Analysts' ratings and target prices for TD Bank:
• BMO Capital Markets maintains "outperform," 12 month target price is $78.00
• Blackmont Capital maintains "hold," 12-month target price raised to $77.00 from $73.00
• Desjardins Securities maintains "top pick," 12-month target price raised to $84.00 from $79.00
• RBC Capital Markets maintains "outperform," 12 month target price raised to $83.00 from $81.00
• Scotia Capital maintains "outperform," 12 month target price is $90.00
• BMO Capital Markets maintains "outperform," 12 month target price is $78.00
• Blackmont Capital maintains "hold," 12-month target price raised to $77.00 from $73.00
• Desjardins Securities maintains "top pick," 12-month target price raised to $84.00 from $79.00
• RBC Capital Markets maintains "outperform," 12 month target price raised to $83.00 from $81.00
• Scotia Capital maintains "outperform," 12 month target price is $90.00
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BMO Capital Markets, 24 August 2007
TD Bank reported third-quarter cash earnings of $1,192 million, or $1.64 per share, compared to $952 million, or $1.31 per share, last quarter, and $909 million, or $1.17 per share, in the same quarter of last year. This quarter's results were positively impacted by the mark-to-market of credit derivatives of $0.04 per share. Exclusive of this, TD defined its adjusted earnings as $1.60, which was well ahead of our expectations of $1.34 per share.
This was great quarter for TD Bank. Having said that, we are the first ones to highlight that the $1.60 reported this quarter included tax reversals, very strong trading revenues and a securities gain on AMTD shares. We suggest that investors focus on $1.45 as a 'sustainable' earnings result, after we remove the non-recurring items in the Corporate segment and 'normalize' trading in TD Securities. Even at this level, however, the result was ahead of our expectations due to strong volume growth and good control of expenses.
The bank also boosted its quarterly dividend by 8% to $0.57. This surprised us and clearly reflects management confidence in its ability to manage through what has become a difficult environment since quarter-end.
The Canadian Personal and Commercial Banking segment reported earnings of $597 million, up 11% over the second quarter and 14% over the year and ahead of our expectations. We are assuming a slowdown in loan growth to 5% in 2008, and still expect contribution from this segment to rise by 7%.
This was the first quarter in which TD Banknorth results were fully consolidated into TD Bank. Net income was $109 million, in line with our expectations. Despite high levels of competition and the outlook for higher loan losses in the U.S. banking system, management appears confident that it can grow the contribution from BNK.
Wealth Management results, including AMTD, were $185 million, down 6% over the quarter but up 22% over the year. The contribution from TD Ameritrade was pre-announced at $59 million, down slightly from the previous quarter. In the domestic Wealth business, revenue was up 30% year over year. Given the volatility in most markets since the end of the quarter, we have assumed a decline in earnings in the fourth quarter and about 10% growth for 2008.
TD Securities reported very strong earnings of $253 million, up 17% over the quarter and 41% over the year. Trading revenues were $308 million, higher than our expectations.
Outside of trading the bank had excellent revenue performance, consistent with what appears to be very good momentum in M&A and underwriting. Provisions for credit losses were $8 million, inclusive of a $3 million recovery in the merchant banking portfolio. For 2008, we are assuming a 25% reduction in contribution from TD Securities.
TD disclosed that it has no exposure to U.S. sub-prime mortgages, third-party ABCP or hedge fund lending. It has nominal exposure to hedge fund trading and ensures collateralization of its prime brokerage activities.
The Corporate segment's operating earnings of $20 million were well above our expectations of a loss of $25 million reflecting a $29 million resolution of a tax audit, and a $6 million gain on the sale of AMTD shares. From a credit perspective, loan losses of $171 million were roughly in line with our expectations.
TD's Tier 1 ratio increased from 9.8% last quarter to 10.2% this quarter due to strong internal capital generation as well as a US$500 million preferred stock issue. On the other hand, book value actually declined in the quarter. This will likely be a trend seen at other banks as the rise in the Canadian dollar impacts the valuation of non-Canadian assets.
Projections and Valuation
We are raising our forecast for 2008 to $5.95 from $5.85. This modest increase includes an assumption of higher loan losses, weaker trading revenues and more moderate growth in retail banking. We are modestly reducing our fourth quarter earnings estimate to $1.33 from $1.37, to reflect the difficult capital markets conditions of the past month.
It has been easy for bank management to highlight that there are risks associated with the extremely robust capital markets conditions over the past couple years. The difficulty has been to act on this concern. TD Bank has done both, hence the title of this report. We continue to highlight TD Bank as our favourite Canadian bank stock. It offers investors a combination of great underlying franchises, a defensive business mix and some growth options. We are maintaining our Outperform rating and $78 target price.
TD Bank reported third-quarter cash earnings of $1,192 million, or $1.64 per share, compared to $952 million, or $1.31 per share, last quarter, and $909 million, or $1.17 per share, in the same quarter of last year. This quarter's results were positively impacted by the mark-to-market of credit derivatives of $0.04 per share. Exclusive of this, TD defined its adjusted earnings as $1.60, which was well ahead of our expectations of $1.34 per share.
This was great quarter for TD Bank. Having said that, we are the first ones to highlight that the $1.60 reported this quarter included tax reversals, very strong trading revenues and a securities gain on AMTD shares. We suggest that investors focus on $1.45 as a 'sustainable' earnings result, after we remove the non-recurring items in the Corporate segment and 'normalize' trading in TD Securities. Even at this level, however, the result was ahead of our expectations due to strong volume growth and good control of expenses.
The bank also boosted its quarterly dividend by 8% to $0.57. This surprised us and clearly reflects management confidence in its ability to manage through what has become a difficult environment since quarter-end.
The Canadian Personal and Commercial Banking segment reported earnings of $597 million, up 11% over the second quarter and 14% over the year and ahead of our expectations. We are assuming a slowdown in loan growth to 5% in 2008, and still expect contribution from this segment to rise by 7%.
This was the first quarter in which TD Banknorth results were fully consolidated into TD Bank. Net income was $109 million, in line with our expectations. Despite high levels of competition and the outlook for higher loan losses in the U.S. banking system, management appears confident that it can grow the contribution from BNK.
Wealth Management results, including AMTD, were $185 million, down 6% over the quarter but up 22% over the year. The contribution from TD Ameritrade was pre-announced at $59 million, down slightly from the previous quarter. In the domestic Wealth business, revenue was up 30% year over year. Given the volatility in most markets since the end of the quarter, we have assumed a decline in earnings in the fourth quarter and about 10% growth for 2008.
TD Securities reported very strong earnings of $253 million, up 17% over the quarter and 41% over the year. Trading revenues were $308 million, higher than our expectations.
Outside of trading the bank had excellent revenue performance, consistent with what appears to be very good momentum in M&A and underwriting. Provisions for credit losses were $8 million, inclusive of a $3 million recovery in the merchant banking portfolio. For 2008, we are assuming a 25% reduction in contribution from TD Securities.
TD disclosed that it has no exposure to U.S. sub-prime mortgages, third-party ABCP or hedge fund lending. It has nominal exposure to hedge fund trading and ensures collateralization of its prime brokerage activities.
The Corporate segment's operating earnings of $20 million were well above our expectations of a loss of $25 million reflecting a $29 million resolution of a tax audit, and a $6 million gain on the sale of AMTD shares. From a credit perspective, loan losses of $171 million were roughly in line with our expectations.
TD's Tier 1 ratio increased from 9.8% last quarter to 10.2% this quarter due to strong internal capital generation as well as a US$500 million preferred stock issue. On the other hand, book value actually declined in the quarter. This will likely be a trend seen at other banks as the rise in the Canadian dollar impacts the valuation of non-Canadian assets.
Projections and Valuation
We are raising our forecast for 2008 to $5.95 from $5.85. This modest increase includes an assumption of higher loan losses, weaker trading revenues and more moderate growth in retail banking. We are modestly reducing our fourth quarter earnings estimate to $1.33 from $1.37, to reflect the difficult capital markets conditions of the past month.
It has been easy for bank management to highlight that there are risks associated with the extremely robust capital markets conditions over the past couple years. The difficulty has been to act on this concern. TD Bank has done both, hence the title of this report. We continue to highlight TD Bank as our favourite Canadian bank stock. It offers investors a combination of great underlying franchises, a defensive business mix and some growth options. We are maintaining our Outperform rating and $78 target price.
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RBC Capital Markets, 24 August 2007
EPS ahead of expectations, but not sustainable
Core cash EPS of $1.60 were well ahead of our $1.35 estimate, and up 33% versus Q3/06. $0.21 of the $0.25 "beat" came from the wholesale and corporate segments, where results are not likely to be sustained in the near term and valuation multiples on those earnings are low. The dividend was raised $0.04 to $0.57, $0.01 more than we had anticipated.
EPS estimates and target price raised
We have raised our 2007E cash EPS to $5.75 from $5.45, reflecting mostly the higher than expected Q3/07 results while our 2008E EPS are up $0.10 to $6.10, mostly reflecting higher estimated earnings at TD Canada Trust. We have raised our 12-month target price by $2 to $83 on the back of the higher estimated earnings. This valuation implies a forward multiple of about 12.7 times, slightly higher than the bank's 5-year average of 12.2 times. We believe that multiple expansion is likely as the bank's earnings should prove less volatile than the rest of the group in turbulent capital and credit markets.
TD offers balance of growth and lower risk
Domestic retail momentum and higher earnings from the U.S. (driven by cost synergies at TD Ameritrade, and by higher ownership of TD Banknorth) should drive above-average retail earnings growth for TD. We also believe that there is less downside risk to our earnings forecasts for TD than for the industry as the bank is less exposed to wholesale earnings, and appears to have a more conservative mix of businesses within its wholesale division.
EPS ahead of expectations, but not sustainable
Core cash EPS of $1.60 were well ahead of our $1.35 estimate, and up 33% versus Q3/06. $0.21 of the $0.25 "beat" came from the wholesale and corporate segments, where results are not likely to be sustained in the near term and valuation multiples on those earnings are low. The dividend was raised $0.04 to $0.57, $0.01 more than we had anticipated.
EPS estimates and target price raised
We have raised our 2007E cash EPS to $5.75 from $5.45, reflecting mostly the higher than expected Q3/07 results while our 2008E EPS are up $0.10 to $6.10, mostly reflecting higher estimated earnings at TD Canada Trust. We have raised our 12-month target price by $2 to $83 on the back of the higher estimated earnings. This valuation implies a forward multiple of about 12.7 times, slightly higher than the bank's 5-year average of 12.2 times. We believe that multiple expansion is likely as the bank's earnings should prove less volatile than the rest of the group in turbulent capital and credit markets.
TD offers balance of growth and lower risk
Domestic retail momentum and higher earnings from the U.S. (driven by cost synergies at TD Ameritrade, and by higher ownership of TD Banknorth) should drive above-average retail earnings growth for TD. We also believe that there is less downside risk to our earnings forecasts for TD than for the industry as the bank is less exposed to wholesale earnings, and appears to have a more conservative mix of businesses within its wholesale division.
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Scotia Capital, 24 August 2007
Q3/07 Earnings Increase 32% - High Quality
• Toronto-Dominion Bank (TD) reported terrific Q3/07 earnings of $1.60 per share better than expected with extremely strong earnings in all business lines, particularly Wholesale Banking. Cash operating earnings of $1.60 per share (including $0.04 per share tax adjustments) were up 32% from a year earlier.
• Earnings were driven again this quarter by exceptional results from Wholesale Banking with growth of 41%, with Wealth Management and TDCT earnings increasing 22% and 14%, respectively. TD Banknorth earnings declined slightly from a year earlier but increased sequentially with positive earnings momentum expected going forward.
• TD increased its dividend by 7.5% to $2.28 per share from $2.12 per share as expected.
• Cash ROE was 22.2% versus 18.6% a year earlier. Return on risk-weighted assets was 3.07% versus 2.54% a year earlier. TD's cash return on RWA this quarter, we believe, is the first for a Canadian bank to ever earn a return on RWA of over 3.00%.
• Reported earnings were $1.51 per share which included the following after-tax items: the amortization of intangibles expense of $91 million or $0.13 per share and a gain of $30 million or $0.04 per share due to the change in fair value of credit default swaps hedging the corporate loan book.
Impressive Operating Leverage
• TD’s operating leverage was impressive in Q3 at 8.7%, with revenue growth of 12.6% and expense growth of 3.9%.
Canadian P&C Earnings Up 14%
• Canadian P&C earnings increased 14% to $597 million primarily due to volume growth in real-estate secured lending, credit cards and deposits.
• Canadian retail NIM increased 2 basis points (bp) sequentially to 3.07% in the quarter but declined 1 bp from a year earlier.
• Retail market share improved over the past year with gains in credit card market share of 68 bp, small business lending 59 bp and personal lending 6 bp. Personal deposit market share declined 24 bp from a year earlier.
• Loan securitization revenue was relatively flat at $86 million versus $85 million a year earlier but declined from $97 million in the previous quarter. Insurance revenue increased to $257 million from $230 million a year earlier. Card service revenue increased to $119 million from $103 million in the previous quarter and $93 million a year earlier.
• Operating leverage was very strong at 8% with revenues increasing 9% and expenses increasing 1%.
• The efficiency ratio improved 200 bp to 50.0%.
• Loan loss provisions increased to $151 million from $143 million in the previous quarter and from $104 million a year earlier, due to higher loan growth and higher loss rates on new accounts.
Total Wealth Management Earnings Up 22%
• Wealth Management earnings, including the bank’s equity share of TD Ameritrade, increased 22% to $185 million.
Canadian Wealth Management – Earnings Increase 30%
• Domestic Wealth Management earnings increased 30% to $126 million from $97 million a year earlier, due to higher transaction volume and higher mutual fund fees from asset growth.
• Operating leverage was strong at 4.5% with revenue increasing 19.3% and expenses increasing 14.8% to $587 million and $395 million, respectively.
• Mutual fund revenue increased 31% to $206 million from $157 million a year earlier.
• Mutual fund assets under management (IFIC, includes PIC assets) increased 19% to $59.1 billion.
TD Ameritrade - Earnings Increase Modest 7%
• TD Ameritrade contributed $59 million or $0.08 per share to earnings in the quarter versus $63 million or $0.09 per share in the previous quarter and $55 million or $0.08 per share a year earlier. TD Ameritrade’s contribution represented 5% of total bank earnings.
TD Banknorth Earnings Improve Sequentially
• TD Banknorth earnings contributed $109 million or $0.15 per share in the first full quarter of earnings since its privatization representing 9% of TD earnings. This compares with an earnings contribution of C$68 million or $0.09 per share a year earlier.
• On a comparable basis, earnings declined modestly year over year but increased sequentially. It is early, but TD Banknorth's goal of earnings of C$500 million or C$0.70 per share in 2008 seems aggressive but attainable. This would represent a 17% earnings improvement from this quarter's earnings level.
• Net interest margin at TD Banknorth declined 3 bp from the previous quarter and 21 bp from a year earlier to 3.86% due to the flat yield curve and strong competitive pressure.
Wholesale Banking Earnings Increase 41%
• Wholesale banking earnings increased 41% to $253 million versus $179 million a year earlier and increased 17% sequentially from $217 million.
• Revenue growth was impressive at 18.7%, with expenses increasing 7.6%. Operating leverage was strong at 11.1%.
Capital Markets Revenue Solid
• Capital markets revenue increased 14% to $390 million from $343 million a year earlier.
Impressive Trading Revenue
• Trading revenue increased to $308 million from $289 million in the previous quarter and from $242 million a year earlier.
• Trading revenue was driven by equity and other portfolios' trading revenue increasing to $144 million from $99 million a year earlier. Trading revenue in foreign exchange products improved slightly to $87 million from $80 million a year earlier. Interest rate and credit portfolios’ trading revenue increased to $77 million from $63 million a year earlier.
Securitization Activity Moderate
• During the quarter, TD securitized $2.2 billion in assets versus $3.1 billion in Q2 and $2.2 billion a year earlier. At quarter end, TD had $31.7 billion in securitized assets outstanding.
• The economic impact before tax of securitization this quarter was a loss of $4 million versus a loss of $4 million in the previous quarter and a loss of $13 million a year earlier.
Liquidity Risk
• At quarter end, TD's surplus liquid asset position was $4.2 billion, a more normal level than the $18.8 billion excessive surplus the bank was carrying at the end of Q4/06. The flat to inverted yield curve made carrying excess liquidity nominal at the end of 2006 but has since become more expensive. Therefore, the decline in liquidity was at the bank's discretion and is not related to the recent liquidity crisis.
Security Surplus Stable at $1 Billion
• Security gains declined slightly to $94 million or $0.08 per share from $102 million or $0.09 per share in the previous quarter and $113 million or $0.10 per share a year earlier. Security gains included a $6 million gain from sale of TD Ameritrade shares as the bank reduced its equity stake in TD Ameritrade to 39.9% from 40.3% as required by its stand still agreement.
• Unrealized surplus increased to $1,010 million basically unchanged from the previous quarter but up substantially from $707 million a year earlier. The bank currently has 10 quarters of security gains remaining in its securities portfolio based on the level of gains recognized this quarter.
Loan Loss Provisions
• Specific loan loss provisions (LLPs) increased to $171 million or 0.37% of loans versus $109 million or 0.26% of loans a year earlier.
• We are increasing our 2007 and 2008 LLP estimates to $675 million or 0.37% of loans and $750 million or 0.40% from $600 million and $675 million, respectively. This increase in LLP estimates reflects higher loan losses particularly in credit cards, which is a function of volume not credit quality deterioration, and also reflects higher loan losses at TD Banknorth and overall higher volume growth.
Loan Formations Decline Sequentially
• New gross impaired loan formations declined to $375 million from $461 million in the previous quarter but increased from $234 million a year earlier.
• Net impaired loan formations declined to $209 million from $303 million in the previous quarter but increased from $160 million a year earlier.
Tier 1 Capital Increased Sequentially to 10.2%
• Tier 1 capital ratio increased to 10.2% from 9.8% in the previous quarter but declined from 12.1% a year earlier primarily due to the privatization of TD Banknorth.
• Risk-weighted assets increased 8% from a year earlier to $150.8 billion, with market at risk declining 13% to $3.0 billion.
Share Buybacks
• In Q3/07 TD repurchased a total of 3.2 million shares at an average price of $72.92 per share for a total of $236.1 million.
Recommendation
• We are increasing our 2007 earnings estimate to $5.80 per share from $5.45 per share and our 2008 earnings estimate to $6.30 per share from $6.00 per share based on operating earnings strength in Wholesale Banking, continued earnings strength at TDCT and improving earnings at TD Banknorth.
• Our 12-month share price target remains unchanged at $90, representing 15.5x our 2007 earnings estimate and 14.3x our 2008 earnings estimate.
• TD management is very pleased with their earnings thus far in 2007 and remains optimistic about the outlook for 2008.
• We reiterate our 1-Sector Outperform rating of shares of TD based on strong high quality earnings momentum, high relative profitability, growth potential from TD Banknorth and TD Ameritrade (including M&A potential) as well as attractive valuation (slight P/E discount to the bank group versus our expected 10% premium).
Q3/07 Earnings Increase 32% - High Quality
• Toronto-Dominion Bank (TD) reported terrific Q3/07 earnings of $1.60 per share better than expected with extremely strong earnings in all business lines, particularly Wholesale Banking. Cash operating earnings of $1.60 per share (including $0.04 per share tax adjustments) were up 32% from a year earlier.
• Earnings were driven again this quarter by exceptional results from Wholesale Banking with growth of 41%, with Wealth Management and TDCT earnings increasing 22% and 14%, respectively. TD Banknorth earnings declined slightly from a year earlier but increased sequentially with positive earnings momentum expected going forward.
• TD increased its dividend by 7.5% to $2.28 per share from $2.12 per share as expected.
• Cash ROE was 22.2% versus 18.6% a year earlier. Return on risk-weighted assets was 3.07% versus 2.54% a year earlier. TD's cash return on RWA this quarter, we believe, is the first for a Canadian bank to ever earn a return on RWA of over 3.00%.
• Reported earnings were $1.51 per share which included the following after-tax items: the amortization of intangibles expense of $91 million or $0.13 per share and a gain of $30 million or $0.04 per share due to the change in fair value of credit default swaps hedging the corporate loan book.
Impressive Operating Leverage
• TD’s operating leverage was impressive in Q3 at 8.7%, with revenue growth of 12.6% and expense growth of 3.9%.
Canadian P&C Earnings Up 14%
• Canadian P&C earnings increased 14% to $597 million primarily due to volume growth in real-estate secured lending, credit cards and deposits.
• Canadian retail NIM increased 2 basis points (bp) sequentially to 3.07% in the quarter but declined 1 bp from a year earlier.
• Retail market share improved over the past year with gains in credit card market share of 68 bp, small business lending 59 bp and personal lending 6 bp. Personal deposit market share declined 24 bp from a year earlier.
• Loan securitization revenue was relatively flat at $86 million versus $85 million a year earlier but declined from $97 million in the previous quarter. Insurance revenue increased to $257 million from $230 million a year earlier. Card service revenue increased to $119 million from $103 million in the previous quarter and $93 million a year earlier.
• Operating leverage was very strong at 8% with revenues increasing 9% and expenses increasing 1%.
• The efficiency ratio improved 200 bp to 50.0%.
• Loan loss provisions increased to $151 million from $143 million in the previous quarter and from $104 million a year earlier, due to higher loan growth and higher loss rates on new accounts.
Total Wealth Management Earnings Up 22%
• Wealth Management earnings, including the bank’s equity share of TD Ameritrade, increased 22% to $185 million.
Canadian Wealth Management – Earnings Increase 30%
• Domestic Wealth Management earnings increased 30% to $126 million from $97 million a year earlier, due to higher transaction volume and higher mutual fund fees from asset growth.
• Operating leverage was strong at 4.5% with revenue increasing 19.3% and expenses increasing 14.8% to $587 million and $395 million, respectively.
• Mutual fund revenue increased 31% to $206 million from $157 million a year earlier.
• Mutual fund assets under management (IFIC, includes PIC assets) increased 19% to $59.1 billion.
TD Ameritrade - Earnings Increase Modest 7%
• TD Ameritrade contributed $59 million or $0.08 per share to earnings in the quarter versus $63 million or $0.09 per share in the previous quarter and $55 million or $0.08 per share a year earlier. TD Ameritrade’s contribution represented 5% of total bank earnings.
TD Banknorth Earnings Improve Sequentially
• TD Banknorth earnings contributed $109 million or $0.15 per share in the first full quarter of earnings since its privatization representing 9% of TD earnings. This compares with an earnings contribution of C$68 million or $0.09 per share a year earlier.
• On a comparable basis, earnings declined modestly year over year but increased sequentially. It is early, but TD Banknorth's goal of earnings of C$500 million or C$0.70 per share in 2008 seems aggressive but attainable. This would represent a 17% earnings improvement from this quarter's earnings level.
• Net interest margin at TD Banknorth declined 3 bp from the previous quarter and 21 bp from a year earlier to 3.86% due to the flat yield curve and strong competitive pressure.
Wholesale Banking Earnings Increase 41%
• Wholesale banking earnings increased 41% to $253 million versus $179 million a year earlier and increased 17% sequentially from $217 million.
• Revenue growth was impressive at 18.7%, with expenses increasing 7.6%. Operating leverage was strong at 11.1%.
Capital Markets Revenue Solid
• Capital markets revenue increased 14% to $390 million from $343 million a year earlier.
Impressive Trading Revenue
• Trading revenue increased to $308 million from $289 million in the previous quarter and from $242 million a year earlier.
• Trading revenue was driven by equity and other portfolios' trading revenue increasing to $144 million from $99 million a year earlier. Trading revenue in foreign exchange products improved slightly to $87 million from $80 million a year earlier. Interest rate and credit portfolios’ trading revenue increased to $77 million from $63 million a year earlier.
Securitization Activity Moderate
• During the quarter, TD securitized $2.2 billion in assets versus $3.1 billion in Q2 and $2.2 billion a year earlier. At quarter end, TD had $31.7 billion in securitized assets outstanding.
• The economic impact before tax of securitization this quarter was a loss of $4 million versus a loss of $4 million in the previous quarter and a loss of $13 million a year earlier.
Liquidity Risk
• At quarter end, TD's surplus liquid asset position was $4.2 billion, a more normal level than the $18.8 billion excessive surplus the bank was carrying at the end of Q4/06. The flat to inverted yield curve made carrying excess liquidity nominal at the end of 2006 but has since become more expensive. Therefore, the decline in liquidity was at the bank's discretion and is not related to the recent liquidity crisis.
Security Surplus Stable at $1 Billion
• Security gains declined slightly to $94 million or $0.08 per share from $102 million or $0.09 per share in the previous quarter and $113 million or $0.10 per share a year earlier. Security gains included a $6 million gain from sale of TD Ameritrade shares as the bank reduced its equity stake in TD Ameritrade to 39.9% from 40.3% as required by its stand still agreement.
• Unrealized surplus increased to $1,010 million basically unchanged from the previous quarter but up substantially from $707 million a year earlier. The bank currently has 10 quarters of security gains remaining in its securities portfolio based on the level of gains recognized this quarter.
Loan Loss Provisions
• Specific loan loss provisions (LLPs) increased to $171 million or 0.37% of loans versus $109 million or 0.26% of loans a year earlier.
• We are increasing our 2007 and 2008 LLP estimates to $675 million or 0.37% of loans and $750 million or 0.40% from $600 million and $675 million, respectively. This increase in LLP estimates reflects higher loan losses particularly in credit cards, which is a function of volume not credit quality deterioration, and also reflects higher loan losses at TD Banknorth and overall higher volume growth.
Loan Formations Decline Sequentially
• New gross impaired loan formations declined to $375 million from $461 million in the previous quarter but increased from $234 million a year earlier.
• Net impaired loan formations declined to $209 million from $303 million in the previous quarter but increased from $160 million a year earlier.
Tier 1 Capital Increased Sequentially to 10.2%
• Tier 1 capital ratio increased to 10.2% from 9.8% in the previous quarter but declined from 12.1% a year earlier primarily due to the privatization of TD Banknorth.
• Risk-weighted assets increased 8% from a year earlier to $150.8 billion, with market at risk declining 13% to $3.0 billion.
Share Buybacks
• In Q3/07 TD repurchased a total of 3.2 million shares at an average price of $72.92 per share for a total of $236.1 million.
Recommendation
• We are increasing our 2007 earnings estimate to $5.80 per share from $5.45 per share and our 2008 earnings estimate to $6.30 per share from $6.00 per share based on operating earnings strength in Wholesale Banking, continued earnings strength at TDCT and improving earnings at TD Banknorth.
• Our 12-month share price target remains unchanged at $90, representing 15.5x our 2007 earnings estimate and 14.3x our 2008 earnings estimate.
• TD management is very pleased with their earnings thus far in 2007 and remains optimistic about the outlook for 2008.
• We reiterate our 1-Sector Outperform rating of shares of TD based on strong high quality earnings momentum, high relative profitability, growth potential from TD Banknorth and TD Ameritrade (including M&A potential) as well as attractive valuation (slight P/E discount to the bank group versus our expected 10% premium).
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The Globe and Mail, John Heinzl, 24 August 2007
During the recent market turmoil, we've been harping about the importance of dividends, especially investing in companies that increase their dividends regularly.
Judging by the response to last week's "10-step recovery plan for panicked investors," many of you are taking the advice to heart.
As Carmela from Vancouver wrote in an e-mail to the Market Moves reader communications centre, "Even if it is the end, your article made me feel better for a moment."
Okay, so, uh, some people need a bit more reassurance.
With that in mind, in today's column we will offer incontrovertible proof that investing in companies that pay rising dividends is, if not a guaranteed way to enjoy a life of wine-tasting aboard your private yacht, at least a whole lot better than listening to stock tips from your dentist or throwing darts at the stock tables.
Today's example: Toronto-Dominion Bank.
Yesterday, TD announced a third-quarter profit of $1.1-billion, up 38 per cent from a year earlier. Boffo bank profits always make headlines. But TD had another piece of uplifting news for investors: It boosted its quarterly dividend by 4 cents, to 57 cents a share - an increase of nearly 8 per cent.
You didn't have to be a genius to see this coming. In recent years, Canada's third-biggest bank has established a pattern of bumping its dividend every other quarter, hiking its payout at a five-year annual rate of 12.5 per cent.
A 4-cent increase may seem like peanuts, but over time such small dividend increases add up. TD's payout is now twice as big as it was just five years ago; had you bought the stock in August, 2002, the dividend yield on your original investment would be 6.7 per cent. As well, the stock has more than doubled.
And, the thing is, unless the economy gets really ugly, TD's dividend is expected to keep rising. According to Bloomberg forecasts, it will jump to 62 cents in February, 65 cents next August and 68 cents by February, 2009. By 2010, it should be up around 76 cents.
These are just estimates, of course. There's no guarantee the dividend will rise at that rate. But investors can take comfort from the fact that the company has been making dividend payments without interruption since 1857. That's before we were born!
TD is just one example. Some other banks have been boosting their dividends at an even faster clip. Royal Bank, which reports today and which some analysts expect will announce a hike, has been raising its payout at an 18.4-per-cent annual pace, just behind Bank of Nova Scotia, at 18.8 per cent.
Other companies sporting double-digit dividend growth rates include Manulife Financial, Sun Life Financial, Power Financial, Reitmans and Shaw Communications.
If you're looking for other companies that raise their dividends, check out http://www.dividendachievers.com, a website operated by financial data provider Mergent. To make Mergent's index of Canadian dividend and income trust achievers, a company must have raised its payout at least annually for five years. For U.S. companies to make the cut, they must have raised their payouts annually for at least 10 years. Companies on the U.S. index include 3M, Abbott Laboratories, Anheuser-Busch, Altria Group, Coca-Cola, Colgate-Palmolive, General Electric, Johnson & Johnson, Pfizer and McDonald's, among hundreds of others.
Dividend achievers are "high-quality, stable companies," Mergent says. "These companies outlasted the technology bubble that began in March of 2000, declining market returns in 2000, 2001 and 2002, and corporate malfeasance."
They also have strong cash reserves, and they generally have a track record of solid earnings growth.
Those rising profits are what allow them to raise their dividends year after year, in good times and bad.
"It is these increasing dividend payments that promote investor confidence," Mergent says.
Whether it was TD's juicy profit, the dividend increase, or a bit of both, investors were eager to snap up the stock yesterday. TD's shares surged $1.06 or 1.5 per cent to $70.49, pacing the S&P/TSX capped financials index to a 0.66-per-cent gain - the largest advance of any sector.
During the recent market turmoil, we've been harping about the importance of dividends, especially investing in companies that increase their dividends regularly.
Judging by the response to last week's "10-step recovery plan for panicked investors," many of you are taking the advice to heart.
As Carmela from Vancouver wrote in an e-mail to the Market Moves reader communications centre, "Even if it is the end, your article made me feel better for a moment."
Okay, so, uh, some people need a bit more reassurance.
With that in mind, in today's column we will offer incontrovertible proof that investing in companies that pay rising dividends is, if not a guaranteed way to enjoy a life of wine-tasting aboard your private yacht, at least a whole lot better than listening to stock tips from your dentist or throwing darts at the stock tables.
Today's example: Toronto-Dominion Bank.
Yesterday, TD announced a third-quarter profit of $1.1-billion, up 38 per cent from a year earlier. Boffo bank profits always make headlines. But TD had another piece of uplifting news for investors: It boosted its quarterly dividend by 4 cents, to 57 cents a share - an increase of nearly 8 per cent.
You didn't have to be a genius to see this coming. In recent years, Canada's third-biggest bank has established a pattern of bumping its dividend every other quarter, hiking its payout at a five-year annual rate of 12.5 per cent.
A 4-cent increase may seem like peanuts, but over time such small dividend increases add up. TD's payout is now twice as big as it was just five years ago; had you bought the stock in August, 2002, the dividend yield on your original investment would be 6.7 per cent. As well, the stock has more than doubled.
And, the thing is, unless the economy gets really ugly, TD's dividend is expected to keep rising. According to Bloomberg forecasts, it will jump to 62 cents in February, 65 cents next August and 68 cents by February, 2009. By 2010, it should be up around 76 cents.
These are just estimates, of course. There's no guarantee the dividend will rise at that rate. But investors can take comfort from the fact that the company has been making dividend payments without interruption since 1857. That's before we were born!
TD is just one example. Some other banks have been boosting their dividends at an even faster clip. Royal Bank, which reports today and which some analysts expect will announce a hike, has been raising its payout at an 18.4-per-cent annual pace, just behind Bank of Nova Scotia, at 18.8 per cent.
Other companies sporting double-digit dividend growth rates include Manulife Financial, Sun Life Financial, Power Financial, Reitmans and Shaw Communications.
If you're looking for other companies that raise their dividends, check out http://www.dividendachievers.com, a website operated by financial data provider Mergent. To make Mergent's index of Canadian dividend and income trust achievers, a company must have raised its payout at least annually for five years. For U.S. companies to make the cut, they must have raised their payouts annually for at least 10 years. Companies on the U.S. index include 3M, Abbott Laboratories, Anheuser-Busch, Altria Group, Coca-Cola, Colgate-Palmolive, General Electric, Johnson & Johnson, Pfizer and McDonald's, among hundreds of others.
Dividend achievers are "high-quality, stable companies," Mergent says. "These companies outlasted the technology bubble that began in March of 2000, declining market returns in 2000, 2001 and 2002, and corporate malfeasance."
They also have strong cash reserves, and they generally have a track record of solid earnings growth.
Those rising profits are what allow them to raise their dividends year after year, in good times and bad.
"It is these increasing dividend payments that promote investor confidence," Mergent says.
Whether it was TD's juicy profit, the dividend increase, or a bit of both, investors were eager to snap up the stock yesterday. TD's shares surged $1.06 or 1.5 per cent to $70.49, pacing the S&P/TSX capped financials index to a 0.66-per-cent gain - the largest advance of any sector.
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The Globe and Mail, Tara Perkins, 23 August 2007
Buoyed by another quarter of stellar earnings, Toronto-Dominion Bank is seeing the bright side of this summer's darkened financial market, suggesting the recent correction may even open up takeover opportunities for the bank in the United States.
“While nobody likes to see this degree of disruption, there is a positive side benefit,” chief executive Ed Clark told analysts on a conference call Thursday.
“The market has been moving, in recent years, to under-price risk, allow excessive leverage, and over-reward unproven structures with significant illiquidity,” he said.
Shaking things up to more accurately reflect the risk/reward tradeoff will ultimately be a good thing, “however painful in the short term.”
The first big Canadian bank to report third-quarter results, TD blew past analysts' expectations as its profit rose 38 per cent to $1.1-billion from $796-million a year ago. It also raised its dividend 4 cents to 57 cents, an 8-per-cent increase. The quarter ended July 31, before a market rout took effect and raised global concerns about the condition of banks.
TD took many of its lumps last year, however, as it got out of its global structured businesses.
Its wholesale bank exited areas where risk is not transparent and the bank's shareholders are now benefiting, Mr. Clark said.
TD has no exposure to non-bank asset-backed commercial paper, or to U.S. subprime mortgages.
Mr. Clark said the bank is “extremely comfortable” with the bank's approach to risk, both on the credit and the market side.
“While repositioning the bank may have helped us avoid some of the more immediate impacts of the turmoil, we are not immune from the knock-on effects if market turmoil slows capital market activity or feeds into a slower economy,” Mr. Clark cautioned.
He expects a slower economy in 2008, but not “a dramatic falloff.”
This year, 2007, will be a great year and “exceed expectations,” Mr. Clark said, “but we remain very positive about 2008.”
Meanwhile, as the U.S. subprime mortgage crisis continues to work its way through the American financial system, there might be attractive acquisition opportunities south of the border – although Mr. Clark has yet to see such opportunities.
He wants the institution's U.S. banking division, TD Banknorth Inc., to “get its game plan down” and focus on organic growth.
The bank has recently passed on a couple of small banks, he said.
TD bought the shares of Banknorth that it didn't already own for $3.7-billion in April.
That led to a 60-per-cent rise in profits from TD's U.S. division, in line with many analysts' expectations.
Mr. Clark reiterated that, while there is still lots of work to be done to bring it up to potential, Banknorth remains a priority.
The CEO, who has come under attack recently by two major U.S. hedge funds for allegedly trying to thwart a merger between TD Ameritrade and one of its rivals, also took some time to explain how Ameritrade benefits from its relationship with TD Bank, which owns 40 per cent of the online brokerage.
TD Ameritrade's “risk-adjusted return is dramatically higher than if they had their own bank,” Mr. Clark said.
Buoyed by another quarter of stellar earnings, Toronto-Dominion Bank is seeing the bright side of this summer's darkened financial market, suggesting the recent correction may even open up takeover opportunities for the bank in the United States.
“While nobody likes to see this degree of disruption, there is a positive side benefit,” chief executive Ed Clark told analysts on a conference call Thursday.
“The market has been moving, in recent years, to under-price risk, allow excessive leverage, and over-reward unproven structures with significant illiquidity,” he said.
Shaking things up to more accurately reflect the risk/reward tradeoff will ultimately be a good thing, “however painful in the short term.”
The first big Canadian bank to report third-quarter results, TD blew past analysts' expectations as its profit rose 38 per cent to $1.1-billion from $796-million a year ago. It also raised its dividend 4 cents to 57 cents, an 8-per-cent increase. The quarter ended July 31, before a market rout took effect and raised global concerns about the condition of banks.
TD took many of its lumps last year, however, as it got out of its global structured businesses.
Its wholesale bank exited areas where risk is not transparent and the bank's shareholders are now benefiting, Mr. Clark said.
TD has no exposure to non-bank asset-backed commercial paper, or to U.S. subprime mortgages.
Mr. Clark said the bank is “extremely comfortable” with the bank's approach to risk, both on the credit and the market side.
“While repositioning the bank may have helped us avoid some of the more immediate impacts of the turmoil, we are not immune from the knock-on effects if market turmoil slows capital market activity or feeds into a slower economy,” Mr. Clark cautioned.
He expects a slower economy in 2008, but not “a dramatic falloff.”
This year, 2007, will be a great year and “exceed expectations,” Mr. Clark said, “but we remain very positive about 2008.”
Meanwhile, as the U.S. subprime mortgage crisis continues to work its way through the American financial system, there might be attractive acquisition opportunities south of the border – although Mr. Clark has yet to see such opportunities.
He wants the institution's U.S. banking division, TD Banknorth Inc., to “get its game plan down” and focus on organic growth.
The bank has recently passed on a couple of small banks, he said.
TD bought the shares of Banknorth that it didn't already own for $3.7-billion in April.
That led to a 60-per-cent rise in profits from TD's U.S. division, in line with many analysts' expectations.
Mr. Clark reiterated that, while there is still lots of work to be done to bring it up to potential, Banknorth remains a priority.
The CEO, who has come under attack recently by two major U.S. hedge funds for allegedly trying to thwart a merger between TD Ameritrade and one of its rivals, also took some time to explain how Ameritrade benefits from its relationship with TD Bank, which owns 40 per cent of the online brokerage.
TD Ameritrade's “risk-adjusted return is dramatically higher than if they had their own bank,” Mr. Clark said.
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Financial Post, Duncan Mavin, 23 August 2007
Toronto-Dominion Bank chief Ed Clark trumpeted the bank's strategic approach to risk yesterday as TD reported record quarterly earnings despite recent market upheaval.
"We are extremely comfortable with what our approach to risk has been on both the credit and the market side," Mr.Clark said.
TD turned in adjusted quarterly earnings of $1.2-billion, up 33% from $886-million last year. Revenue was up 12% from $3.3-billion last year to $3.7-billion in the third quarter of 2007. The bank also raised its quarterly dividend by 7.5% to 57¢ a share from 53¢ a share
Compared with other Canadian banks, TD's profits are more focused on retail banking. TD's domestic retail operations saw profit jump 14% from $524-million last year to $597-million.
Mr. Clark said the bank is "not immune from the knock-on effect" of market volatility on clients, and also said the bank is expecting some economic downturn in 2008. "But I don't see a dramatic fall off," he added.
Analysts reacted positively to the bank's results.
"TD Bank -- rising above the turmoil with a stellar third quarter," said Jim Bantis of Credit Suisse in a note. "With a lack of exposure to the speculation most recently impeding bank valuations -- U.S. subprime residential and domestic third-party asset backed commercial paper -- TD remains in a very strong position."
Dundee Securities' John Aiken noted that TD has set the bar high for its Canadian peers, whose results will be released over the following week.
"A great quarter on all metrics will be hard for other [Canadian banks] to beat," Mr.Aiken said in a note.
Mr.Clark also clarified TD's position on a possible deal involving TD Ameritrade, the U.S. discount brokerage in which TD has a 39% stake.
Speculation that TD Ameritrade could be involved in a transaction with rivals Charles Schwab or E*Trade Financial has been circulating for several months. Chatter intensified in June when two hedge funds with an 8.4% interest in the brokerage said TD and Mr. Clark were blocking a merger that would be in the interest of other TD Ameritrade shareholders. And this week a U.S. media outlet reported that TD Ameritrade and E*Trade executives have been in negotiations for several weeks, though neither firm has confirmed the reports.
Mr.Clark said TD is "totally supportive" of an acquisition that management and the board of TD Ameritrade believes is right.
"Let me underscore points TD Ameritrade and we have made in the past. It will be the TD Ameritrade board that will decide whether or not to make an acquisition," said Mr.Clark.
The key issues related to any deal are "strategic," he added, citing TD Ameritrade's "pureplay brokerage strategy." E*Trade Financial, unlike TD Ameritrade, has a portfolio of mortgages.
Toronto-Dominion Bank chief Ed Clark trumpeted the bank's strategic approach to risk yesterday as TD reported record quarterly earnings despite recent market upheaval.
"We are extremely comfortable with what our approach to risk has been on both the credit and the market side," Mr.Clark said.
TD turned in adjusted quarterly earnings of $1.2-billion, up 33% from $886-million last year. Revenue was up 12% from $3.3-billion last year to $3.7-billion in the third quarter of 2007. The bank also raised its quarterly dividend by 7.5% to 57¢ a share from 53¢ a share
Compared with other Canadian banks, TD's profits are more focused on retail banking. TD's domestic retail operations saw profit jump 14% from $524-million last year to $597-million.
Mr. Clark said the bank is "not immune from the knock-on effect" of market volatility on clients, and also said the bank is expecting some economic downturn in 2008. "But I don't see a dramatic fall off," he added.
Analysts reacted positively to the bank's results.
"TD Bank -- rising above the turmoil with a stellar third quarter," said Jim Bantis of Credit Suisse in a note. "With a lack of exposure to the speculation most recently impeding bank valuations -- U.S. subprime residential and domestic third-party asset backed commercial paper -- TD remains in a very strong position."
Dundee Securities' John Aiken noted that TD has set the bar high for its Canadian peers, whose results will be released over the following week.
"A great quarter on all metrics will be hard for other [Canadian banks] to beat," Mr.Aiken said in a note.
Mr.Clark also clarified TD's position on a possible deal involving TD Ameritrade, the U.S. discount brokerage in which TD has a 39% stake.
Speculation that TD Ameritrade could be involved in a transaction with rivals Charles Schwab or E*Trade Financial has been circulating for several months. Chatter intensified in June when two hedge funds with an 8.4% interest in the brokerage said TD and Mr. Clark were blocking a merger that would be in the interest of other TD Ameritrade shareholders. And this week a U.S. media outlet reported that TD Ameritrade and E*Trade executives have been in negotiations for several weeks, though neither firm has confirmed the reports.
Mr.Clark said TD is "totally supportive" of an acquisition that management and the board of TD Ameritrade believes is right.
"Let me underscore points TD Ameritrade and we have made in the past. It will be the TD Ameritrade board that will decide whether or not to make an acquisition," said Mr.Clark.
The key issues related to any deal are "strategic," he added, citing TD Ameritrade's "pureplay brokerage strategy." E*Trade Financial, unlike TD Ameritrade, has a portfolio of mortgages.
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Bloomberg, Sean B. Pasternak, 23 August 2007
Toronto-Dominion Bank, the first Canadian bank to report third-quarter results, said profit rose 39 percent, topping analysts' estimates, on higher investment- banking fees and earnings from its U.S. unit.
Net income for the period ended July 31 climbed to C$1.1 billion ($1.05 billion), or C$1.51 a share, from C$796 million, or C$1.09 a share a year earlier, Canada's third-biggest bank said today. Revenue rose 11 percent to C$3.65 billion, the highest in at least nine quarters.
The results indicate Canadian banks haven't been hurt yet by the credit crunch sparked by rising defaults in U.S. subprime loans. Canada's six-biggest lenders will probably post average profit increases of 13 percent before one-time items, the ninth- straight quarter with growth of at least 10 percent, said Kevin Choquette at Scotia Capital in Toronto.
Profit ``looks fantastic,'' said Greg Taylor, a money manager at Aurion Capital in Toronto, which runs about C$2.5 billion in equities, including Toronto-Dominion shares. ``It sets a high bar for the other banks.''
By comparison, the average earnings per share growth among U.S. lenders Bank of America Corp., Wells Fargo & Co., Wachovia Corp., SunTrust Banks Inc. and PNC Financial Services Group Inc. was 4.3 percent in the quarter ended June 30, according to Blackmont Capital analyst Brad Smith.
Before one-time items such as acquisition costs, Toronto- Dominion had profit of C$1.60 a share. That compares with the C$1.37-a-share average estimate of eight analysts surveyed by Bloomberg. Toronto-Dominion raised its quarterly dividend by 7.5 percent to 57 cents a share, the fourth increase in two years.
Toronto-Dominion shares rose C$1.06, or 1.5 percent, to C$70.49 in 4:10 p.m. trading on the Toronto Stock Exchange. Other bank stocks rose, including Royal Bank of Canada and Bank of Montreal.
The bank said it will probably exceed its 2007 objectives of 7 percent to 10 percent earnings growth after profit rose 25 percent in the first nine months of the fiscal year.
Toronto-Dominion reiterated today it doesn't have any holdings in the U.S. subprime mortgage market, or non-bank asset-backed commercial paper.
``We are not immune from the knock-on effect if it slows capital markets activity,'' Chief Executive Officer Edmund Clark told investors on a conference call today. He said he doesn't expect a ``dramatic fall-off'' in economic growth next year.
Canadian banks aren't at the heart of the subprime crisis because they offer fewer high-risk mortgages than their U.S. counterparts. Such loans accounted for about 3 percent of the mortgage market in Canada at the end of 2006, compared with 13 percent in the U.S., Choquette said.
Still, Toronto-Dominion set aside C$171 million for bad loans, up 57 percent from C$109 million a year earlier, and provisions may rise in the fourth quarter, it said. Loan-loss provisions for Canada's six main banks are projected to rise an average of 55 percent this quarter, according to estimates from Credit Suisse analyst James Bantis.
The bank said ``market volatility'' may have a ``negative impact'' on the investment-banking business. Gains in investment banking aren't sustainable, and profit from that business will fall in the fourth quarter, said Andre-Philippe Hardy, an analyst at RBC Capital Markets in Toronto.
Earnings at the TD Banknorth unit in the U.S. soared 60 percent to C$109 million after Toronto-Dominion bought a 41 percent stake it didn't already own. The bank pledged to reverse a slump at Portland, Maine-based TD Banknorth, where profit had declined in six of the last eight quarters.
The bank reduced the number of full-time employees at the unit by 848, or 9.3 percent, over the last year. The bank said in March it would cut about 400 jobs as part of a plan that included closing as many as 24 branches in New Jersey, New York and other states.
Asset-management earnings climbed 22 percent to C$185 million because of higher sales of mutual funds. The bank's net sales of funds rose more than ninefold to C$948 million in the quarter, according to estimates from CIBC World Markets analyst Darko Mihelic.
Toronto-Dominion said in July that TD Ameritrade Holding Corp., the third-biggest online broker, would contribute C$59 million to earnings. The Canadian bank owns a 40 percent stake in the company, which is in merger talks with rival E*Trade Financial Corp., the Wall Street Journal reported yesterday.
Toronto-Dominion is ``totally supportive of an acquisition that's the right deal at the right time'' for TD Ameritrade, Clark told investors. He didn't say whether the two firms were in talks.
Canadian consumer bank earnings climbed 14 percent to C$597 million on higher revenue from credit cards and deposits. Clark said that later this year 800 of the bank's Canadian branches will be open at least 62 hours a week, which is 50 percent longer than Toronto-Dominion's four main competitors.
Investment-banking profit surged 41 percent to C$253 million on trading revenue and advisory fees. The bank's TD Securities arm ranked second in Canada for equity offerings and fourth for merger advice in the quarter, according to Bloomberg data.
Trading income at the wholesale bank climbed 27 percent to C$308 million, led by equities. Overall ``market sensitive'' revenue, which includes fees from trading, investment advice and funds, jumped 16 percent to C$1.03 billion, Merrill Lynch & Co. analyst Sumit Malhotra said.
Toronto-Dominion agreed in July to provide C$3.8 billion in financing for the proposed takeover of BCE Inc., Canada's biggest phone company, by a group that includes the Ontario Teachers' Pension Plan. Clark said that the bank is ``very comfortable'' with the risk associated with that transaction.
Royal Bank of Canada, the country's largest bank, is scheduled to report results tomorrow, followed by Bank of Nova Scotia and Bank of Montreal on Aug. 28, and Canadian Imperial Bank of Commerce and National Bank of Canada on Aug. 30.
;
Toronto-Dominion Bank, the first Canadian bank to report third-quarter results, said profit rose 39 percent, topping analysts' estimates, on higher investment- banking fees and earnings from its U.S. unit.
Net income for the period ended July 31 climbed to C$1.1 billion ($1.05 billion), or C$1.51 a share, from C$796 million, or C$1.09 a share a year earlier, Canada's third-biggest bank said today. Revenue rose 11 percent to C$3.65 billion, the highest in at least nine quarters.
The results indicate Canadian banks haven't been hurt yet by the credit crunch sparked by rising defaults in U.S. subprime loans. Canada's six-biggest lenders will probably post average profit increases of 13 percent before one-time items, the ninth- straight quarter with growth of at least 10 percent, said Kevin Choquette at Scotia Capital in Toronto.
Profit ``looks fantastic,'' said Greg Taylor, a money manager at Aurion Capital in Toronto, which runs about C$2.5 billion in equities, including Toronto-Dominion shares. ``It sets a high bar for the other banks.''
By comparison, the average earnings per share growth among U.S. lenders Bank of America Corp., Wells Fargo & Co., Wachovia Corp., SunTrust Banks Inc. and PNC Financial Services Group Inc. was 4.3 percent in the quarter ended June 30, according to Blackmont Capital analyst Brad Smith.
Before one-time items such as acquisition costs, Toronto- Dominion had profit of C$1.60 a share. That compares with the C$1.37-a-share average estimate of eight analysts surveyed by Bloomberg. Toronto-Dominion raised its quarterly dividend by 7.5 percent to 57 cents a share, the fourth increase in two years.
Toronto-Dominion shares rose C$1.06, or 1.5 percent, to C$70.49 in 4:10 p.m. trading on the Toronto Stock Exchange. Other bank stocks rose, including Royal Bank of Canada and Bank of Montreal.
The bank said it will probably exceed its 2007 objectives of 7 percent to 10 percent earnings growth after profit rose 25 percent in the first nine months of the fiscal year.
Toronto-Dominion reiterated today it doesn't have any holdings in the U.S. subprime mortgage market, or non-bank asset-backed commercial paper.
``We are not immune from the knock-on effect if it slows capital markets activity,'' Chief Executive Officer Edmund Clark told investors on a conference call today. He said he doesn't expect a ``dramatic fall-off'' in economic growth next year.
Canadian banks aren't at the heart of the subprime crisis because they offer fewer high-risk mortgages than their U.S. counterparts. Such loans accounted for about 3 percent of the mortgage market in Canada at the end of 2006, compared with 13 percent in the U.S., Choquette said.
Still, Toronto-Dominion set aside C$171 million for bad loans, up 57 percent from C$109 million a year earlier, and provisions may rise in the fourth quarter, it said. Loan-loss provisions for Canada's six main banks are projected to rise an average of 55 percent this quarter, according to estimates from Credit Suisse analyst James Bantis.
The bank said ``market volatility'' may have a ``negative impact'' on the investment-banking business. Gains in investment banking aren't sustainable, and profit from that business will fall in the fourth quarter, said Andre-Philippe Hardy, an analyst at RBC Capital Markets in Toronto.
Earnings at the TD Banknorth unit in the U.S. soared 60 percent to C$109 million after Toronto-Dominion bought a 41 percent stake it didn't already own. The bank pledged to reverse a slump at Portland, Maine-based TD Banknorth, where profit had declined in six of the last eight quarters.
The bank reduced the number of full-time employees at the unit by 848, or 9.3 percent, over the last year. The bank said in March it would cut about 400 jobs as part of a plan that included closing as many as 24 branches in New Jersey, New York and other states.
Asset-management earnings climbed 22 percent to C$185 million because of higher sales of mutual funds. The bank's net sales of funds rose more than ninefold to C$948 million in the quarter, according to estimates from CIBC World Markets analyst Darko Mihelic.
Toronto-Dominion said in July that TD Ameritrade Holding Corp., the third-biggest online broker, would contribute C$59 million to earnings. The Canadian bank owns a 40 percent stake in the company, which is in merger talks with rival E*Trade Financial Corp., the Wall Street Journal reported yesterday.
Toronto-Dominion is ``totally supportive of an acquisition that's the right deal at the right time'' for TD Ameritrade, Clark told investors. He didn't say whether the two firms were in talks.
Canadian consumer bank earnings climbed 14 percent to C$597 million on higher revenue from credit cards and deposits. Clark said that later this year 800 of the bank's Canadian branches will be open at least 62 hours a week, which is 50 percent longer than Toronto-Dominion's four main competitors.
Investment-banking profit surged 41 percent to C$253 million on trading revenue and advisory fees. The bank's TD Securities arm ranked second in Canada for equity offerings and fourth for merger advice in the quarter, according to Bloomberg data.
Trading income at the wholesale bank climbed 27 percent to C$308 million, led by equities. Overall ``market sensitive'' revenue, which includes fees from trading, investment advice and funds, jumped 16 percent to C$1.03 billion, Merrill Lynch & Co. analyst Sumit Malhotra said.
Toronto-Dominion agreed in July to provide C$3.8 billion in financing for the proposed takeover of BCE Inc., Canada's biggest phone company, by a group that includes the Ontario Teachers' Pension Plan. Clark said that the bank is ``very comfortable'' with the risk associated with that transaction.
Royal Bank of Canada, the country's largest bank, is scheduled to report results tomorrow, followed by Bank of Nova Scotia and Bank of Montreal on Aug. 28, and Canadian Imperial Bank of Commerce and National Bank of Canada on Aug. 30.
