RNS Number:1544P
Toronto-Dominion Bank
28 August 2003
TD Bank Financial Group Reports Third Quarter Results: Very strong quarter
driven by solid performance
The following news release provides an overview of the Bank's third quarter
financial results, and should be read in conjunction with Management's
Discussion and Analysis for the quarter. All figures reported in Canadian
dollars. For financial results, which include both operating cash and reported
earnings, please see table under the "How the Bank Reports" section on page 3.
Third Quarter Financial Highlights
*On a reported basis1, diluted earnings per share were $.73, compared with
loss per share of $.46 for the second quarter ended April 30, 2003 and loss
per share of $.67 for the same period last year.
*On an operating cash basis2, diluted earnings per share were $.91,
compared with loss per share of $.26 for the second quarter ended April 30,
2003 and loss per share of $.46 for the same period last year.
*On a reported basis, return on total common equity for the quarter was
17.1%, compared with (10.5)%, for the second quarter ended April 30, 2003
and (13.9)% for the same quarter last year.
*On an operating cash basis, return on total common equity for the quarter
was 21.4%, compared with (6.0)% for the second quarter ended April 30, 2003
and (9.5)% for the same quarter last year.
*Reported net income was $501 million for the quarter, compared with
reported net loss of $273 million for the second quarter ended April 30,
2003 and reported net loss of $405 million for the same quarter last year.
*Operating cash basis net income was $620 million, compared with operating
cash basis net loss of $146 million for the second quarter ended April 30,
2003 and operating cash basis net loss of $269 million for the same quarter
last year.
TORONTO, August 28, 2003 - TD Bank Financial Group (TDBFG) today announced its
financial results for the third quarter ended July 31, 2003. Results for the
quarter reflect strong earnings growth in Personal and Commercial Banking,
enhanced profitability in Wealth Management driven by stronger trading volumes,
and continued progress in the Wholesale Bank. The Bank also announced an
increase in the quarterly dividend of 4 cents to 32 cents representing an
increase of 14 percent per fully paid common share for the quarter ended October
31, 2003, payable on or after October 31, 2003.
"Personal and Commercial Banking continues to significantly drive our earnings
growth and I am encouraged by the strong contribution from Wealth Management and
positive results from the Wholesale Bank this quarter," said W. Edmund Clark, TD
Bank Financial Group President and Chief Executive Officer. "I am pleased that
the Board of Directors has decided to increase the dividend which is reflective
of their confidence in our ability to deliver consistent, sustainable earnings."
Clark also noted that the Bank's Tier 1 capital position had improved to 9.7%
for the quarter, up from 8.8% at the end of last quarter and 7.7% at the end of
Q3 2002.
"Very strong results this quarter reflect solid performance of core businesses
in line with our strategies. These results also include tax refund interest ($55
million pre-tax), and other tax adjustments ($13 million net), the final
restructuring charge in TD Waterhouse International ($5 million) and a sectoral
provision release of $40 million pre-tax," said Clark.
Third Quarter Business Segment Performance
Personal and Commercial Banking
The Personal and Commercial Banking operations of TD Canada Trust delivered
strong results for the quarter, maintaining excellent year-over-year earnings
growth.
"This quarter saw significant volume growth in real estate secured lending,"
said Clark. "This volume growth is encouraging in light of intense competition
in the current environment."
TD Canada Trust remains focused on improving efficiencies and expense reduction,
while maintaining high levels of customer satisfaction. The third quarter saw an
improvement in revenue growth and expense reduction, moving the efficiency ratio
to 58.3% compared with 60.3% for the same quarter a year ago.
Credit quality also improved in the third quarter, particularly in the personal
lending side of the business. Credit loss improvements were largely attributable
to post-integration benefits and enhanced risk management processes.
Following the quarter, TDBFG announced an agreement with Laurentian Bank to
acquire 57 retail branches of Laurentian Bank in Ontario and Western Canada.
Subject to regulatory approval, the deal is expected to close by October 31,
2003.
"This acquisition allows us to extend our franchise and bolster our presence in
key markets in Ontario and Western Canada," said Clark. "The acquisition is
expected to be positive but not material to TDBFG's earnings in the first year."
Wealth Management
The Bank's Wealth Management business continued to deliver on its strategies in
the third quarter. Net income increased by more than four and a half times over
the same quarter last year. TD Waterhouse's efforts to improve profitability per
trade in discount brokerage, coupled with strong gains in North American trading
volumes resulted in improved results for its discount brokerage business.
Internationally TD Waterhouse is on track to reaching break-even in 2004, having
achieved break-even results on an annualized basis for the month of July.
"In North America, our discount brokerage operations' earnings improved as we
translated robust growth in trading volumes this quarter into strong earnings
results, particularly in the United States," explained Clark. "We also saw solid
growth in assets under administration."
Outside of North America, the quarter saw TDBFG change its position in Hong Kong
and Singapore from operator to minority investor and a decision to exit the
stock brokerage and asset management businesses in India. TD Waterhouse is now
more focused on its international operations in the United Kingdom.
"I am pleased with the continued improvements in profitability across our Wealth
Management businesses," said Clark. "We will continue to leverage our strengths
to ensure the Wealth Management businesses in North America and the United
Kingdom have the capacity to deliver a greater contribution to future earnings."
Wholesale Bank
The Wholesale Bank continued to make progress in delivering on its strategy of
focusing on core clients and products, and in exiting the non-core loan
portfolio. The quarter was marked by strong investment banking results driven by
increased demand for financings and equity products. Trading-related revenues
were weaker reflecting poor liquidity in equity structured products. Loan
revenue continued to decline in line with declining asset volumes and hedging
activities.
No provisions for credit losses were incurred in the core loan portfolio. The
core loan portfolio purchased over $1.5 billion in credit protection in the
quarter at an annualized cost of $19 million. The non-core portfolio released
$40 million in sectoral provisions. Impaired loan formations in the non-core
portfolio were higher, but were in line with expectations. Overall the credit
environment improved substantially in the quarter.
"The core business is executing on plan and I am confident in our ability to
meet our operating earnings expectations for the year," said Clark. "We have
reduced the Wholesale Bank's risk profile considerably and I am satisfied with
the progress we have made in exiting loans in our non-core portfolio."
Conclusion
"This quarter demonstrates that we have the right strategies and more
importantly, we can execute them effectively to drive greater and more
sustainable value for shareholders," said Clark. "Our focus on shareholder value
underpins all of our key business strategies and we expect to maintain earnings
momentum as we continue to execute these strategies in the quarters ahead."
(As reported Thursday, August 28, 2003)
1 Reported results are prepared in accordance with Canadian generally accepted
accounting principles (GAAP).
2 Operating cash basis and reported results referenced in this report are
explained in detail on page 3 under the "How the Bank Reports" section.
From time to time, TD 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 United
States Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, among others, statements regarding TD's objectives and
strategies to achieve them, the outlook for TD's business lines, and TD's
anticipated financial performance. Forward-looking statements are typically
identified by words such as "believe", "expect", "may" and "could". By their
very nature, these statements 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: the credit, market,
liquidity, interest rate, operational and other risks discussed in the
management's discussion and analysis section of this report and other regulatory
filings made in Canada and with the SEC; legislative and regulatory
developments; the degree of competition in the markets in which TD operates,
both from established competitors and new entrants; technological change;
changes in government and economic policy including as to interest rates; the
health of the global economic, business and capital markets environments; and
management's ability to anticipate and manage the risks associated with these
factors and execute TD's strategies. This list is not exhaustive. Other factors
could also adversely affect TD's results. All such factors should be considered
carefully when making decisions with respect to TD, and undue reliance should
not be placed on TD's forward-looking statements. TD does not undertake to
update any forward-looking statements, written or oral, that may be made from
time to time by or on our behalf.
Management's Discussion and Analysis of Operating Performance
How the Bank Reports
The Bank prepares its financial statements in accordance with Canadian generally
accepted accounting principles (GAAP) and are presented on pages 8 to 15 of this
Third Quarter Report to Shareholders. The Bank refers to results prepared in
accordance with GAAP as the "reported basis".
In addition to presenting the Bank's results on a reported basis, the Bank
utilizes the "operating cash basis" to assess each of its businesses and to
measure overall Bank performance against targeted goals. The definition of
operating cash basis begins with the reported GAAP results and then excludes the
impact of special items and non-cash charges related to identified intangible
amortization from business combinations. There were no special items in the
first, second and third quarters of fiscal 2003. For fiscal 2002, the only
special item excluded was a gain on sale of the Bank's mutual fund record
keeping and custody business in the first and third quarter 2002. The Bank views
special items as transactions that are not part of the Bank's normal daily
business operations and are therefore not indicative of underlying trends. The
Bank's non-cash identified intangible amortization charges relate to the Canada
Trust acquisition in fiscal 2000. The Bank has excluded non-cash amortization
charges related to identified intangibles as it ensures comparable treatment
between periods and comparable treatment with goodwill. Consequently, the Bank
believes that the operating cash basis provides the reader with an understanding
of the Bank's results that can be consistently tracked from period to period.
The goodwill impairment recorded by the Bank in the second quarter 2003 relating
to the international unit of its wealth management business and its U.S. equity
options business was not considered a special item for exclusion when
determining the operating cash basis results. Restructuring costs are reviewed
by the Bank on a case-by-case basis to determine whether they are deemed special
items. The restructuring charges recognized by the Bank in the second quarter
2003, related to the international unit of its wealth management business and
its U.S. equity options business, were not considered special items given that
they were incurred as part of the rationalization of the existing businesses and
not as part of an acquisition which the Bank would normally consider as a
special item.
As explained, operating cash basis results are different from reported results
determined in accordance with GAAP. The term "operating cash basis results" is
not a defined term under GAAP, and therefore may not be comparable to similar
terms used by other issuers. The table below provides a reconciliation between
the Bank's operating cash basis results and its reported results.
Net Income
Operating cash basis net income for the quarter was $620 million, compared with
operating cash basis net loss of $269 million for the same quarter last year. On
an operating cash basis, basic earnings per share were $.92 and diluted earnings
per share were $.91 this quarter, compared with loss per share of $.46 in the
same quarter last year. Operating cash basis return on total common equity was
21.4% for the quarter as compared with (9.5)% last year. Operating cash basis
return on invested capital was 17.6% for the quarter compared with (8.2)% in the
same quarter a year ago. Invested capital is equal to common equity plus the
cumulative amount of goodwill and intangible assets amortized as of the
reporting date.
Reported net income was $501 million for the third quarter, compared with a
reported net loss of $405 million in the same quarter last year. Reported basic
earnings per share were $.74 and reported diluted earnings per share were $.73
for the quarter, compared with loss per share of $.67 in the same quarter last
year. Reported return on total common equity was 17.1% for the quarter compared
with (13.9)% last year.
Reconciliation of Operating Cash Basis Results to Reported Results
(unaudited, in millions of dollars)
For the three For the nine
months ended months ended
July 31 July 31 July 31 July 31
2003 2002 2003 2002
Net interest income (TEB) $1,460 $1,452 $4,405 $4,081
Provision for credit losses (59) (1,250) (269) (1,975)
Other income 1,193 1,016 3,330 3,835
Non-interest expenses (1,697) (1,641) (5,807) (5,119)
Income (loss) before
provision for (benefit of)
income taxes and
non-controlling interest in
net income of subsidiaries 897 (423) 1,659 822
Provision for (benefit of)
income taxes (TEB) 254 (167) 636 199
Non-controlling interest in
net income of subsidiaries (23) (13) (69) (48)
Net income (loss) -
operating cash basis $620 $(269) $954 $575
Preferred dividends (21) (23) (66) (70)
Net income (loss) applicable
to common shares -
operating cash basis $599 $(292) $888 $505
Gain on sale of mutual fund
record keeping and custody
business, net of income taxes - 18 - 32
Net income (loss) applicable
to common shares - cash basis 599 (274) 888 537
Non-cash intangible
amortization, net of income
taxes (119) (154) (379) (478)
Net income (loss) applicable
to common shares - reported
basis $480 $(428) $509 $59
(dollars)
Basic net income (loss)
per common share -
operating cash basis $.92 $(.46) $1.37 $.79
Diluted net income (loss)
per common share -
operating cash basis .91 (.46) 1.36 .78
Basic net income (loss)
per common share -
reported basis .74 (.67) .78 .09
Diluted net income (loss)
per common share -
reported basis .73 (.67) .78 .09
Certain comparative amounts have been reclassified to conform with
current year presentation.
For the nine months ended July 31, 2003, operating cash basis net income was
$954 million compared with $575 million for the same period last year. On an
operating cash basis, basic earnings per share were $1.37, compared with basic
earnings per share of $.79 in the same period last year and diluted earnings per
share were $1.36, compared with diluted earnings per share of $.78 last year.
Operating cash basis return on total common equity was 10.4% for the nine months
ended July 31, 2003 compared with 5.5% for the same period last year. Operating
cash basis return on invested capital was 8.6% for the nine months ended July
31, 2003 compared with 4.8% in the same period a year ago.
Reported net income was $575 million for the nine months ended July 31, 2003
compared with net income of $129 million in the same period last year. Reported
basic and diluted earnings per share were $.78 for the nine months ended July
31, 2003 compared with $.09 last year. Reported return on total common equity
was 6.0% for the nine months ended July 31, 2003, compared with .6% last year.
The Bank's total economic profit was $227 million in the third quarter 2003
compared with an economic loss of $692 million in the same quarter last year.
The Bank's total economic loss for the nine months ended July 31, 2003 was $234
million compared with a total economic loss of $675 million in the same period a
year ago. The Bank utilizes economic profit as a tool to measure shareholder
value creation. Economic profit (loss) is operating cash basis net income (loss)
applicable to common shares after providing a charge for invested capital.
Net Interest Income
Net interest income is calculated on a taxable equivalent basis (TEB), which
means that the value of non-taxable or tax-exempt income such as dividends is
adjusted to its before tax value. Net interest income (TEB) was $1,460 million
this quarter, a year-over-year increase of $8 million or 1%. The increase
relates to interest income from income tax refunds and lower securitization
adjustments. In addition, the increase in net interest income partially relates
to Personal and Commercial Banking where personal loan volumes - excluding
securitizations - increased $4 billion from a year ago. These increases were
somewhat offset by a decrease in net interest income at the Wholesale Bank as a
result of decreased interest income from trading activities and lower lending
assets during the quarter. Net interest income excluding the TEB adjustment was
$1,402 million this quarter, a year-over-year decrease of $2 million.
For the nine months ended July 31, 2003, net interest income (TEB) was $4,405
million, an increase of $324 million or 8% over the same period last year. The
increase in net interest income relates to interest income from income tax
refunds and lower securitization adjustments. In addition, the increase is due
to increased income from trading activities in the Wholesale Bank which was
partially offset by lower net interest income in non trading activities due to
lower assets. Net interest income excluding the TEB adjustment for the nine
months ended July 31, 2003 was $4,237 million, an increase of $325 million
compared with the same period last year.
Other Income
Other income on an operating cash basis was $1,193 million for the quarter, an
increase of $177 million or 17% from the same quarter last year, after excluding
the special gain from the sale of the Bank's custody business in the third
quarter 2002. In the third quarter 2002, the Bank sold its custody business and
recorded a pre-tax gain of $22 million. The Bank has excluded this special gain
in analyzing its performance as it is not a recurring event. Reported other
income was $1,193 for the quarter, an increase of $155 million or 15% from the
same period last year.
During the quarter, trading income reported in other income increased by $54
million compared with the same quarter last year, while trading-related income
generated by the Wholesale Bank - which is the total of trading income reported
in other income and the net interest income on trading positions reported in net
interest income - was $204 million for the quarter, a decrease of $14 million or
6% compared with a year ago. The decrease over last year is primarily due to
lower trading revenues in equity structured products. The investment securities
portfolio realized net gains of $18 million this quarter compared with losses of
$8 million in the same quarter last year due to lower securities' write downs.
Overall, the investment securities portfolio continues to have a surplus over
its book value of $354 million compared with $228 million at the end of 2002.
Underwriting fees increased by $26 million or 53% as compared with the same
quarter a year ago, reflecting increased underwriting activities in both the
equity and fixed income businesses. In addition, the increase in other income
reflected an increase in discount brokerage fees and commissions of $25 million
or 11% compared with the same quarter a year ago. This increase reflects an
increase of 15% in average trades per day to 110,000 from 96,000 a year ago.
Fees from card services and service charges increased $27 million or 13% over a
year ago and insurance revenues increased by $17 million or 18%.
For the nine months ended July 31, 2003, other income was $3,330 million, a
decrease of $505 million or 13% compared with the same period last year, after
excluding the special gain from the sale of the Bank's mutual fund record
keeping and custody business in the first and third quarters of 2002. In the
first and third quarters of 2002, the Bank sold its mutual fund record keeping
and custody business and recorded a pre-tax gain of $18 million and $22 million,
respectively. The Bank has excluded these special gains in analyzing its
performance as they are not recurring events. Reported other income was $3,330
million for the nine months ended July 31, 2003, a decrease of $545 million or
14% from the same period last year.
For the nine months ended July 31, 2003, trading income reported in other income
decreased by $339 million or 73% compared with last year, while trading-related
income generated by the Wholesale Bank was $912 million for the period, a
decrease of $111 million or 11% compared with the same period last year. The
decrease reflects a decline in market activity levels across equity and interest
rate products compared with last year. The investment securities portfolio
realized no net gains or losses for the nine months ended July 31, 2003 compared
with gains of $40 million in the same period last year. The decrease is
primarily attributable to market conditions. The decline in other income for the
nine months ended July 31, 2003 also reflected a decrease in discount brokerage
fees and commissions of $26 million or 4% and a decrease of $20 million or 5% in
income from mutual fund management. Also contributing to the decline in other
income were write downs of $39 million during the second quarter of 2003,
resulting from other than temporary impairments in certain international wealth
management joint ventures. Somewhat offsetting the decline in other income was a
year-over-year increase in fees from card services and service charges of $59
million or 9% and an increase in insurance revenues of $26 million or 9% as
compared with the same period last year.
Non-Interest Expenses
Total operating cash basis expenses for the quarter increased by $56 million to
$1,697 million from the same quarter last year. The increase in expenses is
primarily related to increased variable compensation expenses in the Wholesale
Bank compared with the same quarter last year. Operating cash basis expenses
exclude non-cash identified intangible amortization. On a reported basis,
expenses increased by $1 million from a year ago to $1,883 million. In the third
quarter 2003, the impact of non-cash identified intangible amortization on the
Bank's reported expenses was $186 million compared with $241 million in the same
quarter a year ago. Beginning in fiscal 2003, the Bank has applied the fair
value method of accounting for stock options and recorded an expense of $2
million this quarter.
On an operating cash basis, the Bank's overall efficiency ratio improved to
64.0% in the current quarter from 66.5% the same quarter a year ago. The Bank's
consolidated efficiency ratio is impacted by shifts in its business mix. The
efficiency ratio is viewed as a more relevant measure for Personal and
Commercial Banking, which had an efficiency ratio, excluding amortization of
intangibles, of 58.3% this quarter as compared with 60.3% a year ago. During the
quarter, the method used to calculate the efficiency ratio for Personal and
Commercial Banking was changed to no longer exclude the funding costs for the
acquisition of Canada Trust. On a reported basis, the Bank's overall efficiency
ratio improved to 72.6% from 77.1% in the same quarter a year ago.
For the nine months ended July 31, 2003, operating cash basis expenses increased
$688 million to $5,807 million compared with the same period last year. The
increase in expenses is primarily a result of $624 million in goodwill write
downs related to the international unit of the Bank's wealth management business
and its U.S. equity options business in the Wholesale Bank recognized in the
second quarter of 2003. During the second quarter 2003, the Bank reviewed the
value of goodwill assigned to these businesses and determined that an impairment
in value had occurred. In addition, during the second quarter 2003 the Bank
determined that it was necessary to restructure these operations and as a result
recorded $87 million in restructuring costs in the second quarter and $5 million
in the third quarter 2003. On a reported basis, expenses increased by $513
million from a year ago to $6,404 million. The impact of non-cash identified
intangible amortization on the Bank's reported expenses for the nine months
ended July 31, 2003 was $597 million compared with $772 million in the same
period a year ago. For the nine months ended July 31, 2003, the expense related
to stock options included in non-interest expenses was $7 million. On an
operating cash basis, the Bank's overall efficiency ratio for the nine months
ended July 31, 2003 weakened to 75.1% from 64.7% the same period a year ago. On
a reported basis, the Bank's overall efficiency ratio for the nine months ended
July 31, 2003 weakened to 84.6% from 75.7% in the same period a year ago.
Taxes
The Bank's operating cash basis effective tax rate, on a taxable equivalent
basis, was 28.3% for the quarter compared with 39.5% in the same quarter a year
ago. The change in the effective tax rate is due to a change in the Bank's
business mix, the reduction of statutory tax rates and tax adjustments this
quarter. On a reported basis, the effective tax rate was 19.8% for the quarter
compared with 43.2% a year ago.
For the nine months ended July 31, 2003, the Bank's operating cash basis
effective tax rate, on a taxable equivalent basis, was impacted by the goodwill
and joint venture write downs recorded in the second quarter of 2003. As
portions of these write downs are not tax-effected for reporting purposes, the
provision for income taxes as a percentage of pre-tax income is not considered a
meaningful measure for this period.
Balance Sheet
Total assets were $302 billion at the end of the third quarter, $24 billion or
9% higher than as at October 31, 2002. Increased securities volumes from
securities purchased under resale agreements and trading securities represented
$14 billion and $12 billion of the increase, respectively. As compared with year
end, personal loans, including securitizations, increased by $4 billion to reach
$47 billion. At the end of the third quarter, residential mortgages, including
securitizations, increased by $3 billion to reach $70 billion as compared with
year end. Bank-originated securitized assets not included on the balance sheet
amounted to $18 billion compared with $15 billion at October 31, 2002.
Wholesale deposits increased by $3 billion and securities sold short or under
repurchase agreements increased by $8 billion as compared with October 31, 2002.
Personal non-term deposits increased by $2 billion and personal term deposits
increased by $1 billion compared with October 31, 2002, to $53 billion and $51
billion, respectively.
Managing Risk
Credit Risk and Provision for Credit Losses
During the quarter, the Bank expensed $59 million through the provision for
credit losses, compared with $1,250 million in the same quarter last year. The
provision for credit losses during the quarter related primarily to the Personal
and Commercial Bank and included a reversal of $40 million in sectoral
allowances previously established for the non-core portfolio of the Wholesale
Bank. In addition, the Bank transferred $95 million from sectoral allowances to
specific allowances. For the nine months ended July 31, 2003, the Bank expensed
$269 million through the provision for credit losses compared with $1,975
million for the same period last year. During the nine months ended July 31,
2003, the Bank transferred $501 million from sectoral allowances to specific
allowances. The total allowance for credit losses (specific, general and
sectoral allowances) exceeded gross impaired loans by $643 million at the end of
the quarter, compared with a $975 million excess at October 31, 2002.
Interest Rate Risk
The objective of interest rate risk management is to ensure stable and
predictable earnings are realized over time. In this context, the Bank has
adopted a "fully-hedged" approach to profitability management for its asset and
liability positions. Key aspects of this approach are:
*minimizing the impact of interest rate risk on net interest income and
economic value within 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 July 31, 2003, an immediate and sustained 100
basis point increase in rates would have decreased the economic value of
shareholders' equity by $33 million after-tax.
Liquidity Risk
The Bank holds a sufficient amount of liquidity to fund its obligations as they
come due under normal operating conditions as well as under various stress test
scenarios with a base case scenario that defines the minimum amount of liquidity
that must be held at all times. This base case scenario provides coverage for
100% of our unsecured wholesale debt coming due as well as other potential
deposit run-off and contingent liabilities for a period of 30 days. As of July
31, 2003, our consolidated surplus liquid asset position under the base case
scenario at 30 days was $15.6 billion in Canadian dollars, compared with a
position of $5.5 billion at October 31, 2002. The Bank ensures that it meets the
requirements by managing its cash flows and holding highly liquid assets in
Canadian and U.S. dollars as well as other foreign currencies that can be
readily converted into cash. The Bank manages liquidity on a global basis,
ensuring the 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 limits on
profit and loss sensitivity to various market factors. Policy controls are
augmented by 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 table on the following page presents
average and end-of-quarter VaR usage for the three and nine month periods ended
July 31, 2003, as well as the fiscal 2002 average. The Bank backtests its VaR by
comparing it to daily net trading revenue.
For both the three and nine month periods ended July 31, 2003, daily net trading
revenues were positive for 95.5% and 97.4% of the trading days, respectively.
Losses never exceeded the Bank's statistically predicted VaR for the total of
our trading-related businesses.
Value at Risk Usage - Wholesale Bank
For the For the For the For the
three three nine twelve
months months months months
ended ended ended ended
July 31 July 31 July 31 Oct. 31
2003 2003 2003 2002
(millions of dollars) As at Average Average Average
Interest rate risk $(19.5) $(19.2) $(17.2) $(17.5)
Equity risk (4.9) (7.5) (7.2) (11.1)
Foreign exchange risk (2.7) (3.3) (3.3) (2.1)
Commodity risk (1.1) (.9) (.8) (.4)
Diversification effect 10.2 12.0 10.6 10.4
Global Value at Risk $(18.0) $(18.9) $(17.9) $(20.7)
Capital
As at July 31, 2003, the Bank's Tier 1 capital ratio was 9.7%, compared with
8.1% at October 31, 2002. Risk-weighted assets decreased by $7 billion or 5.5%
as compared with year end. In addition, Tier 1 capital increased by $1 billion
or 13.4% as compared with October 31, 2002, thereby improving our Tier 1 capital
ratio. In addition, total capital increased by $2 billion or 13.4% as compared
with year end.
During the quarter, the Bank redeemed US$175 million in Class A Preferred
Shares, Series G. During the second quarter of 2003, the Bank redeemed $150
million in Class A Preferred Shares, Series K and US$50 million in Class A
Preferred Shares, Series L and issued $350 million in Class A Preferred Shares,
Series M and $200 million in Class A Preferred Shares, Series N.
Management's Discussion and Analysis of TD's Businesses
The Bank's operations and activities are organized around the following
operating business segments: Personal and Commercial Banking, Wholesale Bank and
Wealth Management. 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 cash basis net
income, return on invested capital and economic profit. Cash basis results
exclude non-cash charges related to identified intangible amortization from
business combinations. Results which include special items and identified
intangible amortization for the Bank are discussed in the "How the Bank Reports"
section of the Management's Discussion and Analysis of Operating Performance on
page 3. For further details see Note 3 of the Bank's Consolidated Interim
Financial Statements.
Personal and Commercial Banking
Cash basis net income of $335 million for the third quarter increased by a
strong $53 million or 19% from the prior year driven by a spread of over three
percentage points between revenue and expense growth along with lower credit
losses. The net income growth, along with a modest increase of 3% in invested
capital, resulted in the cash basis return on invested capital increasing from
16.7% last year to 19.3% in the current quarter. Economic profit also improved
by $63 million over last year to $174 million for the quarter.
Personal and Commercial Banking has made steady progress this year in revenue
growth. This quarter's revenue growth was $39 million or 3% over last year
compared with growth of 2% in the second quarter and 1% in the first quarter.
Revenue growth this quarter was a result of solid lending and deposit volume
growth; higher insurance income and higher transaction-based fees partly offset
by lower margin and lower branch sales of Wealth Management products. Personal
lending volume, including securitizations grew $7 billion or 7%, primarily from
real estate secured lending, and personal deposit volume grew, $3 billion or 4%.
Business deposits grew by $3 billion or 13% and originated gross insurance
premiums grew by $83 million or 28%. Business loans and acceptances contracted
by $1 billion or 6%. Margin decreased from the impact of the low interest rate
environment on deposit margins and competitive pressure, particularly on
mortgages and savings accounts.
Provision for credit losses for the quarter decreased by $27 million or 20%
compared with last year on improved credit quality and lower loss rates in the
personal and small business portfolios. Provision for credit losses as a percent
of lending volume (annualized) improved to .33% from .43% last year.
Cash basis expenses decreased by $6 million or 1% compared with last year.
Expense synergies from process improvements and branch mergers contributed to a
1,650 or 6% decrease in the overall average full-time equivalent personnel over
last year. These personnel savings were offset in part by increases in salaries
and severance costs as well as up-front costs associated with the closure of the
Wal-Mart in-store branches scheduled for the fourth quarter. The progress made
in achieving operational efficiencies is evident in the improvement in the cash
basis efficiency ratio to 58.3% this quarter, two percentage points better than
last year.
Margin compression is expected to continue to be an issue for the foreseeable
future given the outlook for short-term interest rates and continued price
competition. In addition, we may see higher loan losses in our commercial
portfolio going forward relating to the strong Canada/U.S. exchange rate. Our
objective continues to be to aggressively grow earnings for Personal and
Commercial Banking. Accordingly, we will continue to place emphasis on
sustainable expense reductions through investments in operational efficiencies,
and consider strategic investments that will grow our franchise. The recent
agreement in principle to acquire 57 branches from Laurentian Bank represents a
significant opportunity to grow our franchise and enhance market presence in
Ontario and Western Canada. The agreement provides for the acquisition of the
retail branches and a loan portfolio valued at approximately $2.0 billion and a
deposit portfolio valued at approximately $1.9 billion for the purchase price
premium of $112.5 million over net asset value. Subject to regulatory approvals,
the deal is expected to close on October 31, 2003.
Wholesale Bank
Wholesale Bank had a solid performance in the third quarter with cash basis net
income of $172 million. For the second quarter of 2003, the Wholesale Bank
reported a net loss of $120 million including the restructuring costs and
goodwill impairment charges related to the U.S. equity options business, which
resulted in a $422 million pre-tax charge ($289 million after-tax). In the third
quarter of 2002, the Wholesale Bank reported a net loss of $542 million
primarily as a result of establishing $1,132 million in provisions for credit
losses. The cash basis return on invested capital for the quarter was 16.8%
compared with (51.8)% in the same quarter last year. Economic profit for the
quarter was $37 million compared with $(674) million in the same quarter last
year.
Wholesale Bank's revenues are derived primarily from corporate lending, capital
markets and investing activities. Total revenue for the quarter was $547
million, compared with revenue of $531 million in the same quarter last year.
Lending revenues were down from last year reflecting a reduction in lending
assets and higher costs for purchasing credit protection. This is consistent
with our strategy to reduce the capital and risk employed in the corporate
lending portfolio. Stronger year-over-year capital markets revenues, which
include advisory, underwriting, trading, facilitation and execution services,
more than offset the decline in lending revenues. Equity underwriting revenues
increased as a result of stronger market activity. Interest rate and credit
derivatives trading revenues improved due to higher client activity and more
stability in the debt capital markets. This was partially offset by weaker
trading revenues in equity structured products. Revenues
from investing activities were relatively flat year-over-year as higher
securities gains were offset by declining asset levels and lower yields.
The Wholesale Bank released $40 million of the sectoral provisions established
for the non-core portfolio. No provisions for credit loss were established for
the core portfolio in the quarter. The credit quality of the core portfolio
remains strong as all loans within this portfolio are performing. In the third
quarter of 2002, the Wholesale Bank reported provisions for credit losses of
$1,132 million. This charge included $850 million of sectoral provisions for
loan losses.
Non-interest expenses were $317 million, compared with $248 million last year.
The increase over last year is attributable to a significant reduction in
variable compensation in the third quarter of last year due to the large
provisions for credit losses established during the quarter.
We have made good progress in managing the non-core portfolio. The portfolio has
been reduced from $11.2 billion in outstanding loans at October 31, 2002 to $6.2
billion at July 31, 2003. The sectoral provision declined by $135 million in the
quarter. The decline is due to transferring $95 million from the sectoral
provision to establish specific reserves and $40 million release of the sectoral
provision.
Overall, the Wholesale Bank had a solid performance in the third quarter. While
market conditions continue to be challenging, improvement was noted in the
general level of corporate and market activity as some of the geopolitical
uncertainties abated.
Wealth Management
Wealth Management's third quarter cash basis net income was $82 million, an
improvement of $381 million from the second quarter and $64 million from the
same quarter last year. Included in the second quarter results was pre-tax $334
million of write downs and restructuring costs within TD Waterhouse
International ($328 million after-tax). Cash basis net income in North America
was $88 million, an increase of $43 million or 93% over the second quarter and
an increase of $42 million or 91% over the same period last year. Results in
North America have benefited from increased trading activity as investor
confidence improves offset by foreign exchange. Net loss from International
units was $6 million including restructuring expenses in the U.K. of $5 million.
The cash basis return on invested capital for the quarter was 11.1% compared
with 2.1% in the same quarter last year. Economic loss for the quarter was $9
million compared with $87 million last year.
Total cash basis revenue increased $60 million or 11% from prior year to $584
million, and increased $136 million or 30% from prior quarter. Second quarter
revenue included a loss of $39 million for write downs related to the TD
Waterhouse International joint ventures. The remainder of the increase resulted
primarily from increased discount brokerage trading activity with trades per day
increasing 15% versus prior year and 40% over the second quarter. Current
quarter results also benefited from the restructuring of TD Waterhouse
International units, begun in 2002.
Cash basis expenses were $465 million in the third quarter, a decrease of $261
million from the prior quarter and $15 million from the prior year. Included in
the second quarter results were goodwill impairment charges and restructuring
expenses of $295 million in TD Waterhouse International. Expenses for the North
American operations decreased $7 million from the prior year as a result of
reductions in the cost base of operations due to expense reduction initiatives
and foreign exchange and increased from second quarter by $38 million reflecting
premises and equipment write-offs in TD Waterhouse and higher trade-related
costs.
Assets under management totaled $113 billion, an increase of $3 billion over
second quarter and $1 billion from October 31, 2002 due to the improvement in
the capital markets. Assets under administration totaled $259 billion at the end
of the third quarter, representing $25 billion in growth from October 31, 2002.
Subsequent to the quarter end, trading volumes have declined but we are
optimistic that once the traditionally slower summer months have passed, market
activity will continue its upward trend into September. Wealth Management
continues to focus on cost management and, as a result, is in a position to
quickly contribute positively to the Bank results as market activity increases.
Corporate
The Corporate segment includes non-controlling interests in subsidiaries,
certain gains on dispositions of businesses, real estate investments, the effect
of securitizations, treasury management, general provisions for credit losses,
certain taxable equivalent adjustments, corporate level tax benefits and
residual unallocated revenues and expenses.
During the current quarter, the Corporate segment had an operating cash basis
net income of $31 million. The results include interest income earned on income
tax refunds of $35 million after-tax, securitization gain of $11 million
after-tax and tax recoveries of $13 million. This income was offset by costs
associated with net treasury activities and net unallocated revenues, expenses
and taxes. The results for the third quarter of 2002, include a special gain of
$18 million after-tax related to the sale of the Bank's custody business.
Consolidated Interim Statement of Operations
(unaudited, in millions of dollars)
For the three For the nine
months ended months ended
July 31 July 31 July 31 July 31
2003 2002 2003 2002
Interest income
Loans $1,962 $2,006 $5,793 $5,798
Securities 819 892 2,609 2,797
Deposits with banks 59 43 141 91
2,840 2,941 8,543 8,686
Interest expense
Deposits 1,052 1,187 3,240 3,565
Subordinated notes and
debentures 59 50 165 145
Other obligations 327 300 901 1,064
1,438 1,537 4,306 4,774
Net interest income 1,402 1,404 4,237 3,912
Provision for credit losses 59 1,250 269 1,975
Net interest income after
credit loss provision 1,343 154 3,968 1,937
Other income
Investment and securities
services 579 522 1,565 1,625
Credit fees 113 100 331 337
Net investment securities
gains (losses) 18 (8) - 40
Trading income (loss) (19) (73) 126 465
Service charges 168 151 476 439
Loan securitizations 60 63 161 165
Card services 74 64 205 183
Insurance 112 95 301 275
Trust fees 19 18 55 58
Gain on sale of mutual fund
record keeping and custody
business - 22 - 40
Write down of investment in
joint ventures - - (39) -
Other 69 84 149 248
1,193 1,038 3,330 3,875
Net interest and other income 2,536 1,192 7,298 5,812
Non-interest expenses
Salaries and employee benefits 959 868 2,817 2,764
Occupancy including
depreciation 178 154 483 451
Equipment including
depreciation 150 172 473 490
Amortization of intangible
assets 186 241 597 772
Restructuring costs (Note 7) 5 - 92 -
Goodwill impairment (Note 8) - - 624 -
Other 405 447 1,318 1,414
1,883 1,882 6,404 5,891
Income (loss) before provision
for (benefit of) income taxes 653 (690) 894 (79)
Provision for (benefit of)
income taxes 129 (298) 250 (256)
Net income (loss) before
non-controlling interest in
subsidiaries 524 (392) 644 177
Non-controlling interest in
net income of subsidiaries 23 13 69 48
Net income (loss) 501 (405) 575 129
Preferred dividends 21 23 66 70
Net income (loss) applicable
to common shares $480 $(428) $509 $59
Average number of common
shares outstanding (millions)
Basic 651.3 641.5 648.5 640.3
Diluted 655.3 646.6 652.4 646.8
Earnings (loss) per common share
Basic $.74 $(.67) $.78 $.09
Diluted .73 (.67) .78 .09
Certain comparative amounts have been reclassified to conform with
current year presentation.
Consolidated Interim Balance Sheet
(unaudited, in millions of dollars)
As at
July 31 Oct. 31
2003 2002
Assets
Cash resources
Cash and non-interest-bearing deposits with other
banks $1,548 $1,902
Interest-bearing deposits with other banks 6,265 4,636
7,813 6,538
Securities purchased under resale agreements 26,643 13,060
Securities
Investment 28,359 28,802
Trading 65,000 53,395
93,359 82,197
Loans (net of allowance for credit losses)
Residential mortgages 53,667 52,784
Consumer instalment and other personal 39,869 36,332
Business and government 26,542 33,511
120,078 122,627
Other
Customers' liability under acceptances 7,030 7,719
Trading derivatives' market revaluation 27,767 25,739
Intangible assets 2,786 3,383
Goodwill (Note 8) 2,323 3,134
Land, buildings and equipment 1,443 1,634
Other assets 12,973 12,009
54,322 53,618
Total assets $302,215 $278,040
Liabilities
Deposits
Personal $104,455 $100,942
Banks 19,303 16,800
Business and government 74,870 71,448
198,628 189,190
Other
Acceptances 7,030 7,719
Obligations related to securities sold short 19,683 17,058
Obligations related to securities sold under
repurchase agreements 13,820 8,655
Trading derivatives' market revaluation 27,409 25,954
Other liabilities 16,305 10,830
84,247 70,216
Subordinated notes and debentures (Note 5) 5,143 4,343
Non-controlling interest in subsidiaries 1,250 1,250
Shareholders' equity
Capital stock (Note 6)
Preferred 1,535 1,485
Common 3,078 2,846
Contributed surplus 7 -
Retained earnings 8,327 8,710
12,947 13,041
Total liabilities and shareholders' equity $302,215 $278,040
Certain comparative amounts have been reclassified to conform with
current year presentation.
Consolidated Interim Statement of Cash Flows
(unaudited, in millions of dollars)
For the three For the nine
months ended months ended
July 31 July 31 July 31 July 31
2003 2002 2003 2002
Cash flows from (used in)
operating activities
Net income (loss) $501 $(405) $575 $129
Adjustments to determine net
cash flows
Provision for credit losses 59 1,250 269 1,975
Restructuring costs 5 - 98 -
Depreciation 79 81 227 228
Amortization of intangible
assets 186 241 597 772
Goodwill impairment - - 624 -
Gain on sale of mutual fund
record keeping and custody
business - (22) - (40)
Stock option expense 2 - 7 -
Net investment securities
(gains) losses (18) 8 - (40)
Changes in operating assets
and liabilities
Future income taxes (2) (254) (155) (508)
Current income taxes payable 189 (104) 603 (220)
Interest receivable and
payable 5 (522) 127 (415)
Trading securities (1,484) 3,556 (11,605) (810)
Unrealized gains and
amounts receivable on
derivatives contracts 1,131 (9,668) (2,028) (5,232)
Unrealized losses and
amounts payable on
derivatives contracts (1,887) 8,497 1,455 4,277
Other 2,344 (1,049) 3,655 (412)
Net cash from (used in)
operating activities 1,110 1,609 (5,551) (296)
Cash flows from (used in)
financing activities
Deposits (13,205) 3,869 9,438 13,031
Securities sold under
repurchase agreements (8,293) (2,371) 5,165 4,691
Securities sold short 358 (549) 2,625 2,034
Issuance of subordinated
notes and debentures 903 4 905 6
Repayment of subordinated
notes and debentures (21) (1) (105) (818)
Common shares issued for
cash, net of expenses - - - 393
Common shares issued on
exercise of options 7 2 28 11
Common shares issued as a
result of dividend
reinvestment plan 71 53 204 112
Common stock options settled
in cash, net of income taxes - (1) - (24)
Issuance of preferred shares - - 550 -
Redemption of preferred shares (251) - (477) -
Dividends paid on
- preferred shares (21) (23) (66) (70)
- common shares (183) (180) (545) (538)
Other - 2 - -
Net cash from (used in)
financing activities (20,635) 805 17,722 18,828
Cash flows from (used in)
investing activities
Interest-bearing deposits (677) (1,100) (1,629) (2,203)
Activity in investment
securities
Purchases (2,161) (4,608) (18,586) (10,634)
Proceeds from maturities 2,101 874 5,318 4,209
Proceeds from sales 2,507 1,272 13,711 5,783
Loans (1,495) (4,029) (4,083) (6,838)
Proceeds from loan
securitizations 3,729 758 6,363 (107)
Land, buildings and equipment (43) (110) (36) (68)
Securities purchased under
resale agreements 15,754 4,260 (13,583) (7,867)
Acquisitions and dispositions
less cash and cash equivalents - 31 - (1,094)
Net cash from (used in)
investing activities 19,715 (2,652) (12,525) (18,819)
Net changes in cash and
cash equivalents 190 (238) (354) (287)
Cash and cash equivalents
at beginning of period 1,358 1,912 1,902 1,961
Cash and cash equivalents at
end of period represented by
cash and non-interest-bearing
deposits with other banks $1,548 $1,674 $1,548 $1,674
Supplementary disclosure of
cash flow information
Amount of interest paid
during the period $1,529 $1,742 $4,469 $5,366
Amount of income taxes paid
during the period 77 (23) 205 451
Dividends per common share .28 .28 .84 .84
Certain comparative amounts have been reclassified to conform with
current year presentation.
Consolidated Interim Statement of Changes in Shareholders' Equity
(unaudited, in millions of dollars)
For the nine months ended
July 31 July 31
2003 2002
Preferred shares
Balance at beginning of period $1,485 $1,492
Translation adjustment on shares issued in a
foreign currency (23) (1)
Proceeds from shares issued for cash 550 -
Share redemptions (477) -
Balance at end of period 1,535 1,491
Common shares
Balance at beginning of period 2,846 2,259
Proceeds from shares issued for cash - 400
Proceeds from shares issued on exercise of options 28 11
Proceeds from shares issued as a result of dividend
reinvestment plan 204 112
Balance at end of period 3,078 2,782
Contributed surplus
Balance at beginning of period - -
Stock option expense (Note 1) 7 -
Balance at end of period 7 -
Retained earnings
Balance at beginning of period 8,710 9,653
Net income (loss) 575 129
Preferred dividends (66) (70)
Common dividends (545) (538)
Foreign currency translation adjustments, net
of income taxes (338) 51
Stock options settled in cash, net of income taxes - (24)
Other (9) (7)
Balance at end of period 8,327 9,194
Total common equity 11,412 11,976
Total shareholders' equity $12,947 $13,467
Notes to Consolidated Interim Financial Statements (unaudited)
These consolidated interim financial statements should be read in conjunction
with the Bank's consolidated financial statements for the year ended October 31,
2002. The consolidated interim financial statements have been prepared in
accordance with Canadian generally accepted accounting principles and follow the
same accounting policies and methods of application as the Bank's consolidated
financial statements for the year ended October 31, 2002 except as discussed in
Note 1.
NOTE 1: CHANGES IN ACCOUNTING POLICY
As of November 1, 2002, the Bank adopted a new accounting standard on
stock-based compensation. As permitted, under the standard, the Bank has elected
to adopt the fair value method of accounting for stock options. For the third
quarter of 2003, the Bank recognized compensation expense of $2 million for
stock option awards and $7 million for the nine month period ended July 31, 2003
in the Consolidated Interim Statement of Operations. No compensation expense is
recorded for stock options awarded and outstanding prior to adoption of the new
accounting standard. The fair value of options granted was estimated at the date
of grant using the Black-Scholes valuation model with the following assumptions:
(i) risk-free interest rate of 4.29%, (ii) expected option life of 5.5 years,
(iii) expected volatility of 32.3% and (iv) expected dividend yield of 3.04%.
During the nine months ended July 31, 2003, 4,065,116 options were granted with
a weighted-average fair value of $8.94 per option.
As of February 1, 2003, the Bank prospectively adopted the new accounting
guideline on disclosure of guarantees. The guideline stipulates the financial
statement disclosures to be made by a guarantor about its obligations under
certain guarantees, as detailed in Note 9.
On April 1, 2003, the Bank adopted two new Canadian Emerging Issues Committee
abstracts on the accounting for severance and termination benefits and the
accounting for costs associated with exit and disposal activities (including
costs incurred in a restructuring). The new abstracts generally require
recognition of costs related to severance, termination and exit and disposal
activities in the period when they are incurred rather than at the date of
commitment to an exit or disposal plan.
NOTE 2: ALLOWANCE FOR CREDIT LOSSES
The Bank's allowance for credit losses at July 31, 2003 and July 31, 2002 is
shown in the table on the following page.
July 31
2003
Specific General Sectoral
(millions of dollars) allowance allowance allowance Total
Balance at beginning of year $1,074 $1,141 $1,285 $3,500
Provision for credit losses
charged to the Consolidated
Interim Statement of
Operations 309 - (40) 269
Transfer from sectoral to
specific 501 - (501) -
Write-offs(1) (1,175) - - (1,175)
Recoveries 91 - 37 128
Other, including foreign
exchange rate changes (91) - (83) (174)
Allowance for credit
losses at end of period $709 $1,141 $698 $2,548
July 31
2002
Specific General Sectoral
(millions of dollars) allowance allowance allowance Total
Balance at beginning of year $179 $1,141 $- $1,320
Provision for credit losses
charged to the Consolidated
Interim Statement of
Operations 1,105 - 870 1,975
Transfer from sectoral to
specific - - - -
Write-offs(1) (572) - - (572)
Recoveries 99 - - 99
Other, including foreign
exchange rate changes 1 - - 1
Allowance for credit
losses at end of period $812 $1,141 $870 $2,823
(1) For the nine months ended July 31, 2003, $24 million of write-offs
related to restructured loans (2002 - $34 million).
NOTE 3: SEGMENTED INFORMATION
The Bank's operations and activities are organized around the following
businesses: Personal and Commercial Banking, Wholesale Bank and Wealth
Management. Results for these segments for the three and nine months ended July
31, 2003 and July 31, 2002 are presented in the tables below.
Results by business segment
(in millions of dollars)
Personal and
Commercial Banking Wholesale Bank Wealth Management
For the three July 31 July 31 July 31 July 31 July 31 July 31
months ended 2003 2002 2003 2002 2003 2002
Net interest income
(on a taxable
equivalent basis) $1,031 $1,020 $380 $433 $113 $106
Provision for
credit losses 105 132 (40) 1,132 - -
Other income 466 438 167 98 471 418
Non-interest
expenses
excluding non-cash
intangible
amortization 873 879 317 248 465 480
Income (loss) before
provision for
(benefit of) income
taxes and non-
controlling interest 519 447 270 (849) 119 44
Provision for
(benefit of)
income taxes (TEB) 184 165 98 (307) 37 26
Non-controlling
interest in net
income of
subsidiaries - - - - - -
Net income (loss)
- cash basis $335 $282 $172 $(542) $82 $18
Non-cash intangible
amortization, net
of income taxes
Net income (loss)
- reported basis
Total assets
(billions of
dollars) - balance
sheet $113.3 $113.4 $156.5 $167.0 $20.4 $20.0
Total assets
(billions of
dollars)
- securitized 23.9 21.5 .1 .2 - -
Corporate(1) Total
For the three July 31 July 31 July 31 July 31
months ended 2003 2002 2003 2002
Net interest income
(on a taxable
equivalent basis) $(122) $(155) $1,402 $1,404
Provision for
credit losses (6) (14) 59 1,250
Other income 89 84 1,193 1,038
Non-interest
expenses
excluding non-cash
intangible
amortization 42 34 1,697 1,641
Income (loss) before
provision for
(benefit of) income
taxes and non-
controlling interest (69) (91) 839 (449)
Provision for
(benefit of)
income taxes (TEB) (123) (95) 196 (211)
Non-controlling
interest in net
income of
subsidiaries 23 13 23 13
Net income (loss)
- cash basis $31 $(9) $620 $(251)
Non-cash intangible
amortization, net
of income taxes 119 154
Net income (loss)
- reported basis $501 $(405)
Total assets
(billions of
dollars) - balance
sheet $12.0 $9.2 $302.2 $309.6
Total assets
(billions of
dollars)
- securitized (5.9) (6.6) 18.1 15.1
Personal and
Commercial Banking Wholesale Bank Wealth Management
For the nine July 31 July 31 July 31 July 31 July 31 July 31
months ended 2003 2002 2003 2002 2003 2002
Net interest income
(on a taxable
equivalent basis) $3,062 $3,026 $1,125 $1,061 $314 $319
Provision for credit
losses 332 385 (40) 1,649 - -
Other income 1,328 1,277 545 1,039 1,261 1,337
Non-interest
expenses excluding
non-cash intangible
amortization 2,590 2,615 1,398 959 1,665 1,459
Income (loss) before
provision for
(benefit of) income
taxes and non-
controlling interest 1,468 1,303 312 (508) (90) 197
Provision for
(benefit of)
income taxes (TEB) 518 476 97 (207) 89 93
Non-controlling
interest in net
income of
subsidiaries - - - - - -
Net income (loss)
- cash basis $950 $827 $215 $(301) $(179) $104
Non-cash intangible
amortization, net
of income taxes
Net income (loss)
- reported basis
Corporate(1) Total
For the nine July 31 July 31 July 31 July 31
months ended 2003 2002 2003 2002
Net interest income
(on a taxable
equivalent basis) $(264) $(494) $4,237 $3,912
Provision for credit
losses (23) (59) 269 1,975
Other income 196 222 3,330 3,875
Non-interest
expenses excluding
non-cash intangible
amortization 154 86 5,807 5,119
Income (loss) before
provision for
(benefit of) income
taxes and
non-controlling
interest (199) (299) 1,491 693
Provision for
(benefit of)
income taxes (TEB) (236) (324) 468 38
Non-controlling
interest in net
income of
subsidiaries 69 48 69 48
Net income (loss)
- cash basis $(32) $(23) $954 $607
Non-cash intangible
amortization, net
of income taxes 379 478
Net income (loss)
- reported basis $575 $129
(1)The taxable equivalent basis adjustment is reflected in each segments' results
and eliminated in the Corporate segment.
NOTE 4: LOAN SECURITIZATIONS
During the third quarter, the Bank securitized government guaranteed residential
mortgage loans through the creation of mortgage-backed securities and received
cash proceeds of $2,339 million (Q3, 2002 - $1,273 million). There are no
expected credit losses as the mortgages are government guaranteed. The impact of
this transaction on the Bank's net income for the quarter is immaterial.
During the third quarter, the Bank also securitized $1,500 million in credit
card receivables and retained the rights to future excess interest on the
receivables valued at $27 million. The gain on sale, net of transaction fees and
expenses was $18 million ($11 million after-tax). The Bank retained the
responsibility for servicing the credit card receivables. The key assumptions
used to value the sold and retained interests included a monthly payment rate of
36.5%, a discount rate of 3.89% and expected credit losses of 3.29%.
In addition, during the third quarter, the Bank securitized commercial mortgages
of $302 million (Q3, 2002 - $89 million) and had maturities of previously
securitized loans and credit card receivables of $412 million (Q3, 2002 - $604
million). As a result the third quarter net proceeds from loan securitizations
were $3,729 million (Q3, 2002 - $758 million).
NOTE 5: SUBORDINATED NOTES AND DEBENTURES
On May 20, 2003, the Bank issued $900 million aggregate principal amount of
5.69% subordinated medium term notes due June 3, 2018.
NOTE 6: CAPITAL STOCK
July 31 Oct. 31
(thousands of shares) 2003 2002
Preferred shares issued by the Bank:
Class A - Series G - 7,000
Class A - Series H 9,000 9,000
Class A - Series I 16 16
Class A - Series J 16,384 16,384
Class A - Series K - 6,000
Class A - Series L - 2,000
Class A - Series M 14,000 -
Class A - Series N 8,000 -
Preferred shares issued by TD Mortgage Investment
Corporation:
Series A 350 350
Common shares - outstanding 653,365 645,399
Options to purchase common shares - outstanding 25,404 23,859
On May 1, 2003, the Bank redeemed all the outstanding Class A First Preferred
Shares, Series G at the price of US$25 per share.
On February 3, 2003, the Bank redeemed all the outstanding Class A First
Preferred Shares, Series K at a price of $25 per share and all the outstanding
Class A First Preferred Shares, Series L at a price of US$25 per share. In
addition, on February 3, 2003, the Bank issued 14 million in Class A First
Preferred shares, Series M ("Series M shares") for cash consideration of $350
million or $25 per share. The regular quarterly cash dividend payable per Series
M share, if declared, is $0.29375.
On April 30, 2003, the Bank issued 8 million in Class A First Preferred Shares,
Series N ("Series N shares") for cash consideration of $200 million or $25 per
share. The regular quarterly cash dividend payable per Series N share, if
declared, is $0.2875.
NOTE 7: RESTRUCTURING COSTS
During the second quarter, the Bank announced a restructuring of the
international unit of its wealth management business. Declining volumes in the
discount brokerage business worldwide have resulted in excess capacity, which
impacted the Bank's ability to profitably run a global brokerage model.
Restructuring plans for this unit include a streamlining of the U.K. operations
and discussions with joint venture partners to agree on appropriate plans to
manage the business in light of current trading volumes. The Bank recognized a
total of $26 million of pre-tax restructuring costs, with $21 million recognized
in the second quarter and $5 million recognized in the third quarter of fiscal
2003. The restructuring was completed by the end of the third quarter of fiscal
2003. Of the $26 million in pre-tax restructuring costs, $7 million relates to
lease termination costs and other premises related expenses and the remainder of
the restructuring costs of $19 million relates to write downs of software and
systems development costs.
During the second quarter, the Bank also announced a restructuring of its U.S.
equity options business in its Wholesale Bank. Dramatic volume and margin
declines have had a significantly negative impact on this business.
Consequently, the Bank determined that it was necessary to shift its strategy
and focus solely on the equity options group centered in Chicago. As a result,
the Bank recognized a total of $72 million of pre-tax restructuring costs in the
second quarter of fiscal 2003. Of the $72 million in pre-tax restructuring
costs, $31 million relates to severance and employee support costs, $10 million
relates to lease termination costs and other premises related expenses and the
remainder of the restructuring costs of $31 million relates to other expenses
and revenue reserves directly related to the restructuring. The Bank expects the
restructuring to be substantially complete by the end of fiscal 2004.
As at July 31, 2003, the total unutilized balance of restructuring costs of $53
million shown below is included in other liabilities in the Consolidated Interim
Balance Sheet.
For the three months ended July 31, 2003
Human Real Tech-
(millions of dollars) Resources Estate nology Other Total
Balance at beginning of
period $14 $29 $11 $20 $74
Restructuring costs arising
during the period
Wealth Management - 2 3 - 5
Amount utilized during the
period
Personal and Commercial
Banking - 4 - - 4
Wholesale Bank 3 2 1 6 12
Wealth Management - 1 9 - 10
Balance at end of period $11 $24 $4 $14 $53
For the nine months ended July 31, 2003
Human Real Tech-
(millions of dollars) Resources Estate nology Other Total
Balance at beginning of
period $6 $29 $1 $- $36
Restructuring costs arising
during the period
Wholesale Bank 31 10 4 27 72
Wealth Management - 7 19 - 26
Amount utilized during the
period
Personal and Commercial
Banking - 15 - - 15
Wholesale Bank 26 2 2 13 43
Wealth Management - 5 18 - 23
Balance at end of period $11 $24 $4 $14 $53
NOTE 8: GOODWILL IMPAIRMENT
During the second quarter, the Bank reviewed the value of goodwill assigned to
the international unit of its wealth management business and determined that an
impairment in value existed in this business given that the Bank's ability to
profitably run a global brokerage business has been impacted by declining
volumes in the discount brokerage business worldwide. As a result, a goodwill
impairment loss of $274 million has been charged to income in the second quarter
of fiscal 2003.
In addition, during the second quarter, the Bank reviewed the value of goodwill
assigned to its U.S. equity options business in its Wholesale Bank and
determined that an impairment in value existed in this business given the
dramatic volume and margin declines. The Bank determined that the benefits of
the U.S. equity options acquisition in fiscal 2002 had not been realized.
Consequently, a $350 million pre-tax goodwill impairment charge was recognized
in income in the second quarter of fiscal 2003 and a related future income tax
asset of $117 million was recorded for a net-of-tax charge of $233 million.
NOTE 9: GUARANTEES
A guarantee is defined to be a contract that contingently requires the Bank to
make payments to a third party based on (i) changes in an underlying interest
rate, foreign exchange rate, equity or commodity instrument, index or other
variable, that is related to an asset, a liability or an equity security of the
counterparty, (ii) failure of another party to perform under an obligating
agreement, or (iii) failure of another third party to pay its indebtedness when
due.
Significant guarantees that the Bank has provided to third parties include the
following:
Financial and performance standby letters of credit
Financial and performance standby letters of credit represent irrevocable
assurances that the Bank will make payments in the event that a customer cannot
meet its obligations to third parties and they carry the same credit risk,
recourse and collateral security requirements as loans extended to customers.
Generally, the term of these letters of credit does not exceed four years.
Assets sold with recourse
In connection with certain asset sales, the Bank typically makes representations
about the underlying assets in which the Bank may have an obligation to
repurchase the assets or indemnify the purchaser against any loss. The term of
these guarantees does not exceed four years.
Credit enhancements
The Bank guarantees payments to counterparties in the event that third party
credit enhancements supporting asset pools are insufficient. The term of these
credit facilities ranges from ten to seventeen years.
Written put options
Written put options are agreements under which the Bank grants the buyer the
future right, but not the obligation, to sell at or by a specified date, a
specific amount of a financial instrument at a price agreed when the option is
arranged and which can be physically or cash settled.
Written put options can be used by the counterparty to hedge foreign exchange,
credit, commodity and interest rate risks. The Bank does not track, for
accounting purposes, whether its clients enter into these derivative contracts
for trading or hedging purposes and has not determined if the guaranteed party
has the asset or liability related to the underlying. Accordingly, the Bank
cannot ascertain which contracts are "guarantees" under the definition contained
in the accounting guideline. The Bank employs a risk framework to define risk
tolerances and establishes limits designed to ensure that losses do not exceed
acceptable, predefined limits. Due to the nature of these contracts, the Bank
cannot make a reasonable estimate of the potential maximum amount payable to the
counterparties.
Indemnification agreements
In the normal course of operations, the Bank provides indemnifications in
agreements with various counterparties in transactions such as service
agreements, leasing transactions, and agreements relating to acquisitions and
dispositions. Under these agreements, the Bank may be required to compensate
counterparties for costs incurred as a result of various contingencies such as
changes in laws and regulations and litigation claims. The nature of the
indemnification agreements prevents the Bank from making a reasonable estimate
of the maximum potential amount that the Bank would be required to pay such
counterparties.
The table below summarizes at July 31, 2003, the maximum potential amount of
future payments that could be made under the guarantee agreements without
consideration of possible recoveries under recourse provisions or from
collateral held or pledged.
July 31
(millions of dollars) 2003
Financial and performance standby letters of credit $7,327
Assets sold with recourse 1,921
Credit enhancements 128
Total $9,376
NOTE 10: FUTURE ACCOUNTING CHANGES
During the second quarter, the Canadian Accounting Standards Board approved, a
new accounting guideline on consolidation of variable interest entities. The
guideline is harmonized with a recently issued U.S. standard for variable
interest entities and will be effective in the Bank's second quarter of fiscal
2004. The Bank is currently evaluating the impact of the new guidance and as a
result the impact is not yet quantifiable.
NOTE 11: SUBSEQUENT EVENT
On August 15, 2003, the Bank announced the proposed acquisition of 57 Laurentian
Bank branches outside the Province of Quebec, subject to regulatory approval.
The all-cash purchase price reflects the value of assets acquired, less
liabilities assumed plus a premium of $112.5 million. The acquisition is
expected to close on October 31, 2003.
Shareholder and Investor Information
Shareholder Services
Call the Shareholders Relations department: 1-866-756-8936
Call toll free in Canada or the United States:
1-800-4NEWS-TD (1-800-463-9783).
In Toronto, call: (416) 982-News ((416) 982-6397).
Outside of Canada, 1-866-756-8936
Internet website: www.td.com
Internet e-mail: customer.service@td.com
General Information
Financial: 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: 1-800-895-4463
Cantonese/Mandarin: 1-800-387-2828
Telephone device for the deaf: 1-800-361-1180
Annual Meeting
Thursday, March 25, 2004
Shaw Conference Centre
Edmonton, Alberta
Online Investor Presentation: Full financial statements and a presentation to
investors and analysts (available on August 28) are accessible from the home
page of the TD Bank Financial Group website, www.td.com, by clicking on The
Toronto-Dominion Bank 2003 3rd Quarter Results.
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 August 28, 2003 at 3:00 p.m. EDT. The call is webcast via the TD
Bank Financial Group website at www.td.com. 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.
Quarterly Earnings Conference Call: Instant replay of the teleconference is
available from August 28, 2003 to September 28, 2003. Please call 1-877-289-8525
toll free, in Toronto (416) 640-1917, passcode 21011661 (pound key).
Software Required for Webcast: A Netscape Navigator 4.5 or Microsoft Internet
Explorer 4.0 browser or better is required to access the webcast via the
internet. Real Player is also required to access the webcast. To download Real
Player, go to www.real.com.
About TD Bank Financial Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank
Financial Group. In Canada and around the world, TD Bank Financial Group serves
more than 13 million customers in three key businesses: personal and commercial
banking including TD Canada Trust; wealth management including the global
operations of TD Waterhouse; and a leading wholesale bank, TD Securities,
operating in a number of locations in key financial centres around the globe. 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$302 billion in assets, as of July 31, 2003. The Toronto-Dominion
Bank trades on the Toronto and New York Stock Exchanges under the symbol "TD".
-30-
For further information:
Dan Marinangeli, Executive Vice President and Chief Financial Officer, (416)
982-8002;
Scott Lamb, Vice President, Investor Relations, (416) 982-5075;
Neil Parmenter, Senior Manager, External Communications, (416) 308-0836
This information is provided by RNS
The company news service from the London Stock Exchange
END
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