RNS Number:1047I
Toronto-Dominion Bank
27 February 2003
TD Bank Financial Group
First Quarter Results in Line with Expectations
First Quarter Highlights
* On an operating cash basis(1), diluted earnings per share was $.70, compared
with loss per share of $.10 for the fourth quarter ended October 31, 2002
and diluted earnings per share of $.78 for the same period last year.
* On a reported basis(2), diluted earnings per share was $.50, compared with
loss per share of $.34 for the fourth quarter ended October 31, 2002 and
diluted earnings per share of $.55 for the same period last year.
* On an operating cash basis, return on total common equity for the quarter
was 15.6%, compared with (2.1)% for the fourth quarter ended October 31,
2002 and 16.4% for the same quarter last year.
* On a reported basis, return on total common equity for the quarter was
11.1%, compared with (7.4)% for the fourth quarter ended October 31, 2002
and 11.5% for the same quarter last year.
* Operating cash basis net income was $480 million, compared with an
operating cash basis net loss of $40 million for the fourth quarter ended
October 31, 2002 and operating cash basis net income of $528 million for the
same quarter last year.
* Reported net income was $347 million for the quarter, compared with a loss
of $196 million for the fourth quarter ended October 31, 2002 and net income
of $378 million from the same quarter last year.
(All figures reported in Canadian dollars. For financial results, which include
both operating cash and reported earnings, please see table below.)
(1)Operating cash basis and reported results referenced in this news release are
explained in detail under the "How the Bank Reports" section.
(2)Reported results are prepared in accordance with Canadian generally accepted
accounting principles (GAAP).
TORONTO - TD Bank Financial Group (TDBFG) today announced its financial results
for the first quarter ended January 31, 2003, reporting an operating cash basis
net income of $480 million, compared with $528 million for the same period last
year.
On an operating cash basis, diluted earnings per share was $.70 for the first
quarter, compared with $.78 in the same quarter last year. Operating cash basis
return on total common equity was 15.6% for the quarter compared with 16.4% for
the same period last year. Reported net income was $347 million for the first
quarter, compared with $378 million in the same quarter last year. Reported
diluted earnings per share was $.50 for the first quarter compared with $.55 for
the same period last year. Reported return on total common equity was 11.1% for
the quarter as compared with 11.5% last year.
"Overall, our performance for the first quarter marks a satisfactory improvement
from where we left off at the end of fiscal 2002. It also confirms that we have
earnings power," said W. Edmund Clark, TD Bank Financial Group President and
Chief Executive Officer. "We are pleased to have an early indication that we are
once again moving in the right direction in terms of generating sustainable and
consistent earnings."
Capital
As at January 31, 2003, the Bank's Tier 1 capital ratio was 8.5% compared with
8.1% at October 31, 2002.
Business Segments
Personal and Commercial Banking
TD Canada Trust (TDCT) reported record earnings for the quarter, with strong
growth over both the previous quarter and prior year periods. Cash basis net
income was $309 million for the quarter, up by $22 million or 8% over the fourth
quarter and $28 million or 10% over the same period last year.
Real estate lending, which includes mortgages and home equity lines of credit,
showed continued momentum during the quarter at $89.4 billion, up $1.5 billion
over the fourth quarter and $4.9 billion or 6% over the same period last year.
TDCT reported steady growth in individual deposits at $81.8 billion, up $.8
billion over the fourth quarter and $4.7 billion or 6% over the same period last
year. Business deposits rose to $25.1 billion, up $1.3 billion over the fourth
quarter and $3.2 billion or 15% over the same period last year.
Insurance products offered through TD Insurance and TD Meloche Monnex also
contributed to TDCT's performance, with originated gross premiums of $282
million in the quarter, up $56 million or 25% over the same period last year.
Strong volume growth in real estate lending, individual and business deposits
and insurance had a positive impact on revenue during the quarter. However, this
was offset by declines in margins on deposits and variable rate lending over the
previous year, along with reduced sales of wealth management products offered
through TDCT branches.
Operational efficiencies in the retail area continued to improve during the
quarter. Expense performance was strong. Expenses decreased by $21 million or 2%
compared with the fourth quarter and $7 million or 1% compared with the same
period last year. TDCT's efficiency ratio was 57.3% and its Customer
Satisfaction Index (CSI) was 85% for the quarter, up from 84.4% over the fourth
quarter and from 80.3% over the same period last year, representing its
strongest performance since the TD-Canada Trust merger.
On February 12, 2003, Reader's Digest Canada announced the results of its
national survey identifying the most trusted brands in Canada. Canadians across
the country were polled by Ipsos Reid and asked to name the brand they trusted
most in 35 product categories and then to rate the brand's performance in five
key areas: quality, innovation, customer service, advertising and value for
money. TD Canada Trust shared the award for Canada's most trusted brand in the
banking category.
Wealth Management
Cash basis net income for the first quarter was $39 million, representing an
increase of $17 million or 77% over the fourth quarter and a decrease of $19
million or 33% over the same period last year.
Compared with the fourth quarter, assets under management remained flat at $112
billion, and down $11 billion or 9% year-over-year reflecting ongoing challenges
facing the capital markets. Assets under administration totaled $237 billion at
the end of the first quarter, representing $3 billion in growth over the prior
quarter.
Discount brokerage trades in Canada rose during the first quarter, as did the
total number of investment advisors and financial planners, who provide clients
with guidance on a range of choices relative to their investment needs.
TD Waterhouse remains profitable in Canada and in the United States, where steps
have been taken to significantly reduce the cost base of operations to reflect
lower trade volumes while building a strong brand focused on optimizing customer
relationships. Outside of North America, the focus continues to be on finding
additional ways to build and leverage scale, reduce costs and increase
efficiency and productivity.
Wholesale Banking
For the first quarter of the fiscal year, TD Securities had cash basis net
income of $162 million compared with a cash basis net loss of $357 million last
quarter. Cash basis net income for the same period last year was $203 million.
Total revenue for the quarter was $610 million, compared with record revenues of
$929 million in the same quarter last year.
Although revenue in TD Securities capital markets businesses was down from
particularly strong levels last year, first quarter results reflect good
performance in the current market environment. Strong demand for Canadian bonds
drove an improvement in market activity in this segment, and TD Securities
equity structured products group generated gains off of the high demand for
convertible debentures.
Despite weak equity markets and a slower pace of underwriting, and mergers and
acquisitions activity, TD Securities lead-managed several transactions. These
included: serving as co-lead manager for a $301 million common share offering by
Agnico-Eagle Mines Limited, a Canadian-based gold producer; lead manager for a
$245 million offering of Quebecor World Inc. subordinated voting shares
purchased from Quebecor Inc.; and, co-lead manager for a $500 million offering
of AAA-rated Secured Notes debt offering for The Consumers' Waterheater
Operating Trust.
On November 4, 2002, TDBFG announced that it was taking definitive steps to
address specific credit challenges. Corporate banking was organizationally split
into two separate units, representing 'core' and 'non-core' client groups.
During the first quarter, the appropriate infrastructure was put in place so
that the Bank can substantially exit its non-core client relationships over the
next three year period.
Earnings for TD Securities in the first quarter reflect almost entirely the
performance of the core client group. Non-core client group cash basis net
income for the quarter was $6 million. TD Securities did not incur any provision
for credit losses in its core or non-core portfolio during the quarter, compared
with provisions of $217 million for the same period last year. All loans within
the core portfolio are performing. The non-core portfolio has been reduced from
$11.2 billion at October 31, 2002 to $9.3 billion at the end of the quarter.
During the quarter, $236 million of the opening sectoral allowance balance of
$1,285 million was utilized as a result of new specific loan loss provisions in
the non-core portfolio. $458 million in new impaired loans were recorded,
compared with $770 million during the fourth quarter.
TDBFG remains comfortable with its provisioning and reports that the non-core
portfolio is tracking against expectations.
Conclusion
"We now have the right strategies in place for each of our businesses - we are
accelerating our transition towards becoming a more retail-focused financial
institution, we have repositioned our wealth management business and we have
adopted a new strategy for our wholesale banking operation," said Clark. "And,
we expect to gather earnings momentum as we realize the full benefits of the
steps we have taken."
About TD Bank Financial Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank
Financial Group (TDBFG). 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 over 20 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$311 billion in assets as at January 31, 2003. The Toronto-Dominion
Bank trades on the Toronto and New York Stock Exchanges under the symbol 'TD.'
Forward-looking Statements
This news release may contain forward-looking statements, including statements
regarding the business and anticipated financial performance of TDBFG. These
statements are subject to a number of risks and uncertainties that may cause
actual results to differ materially from those contemplated by the
forward-looking statements. Some of the factors that could cause such
differences include legislative or regulatory developments, competition,
technological change, global capital market activity, interest rates, changes in
government and economic policy, inflation and general economic conditions in
geographic areas where TDBFG operates. These and other factors should be
considered carefully and undue reliance should not be placed on the
forward-looking statements. TDBFG does not undertake to update any
forward-looking statements.
REVIEW OF OPERATING PERFORMANCE
How the Bank Reports
The Bank prepares its financial statements in accordance with Canadian generally
accepted accounting principles (GAAP), which are presented on pages 10 to 15 of
the Bank's First Quarter Report to Shareholders and are available at www.td.com.
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 also
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. There are no special items in the first quarter 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. In addition, the Bank also excludes non-cash charges related
to identified intangible amortization from business combinations. Excluding the
non-cash amortization charges related to identified intangibles ensures
comparable treatment between periods. 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.
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 on the following page 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 $480 million, compared with
$528 million for the same quarter last year. On an operating cash basis, basic
earnings per share was $.71, compared with $.79 last year and diluted earnings
per share was $.70 this quarter, compared with $.78 in the same quarter last
year. Operating cash basis return on total common equity was 15.6% for the
quarter as compared with 16.4% last year.
Reported net income was $347 million for the first quarter, compared with $378
million in the same quarter last year. Reported basic earnings per share was
$.50 in the quarter compared with $.56 last year and reported diluted earnings
per share was $.50 in the quarter compared with $.55 in the same quarter last
year. Reported return on total common equity was 11.1% for the quarter as
compared with 11.5% last year.
The Bank's total economic profit was $76 million in the first quarter 2003
compared with $113 million in the same quarter last year. The Bank utilizes
economic profit as a tool to measure shareholder value creation. Economic profit
is operating cash basis net income applicable to common shares after providing a
charge for invested capital. Invested capital is equal to common equity plus the
cumulative amount of goodwill and intangible assets amortized as of the
reporting date.
Reconciliation of Operating Cash Basis Results to Reported Results
For the three months
ended Jan. 31
(unaudited, in millions of dollars) 2003 2002
Net interest income (TEB) $ 1,444 $ 1,261
Provision for credit losses (112) (325)
Other income 1,169 1,630
Non-interest expenses (1,745) (1,791)
-------------------------------
Income before provision for income taxes 756 775
and non-controlling interest
Provision for income taxes (TEB) (253) (230)
Non-controlling interest (23) (17)
-------------------------------
Net income - operating cash basis $ 480 $ 528
Preferred dividends (23) (23)
-------------------------------
Net income applicable to common shares $ 457 $ 505
- operating cash basis
Gain on sale of mutual fund record keeping business, - 14
net of income taxes
-------------------------------
Net income applicable to common shares 457 519
- cash basis
Non-cash intangible amortization, net of income taxes (133) (164)
-------------------------------
Net income applicable to common shares - reported basis $ 324 $ 355
-------------------------------
(dollars)
Basic net income per common share - operating cash basis $ .71 $ .79
Diluted net income per common share - operating cash basis .70 .78
Basic net income per common share - reported basis .50 .56
Diluted net income per common share - reported basis .50 .55
Certain comparative amounts have been reclassified to conform with current year
presentation.
Net Interest Income
Net interest income on a taxable equivalent basis (TEB) was $1,444 million this
quarter, a year-over-year increase of $183 million. The increase in net interest
income primarily related to interest income from trading activities at TD
Securities. Net interest income at TD Canada Trust and TD Wealth Management
remained relatively unchanged as compared with a year ago.
Other Income
Other income was $1,169 million, a decrease of $461 million or 28% from the same
quarter last year, after excluding a special gain from the sale of the Bank's
mutual fund record keeping business in the first quarter 2002. In the first
quarter 2002, the Bank sold its mutual fund record keeping business and recorded
a pre-tax gain of $18 million. The Bank has excluded this special gain in
analyzing its performance as it is not a recurring event. Reported other income
was $1,169 million, a decrease of $479 million or 29% from the same quarter last
year.
Trading income reported in other income decreased by $349 million or 81%
compared with last year, while trading related income generated by TD Securities
- 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 $374
million for the quarter, a decrease of $127 million or 25% as compared with a
year ago. This decline is primarily attributable to strong revenues from credit
hedging activities and trading gains earned on significant volatility in the
corporate credit markets in the first quarter of 2002. In addition, trading
related revenues have declined due to a slowdown in corporate underwriting
activity as well as decreases in institutional flows. Trading related revenue in
the current quarter was supported by good results in equity structured products,
fixed income and the foreign exchange businesses.
The investment securities portfolio realized net gains of $5 million this
quarter. This represents a significant decrease from net investment securities
gains of $60 million in the first quarter of last year. The decrease is
primarily attributable to weaker equity markets leading to fewer exit
opportunities and writedowns recorded as a result of other than temporary
impairments. Overall, the equity investment securities portfolio continues to
have a surplus over its book value of $158 million compared with $228 million at
the end of 2002.
The decline in other income also reflects a decrease in self-directed brokerage
revenues of $13 million or 5% compared with the same quarter a year ago. This
decrease reflects a 18% drop in average trades per day to 94,000 from 115,000 a
year ago. Income from loan securitizations decreased by $11 million or 20%, as
compared with the same quarter last year, as a result of lower levels of higher
yielding securitized assets. Offsetting this decline in other income was a
year-over-year increase in card services and service fees of $14 million or 7%
and an increase in insurance revenues of $8 million or 10%.
Non-Interest Expenses
Total operating cash basis expenses decreased by $46 million from a year ago to
$1,745 million, primarily as a result of lower incentive compensation expenses
at TD Securities. Operating cash basis expenses exclude non-cash identified
intangible amortization. On a reported basis, expenses decreased by $108 million
from a year ago to $1,957 million. In the first quarter 2003, the impact of
non-cash identified intangible amortization on the Bank's reported expenses was
$212 million compared with $274 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 weakened to
66.8% in the current quarter from 62.0% 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 TD Canada Trust, which
had an efficiency ratio of 57.3% this quarter as compared with 58.2% a year ago,
after excluding non-cash items and funding costs for the acquisition of Canada
Trust. On a reported basis, the Bank's overall efficiency ratio weakened to
76.5% from 72.5% in the same quarter a year ago.
Taxes
The Bank's operating cash basis effective tax rate, on a taxable equivalent
basis, was 33.5% for the quarter compared with 29.7% in the same quarter a year
ago. The increase in the effective tax rate reflected a shift in the Bank's
business mix. On a reported basis, the effective tax rate was 24.5% for the
quarter compared with 13.8% a year ago.
Balance Sheet
Total assets were $311 billion at the end of the first quarter, $33 billion or
12% higher than as at October 31, 2002. Higher volumes from trading securities
contributed $11 billion to the increase in total assets with securities
purchased under resale agreements representing $13 billion of the increase. As
compared with year end, personal loans, including securitizations, increased by
$1 billion to reach $44 billion. At the end of the first quarter, residential
mortgages, including securitizations, increased by $2 billion from year end to
$69 billion. Bank-originated securitized assets not included on the balance
sheet amounted to $16 billion compared with $15 billion at October 31, 2002.
Wholesale deposits increased by $14 billion and securities sold short or under
repurchase agreements increased by $9 billion as compared with October 31, 2002.
Personal non-term deposits remained stable, as compared with October 31, 2002,
at $51 billion while personal term deposits increased by $1 billion to reach $51
billion.
Managing Risk
Credit Risk and Provision for Credit Losses
During the quarter, the Bank expensed $112 million through the provision for
credit losses, compared with $325 million in the same quarter last year. All the
provision for credit losses during the quarter were related to the personal and
commercial bank. In addition, the Bank transferred $236 million from sectoral
allowances for the non-core wholesale bank to specific allowances.
The total allowance for credit losses (specific, general and sectoral
allowances) exceeded gross impaired loans by $674 million at the end of the
quarter, compared with a $975 million excess at October 31, 2002. The Bank's
total accumulated general allowance for credit losses amounted to $1,217 million
at quarter end, an increase of $11 million from October 31, 2002. General
allowances are maintained at a level adequate to absorb all credit-related
losses not yet identified by individual loan or by an identified sub-portfolio
of loans in the Bank's portfolio relating to both loans and off-balance sheet
instruments and qualify as Tier 2 capital - to an amount equal to 87.5 basis
points of risk-weighted assets - under guidelines issued by the Office of the
Superintendent of Financial Institutions.
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 below presents average and
end-of-quarter VaR usage, as well as fiscal 2002 averages. The Bank backtests
its VaR by comparing it to daily net trading revenue. During the first quarter
2003, daily net trading revenues were positive for 98.5% of the trading days.
Losses never exceeded the Bank's statistically predicted VaR for the total of
our trading related businesses.
Value at Risk Usage
For the three months ended For the three months ended For the twelve months ended
(millions of dollars) Jan. 31, 2003 Jan. 31, 2003 Oct. 31, 2002
- Average - Average
Interest rate risk $ (20.2) $ (16.9) $ (17.5)
Equity risk (5.5) (6.7) (11.1)
Foreign exchange risk (3.6) (3.1) (2.1)
Commodity risk (1.5) (.4) (.4)
Diversification effect 11.1 12.5 10.4
Global Value at Risk (19.7) (14.6) (20.7)
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
January 31, 2003, our consolidated surplus liquid asset position under the base
case scenario at 30 days was $9 billion in Canadian dollars. 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.
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 TD Canada Trust; 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 January 31, 2003, an immediate and sustained
100 basis point decrease in rates would have decreased the economic value of
shareholders' equity by $37 million after tax.
Capital
As at January 31, 2003, the Bank's Tier 1 capital ratio was 8.5% compared with
8.1% at October 31, 2002. Risk-weighted assets were virtually unchanged, whereas
our Tier 1 capital increased by $464 million or 5% as compared with October 31,
2002, thereby improving our Tier 1 capital ratio.
Review of TD's Businesses
The Bank's operations and activities are organized around the following
operating business segments: Personal and Commercial Banking, Wholesale Banking
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 and return on economic capital. Cash basis results exclude non-cash
charges related to identified intangible amortization from business
combinations.
Personal and Commercial Banking
TD Canada Trust reported record earnings for the quarter, with strong growth
over both the previous quarter and prior year periods. Cash basis net income was
$309 million, $28 million or 10% higher than the same period last year and $22
million or 8% higher than last quarter.
Total revenue grew 1% from last year on strong volume growth offset by lower
margins and reduced sales of TD Wealth Management products in the branches. The
overall margin decreased from the prior year as variable rate lending spreads
returned to more normalized levels and deposit margins narrowed in the low
interest rate environment. Average personal lending volume grew by $5.6 billion
or 5% primarily from real estate secured loans, and personal deposit volume grew
$4.7 billion or 6%. This growth in customer volumes was achieved during a period
when 110 branch mergers were completed. Volume growth was strong in the areas
targeted for higher growth: small business and commercial deposits and
insurance. Business deposits grew by $3.2 billion or 15% and originated gross
insurance premiums grew by $56 million or 25% year-over-year. Commercial loans
and acceptances contracted by $1.2 billion or 9% on reduced customer borrowing
needs.
Revenue was unchanged from last quarter as volume growth from business deposits,
personal deposits, insurance and real estate lending was offset by a seasonal
increase in home and auto insurance claims and a two basis point decline in the
margin on average earning assets. Our Retail Branch Customer Satisfaction Index
(CSI) was 85.0% for the quarter up from 84.4% in the fourth quarter and from
80.3% for the same period last year.
Provision for credit losses decreased by $15 million or 11% compared with the
same period last year, which included higher losses arising from processing and
collection issues that followed the conversion of TD Bank and Canada Trust
systems. Provision for credit losses was relatively unchanged from last quarter.
Cash basis expenses decreased by 1% compared with last year. Expense synergies
realized from branch mergers and process improvements contributed to the
decrease, offset in part by increases in salaries and employee benefits,
severance costs and continued investments in customer service and process
improvement initiatives. The two percentage point spread between revenue growth
and the decline in expenses resulted in an improvement in the cash basis
efficiency ratio from 58.2% to 57.3%. Expenses decreased by 2% compared with
last quarter. The overall average number of personnel decreased by 1,700
full-time equivalent compared with last year and by 700 compared with last
quarter.
Priorities for 2003 continue to be improving both revenue growth and operating
efficiency. Our revenue focus is to build on the CSI momentum to gain share of
business from our current customers as well as continuing to grow areas where we
are below our market share, particularly small business banking, commercial
banking and insurance offered through TD Insurance and TD Meloche Monnex. We
also remain focused on the objective of keeping expense growth below revenue
growth thereby continuing to improve our operating efficiency ratio.
Wholesale Banking
In the first quarter TD Securities had cash basis net income of $162 million,
compared with a cash basis net loss of $357 million last quarter and cash basis
net income of $203 million in the same quarter last year. Although the results
are down from last year they represent good performance in a difficult operating
environment.
Total revenue for the quarter was $610 million, compared with record revenues of
$929 million in the same quarter last year. TD Securities revenues are derived
from corporate lending, capital markets and investing activities. Corporate
lending revenues declined reflecting a significant reduction in the assets and
capital of the core lending portfolio consistent with TD Securities more
strategic approach to lending. Revenues from capital markets businesses, which
includes advisory, underwriting, trading, and execution services, were down
meaningfully from last year. Weak equity markets resulted in a slower pace of
equity issuance and continued low mergers and acquisitions activity. Debt
underwriting also declined in the quarter following an extended period of robust
activity driven by sharp rate cuts in the prior year. Lower equity volatility
and limited underwriting activity contributed to the year-over-year decline in
trading revenues as it led to lower demand for client related structuring and
trading services. Furthermore, trading revenues in the first quarter of last
year included substantial revenues earned on both credit hedging activities and
trading gains that were driven off of significant volatility in credit markets.
Revenues from execution services declined modestly from last year due to lower
institutional trading volumes and corporate activity. Investing revenues were
also down reflecting a less favorable environment for realizations.
TD Securities did not incur any provision for credit losses in the quarter
compared with provisions of $217 million last year. All loans within the core
lending portfolio are performing.
Non-interest expenses of $357 million were $50 million or 12% lower than last
year. The decrease is primarily a result of lower variable compensation
reflecting lower revenues.
The results in the first quarter reflect the solid earnings base of TD
Securities' core businesses. The results are consistent with our previously
announced expectation for TD Securities to generate cash basis net income of
$500 to $550 million annually, excluding net securities gains or losses. We
maintain a cautious view of the operating environment for the remainder of 2003
as heightened geopolitical risks continue to foster an uncertain economic
environment.
At the beginning of fiscal 2003, we created a non-core credit portfolio to
include lending relationships which will be exited over time. Good progress has
been made in managing down the portfolio. The non-core portfolio has reduced
from $11.2 billion at October 31, 2002 to $9.3 billion at quarter end. In
addition, there were no incremental provisions for credit losses charged in the
quarter. However, as anticipated, a portion of the sectoral reserves established
in 2002 has been utilized. Specific reserves of $236 million were established
and transferred from the sectoral reserves. Overall, we remain committed to our
goal of reducing non-core exposures as quickly as possible and in a manner that
maximizes returns to TD shareholders.
Wealth Management
TD Wealth Management's first quarter cash basis net income was $39 million, a
decrease of $19 million or 33% from last year and an increase of $17 million or
77% versus last quarter. The cash basis efficiency ratio improved 4% from prior
quarter, but decreased 4% over last year.
Total revenue decreased $36 million or 6% from prior year to $544 million, but
increased $35 million or 7% from prior quarter. The increase in revenue from the
prior quarter is primarily due to increased volume as trades have risen 11% as
well as a higher proportion of equity trades in the discount brokerage business.
Increased trading revenue in the full-service business also contributed to the
revenue increase as our sales professionals have grown by 32 advisors from the
previous quarter. New accounts opened within the self-directed brokerage
business decreased 24% compared with last year but achieved moderate growth of
1% versus last quarter. Cash basis expenses declined 1% from last year, but
increased 2% over last quarter primarily due to salesforce compensation.
Assets under management remained unchanged from last quarter at $112 billion.
This compares with assets under management of $123 billion a year ago. Assets
under administration increased by $3 billion or 1% to $237 billion this quarter
versus last quarter and decreased $25 billion or 10% versus last year.
Political and economic uncertainty continues to hamper a meaningful recovery in
the United States and Europe, which will negatively impact Canada's export
oriented industries. Although consumer spending has been a significant factor in
keeping the economy afloat, weakness in big-ticket purchases, such as housing
and automotive, combined with consumer uncertainty over the anticipated war may
have negative gross domestic product implications over the near term.
Additionally, markets remain volatile with the S&P/TSX Composite Index
increasing 5% and the Dow Jones Industrial Average decreasing 4% during the
quarter. As a result, TD Wealth Management experienced mixed results, with sales
of fee-based products and advice channels lower than anticipated, while trading
volumes in the discount brokerage business remain on track. We continue to
manage our costs effectively and look forward to a stablilized market and
economic environment that will provide more favourable returns to our
shareholders and customers.
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 and corporate tax level benefits,
restructuring costs and residual unallocated revenues and expenses.
During the current quarter, the Corporate segment had an operating cash basis
net loss of $30 million. The most significant factors contributing to this
result were net losses related to transfer pricing differences, net treasury
activities, and net unallocated revenues, expenses and taxes. In addition, the
results included a $14 million after-tax charge for non-controlling interest in
subsidiaries.
This information is provided by RNS
The company news service from the London Stock Exchange
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