11 December 2006

TD Bank Q4 2006 Earnings

BMO Capital Markets, 11 December 2006

TD Bank reported fourth quarter cash EPS of $870 million, or $1.16 per share, compared to $880 million, or $1.17 per share, in the last quarter, and $765 million, or $0.94 per share, in the fourth quarter of last year. There were a number of unusual items in each of the quarters. Specifically, this quarter included an AcG-13 accounting charge for hedging derivatives as well as a charge for the setup of specific allowances for credit card and overdraft loans. Excluding these unusual items, the appropriate operating comparison is $1.20 this quarter compared to $1.21 last quarter and $1.06 in the fourth quarter of last year. Results were ahead of our estimate of $1.16, and in line with street estimates. Though the earnings were, in aggregate expected, there were certainly a number of cross currents in the quarter. Loan losses in the retail bank rose more than we had expected and this was offset by higher securitizations earnings and interest on tax recoveries. TD Securities earned through a relatively disappointing trading quarter. On the other hand, the bank is showing impressive market shares trends and the investments in 2005 and 2006 appear to be delivering results.

All in all, this was a good year for TD and we believe that the bank is well positioned for the future. There has been material investment in the domestic retail operation and the outlook is for higher contribution from Ameritrade (and to a lesser extent Banknorth largely coming from additional investment) in 2007. We remain comfortable with our Outperform rating.

The Canadian Personal and Commercial Banking segment reported earnings of $501 million, down from $524 million last quarter, but up from $443 million in the same quarter of last year. Revenue growth remained solid, but this was offset by higher expenses. Market share trends in all products remained very strong. Given the significant build-out of the branch network in 2007, we believe that revenues in coming years are likely to surprise on the upside. The one negative development was the substantial increase in loan losses coming from the Small Business and Commercial lending. We now believe that it is prudent to assume higher losses in this loan book than we had previously.

TD Banknorth's pre-released results were $63 million, down slightly from both the last quarter and fourth quarter of last year. Lower results were due to the continuing currency headwind combined with a challenging operating environment. We expect this segment to continue contributing at current levels until the second half of 2007, when the additional earnings from TD's acquisition of the remaining shares will be incorporated.

The Wealth Management segment, which includes both Canadian Wealth and AMTD, reported earnings of $148 million, down slightly from the last quarter but up 9% from the previous year. Domestic wealth management earnings were down slightly over the quarter as a result of somewhat lower direct brokerage revenues and slightly higher expenses. However, market share remained strong, with solid improvements in both long-term and money market funds. TD Ameritrade's pre-released earnings results came in at $53 million, down slightly from the last quarter. We note that due to the timing of the deal closing, we do not have year-over-year comparison results. We expect to see continued growth in asset balances and earnings.

The Wholesale Banking segment reported earnings of $146 million, down from a very strong $179 million last quarter but up from $115 million in the fourth quarter of last year. Overall, we note that this was a solid result in a quarter when trading revenues were $174 million - one of the poorest contributions in over two years. We believe that TD Securities will continue to contribute at this rate through 2007.

The Corporate Segment reported cash earnings of $17 million, excluding an $18 million (after-tax) charge for specific allowances for credit card and overdraft loans. We believe that the $17 million result is above a 'normal' run rate as it incorporated higher securitization revenues and interest on tax refunds.

Our 2007 and 2007 cash EPS forecasts are unchanged at $5.15 and $5.65. TD Bank has provided some guidance that earnings growth should exceed 10% in 2007, off the adjusted EPS base of $4.66 in 2006. As with other banks, we are at the low end of guidance. We believe that TD Bank will have relatively low risk, high quality earnings growth in 2007. Most of it will come from domestic retail banking where the bank has invested heavily and as a result of the annualization of acquisitions already announced or completed. We believe that at an average P/E, TD Bank shares continue to be attractive.
Scotia Capital, 11 December 2006

Fourth Quarter Earnings Increase 13%

• Toronto-Dominion Bank (TD) reported cash operating earnings of $1.20 per share, an increase of 13% from $1.06 a year earlier. Wholesale led earnings growth at 27%, with Canadian P&B earnings up 13%, Wealth Management up 9%, offset by earnings decline of 9% at TD Banknorth.

• Cash ROE in the quarter was 18.1% versus 19.1% a year earlier.

• Reported earnings were $1.04 per share which included the following after-tax items: the amortization of intangibles of $87 million or $0.12 per share, the impact of hedging relationships accounting guideline (AcG-13) of $8 million or $0.01 per share and the initial set up of specific allowance for credit card and overdraft loans of $18 million or $0.03 per share.

F2006 Earnings Increase 12%

• Fiscal 2006 cash earnings were $4.65 per share, up 12% from $4.14 per share a year earlier.

Cash operating ROE for fiscal 2006 was 18.8% versus 19.8% a year earlier.

• Fiscal 2006 net income increased 18% to $3,376 million, with weighted average diluted shares outstanding increasing 4%, muting earnings per share growth.

High Operating Leverage; Revenue Growth Solid

• TD's operating leverage in Q4 was strong at 4% with revenue growth of 4% and expenses flat.

• Operating leverage for fiscal 2006 was also strong at 5% with revenue growth at 9% while expenses increased 4%.

Canadian P&B Earnings Up 13%

• Canadian P&B earnings in Q4 increased 13% to $501 million. Total revenue in Q4/06 increased 13% with expenses increasing 10%. The efficiency ratio improved 120 bp to 54.8%.

• Total revenue increase was mainly due to volume growth across most products, in addition to margin expansion in personal deposits from the rising interest rate environment. VFC contributed 5 bp to the margin improvement. In terms of volume growth, real estate secured lending was up 10%, with Visa up 23%.

• The high expense growth reflects significant reinvestment in the business, including an ABM replacement program, 31 new branches in 2006, launching of a Visa platform, and an In- Branch customer authentication program.

• Retail market share remained stable with a slight upward trend, with the largest improvement in total personal deposits, up 17 bp sequentially.

• Card service revenue increased to $113 million from $103 million in the previous quarter and $85 million a year earlier.

• Loan securitizations were $97 million versus $85 million in the previous quarter and $120 million a year earlier.

• Insurance revenue was $214 million, down sequentially from $230 million, and up slightly from $210 million a year earlier.

• TDCT fiscal 2006 earnings were $1,966 per share, up 16% from $1,702 million a year earlier.

Canadian Retail NIM at 3.07%

• Canadian retail net interest margin (NIM) was 3.07% in the quarter, down 1 bp sequentially, but up 11 bp from a year earlier.

• Canadian retail NIM for fiscal 2006 was 3.04%, up 8 bp from fiscal 2005.

• The bank indicated that Canadian retail NIM will tread lower toward 3.00%, due to a mix shift with lower margin assets growing at about 10% and deposit growth of 6%.

New Branch Openings

• The bank opened 31 new branches in 2006, with 24 being opened in the fourth quarter alone.

TD Banknorth Earnings Decline - Drag on Profitability

• TD Banknorth continues to be a drag on TD Bank earnings, declining 9% to $63 million from $69 million a year earlier. Earnings were negatively impacted by higher loan loss provisions and higher advertising and marketing expenses.

• TD Banknorth contributed $0.09 per share to earnings in the quarter and $0.35 per share per share to earnings for fiscal 2006 with fiscal 2005 earnings not comparable as TD Banknorth acquisition closed in March 2005, with only 7 months included in earnings.

• Net interest margin at TD Banknorth declined 6 bp from the previous quarter to 4.01% due to intense competition for both loans and deposits, and margin compression. NIM was down 8 bp from a year earlier.

• Net interest margin for the fiscal year declined 14 bp to 3.97% versus 4.11% a year earlier.

Total Wealth Management Earnings Up 9%

• Wealth Management earnings, including the bank's equity share of TD Ameritrade, increased 9% to $148 million.

Canadian Wealth Management

• Domestic Wealth Management earnings increased 12% to $95 million from $85 million a year earlier, due to higher transaction revenue and higher mutual fund fees from asset growth.

• Revenue increased 8% with expenses increasing 5% to $504 million and $357 million, respectively.

• Mutual fund revenue increased 5% to $162 million from $155 million a year earlier.

• Mutual fund revenue for fiscal 2006 was $639 million, a modest 2% increase from $624 million in fiscal 2005. Mutual fund assets under management (IFIC, includes PIC assets) increased 18% to $52.3 billion. For the fiscal year, TD ranked second in the industry with $3.7 billion in net long-term asset sales.

TD Ameritrade

• TD Ameritrade contributed $53 million or $0.07 per share to earnings in the quarter versus $55 million or $0.08 per share in the previous quarter. TD Ameritrade's contribution represented 6% of total bank earnings.

Wholesale Banking Earnings Increase 27%

• TD Securities earnings in Q4 increased 27% to $146 million from $115 million a year earlier, driven by strong investment banking revenues and security gains, and partially offset by weak trading revenue.

• Operating leverage was very high at 13% with revenue increasing 3% and expenses declining 10%. Expenses declined significantly due to lower payroll taxes and lower variable compensation.

Capital Markets Revenue

• Capital Markets revenue was $335 million versus $343 million in the previous quarter and $479 million a year earlier.

• Capital markets revenue for fiscal 2006 was $1,532 million.

Trading Revenue Weak

• Trading revenue in Q4 was relatively weak at $174 million versus $242 million in the previous quarter and $187 million a year earlier (excluding the loss on the sale of the structured products portfolio in Q4/05).

• Trading revenue in equity and other portfolios was particularly weak in the quarter at negative $3 million, with interest rate and credit portfolios trading revenue declining to $45 million from $63 million in the previous quarter and from $81 million a year earlier. Trading revenue in foreign exchange products was $54 million versus $80 million in the previous quarter and unchanged from a year earlier.

• Trading revenue in fiscal 2006 was $1,042 million, a modest 1% increased from $1,034 million a year earlier (excluding the loss on the sale of the structured products portfolio).

Security Surplus Increases to $774 Million

• Security gains were $87 million or $0.08 per share, compared with $113 million or $0.10 per share in the previous quarter and $76 million or $0.07 per share a year earlier.

• Unrealized security surplus increased to $774 million, versus $707 million in the previous quarter and $750 million a year earlier.

Loan Loss Provisions

• Specific loan loss provisions (LLPs) increased to $142 million or 0.33% of loans versus $109 million or 0.26% of loans in the previous quarter. The increase in LLPs was due to higher provisions on personal loans related to volume, higher write-offs and lower SB&C recoveries.

• Total LLPs for the fiscal year were $424 million or 0.25% of loans compared to $319 million or 0.20% of loans in 2005.

• We are increasing our 2007 LLP estimate to $600 million or 0.35% of loans from $500 million or 0.30% of loans due to higher loan loss provisions in Personal & Commercial driven mainly by volume, lower recoveries in small business in addition to higher loan losses at TD Banknorth (due in part to the Hudson United acquisition) and lower corporate loan recoveries.

• Our 2008 LLP forecast is $675 million or 0.40% of loans.

Loan Formations

• New gross impaired loan formations were $299 million versus $206 million in the previous quarter and $214 million a year earlier, with $47 million arising as a result of moving the credit card portfolio to non-accrual status upon 90 days in arrears as opposed to 180 days. This shift in accrual recognition to a more conservative stance results in the bank receiving capital relief from Basel II.

• Net impaired loan formations were $218 million versus $148 million in the previous quarter and $41 million a year earlier.

Tier 1 Capital 12.0%

• Tier 1 capital ratio was 12.0%, compared to 12.1% in the previous quarter, and 10.1% a year earlier.

Share Buyback

• The bank repurchased 4.0 million common shares at an average cost of $66.00 per share for $264 million.

• On October 19, the bank announced a normal course issuer bid to repurchase up to 5 million common shares or approximately 0.7% of shares outstanding.

Recent Events

• On October 23, TD Banknorth announced that Bharat Masrani will assume the role of Chief Executive Officer effective March 1, 2007 in addition to his current role of President to which he was appointed on June 23, 2006.

• Between October 26 and October 30, TD purchased 233,000 shares of BNK at an average cost of US$29.86 per share, bringing its total ownership level of BNK to 130.1 million shares or 57.0%.

TD Bank to Acquire Remaining 41% of TD Banknorth

• On November 21, TD announced that it will acquire the remaining 41% stake in TD Banknorth for US$32.33 per BNK share or US$3.2 billion (C$3.6 billion) in an all-cash offer. The transaction will be financed by $3.0 billion primarily of subordinated debt.

• The transaction is expected to be accretive to TD by $0.05 per share in 2007 and $0.16 per share in 2008. Closing is expected for March or April 2007.

• TD's Tier 1 capital ratio will decline to 9.8% from 12.1% and tangible common equity ratio will decline to 7.0% from 9.1%.

• Upon privatization, TD will have spent a total of US$8.5 billion or an average of US$35.21 per BNK share for 100% ownership in TD Banknorth. TD paid US$40 per share for its original 51% ownership in BNK.

• The 100% ownership of TD Banknorth we believe increases TD's strategic flexibility in terms of restructuring, sale, or vending it into a larger entity in the U.S. This buy-in represents a major shift in strategy as TD Banknorth was not the currency for U.S. expansion that the bank had initially anticipated. We view this step as necessary in an attempt to maximize returns from this investment over the next two to three years.

• We view the transaction from a financial perspective as positive given the weak share price performance of TD Banknorth, small premium and accretive nature of the transaction (increased leverage). However, operational challenges at TD Banknorth remain, including competition, earnings pressure and low shareholder returns.


• Our 2007 earnings estimate remains unchanged at $5.15 per share. We are introducing our 2008 earnings estimate at $5.65 per share.

• Our 12-month share price target is unchanged at $81, representing 15.7x our 2007 earnings estimate and 14.3x our 2008 earnings estimate.

• We maintain our 2-Sector Perform rating on TD with earnings strength at TDCT and Wealth Management expected to be muted by weak performance in the bank's U.S. platforms, particularly TD Banknorth.
• Blackmont Capital maintained TD Bank at Hold.

• Merrill Lynch maintained TD Bank at Buy. The target price is $74.00.

• National Bank Financial maintained TD Bank at Sector Perform. The target price is $76.00.
newratings, 11 December 2006

Analysts at UBS maintain their "buy" rating on TD Bank Financial Group. The target price has been raised from C$76 to C$77.

In a research note published this morning, the analysts mention that the company has reported healthy volume growth, margin expansion and market share gains for the latest quarter. TD Bank Financial is expected to continue to generate robust results in 2007 due to the ongoing investment, the analysts say. The company expects to continue to exceed its 7%-10% EPS growth target in the medium term.
Financial Post, Duncan Mavin, 9 December 2006

Toronto-Dominion Bank said annual profits more than doubled on the back of its domestic retail banking network but analysts raised concerns about a weakening of the bank's loan portfolio in the upcoming fiscal year.

Net income for the quarter was $762-million, up from $589-million in the fourth quarter of 2005, the bank said yesterday. Core cash earnings per share of $1.20 were in line with consensus estimates among bank analysts of $1.19 per share.

TD also said its annual profit more than doubled to $4.6-billion compared with $2.2-billion in 2005.

The results are "a clear example" of how the bank has "focused on building and enhancing TD's strong domestic business" in 2006, said chief executive Ed Clark.

For instance, the bank has opened 24 new branches and upgraded its entire network of automated banking machines during the year.

That investment appears to have paid off as TD's Canadian retail banking franchise, TD Canada Trust, saw earnings grow 13% in 2006 compared with last year. Profits from domestic retail banking jumped $58-million to $401-million.

UBS Investment Research analyst Jason Bilodeau said the results reflect "very solid trends in core domestic personal and commercial and wealth management lines."

The bank has "one of the strongest domestic platforms," he said.

Wealth management earnings were also up, by 9% compared with the fourth quarter of 2005, on the back of a strong performance by the bank's TD Ameritrade unit in the United States.

TD Ameritrade contributed profits of $53-million to the bank's wealth management segment.

As expected, TD's U.S. retail bank, TD Banknorth, was the weakest performing unit. Earnings at Portland, Maine-based Banknorth fell $6-million from the fourth quarter of 2005 primarily due to tough competition in the U.S. banking industry, which put pressure on margins.

TD announced last month that it intends to buy the 43% of TD Banknorth that it doesn't already own for US$3.2-billion.

Mr. Clark said there are "several key initiatives" underway to improve the performance of TD Banknorth.

The bank recently announced TD veteran Bharat Masrani will be the new chief executive of the U.S. subsidiary from March 2007 when long-time head Bill Ryan steps aside.

"We remain committed to growing and improving TD Banknorth for the future," said Mr. Clark.

Higher loan loss provisions at TD also raised some concerns among analysts. The bank recorded a provision of $170-million for bad loans for the three months ended Oct. 31, compared with a provision of $109-million in the previous quarter.

Desjardins Securities analyst Michael Goldberg said there are "signs of weaker credit quality" at TD.

Blackmont Capital analyst Brad Smith said higher loan loss provisions were required "in response to a broad-based sequential increase in impaired loans."
The Globe and Mail, Andrew Willis, 8 December 2006

On the heels of a year that saw the six big banks post a record combined profit of $19-billion, Canada's bankers are confidently forecasting they can do even better.

Moments after revealing a $3.2-billion annual profit yesterday, driven in part by 17-per-cent earnings growth from its foreign operations, Bank of Nova Scotia chief executive officer Rick Waugh bumped up the bank's targets for both profitability and return on equity.

"In 2007, we fully expect to deliver another year of record results," said Mr. Waugh, who stressed that his bank, like its rivals, is focused on business lines that deliver sustainable earnings, such as wealth management.

The same confidence shone through at Toronto-Dominion Bank, which yesterday reported profit of $4.6-billion for the year, and faces the challenge of improving performance at its U.S. branch network, TD Banknorth.

Since Ed Clark took the helm as chief executive officer, TD has consistently grown earnings and dividends by 10 to 13 per cent annually. Yesterday, Mr. Clark said: "You know I'm conservative in my approach. But assuming there aren't any major changes to the economic outlook, we expect we will continue to exceed our 7- to 10-per-cent [target] range."

The previous high-water mark on combined bank earnings was $13.1-billion, set in 2004. While the banks are breaking new ground with both their profits and share prices, the good times can only continue if the institutions continue to enjoy a combination of decent economic growth and loan losses that are at or near historic lows.

Montreal-based money manager Stephen Gauthier at Gauthier & Cie predicted earnings growth will "be tougher, because the economy won't grow as fast. It'll be a more difficult environment."

Record profits mean Canadian banks now enjoy premium valuations compared with most global peers -- the exception is takeover-friendly U.S. regional banks. Analyst James Bantis at Credit Suisse said lofty share prices are justified by double-digit earnings growth and the banks' diversified revenue base, but cautioned that any misstep in acquisition-driven growth strategies will put an end to the joy ride.

At TD, giveaways of Apple iPods to new retail clients and 25 branch openings in the fourth quarter helped boost earnings from its Canadian retail division by 13 per cent to $501-million. The Toronto-based bank's quarterly profit in the three months ended Oct. 31 climbed to $762-million or $1.04 a diluted share from $589-million or 82 cents a year ago.

On an adjusted basis, TD Bank earned $1.20 a share.

"TD's numbers reflect very solid trends in core domestic personal and commercial and wealth management lines," said bank analyst Jason Bilodeau at UBS Securities.

In contrast to TD's domestic success, Scotiabank looked to foreign operations to charge its profits.

The bank earned more than $1-billion from each of its major divisions: domestic retail banking, investment bank Scotia Capital Inc. and international banking.

Scotiabank's offshore revenue grew by 17 per cent following a series of South American acquisitions. The bank has spent $1.5-billion on seven takeovers in the past 18 months.

"International remains a key driver of Scotiabank's [quarterly results] . . . However, domestic challenges are evident," said analyst Jason Bilodeau at UBS Securities. He was one of several analysts to flag the fact that Scotiabank's retail branches and investment banking results were disappointing, while the international division did better than expected.

Scotiabank boosted its dividend by 7.8 per cent yesterday to 42 cents a share, making it the third big bank to raise its payout in this quarter, and beat analysts' forecasts by tabling earnings for the three months ended Oct. 31 of $897-million or 89 cents a share. The bank is now targeting 7-to-12-per-cent annual growth in earnings per share, and return on equity of 20 to 23 per cent.
The six biggest Canadian banks earned a total record profit of about $19-billion for the 2006 financial year ended Oct. 31. Total earnings: $19-billion

Previous record: $13.1-billion in 2004

Reason: Profited from a strong Canadian economy, especially in Western Canada. Growth in mortgages, credit cards and other consumer lending, as well as trading fees and corporate loans.

Past annual profits: $9.7-billion in 2001, $7-billion in 2002, $11.1-billion in 2003, $13.1-billion in 2004 and $12-billion in 2005.
Reuters, Lynne Olver, 8 December 2006

Toronto-Dominion Bank reported a 29 percent jump in fourth-quarter profit on Friday, as strength in its domestic retail business outweighed weakness in the United States, but its shares slipped in Toronto.

TD Bank Chief Executive Ed Clark said earnings per share should continue to grow faster next year than his bank's long-term goal of 7 percent to 10 percent EPS growth. In 2006, adjusted earnings per share grew by 13 percent.

"Looking forward, I'm feeling pretty optimistic," Clark said on a conference call.

Revenue growth in TD's powerhouse Canadian retail operations will likely slow next year, but expense growth will follow suit, Clark said. And investments made in the domestic retail business, such as new branches and additional staff, should help that segment deliver double-digit earnings growth.

Canada's third-biggest bank by market value reported net income of C$762 million ($663 million), or C$1.04 a share, in the quarter ended October 31, up from C$589 million, or 82 Canadian cents a share for the same time last year.

Diluted earnings per share were C$1.20 when adjusted to exclude amortization of intangible assets, the impact of hedging accounting, and initial specific allowance for credit card and overdraft loans.

That was just ahead of the C$1.19 a share that analysts had expected, according to Reuters Estimates.

Still, TD stock fell 1 percent on Friday to C$67.35 a share, down 65 Canadian cents, on a volume of 3.1 million shares. It traded as low as C$66.56 early in the session.

One analyst said banks will be hard-pressed to duplicate this year's stellar results, and that may have fueled the stock decline.

"We believe much of the positive news for TD and the Canadian banks in general are already priced into the stocks," said Edward Jones analyst Tom Kersting.

TD's results were driven by its strong performance in Canada, but hurt by the difficult operating environment for TD Banknorth in the United States, Kersting said.

TD owns 57 percent of Portland, Maine-based Banknorth, and plans to buy out minority shareholders for US$3.2 billion.

For the full year, TD's net income was C$4.60 billion, or C$6.34 a share, more than double its 2005 profit of C$2.23 billion, or C$3.20 a share. Earnings rose a more modest 18 percent on an adjusted basis.

In the fourth quarter, TD said total revenue was C$3.29 billion, up from C$3.08 billion.

Not surprisingly, TD's quarterly provision for credit losses rose from very low levels. Provisions were C$170 million, compared with a C$15 million reversal a year earlier.

UBS analyst Jason Bilodeau said TD's fourth quarter reflected "very solid trends" in its core domestic personal and commercial lines, including market-share gains in personal deposits, small business loans and other products.

TD said profit in its Canadian personal and commercial banking unit rose 13 percent to C$501 million in the last three months of 2006. Net income in U.S. personal and commercial banking fell 9 percent to C$63 million, primarily due to lower net interest income and a stronger Canadian dollar versus the greenback.

Wholesale banking profit more than tripled to C$146 million in the latest quarter, thanks to strong investment banking revenues and securities gains, TD said.

Profit in wealth management, which includes its 39.8 percent stake in TD Ameritrade , was C$148 million, up 9 percent.
RBC Capital, 8 December 2006

First Impression

• TD Met Consensus. TD reported $1.20 adjusted cash EPS (excludes 4¢ in items), in line with the Thomson First Call mean estimate, indicating a 13% increase YoY. This result demonstrated continued retail revenue and operating leverage momentum, but this time the bank ‘earned through’ higher impaired loans and losses.

• Retail (77% of Earnings) - Revenue Strong But Loan Losses Rise. Domestic retail revenue grew 13% YoY, which combined with 10% higher expenses to power +3% operating leverage and 13% earnings growth to $501MM (our estimate was $525MM). Most of the difference was a high loan loss at 0.41% of L&A. Expenses were also a bit higher than expected related to new growth initiatives and technology streamlining costs. In our view, these are costs of growth and TD is earning through those costs. Market share in personal deposits and most loan categories remained in an upward track. The Wealth contribution was $5MM (5%) below our estimate and the Banknorth and Ameritrade results were as pre-reported.

• Credit Topical This Quarter. Retail impaired loans (IL’s) jumped 39%, and commercial IL’s tripled, but most is owing to a stated change in methodology (i.e., not fundamental). Cards and overdraft loans are now to be recognized at 90 days, rather than just written off at 180 days. This also relates to the $28MM ‘one-time’ retail reserve set-up, all to conform to audit and Basel standards. Underlying retail credit development looks moderate in light of this adjustment. Also, of significant comfort is that TD’s excess reserve coverage at 320% remains double the industry standard.

• Wholesale (23% of Total) – Not Stellar. Cash earnings of $146MM were 3% below our estimate of $150MM. It looks like a low tax rate helped offset very low trading revenue. Loan losses of $13MM were level and not a factor. Variability is high, so we are inherently conservative.

• No Dividend Hike, But Payout May Be Under Review. TD did not raise its dividend (just did so last quarter), nonetheless, with the recent decision to take Banknorth private and presumably to suspend large acquisitions, we thought management might look at (i) raising the payout, and (ii) increasing share buybacks (TD just repurchased 2.5MM shares).