in) operating
activities:
Provision for credit losses 172 16 335 130
Restructuring costs 67 - 67 50
Depreciation 93 77 175 162
Amortization of other intangibles 112 125 230 253
Stock options 56 4 58 11
Dilution loss (gain), net - 5 - (1,559)
Net securities gains (102) (82) (172) (105)
Net gain on securitizations
(Note 5) (37) (19) (84) (52)
Equity in net income of an
associated company (65) (35) (130) (35)
Non-controlling interests 27 47 74 84
Future income taxes 189 (64) 359 105
Changes in operating assets
and liabilities:
Current income taxes payable 252 39 (106) (8)
Interest receivable and payable 65 9 137 (35)
Trading securities 9,032 5,191 6,527 (4,034)
Unrealized gains and amounts
receivable on derivative
contracts (698) (1,649) 276 (1,779)
Unrealized losses and amounts
payable on derivative contracts 821 1,361 (194) 2,797
Other (503) (2,501) (3,241) (3,536)
-------------------------------------------------------------------------
Net cash from (used in) operating
activities 10,360 3,262 6,111 (4,506)
-------------------------------------------------------------------------
Cash flows from (used in)
financing activities
Change in deposits 474 (3,670) 7,923 1,330
Securities sold under repurchase
agreements (9,275) 4,463 (7,333) 4,993
Securities sold short (1,087) 680 (1,970) 2,631
Issue of subordinated notes
and debentures - 541 2,274 2,341
Repayment of subordinated notes
and debentures - - - (150)
Subordinated notes and debentures
(acquired) sold in Wholesale
Banking 14 (21) 7 (20)
Liability for preferred shares
and capital trust securities (3) (7) 3 (9)
Translation adjustment on
subordinated notes and debentures
issued in a foreign currency (13) 3 29 3
Common shares issued on exercise
of options 19 35 53 80
Common shares (acquired) sold
in Wholesale Banking (2) 18 28 16
Dividends paid in cash
on common shares (361) (208) (687) (408)
Issuance of preferred shares - - - 425
Dividends paid on preferred
shares (7) (6) (13) (11)
-------------------------------------------------------------------------
Net cash from financing
activities (10,241) 1,828 314 11,221
-------------------------------------------------------------------------
Cash flows from (used in)
investing activities
Interest-bearing deposits
with banks (1,072) 931 (1,033) 1,450
Activity in available-for-sale,
held-to-maturity and investment
securities:
Purchases (22,332) (54,275) (70,562) (111,140)
Proceeds from maturities 23,430 50,390 63,908 101,507
Proceeds from sales 2,469 7,496 7,009 12,220
Activity in lending activities:
Origination and acquisitions (33,165) (55,040) (72,661) (104,188)
Proceeds from maturities 22,949 51,531 57,613 97,756
Proceeds from sales 1,190 265 1,788 598
Proceeds from loan
securitizations (Note 5) 3,268 2,050 6,331 3,392
Land, buildings and equipment (121) (233) (218) (308)
Securities purchased under
reverse repurchase agreements 6,923 (7,497) 5,527 (5,961)
TD Banknorth share repurchase
program - (290) - (290)
Acquisitions and dispositions
less cash and cash equivalents
acquired (Note 14) (3,713) (516) (4,139) (1,335)
-------------------------------------------------------------------------
Net cash used in investing
activities (174) (5,188) (6,437) (6,299)
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (64) (14) (13) (43)
-------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (119) (112) (25) 373
Cash and cash equivalents at
beginning of period 2,113 2,158 2,019 1,673
-------------------------------------------------------------------------
Cash and cash equivalents at
end of period, represented by
cash and due from banks $1,994 $2,046 $1,994 $2,046
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary disclosure of
cash flow information
Amount of interest paid
during the period $2,793 $2,020 $5,265 $4,301
Amount of income taxes paid
during the period 275 260 673 603
-------------------------------------------------------------------------
Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
-------------------------------------------------------------------------
Note 1: BASIS OF PRESENTATION
-------------------------------------------------------------------------
These Interim Consolidated Financial Statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP)
and follow the same accounting policies and methods of application as the
Bank's Consolidated Financial Statements for the year ended October 31,
2006, except as described in Note 2 below. Under GAAP, additional
disclosures are required in the annual financial statements and
accordingly, these Interim Consolidated Financial Statements should be
read in conjunction with the audited Consolidated Financial Statements
for the year ended October 31, 2006 and the accompanying notes included
on pages 71 to 113 of the Bank's 2006 Annual Report. The Interim
Consolidated Financial Statements include all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
results for the periods presented.
Note 2: CHANGES IN ACCOUNTING POLICIES
------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
The Bank adopted the Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3855, Financial Instruments - Recognition and
Measurement; Section 3865, Hedges; Section 1530, Comprehensive Income and
Section 3861, Financial Instruments - Disclosure and Presentation on
November 1, 2006. The adoption of these new Financial Instruments
standards resulted in changes in the accounting for financial instruments
and hedges as well as the recognition of certain transition adjustments
that have been recorded in opening retained earnings or opening
accumulated other comprehensive income as described below. The
comparative Interim Consolidated Financial Statements have not been
restated. With the adoption of these standards, the Bank's accounting for
financial instruments is now largely harmonized with U.S. generally
accepted accounting principles for this area. The principal changes in
the accounting for financial instruments and hedges due to the adoption
of these accounting standards are described below.
(a) Financial Assets and Financial Liabilities
Prior to the adoption of the new standards, the Bank classified all of
its financial assets as trading securities, investment securities or
loans and receivables. Trading securities were accounted for at fair
value. Investment securities were accounted for at cost or amortized
cost, net of any adjustment for other-than-temporary impairment. Loans
and receivables were accounted for at amortized cost using the effective
interest rate method. All of the Bank's financial liabilities, except
those classified as trading and short positions in securities, were
accounted for on an accrual basis.
Under the new standards, financial assets and financial liabilities are
initially recognized at fair value and are subsequently accounted for
based on their classification as described below. The classification
depends on the purpose for which the financial instruments were acquired
and their characteristics. Except in very limited circumstances, the
classification is not changed subsequent to initial recognition.
Financial assets purchased and sold, where the contract requires the
asset to be delivered within an established time frame, are recognized on
a trade-date basis. Transaction costs are recognized immediately in
income or are capitalized, depending upon the nature of the transaction
and the associated product.
Trading
-------
Financial assets and financial liabilities that are purchased and
incurred with the intention of generating profits in the near term are
classified as trading. These instruments are accounted for at fair value
with the change in the fair value recognized in trading income.
Investments totalling $76.4 billion, previously disclosed as trading in
the audited Consolidated Financial Statements for the year ended
October 31, 2006, were classified as trading on November 1, 2006.
On transition, retained interests with a carrying value of $216 million,
previously accounted for at amortized cost, were reclassified to trading
securities. Deposit liabilities totaling $35.5 billion were classified as
trading on November 1, 2006.
Available-for-sale
------------------
Financial assets classified as available-for-sale are carried at fair
value with the changes in fair value recorded in other comprehensive
income. Securities that are classified as available-for-sale and do not
have a readily available market value are recorded at cost. Available-
for-sale securities are written down to fair value through income
whenever it is necessary to reflect other-than-temporary impairment.
Previously, such write-downs were to net realizable value. Gains and
losses realized on disposal of available-for-sale securities, which are
calculated on an average cost basis, are recognized in net securities
gains in other income. Investments totalling $34.8 billion, previously
disclosed as "Investment Securities" in the audited Consolidated
Financial Statements for the year ended October 31, 2006, were designated
as available-for-sale on November 1, 2006. The change in accounting
policy related to other-than-temporary impairment was not material.
Held-to-maturity
----------------
Securities that have a fixed maturity date, where the Bank intends and
has the ability to hold to maturity, are classified as held-to-maturity
and accounted for at amortized cost using the effective interest rate
method. Investments totalling $10.1 billion were reclassified from
investment securities to held-to-maturity securities on November 1, 2006.
Bonds totalling $1.1 billion were reclassified from trading securities to
held-to-maturity securities on November 1, 2006.
Loans
-----
Loans are accounted for at amortized cost using the effective interest
rate method. This classification is consistent with the classification
under the prior accounting standards.
Financial assets and financial liabilities designated as trading under
----------------------------------------------------------------------
the fair value option
---------------------
Financial assets and financial liabilities, other than those classified
as trading, are designated as trading under the fair value option if they
are reliably measurable, meet one or more of the criteria set out below,
and are so designated by the Bank. The Bank may designate financial
assets and financial liabilities as trading when the designation:
(i) eliminates or significantly reduces valuation or recognition
inconsistencies that would otherwise arise from measuring financial
assets or financial liabilities, or recognizing gains and losses on
them, on different bases; or
(ii) applies to groups of financial assets, financial liabilities or
combinations thereof that are managed, and their performance
evaluated, on a fair value basis in accordance with a documented
risk management or investment strategy, and where information about
the groups of financial instruments is reported to management on
that basis.
Financial instruments designated as trading under the fair value option
are accounted for at fair value with the change in the fair value
recognized in Income from financial instruments designated as trading
under the fair value option. Any interest or dividends earned from these
financial instruments is recognized accordingly in interest income.
On November 1, 2006 the Bank designated $2 billion of financial assets as
trading under the fair value option.
Determination of fair value
---------------------------
The fair value of a financial instrument on initial recognition is
normally the transaction price, i.e. the fair value of the consideration
given or received. In certain circumstances, however, the initial fair
value may be based on other observable current market transactions in the
same instrument, without modification or repackaging, or on a valuation
technique whose variables include only data from observable markets.
Subsequent to initial recognition, the fair values of financial
instruments measured at fair value that are quoted in active markets are
based on bid prices for financial assets held and offer prices for
financial liabilities. When independent prices are not available, fair
values are determined by using valuation techniques which refer to
observable market data. These include comparisons with similar
instruments where market observable prices exist, discounted cash flow
analysis, option pricing models and other valuation techniques commonly
used by market participants.
For certain derivatives, fair values may be determined in whole or in
part from valuation techniques using non-observable market data or
transaction prices.
A number of factors such as bid-offer spread, credit profile and model
uncertainty are taken into account, as appropriate, when values are
calculated using valuation techniques.
If the fair value of a financial asset measured at fair value becomes
negative, it is recorded as a financial liability until its fair value
becomes positive, at which time it is recorded as a financial asset, or
it is extinguished.
(b) Derivatives and Hedge Accounting
Embedded derivatives
--------------------
Derivatives may be embedded in other financial instruments (the "host
instrument"). Prior to the adoption of the new standards, such embedded
derivatives were not accounted for separately from the host instrument
except in the case of derivatives embedded in equity-linked deposit
contracts within the scope of Accounting Guideline 17. Under the new
standards, embedded derivatives are treated as separate derivatives when
their economic characteristics and risks are not clearly and closely
related to those of the host instrument, the terms of the embedded
derivative are the same as those of a stand-alone derivative, and the
combined contract is not held for trading or designated at fair value.
These embedded derivatives are measured at fair value with subsequent
changes recognized in trading income. The change in accounting policy
related to embedded derivatives was not material.
Hedge accounting
----------------
At the inception of a hedging relationship, the Bank documents the
relationship between the hedging instrument and the hedged item, its risk
management objective and its strategy for undertaking the hedge. The Bank
also requires a documented assessment, both at hedge inception and on an
ongoing basis, of whether or not the derivatives that are used in hedging
transactions are highly effective in offsetting the changes attributable
to the hedged risks in the fair values or cash flows of the hedged items.
Under the previous standards, derivatives that met the requirements for
hedge accounting were generally accounted for on an accrual basis. Under
the new standards, all derivatives are recorded at fair value. Non-
trading derivatives are recorded in other assets or other liabilities.
The method of recognizing fair value gains and losses depends on whether
derivatives are held for trading or are designated as hedging
instruments, and, if the latter, the nature of the risks being hedged.
All gains and losses from changes in the fair value of derivatives held
for trading are recognized in the statement of income. These gains and
losses are reported in trading income.
When derivatives are designated as hedges, the Bank classifies them
either as: (i) hedges of the change in fair value of recognized assets or
liabilities or firm commitments (fair value hedges); (ii) hedges of the
variability in highly probable future cash flows attributable to a
recognized asset or liability, or a forecasted transaction (cash flow
hedges); or (iii) hedges of net investments in a foreign operation (net
investment hedges).
Fair value hedges
-----------------
The Bank's fair value hedges principally consist of interest rate swaps
that are used to protect against changes in the fair value of fixed-rate
long-term financial instruments due to movements in market interest
rates.
Changes in the fair value of derivatives that are designated and qualify
as fair value hedging instruments are recorded in the statement of
income, along with changes in the fair value of the assets, liabilities
or group thereof that are attributable to the hedged risk. Any gain or
loss in fair value relating to the ineffective portion of the hedging
relationship is recognized immediately in the statement of income in
other income.
If a hedging relationship no longer meets the criteria for hedge
accounting, the cumulative adjustment to the carrying amount of the
hedged item is amortized to the statement of income based on a
recalculated effective interest rate over the residual period to
maturity, unless the hedged item has been derecognized in which case it
is released to the statement of income immediately. Upon adoption of the
new standards, the Bank recorded a net increase in derivative liabilities
designated as fair value hedges of $3 million, an increase of $14 million
in loans and an increase of $11 million in deposits.
Cash flow hedges
----------------
The Bank is exposed to variability in future interest cash flows on non-
trading assets and liabilities that bear interest at variable rates or
are expected to be refunded or reinvested in the future. The amounts and
timing of future cash flows, representing both principal and interest
flows, are projected for each portfolio of financial assets and
liabilities on the basis of their contractual terms and other relevant
factors, including estimates of prepayments and defaults. The aggregate
principal balances and interest cash flows across all portfolios over
time form the basis for identifying the effective portion of gains and
losses on the derivatives designated as cash flow hedges of forecasted
transactions.
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognized in other
comprehensive income. Any gain or loss in fair value relating to the
ineffective portion is recognized immediately in the statement of income
in other income.
Amounts accumulated in other comprehensive income are reclassified to the
statement of income in the period in which the hedged item affects
income. However, when the forecast transaction that is hedged results in
the recognition of a non-financial asset or a non-financial liability,
the gains and losses previously deferred in other comprehensive income
are transferred from other comprehensive income and included in the
initial measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer
meets the criteria for hedge accounting, any cumulative gain or loss
existing in other comprehensive income at that time remains in other
comprehensive income until the forecasted transaction is eventually
recognized in the statement of income. When a forecasted transaction is
no longer expected to occur, the cumulative gain or loss that was
reported in other comprehensive income is immediately transferred to the
statement of income. Upon adoption of the new standards, the Bank
recorded a net increase in derivative assets of $212 million designated
as cash flow hedges and an increase of $212 million pre-tax in
accumulated other comprehensive income.
Net investment hedges
---------------------
Hedges of net investments in foreign operations are accounted for similar
to cash flow hedges. Any gain or loss on the hedging instrument relating
to the effective portion of the hedge is recognized in other
comprehensive income. The gain or loss relating to the ineffective
portion is recognized immediately in the statement of income. Gains and
losses accumulated in other comprehensive income are included in the
statement of income upon the repatriation or disposal of the investment
in the foreign operation. The adoption of the new standards resulted in
the reclassification of $918 million previously recorded in the foreign
currency translation adjustment account to opening accumulated other
comprehensive income.
(c) Comprehensive Income
Comprehensive income is composed of the Bank's net income and other
comprehensive income. Other comprehensive income includes unrealized
gains and losses on available-for-sale securities, foreign currency
translation gains and losses on the net investment in self-sustaining
operations and changes in the fair market value of derivative instruments
designated as cash flow hedges, all net of income taxes. The components
of comprehensive income are disclosed in the Interim Consolidated
Statement of Comprehensive Income.
The following table summarizes the adjustments required to adopt the new
standards.
Transition Adjustments, net of income taxes
-------------------------------------------------------------------------
Accumulated other
comprehensive
Retained earnings income
-------------------------------------------
Net of Net of
income income
(millions of Canadian dollars) Gross taxes Gross taxes
-------------------------------------------------------------------------
Classification of securities
as available-for-sale $ - $ - $440 $287
Classification of securities
as trading 76 50 - -
Designation of securities as
trading under the fair value
option 7 4 - -
Reversal of transition balances
deferred upon adoption of AcG-13 37 25 - -
Cash flow hedges - - 212 139
Other (4) 1 - -
-------------------------------------------------------------------------
Total $116 $80 $652 $426
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DETERMINING VARIABLE INTEREST ENTITIES
In September 2006, the Emerging Issues Committee of the CICA issued EIC-
163, Determining the Variability to be Considered in Applying AcG-15,
which provides additional guidance on how to analyze and consolidate
variable interest entities. The guidance became effective February 1,
2007 for the Bank. The new guidance does not have a material effect on
the financial position or earnings of the Bank.
There were no other changes in the Bank's accounting policies during the
six months ended April 30, 2007.
Note 3: FUTURE ACCOUNTING CHANGES IN ACCOUNTING POLICIES
-------------------------------------------------------------------------
Capital Disclosures
The CICA issued a new accounting standard, Section 1535, Capital
Disclosures, which requires the disclosure of both qualitative and
quantitative information that enables users of financial statements to
evaluate the entity's objectives, policies and processes for managing
capital. This new standard is effective for the Bank beginning
November 1, 2007.
Financial Instruments
The CICA issued two new accounting standards, Section 3862, Financial
Instruments - Disclosures, and Section 3863, Financial Instruments -
Presentation, which apply to interim and annual financial statements
relating to fiscal years beginning on or after October 1, 2007. The Bank
intends to adopt these new standards effective November 1, 2007.
Note 4: ALLOWANCE FOR CREDIT LOSSES
-------------------------------------------------------------------------
The allowance for credit losses is recorded in the Consolidated Balance
Sheet and maintained at a level which is considered adequate to absorb
credit- related losses on loans, customers' liability under acceptances
and other credit instruments. The change in the Bank's allowance for
credit losses for the six months ended April 30 is shown in the table
below.
Allowance for Credit Losses
For the six months ended
-------------------------------------------------------------------------
April 30, 2007 April 30, 2006
------------------------------------------------------
(millions of
Canadian Specific General Specific General
dollars) allowance allowance Total allowance allowance Total
-------------------------------------------------------------------------
Balance at
beginning of
year $172 $1,145 $1,317 $153 $1,140 $1,293
Acquisitions
of TD
Banknorth
(including
Hudson and
Interchange)
and VFC - 14 14 - 87 87
Provision for
(reversal of)
credit losses 337 (2) 335 194 (64) 130
Write-offs (361) - (361) (282) - (282)
Recoveries 68 - 68 63 - 63
Other(1) 11 (6) 5 7 (7) -
-------------------------------------------------------------------------
Allowance for
credit losses
at end of
period $227 $1,151 $1,378 $135 $1,156 $1,291
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes foreign exchange rate changes.
Note 5: LOAN SECURITIZATIONS
-------------------------------------------------------------------------
The following tables summarize the Bank's securitization activity for the
three and six months ended April 30. In most cases, the Bank has retained
responsibility for servicing the assets securitized.
New Securitization Activity
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------------
April 30, 2007
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gross proceeds $3,090 $1,528 $800 $218 $5,636
Retained interests 74 23 7 - 104
Cash flows received on
retained interests 49 25 15 1 90
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------------
April 30, 2006
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gross proceeds $1,748 $721 $1,300 $292 $4,061
Retained interests 22 5 19 - 46
Cash flows received on
retained interests 30 12 44 1 87
-------------------------------------------------------------------------
New Securitization Activity
-------------------------------------------------------------------------
For the six months ended
----------------------------------------------------
April 30, 2007
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gross proceeds $5,423 $3,924 $1,600 $218 $11,165
Retained interests 122 55 15 - 192
Cash flows received on
retained interests 90 53 32 1 176
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six months ended
----------------------------------------------------
April 30, 2006
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gross proceeds $3,081 $1,448 $2,600 $292 $7,421
Retained interests 42 10 45 - 97
Cash flows received on
retained interests 64 25 92 1 182
-------------------------------------------------------------------------
The following tables summarize the impact of securitizations on the
Bank's Interim Consolidated Statement of Income for the three and six
months ended April 30.
Securitization Gains and Income on Retained Interests
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------------
April 30, 2007
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gain on sale(1) $4 $23 $7 $3 $37
Income on retained
interests 32 8 20 - 60
-------------------------------------------------------------------------
Total $36 $31 $27 $3 $97
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended
----------------------------------------------------
April 30, 2006
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gain on sale(1) $(1) $5 $14 $1 $19
Income on retained
interests 17 5 30 1 53
-------------------------------------------------------------------------
Total $16 $10 $44 $2 $72
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Securitization Gains and Income on Retained Interests
-------------------------------------------------------------------------
For the six months ended
----------------------------------------------------
April 30, 2007
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gain on sale(1) $11 $57 $14 $2 $84
Income on retained
interests 77 21 49 - 147
-------------------------------------------------------------------------
Total $88 $78 $63 $2 $231
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six months ended
----------------------------------------------------
April 30, 2006
-------------------------------------------------------------------------
Residential Credit Commercial
(millions of mortgage Personal card mortgage
Canadian dollars) loans loans loans loans Total
-------------------------------------------------------------------------
Gain on sale(1) $(2) $10 $43 $1 $52
Income on retained
interests 55 12 44 1 112
-------------------------------------------------------------------------
Total $53 $22 $87 $2 $164
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For term loans, the gain on sale is after the impact of hedges on
assets sold.
The key assumptions used to value the retained interests are as follows:
Key Assumptions
-------------------------------------------------------------------------
2007
-------------------------------------------
Residential Credit Commercial
mortgage Personal card mortgage
loans loans loans loans
-------------------------------------------------------------------------
Prepayment rate(1) 20.0% 6.3% 42.7% 9.0%
Excess spread2 .8 1.1 7.0 1.0
Discount rate 6.4 6.0 6.1 6.4
Expected credit losses(3) - - 2.1 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2006
-------------------------------------------
Residential Credit Commercial
mortgage Personal card mortgage
loans loans loans loans
-------------------------------------------------------------------------
Prepayment rate(1) 20.0% 5.9% 44.4% 2.2%
Excess spread(2) 0.6 1.0 12.8 -
Discount rate 5.4 3.8 5.2 9.8
Expected credit losses(3) - - 2.5 0.1
-------------------------------------------------------------------------
(1) Represents monthly payment rate for secured personal and credit card
loans.
(2) The excess spread for credit card loans reflects the net portfolio
yield, which is interest earned less funding costs and losses.
(3) There are no expected credit losses for residential mortgage loans
as these mortgages are government guaranteed.
During the three months ended April 30, 2007, there were maturities of
previously securitized loans and receivables of $2,368 million (three
months ended April 30, 2006 - $2,011 million). Proceeds from new
securitizations were $3,268 million for the three months ended April 30,
2007 (three months ended April 30, 2006 - $2,050 million). During the six
months ended April 30, 2007, there were maturities of previously
securitized loans and receivables of $4,834 million (six months ended
April 30, 2006 - $4,029 million). Proceeds from new securitizations were
$6,331 million for the six months ended April 30, 2007 (six months ended
April 30, 2006 - $3,392 million).
Note 6: SUBORDINATED NOTES AND DEBENTURES
-------------------------------------------------------------------------
During the three months ended January 31, 2007, the Bank issued
subordinated reset medium-term notes of $2.25 billion pursuant to its
medium-term note program. The notes pay a coupon of 4.779% until
December 14, 2016, and then reset every five years to the 5-year
Government of Canada yield plus 1.74% thereafter until maturity on
December 14, 2105. The notes are redeemable at the Bank's option at par
on December 14, 2016. The Bank has included the issue as Tier 2A
regulatory capital.
Note 7: LIABILITIES FOR PREFERRED SHARES AND CAPITAL TRUST SECURITIES
-------------------------------------------------------------------------
The Bank's liabilities for preferred shares and capital trust securities
are as follows:
Liabilities
-------------------------------------------------------------------------
April 30, Oct. 31,
(millions of Canadian dollars) 2007 2006
-------------------------------------------------------------------------
Preferred Shares
Preferred shares issued by the Bank
(thousands of shares):
Class A - 14,000 Series M $350 $350
Class A - 8,000 Series N 200 200
-------------------------------------------------------------------------
550 550
Preferred shares issued by TD Mortgage
Investment Corporation (thousands of shares):
350 non-cumulative preferred shares, Series A 347 344
-------------------------------------------------------------------------
Total preferred shares 897 894
-------------------------------------------------------------------------
Capital Trust Securities(1)
Trust units issued by TD Capital Trust
(thousands of units)
900 Capital Trust Securities - Series 2009 900 900
-------------------------------------------------------------------------
Total Capital Trust Securities 900 900
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total preferred shares and Capital Trust Securities $1,797 $1,794
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Included in deposit liabilities on the Interim Consolidated Balance
Sheet is $350 million due to TD Capital Trust II.
Note 8: SHARE CAPITAL
-------------------------------------------------------------------------
Common Shares
The Bank is authorized by the shareholders to issue an unlimited number
of common shares, without par value, for unlimited consideration. The
common shares are not redeemable or convertible. Dividends are typically
declared by the Board of Directors of the Bank on a quarterly basis and
the amount may vary from quarter to quarter
Shares Issued and Outstanding
-------------------------------------------------------------------------
For the six months ended
----------------------------------------
April 30, 2007 April 30, 2006
----------------------------------------
(millions of shares and Number of Number of
millions of Canadian dollars) shares Amount shares Amount
-------------------------------------------------------------------------
Common:
Balance at beginning of period 717.4 $6,334 711.8 $5,872
Issued on exercise of options 1.5 53 2.3 80
Issued as a result of dividend
reinvestment plan 0.6 40 3.4 207
Impact of shares (acquired) sold
in Wholesale Banking 0.4 28 0.2 16
Issued on the acquisition of VFC - - 1.1 70
-------------------------------------------------------------------------
Balance at end of period - common 719.9 $6,455 718.8 $6,245
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred (Class A - Series O):
Balance at beginning of period 17.0 $425 - $-
Issued during the period - - 17.0 425
-------------------------------------------------------------------------
Balance at end of period
- preferred 17.0 $425 17.0 $425
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Normal Course Issuer Bid
On December 20, 2006, the Bank commenced a normal course issuer bid,
effective for up to one year, to repurchase for cancellation up to
five million common shares, representing approximately 0.7% of the Bank's
outstanding common shares as at December 13, 2006. No purchases were made
under this bid during the six months ended April 30, 2007.
The Bank repurchased four million common shares at a cost of $264 million
under its previous normal course issuer bid which commenced on
September 18, 2006 and was completed in October 2006.
Note 9: STOCK BASED COMPENSATION
-------------------------------------------------------------------------
The following table summarizes the compensation expense recognized by the
Bank for stock option awards for the three and six months ended April 30.
For the three For the six
months ended months ended
-------------------------------------------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
TD Bank $4 $4 $6 $11
TD Banknorth 2 2 4 4
-------------------------------------------------------------------------
During the three months ended April 30, 2007 and April 30, 2006, there
were no options granted by both TD Bank and TD Banknorth.
During the six months ended April 30, 2007, 1.5 million (six months ended
April 30, 2006 - 1.9 million) options were granted by TD Bank with a
weighted average fair value of $11.46 per option (six months ended
April 30, 2006 - $11.27 per option). During the six months ended
April 30, 2007, 27 thousand (six months ended April 30, 2006 -
2.3 million) options were granted by TD Banknorth with a weighted-average
fair value of $5.83 per option (six months ended April 30, 2006 -
$6.01 per option).
The fair value of options granted were estimated at the date of grant
using the Black-Scholes valuation model with the following assumptions:
For the six months ended
--------------------------
TD Bank April 30 April 30
2007 2006
-------------------------------------------------------------------------
Risk-free interest rate 3.9% 3.91%
Expected option life 5.2 years 5.1 years
Expected volatility 19.5% 21.9%
Expected dividend yield 2.92% 2.88%
-------------------------------------------------------------------------
For the six months ended
--------------------------
TD Banknorth April 30 April 30
2007 2006
-------------------------------------------------------------------------
Risk-free interest rate 4.45% 4.46%
Expected option life 6 years 7.5 years
Expected volatility 15.07% 15.08%
Expected dividend yield 2.98% 2.78%
-------------------------------------------------------------------------
As a result of the TD Banknorth privatization, 7.7 million TD Banknorth
stock options were converted into 4.1 million TD Bank stock options based
on their intrinsic value on the exchange date. The fair value of the
converted options that were vested was $52 million on the exchange date,
which was recorded in contributed surplus and was part of the purchase
consideration.
TD Banknorth stock options that would have expired prior to December 31,
2008 were not converted, and were paid out in cash based on their
intrinsic value of $7 million on the exchange date. These were part of
the purchase consideration.
Note 10: EMPLOYEE FUTURE BENEFITS
-------------------------------------------------------------------------
The Bank's pension plans and principal non-pension post-retirement
benefit plans expenses are as follows:
Principal Pension Plan Pension Expense
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Elements of pension plan expense
before adjustments to recognize
the long-term nature of the cost:
Service cost - benefits earned $16 $18 $33 $36
Interest cost on projected
benefit obligation 28 26 56 53
Actual return on plan assets (107) (141) (194) (128)
Plan amendments 7 7 7 7
Adjustments to recognize the
long-term nature of plan cost
Difference between costs arising
in the period and costs recognized
in the period in respect of:
Return on plan assets(1) 73 109 126 64
Actuarial losses(2) 2 5 5 11
Plan amendments(3) (5) (5) (3) (3)
-------------------------------------------------------------------------
Total $14 $19 $30 $40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the three months ended April 30, 2007, includes expected return
on plan assets of $34 million (three months ended April 30, 2006 -
$32 million) less actual return on plan assets of $107 million
(three months ended April 30, 2006 - $141 million). For the six
months ended April 30, 2007, includes expected return on plan assets
of $68 million (six months ended April 30, 2006 - $64 million) less
actual return on plan assets of $194 million (six months ended
April 30, 2006 - $128 million).
(2) For the three months ended April 30, 2007, includes loss recognized
of $2 million (three months ended April 30, 2006 - $5 million) less
actuarial losses on projected benefit obligation of nil (three
months ended April 30, 2006 - nil). For the six months ended
April 30, 2007, includes loss recognized of $5 million (six months
ended April 30, 2006 - $11 million) less actuarial losses on
projected benefit obligation of nil (six months ended April 30, 2006
- nil).
(3) For the three months ended April 30, 2007, includes amortization of
costs for plan amendments of $2 million (three months ended
April 30, 2006 - $2 million) less actual cost amendments of
$7 million (three months ended April 30, 2006 - $7 million). For the
six months ended April 30, 2007, includes amortization of costs for
plan amendments of $4 million (six months ended April 30, 2006 -
$4 million) less actual cost amendments of $7 million (six months
ended April 30, 2006 - $7 million).
Other Pension Plans' Expense
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
CT defined benefit pension plan $1 $1 $2 $3
TD Banknorth defined benefit
pension plans 1 2 3 4
Supplemental employee retirement
plans 8 8 17 17
-------------------------------------------------------------------------
Total $10 $11 $22 $24
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Principal Non-Pension Post-Retirement Benefit Plans Expense
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Service cost - benefits earned $3 $3 $6 $6
Interest cost on projected benefit
obligation 6 5 11 10
Plan amendments - - - (65)
Difference between costs arising
in the period and costs recognized
in the period in respect of:
Actuarial losses 2 2 3 4
Plan amendments (2) (2) (3) 62
-------------------------------------------------------------------------
Total $9 $8 $17 $17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Flows
The Bank's contributions to its pension plans and its principal non-
pension post-retirement benefit plans were as follows:
Pension Plan Contributions
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Principal pension plan $15 $15 $32 $30
CT defined benefit pension plan 1 - 2 1
TD Banknorth defined benefit
pension plans - 1 47 33
Supplemental employee retirement
plans 3 2 6 4
Non-pension post-retirement
benefit plans 2 2 4 4
-------------------------------------------------------------------------
Total $21 $20 $91 $72
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at April 30, 2007, the Bank expects to contribute an additional
$51 million to its principal pension plan, $2 million to its CT defined
benefit pension plan, $46 million to its TD Banknorth defined benefit
pension plans, $6 million to its supplemental employee retirement plans
and $4 million to its non-pension post-retirement benefit plans by the
end of the year. However, future contribution amounts may change upon the
Bank's review of the current contribution levels during the year.
Note 11: EARNINGS PER SHARE
-------------------------------------------------------------------------
The Bank's basic and diluted earnings per share at April 30 are as
follows:
Basic and Diluted Earnings per Share
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Basic Earnings per Share
Net income available to common
shares ($ millions) $872 $732 $1,787 $3,034
Average number of common shares
outstanding (millions) 719.1 715.7 718.7 714.1
Basic earnings per share ($) $1.21 $1.02 $2.49 $4.25
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted Earnings per Share
Net income available to common
shares ($ millions) $872 $732 $1,787 $3,034
Average number of common shares
outstanding (millions) 719.1 715.7 718.7 714.1
Stock options potentially
exercisable as determined under
the treasury stock method(1) 6.8 6.8 6.7 6.6
-------------------------------------------------------------------------
Average number of common shares
outstanding - diluted (millions) 725.9 722.5 725.4 720.7
-------------------------------------------------------------------------
Diluted earnings per share ($) $1.20 $1.01 $2.46 $4.21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the six months ended April 30, 2007, the computation of diluted
earnings per common share excluded weighted-average options
outstanding of 174 (six months ended April 30, 2006 - 480 thousand)
with a weighted-exercise price of $68.40 (six months ended April 30,
2006 - $60.02) as the options' price was greater than the average
market price of the Bank's common shares.
Note 12: SEGMENTED INFORMATION
-------------------------------------------------------------------------
The Bank's operations and activities are organized around the following
businesses: Canadian Personal and Commercial Banking, Wealth Management,
U.S. Personal and Commercial Banking and Wholesale Banking. Results for
these segments for the three and six months ended April 30 are presented
in the following tables:
Results by Business Segment
-------------------------------------------------------------------------
U.S.
Canadian Personal Personal and
(millions of and Commercial Wealth Commercial
Canadian dollars) Banking Management Banking
-------------------------------------------------------------------------
April April April April April April
For the three 30 30 30 30 30 30
months ended 2007 2006 2007 2006 2007 2006
------------------------------------------------------------------------
Net interest income $1,298 $1,147 $78 $62 $351 $327
Other income 688 624 516 460 153 134
------------------------------------------------------------------------
Total revenue 1,986 1,771 594 522 504 461
Provision for (reversal
of) credit losses 143 78 - - 35 8
Non-interest expenses 1,033 994 393 349 384 284
Dilution gain (loss), net - - - - - -
------------------------------------------------------------------------
Income (loss) before
provision for (benefit
of) income taxes 810 699 201 173 85 169
Provision for (benefit
of) income taxes 270 234 67 60 31 60
Non-controlling interests
in subsidiaries, net
of income taxes - - - - 31 50
Equity in net income of
an associated company,
net of income taxes - - 63 39 - -
------------------------------------------------------------------------
Net income (loss) $540 $465 $197 $152 $23 $59
------------------------------------------------------------------------
------------------------------------------------------------------------
Total assets (billions
of Canadian dollars)
- balance sheet $140.7 $137.9 $14.8 $12.0 $47.9 $46.5
- securitized 48.0 34.3 - - - -
------------------------------------------------------------------------
------------------------------------------------------------------------
-------------------------------------------------------------------------
(millions of Wholesale
Canadian dollars) Banking(1) Corporate(1) Total
-------------------------------------------------------------------------
April April April April April April
For the three 30 30 30 30 30 30
months ended 2007 2006 2007 2006 2007 2006
-------------------------------------------------------------------------
Net interest income $144 $76 $(209) $(185) $1,662 $1,427
Other income 498 458 (18) 15 1,837 1,691
-------------------------------------------------------------------------
Total revenue 642 534 (227) (170) 3,499 3,118
Provision for (reversal
of) credit losses 12 11 (18) (81) 172 16
Non-interest expenses 329 321 113 155 2,252 2,103
Dilution gain (loss), net - - - (5) - (5)
-------------------------------------------------------------------------
Income (loss) before
provision for (benefit
of) income taxes 301 202 (322) (249) 1,075 994
Provision for (benefit
of) income taxes 84 62 (218) (172) 234 244
Non-controlling interests
in subsidiaries, net
of income taxes - - (4) (3) 27 47
Equity in net income of an
associated company,
net of income taxes - - 2 (4) 65 35
-------------------------------------------------------------------------
Net income (loss) $217 $140 $(98) $(78) $879 $738
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets (billions
of Canadian dollars)
- balance sheet $157.5 $165.5 $35.8 $26.7 $396.7 $388.6
- securitized - - (16.5) (9.2) 31.5 25.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Results by Business Segment
-------------------------------------------------------------------------
U.S.
Canadian Personal Personal and
(millions of and Commercial Wealth Commercial
Canadian dollars) Banking Management Banking
-------------------------------------------------------------------------
April April April April April April
For the six 30 30 30 30 30 30
months ended 2007 2006 2007 2006 2007 2006
-------------------------------------------------------------------------
Net interest income $2,605 $2,324 $155 $240 $692 $611
Other income 1,391 1,251 990 1,024 298 207
-------------------------------------------------------------------------
Total revenue 3,996 3,575 1,145 1,264 990 818
Provision for (reversal
of) credit losses 281 177 - - 52 15
Non-interest expenses 2,092 1,979 757 874 683 509
Dilution gain, net - - - - - -
-------------------------------------------------------------------------
Income (loss) before
provision for (benefit
of) income taxes 1,623 1,419 388 390 255 294
Provision for (benefit
of) income taxes 539 478 132 139 86 102
Non-controlling interests
in subsidiaries, net
of income taxes - - - - 82 87
Equity in net income of
an associated company,
net of income taxes - - 127 39 - -
-------------------------------------------------------------------------
Net income (loss) $1,084 $941 $383 $290 $87 $105
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(millions of Wholesale
Canadian dollars) Banking(1) Corporate(1) Total
-------------------------------------------------------------------------
April April April April April April
For the six 30 30 30 30 30 30
months ended 2007 2006 2007 2006 2007 2006
-------------------------------------------------------------------------
Net interest income $347 $214 $(466) $(355) $3,333 $3,034
Other income 930 981 30 25 3,639 3,488
-------------------------------------------------------------------------
Total revenue 1,277 1,195 (436) (330) 6,972 6,522
Provision for (reversal
of) credit losses 36 40 (34) (102) 335 130
Non-interest expenses 661 716 248 315 4,441 4,393
Dilution gain, net - - - 1,559 - 1,559
-------------------------------------------------------------------------
Income (loss) before
provision for (benefit
of) income taxes 580 439 (650) 1,016 2,196 3,558
Provision for (benefit
of) income taxes 166 135 (471) (390) 452 464
Non-controlling interests
in subsidiaries, net
of income taxes - - (8) (3) 74 84
Equity in net income of
an associated company,
net of income taxes - - 3 (4) 130 35
-------------------------------------------------------------------------
Net income (loss) $414 $304 $(168) $1,405 $1,800 $3,045
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The taxable equivalent basis (TEB) increase to net interest income
and provision for income taxes reflected in the Wholesale Banking
segment results is reversed in the Corporate segment.
Note 13: DERIVATIVES
-------------------------------------------------------------------------
Hedge accounting results for the three and six months ended April 30,
2007 are as follows:
Hedge Accounting Results
-------------------------------------------------------------------------
For the three For the six
months ended months ended
----------------------------------------
April 30 April 30 April 30 April 30
(millions of Canadian dollars) 2007 2006 2007 2006
-------------------------------------------------------------------------
Fair value hedges
Loss arising from hedge
ineffectiveness $(0.2) $- $(0.6) $-
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow hedges
Gain arising from hedge
ineffectiveness $3.0 $- $3.5 $-
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Portions of derivative gains (losses) that were excluded from the
assessment of hedge effectiveness for fair value and cash flow hedging
activities are included in the Consolidted Statement of Income and are
not significant for the three months ended April 30, 2007.
During the three and six months ended April 30, 2007, there were no firm
commitments that no longer qualified as hedges.
Over the next 12 months, the Bank expects an estimated $34 million in net
losses reported in other comprehensive income as at April 30, 2007
to be reclassified to net income. The maximum length of time over which
the Bank is hedging its exposure to the variability in future cash flows
for anticipated transactions is 18 years. During the three and six months
ended at April 30, 2007, there were no forecasted transactions that
failed to occur.
Note 14: ACQUISITIONS AND DISPOSITIONS
-------------------------------------------------------------------------
(a) TD Banknorth
Interchange Financial Services Corporation
------------------------------------------
TD Banknorth completed its acquisition of Interchange Financial Services
Corporation (Interchange) on January 1, 2007 for a total cash
consideration of $545 million (US$468.1 million), financed primarily
through TD Banknorth's sale of 13 million of its common shares to the
Bank for $472 million (US$405 million). The acquisition of Interchange by
TD Banknorth contributed the following assets and liabilities of
Interchange to the Bank's Interim Consolidated Balance Sheet:
$1,283 million of personal/business loans and mortgages, $495 million of
goodwill and intangibles, $123 million of other assets, $1,332 million of
deposits and $97 million of other liabilities. TD Banknorth consolidates
the financial results of Interchange. As the Bank consolidates TD
Banknorth on a one month lag, Interchange's income/(loss) for the three
months ended March 31, 2007 has been included in the Bank's results for
the three months ended April 30, 2007.
Going-private transaction
-------------------------
On April 20, 2007, the Bank announced that it had obtained all approvals
necessary to complete its privatization of TD Banknorth. As at
January 31, 2007, the Bank's ownership interest in TD Banknorth was
59.4%. Under this transaction, the Bank acquired all of the outstanding
common shares of TD Banknorth that it did not already own for US$32.33
per TD Banknorth share for a total cash consideration of $3.7 billion
(US$3.3 billion). The acquisition has been accounted for by the purchase
method. On closing, TD Banknorth became a wholly-owned subsidiary of the
Bank and TD Banknorth's shares were delisted from the New York Stock
Exchange. As a result of the transaction, there was a net increase in
goodwill and intangibles on the Bank's Consolidated Balance Sheet of
approximately $1.5 billion. The allocation of the purchase price is
subject to finalization. In the normal course of the Bank's financial
reporting, TD Banknorth is consolidated on a one month lag basis.
However, $43 million before-tax restructuring, privatization and merger-
related costs incurred in April 2007 were included in the Bank's results
for the three months ended April 30, 2007 because in aggregate they
represent material TD Banknorth events for the period ended April 30,
2007.
(b) TD Ameritrade
-----------------
TD Ameritrade announced two common stock repurchase programs in 2006 for
an aggregate 32 million shares. As a result of TD Ameritrade's repurchase
activity, the Bank's direct ownership position in TD Ameritrade has
increased to 40.3% as at April 30, 2007 from 40.2% as at January 31,
2007. The Bank intends to sell shares of TD Ameritrade to bring its
direct ownership position under the ownership cap of 39.9% in accordance
with the Stockholders' Agreement. Moreover, as a result of consolidation
of financial statements of Lillooet Limited (Lillooet) in these Interim
Consolidated Financial Statements, TD Ameritrade shares held by Lillooet
have been included in the Bank's reported investment in TD Ameritrade.
The Bank has recognized income of TD Ameritrade related to the TD
Ameritrade shares owned by Lillooet for the period ended March 31, 2007.
Note 15: TD BANKNORTH RESTRUCTURING, PRIVATIZATION AND MERGER-RELATED
CHARGES
-------------------------------------------------------------------------
As a result of the privatization of TD Banknorth and related
restructuring initiatives undertaken within both TD Banknorth and TD Bank
USA during the three months ended April 30, 2007, the Bank incurred a
total of $67 million before-tax restructuring charges of which
$59 million related to TD Banknorth and $8 million related to TD Bank
USA. The restructuring charges primarily consisted of employee severance
costs, the costs of amending certain executive employment and award
agreements and write-down of long-lived assets due to impairment. In the
Interim Consolidated Statement of Income, the restructuring charges are
included in restructuring costs.
TD Banknorth also incurred privatization costs of $11 million before tax,
which primarily consisted of legal and investment banking fees, and
merger-related costs of $8 million in connection with the integration of
Hudson and Interchange with TD Banknorth. In the Interim Consolidated
Statement of Income, the privatization and merger-related charges are
included in other non-interest expenses.
Note 16: CONTINGENCIES
-------------------------------------------------------------------------
The two principal legal actions regarding Enron to which the Bank is a
party are the securities class action and the bankruptcy proceeding. In
2006, the Bank settled the bankruptcy court claims in this matter for
approximately $145 million (US$130 million). As at April 30, 2007, the
total contingent litigation reserve for Enron-related claims was
approximately $458 million (US$413 million). It is possible that
additional reserves above the current level could be required. Additional
reserves, if required, cannot be reasonably determined for many reasons,
including that other settlements are not generally appropriate for
comparison purposes, the lack of consistency in other settlements and the
difficulty in predicting the future actions of other parties to the
litigation.
The Bank and its subsidiaries are involved in various other legal actions
in the ordinary course of business, many of which are loan-related. In
management's opinion, the ultimate disposition of these actions,
individually or in the aggregate, will not have a material adverse effect
on the financial condition of the Bank.
Note 17: ACCUMULATED OTHER COMPREHENSIVE INCOME
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) includes the after-tax
change in unrealized gains and losses on available-for-sale securities,
cash flow hedging activities and foreign currency translation
adjustments.
Accumulated Other Comprehensive Income, net of income taxes
-------------------------------------------------------------------------
As at
(millions of Canadian dollars) April 30, 2007
-------------------------------------------------------------------------
Unrealized gain on available-for-sale securities,
net of cash flow hedges $372
Unrealized foreign currency translation losses on
investments in subsidiaries, net of hedging activities (498)
Gains on derivatives designated as cash flow hedges 32
-------------------------------------------------------------------------
Accumulated other comprehensive income balance as at
April 30, 2007 $(94)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SHAREHOLDER AND INVESTOR INFORMATION
Shareholder Services
For shareholder inquiries relating to missing dividends, lost share
certificates, estate questions, address changes to the share register,
dividend bank account changes or the dividend re-investment program,
please contact our transfer agent: CIBC Mellon Trust Company,
P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario, M5C 2W9,
1-800-387-0825 or 416-643- 5500 (www.cibcmellon.com or
inquiries@cibcmellon.com).
For all other shareholder inquiries, please contact TD Shareholder
Relations at 416-944-6367 or 1-866-756-8936 or email tdshinfo@td.com.
Internet website: www.td.com
Internet e-mail: customer.service@td.com
Designation of Eligible Dividends
The Toronto-Dominion Bank for the purposes of the Income Tax Act, Canada
and any similar provincial legislation advises that the dividend declared
for the quarter ending July 31, 2007 and all future dividends will be
eligible dividends unless indicated otherwise.
General Information
Contact Corporate & Public Affairs:
(416) 982-8578
Products and services: Contact TD Canada Trust, 24 hours a day, seven
days a week:
1-866-567-8888
French: 1-866-233-2323
Cantonese/Mandarin: 1-800-328-3698
Telephone device for the deaf: 1-800-361-1180
On-line Investor Presentation: Full quarterly report and a presentation
to investors and analysts (available on May 24, 2007) are accessible from
the home page of the TD Bank Financial Group website,
www.td.com/investor/calendar.jsp.
Quarterly Earnings Conference Call: Instant replay of the teleconference
is available from May 24, 2007.
Please call 1-877-289-8525 toll free, in Toronto (416) 640-1917, passcode
21226584 (pound key).
Webcast of Call: A live audio and video internet webcast of TD Bank
Financial Group's quarterly earnings conference call with investors and
analysts is scheduled on May 24, 2007 at 3:00 p.m. ET. The call is
webcast via the TD Bank Financial Group website at www.td.com/investor.
In addition, recordings of the presentations are archived on TD's website
and will be available for replay for a period of at least one month.
Common Share Repurchase
The Bank has filed a notice with the Toronto Stock Exchange of a normal
course issuer bid through the facilities of the Exchange. A copy of the
notice of the bid may be obtained, without charge, by contacting TD
Shareholder Relations at 416-944-6367 or 1-866-756-8936 or email
tdshinfo@td.com.
Further information regarding the bid is available on our web site at
www.td.com under Investor Relations/Share Information/Common Shares.
About TD Bank Financial Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as
TD Bank Financial Group. TD Bank Financial Group serves more than 14 million
customers in four key businesses operating in a number of locations in key
financial centres around the globe: Canadian Personal and Commercial Banking,
including TD Canada Trust; Wealth Management, including TD Waterhouse and an
investment in TD Ameritrade; U.S. Personal and Commercial Banking through TD
Banknorth; and Wholesale Banking, including TD Securities. TD Bank Financial
Group also ranks among the world's leading on-line financial services firms,
with more than 4.5 million on-line customers. TD Bank Financial Group had
CDN$397 billion in assets, as of April 30, 2007. The Toronto-Dominion Bank
trades on the Toronto and New York Stock Exchanges under the symbol "TD", as
well as on the Tokyo Stock Exchange.
For further information: Colleen Johnston, Executive Vice President and Chief Financial Officer, (416) 308-8279; Tim Thompson, Vice President, Investor Relations, (416) 982-6346; or Simon Townsend, Senior Manager, Corporate Communications, (416) 944-7161
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