TD Bank Group Reports First Quarter 2012 Results

Published In: Business, Financial, Ontario 
Thursday, March 1, 2012 6:30 AM
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TD Bank Group Reports First Quarter 2012 Results

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TD Bank Group Reports First Quarter 2012 Results
PR Newswire
TORONTO, March 1, 2012




This quarterly earnings release should be read in conjunction with our
unaudited First Quarter 2012 Report to Shareholders for the three
months ended January 31, 2012, prepared in accordance with
International Financial Reporting Standards (IFRS), which is available
on our website at http://www.td.com/investor/. This analysis is dated February 29, 2012. Unless otherwise indicated,
all amounts are expressed in Canadian dollars, and have been primarily
derived from the Bank's annual Consolidated Financial Statements
prepared in accordance with Canadian generally accepted accounting
principles (GAAP). Interim amounts derived from the Bank's internal
Consolidated Financial Statements have been prepared in accordance with
IFRS. Additional information relating to the Bank is available on the
Bank's website http://www.td.com, as well as on SEDAR at http://www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC's)
website at http://www.sec.gov (EDGAR filers section).    The Bank transitioned from Canadian GAAP to
IFRS effective for interim and annual periods beginning the first
quarter of fiscal 2012. The Interim Consolidated Financial Statements
for the period ended January 31, 2012 reflect the Bank's first set of
financial statements prepared under IFRS. Comparative periods in 2011
have also been prepared under IFRS.    Reported results conform to
Generally Accepted Accounting Principles (GAAP), in accordance with
IFRS. Adjusted measures are non-GAAP measures. Refer to the "How the
Bank Reports" section of the Management's Discussion and Analysis for
an explanation of reported and adjusted results.    Effective the first
quarter of 2012, the insurance business was transferred from Canadian
Personal and Commercial Banking to Wealth and Insurance (formally
called Wealth Management). The prior period results have been restated
accordingly.


FIRST QUARTER FINANCIAL HIGHLIGHTS, compared with the first quarter a
year ago:



Reported diluted earnings per share were $1.55, compared with $1.67.


Adjusted diluted earnings per share were $1.86, compared with $1.73.


Reported net income was $1,478 million, compared with $1,562 million.


Adjusted net income was $1,762 million, compared with $1,617 million.



FIRST QUARTER ADJUSTMENTS (ITEMS OF NOTE)


The first quarter reported earnings figures included the following items
of note:



Amortization of intangibles of $60 million after tax (7 cents per
share), compared with $103 million after tax (12 cents per share) in
the first quarter last year.


A loss of $45 million after tax (5 cents per share), due to the change
in fair value of derivatives hedging the reclassified
available-for-sale securities portfolio, compared with a gain of $75
million after tax (8 cents per share) in the first quarter last year.


Integration charges of $9 million after tax (1 cent per share), relating
to the U.S. Personal and Commercial Banking acquisitions, compared with
$24 million after tax (2 cents per share) in the first quarter last
year.


A loss of $1 million after tax, due to the change in fair value of
credit default swaps hedging the corporate loan book, net of provision
for credit losses (PCL), compared with a loss of $3 million after tax
in the first quarter last year.


Integration charges relating to the Chrysler Financial acquisition of $5
million after tax.


Integration charges and direct transaction costs of $24 million after
tax (2 cents per share), relating to the acquisition of the MBNA Canada
credit card portfolio.


A litigation reserve of $171 million after tax (19 cents per share).


Adjustment of allowance for incurred but not identified credit losses of $31 million after tax (3 cents per share).



TORONTO, March 1, 2012 /PRNewswire/ - TD Bank Group (TD or the Bank) today
announced its financial results for the first quarter ended January 31,
2012. Results for the quarter reflected record retail earnings and a
strong performance from Wholesale Banking.


"While we knew going into 2012 that our businesses would continue to
grow in the face of a challenging environment, their performance has
exceeded our expectations," said Ed Clark, Group President and Chief
Executive Officer. "TD's adjusted quarterly earnings reached a new
record, up 9% over the same period last year, with our North American
retail businesses leading the way with $1.6 billion in adjusted
earnings, also a new record. These results again showcase how our
customer-focused strategy enables us to grow during tough times."


Canadian Personal and Commercial Banking


Canadian Personal and Commercial Banking posted a record quarter, with
reported net income of $826 million. Adjusted net income was $850
million, up 11% from the same period last year. Results for the quarter
were driven by good volume growth in commercial lending and in personal
deposits and loans, stable credit, and record efficiency.


"Low interest rates continue to present a challenge, but despite this
environment, Canadian Personal and Commercial Banking delivered a
record quarter," said Tim Hockey, Group Head, Canadian Banking, Auto
Finance, and Credit Cards. "We had earnings momentum from our
commercial banking business and our customer satisfaction ratings are
at record levels. While we remain cautious, we're feeling very good
about these results. Looking ahead we feel we're positioned for steady
earnings growth in the mid-to-high single digits."


Wealth and Insurance


Wealth and Insurance recorded net income, excluding TD's reported
investment in TD Ameritrade, of $294 million in the quarter, up 14%
from the same period last year. This increase was primarily due to
increased fee-based revenue driven by asset growth in the Wealth
business as well as strong organic growth in Insurance and improved
claims management, which was partially offset by lower trading revenue
and a severe weather-related event. TD Ameritrade contributed $55
million in earnings to the segment, up 15% from the same period last
year.


"This was a good quarter for Wealth and Insurance, despite lower direct
investing trading levels in Wealth and a severe weather-related event
that affected the Insurance business. Core business growth and expense
management helped maintain positive operating leverage," said Mike
Pedersen, Group Head, Wealth Management, Insurance, and Corporate
Shared Services. "While economic conditions remain uncertain, given our
strong business fundamentals, we are optimistic that we will continue
to see good growth in our Wealth and Insurance businesses."


U.S. Personal and Commercial Banking


U.S. Personal and Commercial Banking delivered a strong quarter with
reported net income of US$165 million and adjusted net income of US$345
million, up 6% from the same time last year driven primarily by strong
organic growth.


"Our volume growth in loans and deposits helped TD Bank, America's Most
Convenient Bank, offset the impact of the Durbin Amendment this
quarter," said Bharat Masrani, Group Head, U.S. Personal and Commercial
Banking. "While regulatory complexities and persistent low interest
rates are challenging the industry, we have good momentum in our core
business lines, our credit quality continues to improve and we remain
on track to open 35 new stores this year."


Wholesale Banking


Wholesale Banking recorded net income of $194 million for the quarter,
down 17% compared with the same period last year. The decrease was
largely due to higher investment portfolio gains in the first quarter
last year.


"We are pleased with our performance this quarter," said Bob Dorrance,
Group Head, Wholesale Banking. "Core results were strong despite
market-wide declines in equity trading volumes and low new issuance
activity. Our fixed income, currency and commodity businesses performed
well as did our M&A advisory practice, which made for an overall strong
quarter. We remain concerned about market stability particularly in
relation to European sovereign debt but are confident in the resilience
of our diversified, client-focused franchise."


Capital


TD's Tier 1 capital ratio was 11.6% in the quarter. Capital quality
remained very high, with tangible common equity comprising more than
85% of Tier 1 capital. TD has now exceeded the 7% Basel III requirement
on a fully phased-in basis.


Conclusion


"We're very pleased with our results this quarter. Also today we
announced a dividend increase of 4 cents per common share, payable in
April, which speaks to our Board's confidence in the earnings power of
our business model," said Clark. "While we're seeing some promising
signs of an improvement in the economic outlook, especially in the
U.S., the challenging landscape means we remain cautious. Low interest
rates continue to impact our business and the recovery will be slow,
but we will strategically invest in our businesses, manage our expense
growth prudently and deliver the legendary service our customers and
clients expect from us."


The foregoing contains forward-looking statements. Please see the
"Caution Regarding Forward-Looking Statements" on page 3.







Caution Regarding Forward-Looking Statements

From time to time, the Bank makes written and/or oral forward-looking
statements, including in this earnings news release, in other filings
with Canadian regulators or the U.S. Securities and Exchange
Commission, and in other communications. In addition, representatives
of the Bank may make forward-looking statements orally to analysts,
investors, the media and others. All such statements are made pursuant
to the "safe harbour" provisions of, and are intended to be
forward-looking statements under, applicable Canadian and U.S.
securities legislation, including the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements
made in this earnings news release in the "Business Outlook" section
for each business segment and in other statements regarding the Bank's
objectives and priorities for 2012 and beyond and strategies to achieve
them, and the Bank's anticipated financial performance. Forward-looking
statements are typically identified by words such as "will", "should",
"believe", "expect", "anticipate", "intend", "estimate", "plan", "may",
and "could".

By their very nature, these statements require the Bank to make
assumptions and are subject to inherent risks and uncertainties,
general and specific. Especially in light of the uncertainty related to
the financial, economic and regulatory environments, such risks and
uncertainties - many of which are beyond the Bank's control and the
effects of which can be difficult to predict - may cause actual results
to differ materially from the expectations expressed in the
forward-looking statements. Risk factors that could cause such
differences include: credit, market (including equity, commodity,
foreign exchange, and interest rate), liquidity, operational (including
technology), reputational, insurance, strategic, regulatory, legal,
environmental, and other risks, all of which are discussed in the
Management's Discussion and Analysis ("MD&A") in the Bank's 2011 Annual
Report. Additional risk factors include the impact of recent U.S.
legislative developments, as discussed under "Significant Events in
2011" in the "Financial Results Overview" section of the 2011 MD&A;
changes to and new interpretations of capital and liquidity guidelines
and reporting instructions; increased funding costs for credit due to
market illiquidity and competition for funding; the failure of third
parties to comply with their obligations to the Bank or its affiliates
relating to the care and control of information; and the overall
difficult litigation environment, including in the United States. We
caution that the preceding list is not exhaustive of all possible risk
factors and other factors could also adversely affect the Bank's
results. For more detailed information, please see the "Risk Factors
and Management" section of the 2011 MD&A. All such factors should be
considered carefully, as well as other uncertainties and potential
events, and the inherent uncertainty of forward-looking statements,
when making decisions with respect to the Bank and we caution readers
not to place undue reliance on the Bank's forward-looking statements.

Material economic assumptions underlying the forward-looking statements
contained in this earnings news release are set out in the Bank's 2011
Annual Report under the headings "Economic Summary and Outlook" and for
each business segment, "Business Outlook and Focus for 2012", as
updated in this earnings news release under the headings "Business
Outlook" and for the Corporate segment in this earnings news release
under the heading "Outlook".

Any forward-looking statements contained in this document represent the
views of management only as of the date hereof and are presented for
the purpose of assisting the Bank's shareholders and analysts in
understanding the Bank's financial position, objectives and priorities
and anticipated financial performance as at and for the periods ended
on the dates presented, and may not be appropriate for other purposes.
The Bank does not undertake to update any forward-looking statements,
whether written or oral, that may be made from time to time by or on
its behalf, except as required under applicable securities legislation.







This document was reviewed by the Bank's Audit Committee and was
approved by the Bank's Board of Directors, on the Audit Committee's
recommendation, prior to its release.







 


 


 


 


 


 


 


 


 


 




TABLE 1: FINANCIAL HIGHLIGHTS


 


 


 


 


 


 


 


 


 




(millions of Canadian dollars, except as noted)


 


For the three months ended


 




 


 


Jan. 31


 


 


Oct. 31


 


 


Jan. 31


 




 


 


2012


 


 


2011


 


 


2011


 




Results of operations


 


 


 


 


 


 


 


 


 




Total revenue


$


5,642


 


$


5,663


 


$


5,459


 




Provision for credit losses


 


404


 


 


340


 


 


421


 




Non-interest expenses


 


3,549


 


 


3,488


 


 


3,190


 




Net income - reported


 


1,478


 


 


1,589


 


 


1,562


 




Net income - adjusted1


 


1,762


 


 


1,656


 


 


1,617


 




Economic profit2,3


 


782


 


 


594


 


 


641


 




Return on common equity - reported


 


14.0


%


 


15.8


%


 


17.1


%




Return on common equity - adjusted2,3


 


16.8


%


 


16.5


%


 


17.7


%




Return on invested capital2,3


 


N/A


 


 


14.4


%


 


15.4


%




Financial position


 


 


 


 


 


 


 


 


 




Total assets


$


773,666


 


$


732,782


 


$


664,084


 




Total equity


 


45,548


 


 


44,004


 


 


39,253


 




Total risk-weighted assets


 


243,642


 


 


218,779


 


 


199,235


 




Financial ratios


 


 


 


 


 


 


 


 


 




Efficiency ratio - reported


 


62.9


%


 


61.6


%


 


58.4


%




Efficiency ratio - adjusted1


 


55.3


%


 


59.4


%


 


56.3


%




Tier 1 capital to risk weighted assets4


 


11.6


%


 


13.0


%


 


12.7


%




Provision for credit losses as a % of net average loans and acceptances5


 


0.38


%


 


0.38


%


 


0.42


%




Common share information - reported (dollars)


 


 


 


 


 


 


 


 


 




Per share earnings


 


 


 


 


 


 


 


 


 




   Basic


$


1.56


 


$


1.70


 


$


1.69


 




   Diluted


 


1.55


 


 


1.68


 


 


1.67


 




Dividends per share


 


0.68


 


 


0.68


 


 


0.61


 




Book value per share


 


45.00


 


 


43.43


 


 


38.99


 




Closing share price


 


77.54


 


 


75.23


 


 


74.96


 




Shares outstanding (millions)


 


 


 


 


 


 


 


 


 




   Average basic


 


901.1


 


 


893.8


 


 


879.3


 




   Average diluted


 


909.2


 


 


909.0


 


 


896.4


 




   End of period


 


903.7


 


 


901.0


 


 


882.1


 




Market capitalization (billions of Canadian dollars)


$


70.1


 


$


67.8


 


$


66.1


 




Dividend yield


 


3.6


%


 


3.5


%


 


3.3


%




Dividend payout ratio


 


43.7


%


 


40.3


%


 


36.1


%




Price to earnings ratio6


 


12.3


 


 


11.7


 


 


14.1


 




Common share information - adjusted (dollars)1


 


 


 


 


 


 


 


 




Per share earnings


 


 


 


 


 


 


 


 


 




   Basic


$


1.87


 


$


1.77


 


$


1.75


 




   Diluted


 


1.86


 


 


1.75


 


 


1.73


 




Dividend payout ratio


 


36.3


%


 


38.6


%


 


34.8


%




Price to earnings ratio6


 


11.1


 


 


11.0


 


 


12.7






1


Adjusted measures are non-GAAP measures. Refer to the "How The Bank
Reports" section for an explanation of reported and adjusted results.




2


Economic profit, adjusted return on common equity, and return on
invested capital are non-GAAP financial measures. Refer to the
"Economic Profit and Return on Common Equity" section for an
explanation.




3


Effective the first quarter of 2012, economic profit is calculated based
on average common equity on a prospective basis. Prior to the first
quarter 2012, economic profit was calculated based on average invested
capital. Had this change been done on a retroactive basis, economic
profit for the Bank, calculated based on average common equity, would
have been $717 million for the fourth quarter 2011, and $758 million
for the first quarter 2011.




4


For periods prior to the three months ended January 31, 2012, results
are reported in accordance with Canadian GAAP.




5


Excludes acquired credit-impaired loans and debt securities classified
as loans. For additional information on acquired credit-impaired loans,
see "Credit Portfolio Quality" section of this document and Note 8 to
the Interim Consolidated Financial Statements. For additional
information on debt securities classified as loans, see "Exposure to
Non-agency Collateralized Mortgage Obligations" discussion and tables
in the "Credit Portfolio Quality" section of this document and Note 8
to the Interim Consolidated Financial Statements.




6


For the period ended January 31, 2011, the price to earnings ratio was
calculated using the preceding trailing four quarters which included
the three months ended April 30, 2010, July 31, 2010 and October 31,
2010 under Canadian GAAP basis and the three months ended January 31,
2011 under IFRS basis.




HOW WE PERFORMED


How the Bank Reports


The Bank prepares its Interim Consolidated Financial Statements in
accordance with IFRS and refers to results prepared in accordance with
IFRS as "reported" results. The Bank also utilizes non-GAAP financial
measures to arrive at "adjusted" results to assess each of its
businesses and to measure overall Bank performance. To arrive at
adjusted results, the Bank removes "items of note", net of income
taxes, from reported results. The items of note relate to items which
management does not believe are indicative of underlying business
performance. The Bank believes that adjusted results provide the reader
with a better understanding of how management views the Bank's
performance. The items of note are listed in the table on the following
page. As explained, adjusted results are different from reported
results determined in accordance with IFRS. Adjusted results, items of
note, and related terms used in this document are not defined terms
under IFRS and, therefore, may not be comparable to similar terms used
by other issuers.


Adoption of IFRS


The Canadian Accounting Standards Board previously announced that for
fiscal years beginning on or after January 1, 2011, all publicly
accountable enterprises will be required to report financial results in
accordance with IFRS. Accordingly, for the Bank, IFRS was effective for
the interim and annual periods beginning in the first quarter of 2012.
The fiscal 2012 Interim and Annual Consolidated Financial Statements
will include comparative fiscal 2011 financial results under IFRS.


The adoption of IFRS did not require significant changes to the Bank's
disclosure controls and procedures.


Information about the IFRS transition impact to the Bank's reported
financial position, equity, and financial performance is provided in
Note 21 to the Interim Consolidated Financial Statements, which
includes a discussion of the transitional elections and exemptions
under IFRS 1 and detailed reconciliations of the Bank's Interim
Consolidated Financial Statements previously prepared under Canadian
GAAP to those under IFRS.


For details of the Bank's significant accounting policies under IFRS,
see Note 2 to the Bank's Interim Consolidated Financial Statements.







 


 


 


 


 


 


 


 


 


 




TABLE 2: OPERATING RESULTS - REPORTED


 


 


 


 


 


 




(millions of Canadian dollars)


 


 


For the three months
ended




 


 


 


Jan. 31
2012


 


Oct. 31
2011


 


Jan. 31
2011




Net interest income


 


$


3,687


 


$


3,532


 


$


3,356




Non-interest income


 


 


1,955


 


 


2,131


 


 


2,103




Total revenue


 


 


5,642


 


 


5,663


 


 


5,459




Provision for credit losses


 


 


404


 


 


340


 


 


421




Non-interest expenses


 


 


3,549


 


 


3,488


 


 


3,190




Income before income taxes and equity in net income of an investment in
associate


 


 


1,689


 


 


1,835


 


 


1,848




Provision for income taxes


 


 


272


 


 


310


 


 


343




Equity in net income of an investment in associate, net of income taxes


 


 


61


 


 


64


 


 


57




Net income - reported


 


 


1,478


 


 


1,589


 


 


1,562




Preferred dividends


 


 


49


 


 


48


 


 


49




 


 


 


 


 


 


 


 


 


 




Net income available to common shareholders and non-controlling interests
in subsidiaries


 


$


1,429


 


$


1,541


 


$


1,513




Attributable to:


 


 


 


 


 


 


 


 


 




Non-controlling interests


 


$


26


 


$


26


 


$


26




Common shareholders


 


$


1,403


 


$


1,515


 


$


1,487




The following table provides a reconciliation between the Bank's
adjusted and reported results.







 




TABLE 3: NON-GAAP FINANCIAL MEASURES - RECONCILIATION OF ADJUSTED TO REPORTED NET INCOME




(millions of Canadian dollars)


 


For the three months
ended 




 


Jan. 31
2012 


Oct. 31
2011



Jan. 31
2011




Operating results - adjusted


 


 


 


 


 


 




Net interest income1


$


3,701


$


3,532


$


3,356




Non-interest income2


 


2,009


 


2,094


 


2,016




Total revenue


 


5,710


 


5,626


 


5,372




Provision for credit losses3


 


445


 


340


 


421




Non-interest expenses4


 


3,158


 


3,344


 


3,024




Income before income taxes and equity in net income of an investment in
associate


 


2,107


 


1,942


 


1,927




Provision for income taxes5


 


421


 


363


 


384




Equity in net income of an investment in associate, net of income taxes6


 


76


 


77


 


74




Net income - adjusted


 


1,762


 


1,656


 


1,617




Preferred dividends


 


49


 


48


 


49




Net income available to common shareholders and non-controlling interests
   in subsidiaries - adjusted 


 


1,713


 


1,608


 


1,568




Attributable to:


 


 


 


 


 


 




Non-controlling interests in subsidiaries, net of income taxes


 


26


 


26


 


26




Net income available to common shareholders - adjusted


 


1,687


 


1,582


 


1,542




Adjustments for items of note, net of income taxes


 


 


 


 


 


 




Amortization of intangibles7


 


(60)


 


(95)


 


(103)




Increase (decrease) in fair value of derivatives hedging the
reclassified available-for-sale
   securities portfolio8


 


(45)


 


37


 


75




Integration charges and direct transaction costs relating to U.S.
Personal and Commercial
   Banking acquisitions9


 


(9)


 


1


 


(24)




Increase (decrease) in fair value of credit default swaps hedging the
corporate loan book, net
   of provision for credit losses10


 


(1)


 


9


 


(3)




Integration charges, direct transaction costs, and changes in fair value
of contingent
   consideration relating to the Chrysler Financial acquisition11


 


(5)


 


(19)


 


-




Integration charges and direct transaction costs relating to the
acquisition of the credit card
   portfolio of MBNA Canada12


 


(24)


 


-


 


-




Litigation reserve13


 


(171)


 


-


 


-




Adjustments to allowance for incurred but not identified credit losses14


 


31


 


-


 


-




Total adjustments for items of note


 


(284)


 


(67)


 


(55)




Net income available to common shareholders - reported


$


1,403


$


1,515


$


1,487






1


Adjusted net-interest income excludes the following items of note: First quarter 2012 - $14 million (net of tax, $10 million) of certain charges against
revenues related to promotional-rate card origination activities, as
explained in footnote 12.




2


Adjusted non-interest income excludes the following items of note: First quarter 2012 - $2 million loss due to change in fair value of credit default swaps
(CDS) hedging the corporate loan book, as explained in footnote 10; $53
million loss due to change in fair value of derivatives hedging the
reclassified available-for-sale (AFS) securities portfolio, as
explained in footnote 8; $1 million gain due to change in fair value of
contingent consideration relating to Chrysler Financial, as explained
in footnote 11; fourth quarter 2011 - $15 million gain due to change in fair value of CDS hedging the
corporate loan book; $41 million gain due to change in fair value of
derivatives hedging the reclassified available-for-sale (AFS)
securities portfolio; $19 million charge due to change in fair value of
contingent consideration relating to Chrysler Financial; first quarter 2011 - $6 million loss due to change in fair value of CDS hedging the
corporate loan book; $93 million gain due to change in fair value of
derivatives hedging the reclassified available-for-sale securities
portfolio.




3


Adjusted provision for credit losses (PCL) excludes the following items
of note: first quarter 2012 - $41 million in adjustments to allowance for incurred but not
identified credit losses in Canadian Personal and Commercial Banking,
as explained in footnote 14.




4


Adjusted non-interest expenses excludes the following items of note: First quarter 2012 - $70 million amortization of intangibles, as explained in footnote 7;
$11 million of integration charges and direct transaction costs related
to U.S. Personal and Commercial Banking acquisitions, as explained in
footnote 9; $7 million of integration charges and direct transaction
costs relating to the Chrysler Financial acquisition, as explained in
footnote 11; $18 million of integration charges and direct transaction
costs relating to the acquisition of the credit card portfolio of MBNA
Canada, as explained in footnote 12; $285 million of charges related to
a litigation reserve, as explained in footnote 13; fourth quarter 2011 - $123 million amortization of intangibles; $9 million of integration
charges related to U.S. Personal and Commercial Banking acquisitions;
$12 million of integration charges and direct transaction costs
relating to the Chrysler Financial acquisition; first quarter 2011 - $129 million amortization of intangibles; $37 million of integration
charges related to U.S. Personal and Commercial Banking acquisitions.







For reconciliation between reported and adjusted provision for income
taxes, see the 'Non-GAAP Financial Measures - Reconciliation of
Reported to Adjusted Provision for Income Taxes' table in the "Income
Taxes" section of this document.







Adjusted equity in net income of an investment in associate excludes the
following items of note: First quarter 2012 - $15 million amortization of intangibles, as explained in footnote 7; fourth quarter 2011 - $13 million amortization of intangibles; first quarter 2011 - $17 million amortization of intangibles.




7  


Amortization of intangibles primarily relates to the Canada Trust
acquisition in 2000, the TD Banknorth acquisition in 2005 and its
privatization in 2007, the Commerce acquisition in 2008, the
acquisitions by TD Banknorth of Hudson United Bancorp (Hudson) in 2006
and Interchange Financial Services (Interchange) in 2007, and the
amortization of intangibles included in equity in net income of TD
Ameritrade. Effective 2011, amortization of software is recorded in
amortization of intangibles; however, amortization of software is not
included for purposes of items of note, which only includes
amortization of intangibles acquired as a result of business
combinations.




8  


During 2008, as a result of deterioration in markets and severe
dislocation in the credit market, the Bank changed its trading strategy
with respect to certain trading debt securities. Since the Bank no
longer intended to actively trade in these debt securities, the Bank
reclassified these debt securities from trading to the
available-for-sale category effective August 1, 2008. As part of the
Bank's trading strategy, these debt securities are economically hedged,
primarily with CDS and interest rate swap contracts. This includes
foreign exchange translation exposure related to the debt securities
portfolio and the derivatives hedging it. These derivatives are not
eligible for reclassification and are recorded on a fair value basis
with changes in fair value recorded in the period's earnings.
Management believes that this asymmetry in the accounting treatment
between derivatives and the reclassified debt securities results in
volatility in earnings from period to period that is not indicative of
the economics of the underlying business performance in Wholesale
Banking. Commencing in the second quarter of 2011, the Bank may from
time to time replace securities within the portfolio to best utilize
the initial, matched fixed term funding. As a result, the derivatives
are accounted for on an accrual basis in Wholesale Banking and the
gains and losses related to the derivatives in excess of the accrued
amounts are reported in the Corporate segment. Adjusted results of the
Bank exclude the gains and losses of the derivatives in excess of the
accrued amount.







As a result of U.S. Personal and Commercial Banking acquisitions, the
Bank may incur integration charges and direct transaction costs.
Integration charges consist of costs related to information technology,
employee retention, external professional consulting charges, marketing
(including customer communication and rebranding), integration-related
travel costs, employee severance costs, the costs of amending certain
executive employment and award agreements, contract termination fees
and the write-down of long-lived assets due to impairment. Direct
transaction costs are expenses directly incurred in effecting a
business combination and consist primarily of finders' fees, advisory
fees, and legal fees. For the three months ended January 31, 2012 the
integration charges were driven by the South Financial and
FDIC-assisted acquisitions and there were no direct transaction costs
recorded. This is the last quarter U.S. Personal and Commercial Banking
included any further FDIC-assisted and South Financial related
integration charges or direct transaction costs as an item of note.




10


The Bank purchases CDS to hedge the credit risk in Wholesale Banking's
corporate lending portfolio. These CDS do not qualify for hedge
accounting treatment and are measured at fair value with changes in
fair value recognized in current period's earnings. The related loans
are accounted for at amortized cost. Management believes that this
asymmetry in the accounting treatment between CDS and loans would
result in periodic profit and loss volatility which is not indicative
of the economics of the corporate loan portfolio or the underlying
business performance in Wholesale Banking. As a result, the CDS are
accounted for on an accrual basis in Wholesale Banking and the gains
and losses on the CDS, in excess of the accrued cost, are reported in
the Corporate segment. Adjusted earnings exclude the gains and losses
on the CDS in excess of the accrued cost. When a credit event occurs in
the corporate loan book that has an associated CDS hedge, the PCL
related to the portion that was hedged via the CDS is netted against
this item of note.




11


As a result of the Chrysler Financial acquisition in Canada and U.S.,
the Bank incurred integration charges and direct transaction costs. As
well, the Bank experienced volatility in earnings as a result of
changes in fair value of contingent consideration. Integration charges
consist of costs related to information technology, employee retention,
external professional consulting charges, marketing (including customer
communication and rebranding), integration-related travel costs,
employee severance costs, the cost of amending certain executive
employment and award agreements, contract termination fees, and the
write-down of long-lived assets due to impairment. Direct transaction
costs are expenses directly incurred in effecting a business
combination and consist primarily of finders' fees, advisory fees, and
legal fees. Contingent consideration is defined as part of the purchase
agreement, whereby the Bank is required to pay additional cash
consideration in the event that amounts realized on certain assets
exceed a pre-established threshold. Contingent consideration is
recorded at fair value on the date of acquisition. Changes in fair
value subsequent to acquisition are recorded in the Consolidated
Statement of Income. Adjusted earnings exclude the gains and losses on
contingent consideration in excess of the acquisition date fair value.
While integration charges related to this acquisition were incurred for
both Canada and the U.S., the majority of the charges relate to
integration initiatives undertaken for U.S. Personal and Commercial
Banking.




12


As a result of the acquisition of the credit card portfolio of MBNA
Canada, as well as certain other assets and liabilities, the Bank
incurred integration charges and direct transaction costs. Integration
charges consist of costs related to information technology, employee
retention, external professional consulting charges, marketing
(including customer communication, rebranding and certain charges
against revenues related to promotional-rate card origination
activities), integration-related travel costs, employee severance
costs, the cost of amending certain executive employment and award
agreements, contract termination fees, and the write-down of long lived
assets due to impairment. Direct transaction costs are expenses
directly incurred in effecting the business combination and consist
primarily of finders' fees, advisory fees and legal fees. Integration
charges related to this acquisition were incurred by Canadian Personal
and Commercial Banking.




13


As a result of certain adverse judgments in the U.S. during the first
quarter of 2012, as well as a settlement reached following the quarter,
the Bank took prudent steps to reassess its litigation reserve. Having
considered these factors as well as other related or analogous
litigation cases, the Bank determined in accordance with applicable
accounting standards, this litigation provision of $285 million ($171
million after tax) was required.




14


Excluding the impact related to the MBNA credit card and other consumer
loan portfolios (which is recorded to the Canadian Personal and
Commercial Banking segment results), "Adjustments to allowance for
incurred but not identified credit losses", formerly known as "General
allowance increase (release) in Canadian Personal and Commercial
Banking and Wholesale Banking" decreased by $41 million (net of tax,
$31 million), all of which are attributable to the Wholesale Banking
and non-MBNA related Canadian Personal and Commercial Banking loan
portfolios.








 


 


 


 


 


 


 




 


 


 


 


 


 


 




 


 


 


 


 


 


 




TABLE 4: RECONCILIATION OF REPORTED EARNINGS PER SHARE (EPS) TO ADJUSTED EPS1




(Canadian dollars)


For the three months
ended 




 


Jan. 31
2012


Oct. 31
2011


Jan. 31
2011




Basic earnings per share - reported


$


1.56


$


1.70


$


1.69




Adjustments for items of note2


 


0.31


 


0.07


 


0.06




Basic earnings per share - adjusted


$


1.87


$


1.77


$


1.75




 


 


 


 


 


 


 




Diluted earnings per share - reported


$


1.55


$


1.68


$


1.67




Adjustments for items of note2


 


0.31


 


0.07


 


0.06




Diluted earnings per share - adjusted


$


1.86


$


1.75


$


1.73






1


EPS is computed by dividing net income available to common shareholders
by the weighted-average
number of shares outstanding during the period.




2


For explanation of items of note, see the "Non-GAAP Financial Measures -
Reconciliation of Adjusted
to Reported net income" table in the "How We Performed" section of this
document.









TABLE 5: NON-GAAP FINANCIAL MEASURES - RECONCILIATION OF REPORTED TO ADJUSTED PROVISION FOR INCOME TAXES


 




(millions of Canadian dollars, except as noted)


   


For the three months ended 


 




   


Jan. 31
2012


 


Oct. 31
2011


 


Jan. 31
2011


 




Provision for income taxes - reported


$


272


 


$


310


 


$


343


 




Adjustments for items of note: Recovery of (provision for) income taxes1,2


 


 


 


 


 


 


 


 


 




Amortization of intangibles


 


25


 


 


41


 


 


43


 




Fair value of derivatives hedging the reclassified available-for-sale
securities portfolio


 


8


 


 


(4)


 


 


(18)


 




 


 


 


 


 


 


 


 


 


 




Integration charges and direct transaction costs relating to U.S.
Personal
and Commercial Banking acquisitions


 


2


 


 


10


 


 


13


 




 


 


 


 


 


 


 


 


 


 




Fair value of credit default swaps hedging the corporate loan book, net
of provision for
credit losses


 


1


 


 


(6)


 


 


3


 




 


 


 


 


 


 


 


 


 


 




Integration charges, direct transaction costs, and changes in fair value
of contingent
consideration relating to the Chrysler Financial acquisition


 


1


 


 


12


 


 


-


 




 


 


 


 


 


 


 


 


 


 




Integration charges and direct transaction costs relating to the
acquisition of the
credit card portfolio of MBNA Canada


 


8


 


 


-


 


 


-


 




Litigation reserve


 


114


 


 


-


 


 


-


 




Adjustments to allowance for incurred but not identified credit losses


 


(10)


 


 


-


 


 


-


 




Total adjustments for items of note


 


149


 


 


53


 


 


41


 




Provision for income taxes - adjusted


$


421


 


$


363


 


$


384


 




Effective income tax rate - adjusted3


 


20.0


%


 


18.7


%


 


19.9


%






1


For explanations of items of note, see the "Non-GAAP Financial Measures
- Reconciliation of Adjusted to Reported Net Income" table in the "How
We Performed" section of this document.




2


The tax effect for each item of note is calculated using the effective
statutory income tax rate of the applicable legal entity.




3


Adjusted effective income tax rate is the adjusted provision for income
taxes before other taxes as a percentage of adjusted net income before
taxes.




Economic Profit and Return on Common Equity


Effective the first quarter of 2012, the Bank revised its methodology
for allocating capital to its business segments to align with the
future common equity capital requirements under Basel III at a 7%
Common Equity Tier 1 ratio. The return measures for business segments
now reflect a return on common equity methodology and not return on
invested capital which was reported previously. These changes have been
applied prospectively.


The Bank utilizes economic profit as a tool to measure shareholder value
creation. Economic profit is adjusted net income available to common
shareholders less a charge for average common equity. The rate used in
the charge for average common equity is the equity cost of capital
calculated using the capital asset pricing model. The charge represents
an assumed minimum return required by common shareholders on the Bank's
common equity. The Bank's goal is to achieve positive and growing
economic profit.


Adjusted return on common equity (ROE) is adjusted net income available
to common shareholders as a percentage of average common equity. ROE is
another measure of the economic profit measure that is useful in
comparison to the equity cost of capital. Both ROE and the equity cost
of capital are percentage rates, while economic profit is a dollar
measure. When ROE exceeds the equity cost of capital, economic profit
is positive. The Bank's goal is to maximize economic profit by
achieving ROE that exceeds the equity cost of capital.


Economic profit and adjusted ROE are non-GAAP financial measures as
these are not defined terms under IFRS. Readers are cautioned that
earnings and other measures adjusted to a basis other than IFRS do not
have standardized meanings under IFRS and, therefore, may not be
comparable to similar terms used by other issuers.







 


 


 


 


 


 


 


 


 


 




TABLE 6: ECONOMIC PROFIT AND RETURN ON COMMON EQUITY


 




(millions of Canadian dollars)


 


 


For the three months ended


 




 


Return on
common
equity


 


Return on
invested
capital


 


Return on
invested
capital


 




 


Jan. 31
2012


 


Oct. 31
2011


 


Jan. 31
2011


 




Average common equity


$


39,999


 


$


38,131


 


$


34,542


 




Average cumulative goodwill and intangible assets amortized, net of
income taxes


 


N/A


 


 


5,435


 


 


5,180


 




Average common equity/Average invested capital


$


39,999


 


$


43,566


 


$


39,722


 




Rate charged for average common equity/Average invested capital


 


9.0


%


 


9.0


%


 


9.0


%




Charge for average common equity/Average invested capital


$


905


 


$


988


 


$


901


 




Net income available to common shareholders - reported


$


1,403


 


$


1,515


 


$


1,487


 




Items of note impacting income, net of income taxes1


 


284


 


 


67


 


 


55


 




Net income available to common shareholders - adjusted


$


1,687


 


$


1,582


 


$


1,542


 




Economic profit2


$


782


 


$


594


 


$


641


 




Return on common equity - adjusted/Return on invested capital2


 


16.8


%


 


14.4


%


 


15.4


%






1


For explanations of items of note, see the "Non-GAAP Financial Measures
- Reconciliation of Adjusted to Reported net income"
table in the "How We Performed" section of this document.




2


Economic profit is calculated based on average common equity on a
prospective basis. Prior to the first quarter of 2012, economic
profit was calculated based on average invested capital. Had this change
been done on a retroactive basis, economic profit for the
Bank, calculated based on average common equity, would have been $717
million for the fourth quarter of 2011, and $758 million
for the first quarter of 2011.







Significant Events in 2012


Acquisition of Credit Card Portfolio of MBNA Canada


On December 1, 2011, the Bank acquired substa 
Thursday, March 1, 2012 6:30 AM

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