RNS Number:4756L
Toronto-Dominion Bank
22 May 2003
Canada NewsWire
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TD BANK FINANCIAL GROUP
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TD BANK
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TD (NYSE) TD. (TSX)
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Attention Business/Financial Editors:
TD Bank Financial Group Reports second quarter results, solid performance in
core business units, improved capital position
SECOND QUARTER 2003 REPORT TO SHAREHOLDERS
Six months ended April 30, 2003
The following news release provides an overview of the Bank's second
quarter financial results, and should be read in conjunction with
Management's Discussion and Analysis for the quarter.
Second Quarter Highlights
- On an operating cash basis(1), loss per share was $.26, including
restructuring costs and impairment charges of $.95, compared with
diluted earnings per share of $.70 for the first quarter ended
January 31, 2003 and $.45 for the same period last year.
- On a reported basis(2), loss per share was $.46 including
restructuring costs and impairment charges of $.95, compared with
diluted earnings per share of $.50 for the first quarter ended
January 31, 2003 and diluted earnings per share of $.20 per share for
the same period last year.
- On an operating cash basis, return on total common equity for the
quarter was (6.0)%, compared with 15.6% for the first quarter ended
January 31, 2003 and 9.7% for the same quarter last year.
- On a reported basis, return on total common equity for the quarter
was (10.5)%, compared with 11.1% for the first quarter ended
January 31, 2003 and 4.4% for the same quarter last year.
- Operating cash basis net loss was $146 million, compared with
operating cash basis net income of $480 million for the first quarter
ended January 31, 2003 and $316 million for the same quarter last
year.
- Reported net loss was $273 million for the quarter, compared with
reported net income of $347 million for the first quarter and
$156 million from the same quarter last year.
(All figures reported in Canadian dollars. For financial results, which
include both operating cash and reported earnings, please see table
under the "How the Bank Reports" section.)
TORONTO, May 22 /CNW/ - TD Bank Financial Group (TDBFG) today announced
its financial results for the second quarter ended April 30, 2003, reporting
an operating cash basis net loss of $146 million, compared with net income of
$316 million for the same period last year. Reported net loss was
$273 million, compared with reported net income of $156 million in the same
quarter a year ago.
Results for the second quarter reflect steps announced on April 3, 2003
to restructure the Bank's wealth management business outside of North America
and the U.S. equity options arm of its wholesale banking operation.
Restructuring costs of $21 million and impairment charges of $313 million
totaling $334 million pre-tax ($328 million after-tax) were incurred against
the wealth management business. For the wholesale business, restructuring
costs of $72 million and impairment charges of $350 million amounted to
$422 million pre-tax ($289 million after-tax). Total restructuring costs and
impairment charges reduced TDBFG earnings by $.95 per share for the quarter.
"As we stated at our annual meeting last month, we were taking steps to
eliminate losses in these businesses and that this would reduce our earnings
for the second quarter, when the bulk of the charges would be taken," said
W. Edmund Clark, TD Bank Financial Group President and Chief Executive
Officer. "Excluding these previously announced charges from operating cash
basis results, earnings for the quarter were solid at $.69 cents per share,
reflecting the strength of our core businesses. We look forward to generating
improved earnings as the restructuring plans are implemented."
On an individual business level, performance was particularly strong for
Personal and Commercial Banking, which posted double-digit earnings growth,
with net income up by $42 million or 16% over last year. Wealth Management
remains profitable in Canada and the U.S. despite weakened market activity.
Overall, Wealth Management reported a cash basis net loss for the quarter of
$299 million, which includes after-tax restructuring costs and impairment
charges of $328 million. In the Wholesale Bank, cash basis net loss for the
quarter was $120 million, which includes after-tax restructuring costs and
impairment charges of $289 million -- net of these charges, the results for
the Canadian wholesale franchise and global markets businesses were
satisfactory. And, solid progress was made in reducing the non-core(3) loan
portfolio.
"We are extremely pleased with our performance in our retail bank, which
once again delivered exceptional results. We are delivering on our Wealth
Management plan, where the steps we have taken are designed to eliminate
losses internationally by 2004, allow us to continue to deliver profits in
North America and position us to realize significant upside in improved
markets. And, we are making steady progress in our wholesale business, where,
exclusive of the charges we incurred this quarter, earnings generated by our
Wholesale Bank are meeting our expectations," said Clark.
Capital
At April 30, 2003, the Bank's Tier 1 capital ratio was 8.8% compared with
8.5% at January 31, 2003 and 8.1% at October 31, 2002.
Business Segments
Personal and Commercial Banking
TD Canada Trust (TDCT) once again reported strong year-over-year earnings
growth, with cash basis net income of $306 million for the quarter, up 16%
from $264 million for the same period last year. Improved operational
efficiencies, lower credit losses and strong performances in a number of key
product segments all contributed to earnings growth in the quarter.
Highlights include:
- $90 billion in real estate secured lending volumes, which includes
mortgages and home equity lines of credit, up by $6 billion or 7%
over the same period last year and by $1 billion over the first
quarter
- $83 billion in individual deposit volumes, up by $4 billion or 5%
over the same period last year and by $.9 billion over the first
quarter
- 2.2 percentage point year-over-year improvement in TDCT's efficiency
ratio
- 3.1 percentage point year-over-year improvement in TDCT customer
satisfaction levels
Growth in under-represented businesses remains a key focus. Business
deposit volume grew by $2.4 billion or 11% over last year. Insurance products
offered through TD Insurance and TD Meloche Monnex continue to be a key growth
area for TDCT, with gross life and property and casualty insurance premium
volumes of $351 million, up $74 million or 27% over the same period last year.
Credit quality continued to improve in personal lending and remained
strong in commercial lending. Provision for credit losses decreased by
$19 million or 15% compared to the first quarter and by $11 million or 10%
over the same period last year, reflecting ongoing improvement in retail
lending processes.
Operational efficiencies in the retail area continued to improve during
the quarter. Expense management was strong. Cash basis expenses decreased by
$12 million or 1% from the same period last year, while revenue grew by 2%. As
a result, TDCT's efficiency ratio improved by 2.2 percentage points year-over-
year to 57.8% for the quarter. Year-to-date cash basis efficiency ratio stands
at 57.6%, which is better than the established plan.
Retail branch Customer Satisfaction Index (CSI) was 85.9% for the
quarter, up from 85% over the first quarter and up significantly from 82.8%
over the same period last year, representing the strongest performance yet
since the TD-Canada Trust merger. CSI tracks customer satisfaction on an
ongoing basis. Customers are contacted within 24 hours of completing a
transaction to obtain feedback on level and quality of service and areas for
possible improvement. On an annual basis, over 335,000 interviews are
conducted for the Bank's retail CSI programs.
Price competition continues to impact on margins, particularly in
mortgages and savings accounts. However, volume growth continues to be strong.
Wealth Management
Reflecting the previously announced charges, cash basis net loss for the
second quarter was $299 million, which includes after-tax restructuring costs
and impairment charges of $328 million. Cash basis net income in North America
was $46 million, down $6 million or 12% from the first quarter and $1 million
or 2% from the same period last year. Results in North America remain solid,
with the quarterly decline in net income due primarily to the impact of a
shorter quarter and an overall decline in trading volumes.
Assets under management totaled $110 billion, down $2 billion from the
first quarter and from October 31, 2002 reflecting ongoing challenges in the
capital markets and the movement in foreign exchange rates. Assets under
administration totaled $240 billion at the end of the second quarter, up from
$237 billion at the end of the first quarter and $234 billion at October 31,
2002.
TD Waterhouse is profitable in Canada and the United States, where steps
have been taken to significantly reduce the cost base of operations to reflect
lower trade volumes and to build a strong customer-focused brand. In Canada,
TD Mutual Funds was the leader in mutual fund sales for the most recent RSP
season, covering the three months that ended March 31, 2003, with net sales of
$365 million.
Outside of North America, aggressive steps are being taken to improve
performance and reach break-even internationally by 2004. During the quarter,
TDBFG announced the sale of its Australian discount brokerage operation after
it became clear that it would be difficult to continue growing organically.
Operations in the U.K. are being streamlined and strategic initiatives, such
as the joint venture with The Royal Bank of Scotland where TDBFG provides the
operational and settlement back office platform, are on track. Elsewhere
internationally, appropriate steps are being taken to eliminate losses.
Wholesale Bank
Reflecting the previously announced charges, cash basis net loss for the
second quarter was $120 million, which includes after-tax restructuring costs
and impairment charges of $289 million, compared to earnings of $163 million
last quarter and $35 million the previous year. Exclusive of the charges, the
Wholesale Bank is generating earnings that are on track with expectations.
Earnings, net of the charges, substantially reflect the performance of
the core operating businesses, where all credits are performing. TD Securities
did not incur any provision for credit losses in its core portfolio during the
quarter, compared with provisions of $300 million for the same period last
year.
Non-core client group cash basis net income for the quarter was
$13 million. TD Securities made solid progress with its self-funded exit
strategy from loans in its non-core portfolio. Loans in the non-core portfolio
were reduced to $7.2 billion, down from $9.3 billion at January 31, 2003 and
from $11.2 billion at October 31, 2002.
During the second quarter, $170 million of the sectoral allowance was
utilized as a result of new specific loan loss provisions, down from
$236 million last quarter, taking the total to $406 million for the six-month
period that ended April 30, 2003. $122 million in new impaired loans was
recorded, down substantially on a quarter-over-quarter basis from $458 million
at January 31, 2003 and from $770 million at October 31, 2002. At April 30,
2003, the sectoral allowance, including the above mentioned items and foreign
exchange adjustments, amounted to $813 million. TDBFG remains comfortable with
its provisioning and is on track to exit its non-core portfolio as planned.
Organizational Changes
TDBFG has made significant headway in enhancing its credit framework and
its risk management and credit processes. In addition, the Bank has developed
a new risk management strategy that is currently being implemented. With the
implementation of this strategy underway, Clark also announced organizational
changes in this area.
"Tom Spencer, Vice Chair Risk Management has announced his decision to
leave at the end of this fiscal year. I would like to thank Tom for the
critical role he played in developing and implementing the enhanced risk
management strategy. He has worked diligently over the past few months to
ensure that an enhanced strategy is in place and his work will ultimately
strengthen the Bank going forward," said Clark. "With Tom's decision to leave,
I have asked that Bharat Masrani, Executive Vice President of Credit Risk
Management to take on the leadership of our risk management area, effective
immediately. In his new role, Bharat will be responsible for overseeing all
aspects of risk management for the Bank, while continuing to oversee the non-
core bank. Tom will act as an advisor to both Bharat and myself over the next
few months in order to ensure a smooth transition," added Clark.
Conclusion
"Operational excellence provides the foundation for generating value for
our shareholders, and this quarter provides confirmation that we are
delivering on this commitment. Our retail earnings are strong and improving as
we build a better bank, our Wealth Management strategy is on track and our
Wholesale Bank is benefiting from being refocused," said Clark. "We are
executing on our plans and believe these will have a positive impact on our
earnings as we move forward."
(As reported Thursday, May 22, 2003)
(1) Operating cash basis and reported results referenced in this report
are explained in detail under the "How the Bank Reports" section.
(2) Reported results are prepared in accordance with Canadian generally
accepted accounting principles (GAAP).
(3) On November 4, 2002, TDBFG announced that it was taking definitive
steps to address specific credit challenges. Corporate banking was
organizationally split into two separate units, representing 'core'
and 'non-core' client groups, with a focus on substantially exiting
the non-core relationships over the next three-year period.
From time to time, TD makes written and oral forward-looking statements,
including in this report, in other filings with Canadian regulators or the
U.S. Securities and Exchange Commission (SEC), and in other communications.
All such statements are made pursuant to the "safe harbour" provisions of the
United States Private Securities Litigation Reform Act of 1995. Forward-
looking statements include, among others, statements regarding TD's objectives
and strategies to achieve them, the outlook for TD's business lines, and TD's
anticipated financial performance. Forward-looking statements are typically
identified by words such as "believe", "expect", "may" and "could". By their
very nature, these statements are subject to inherent risks and uncertainties,
general and specific, which may cause actual results to differ materially from
the expectations expressed in the forward-looking statements. Some of the
factors that could cause such differences include: the credit, market,
liquidity, interest rate, operational and other risks discussed in the
management's discussion and analysis section of this report and other
regulatory filings made in Canada and with the SEC; legislative and regulatory
developments; the degree of competition in the markets in which TD operates,
both from established competitors and new entrants; technological change;
changes in government and economic policy including as to interest rates; the
health of the global economic, business and capital markets environments; and
management's ability to anticipate and manage the risks associated with these
factors and execute TD's strategies. This list is not exhaustive. Other factor
s could also adversely affect TD's results. All such factors should be
considered carefully when making decisions with respect to TD, and undue
reliance should not be placed on TD' s forward-looking statements. TD does not
undertake to update any forward-looking statements, written or oral, that may
be made from time to time by or on our behalf.
Management's Discussion and Analysis of Operating Performance
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How the Bank Reports
The Bank prepares its financial statements in accordance with Canadian
generally accepted accounting principles (GAAP) and are presented on pages 10
to 16 of this Second Quarter Report to Shareholders. The Bank refers to
results prepared in accordance with GAAP as the "reported basis".
In addition to presenting the Bank's results on a reported basis, the
Bank utilizes the "operating cash basis" to assess each of its businesses and
to measure overall Bank performance against targeted goals. The definition of
operating cash basis begins with the reported GAAP results and then excludes
the impact of special items and non-cash charges related to identified
intangible amortization from business combinations. There were no special
items in the first and second quarters of 2003. For fiscal 2002, the only
special item excluded was a gain on sale of the Bank's mutual fund record
keeping and custody business in the first and third quarter 2002. The Bank
views special items as transactions that are not part of the Bank's normal
daily business operations and are therefore not indicative of underlying
trends. The Bank's non-cash identified intangible amortization charges relate
to the Canada Trust acquisition in fiscal 2000. Excluding non-cash
amortization charges related to identified intangibles ensures comparable
treatment between periods. Consequently, the Bank believes that the operating
cash basis provides the reader with an understanding of the Bank's results
that can be consistently tracked from period to period.
The goodwill impairment recorded by the Bank in the second quarter 2003
relating to the international unit of its wealth management business and its
U.S. equity options business was not considered a special item for exclusion
when determining the operating cash basis results. Restructuring costs are
reviewed by the Bank on a case-by-case basis to determine whether they are
deemed special items. The restructuring charges recognized by the Bank in the
second quarter 2003, related to the international unit of its wealth
management business and its U.S. equity options business, were not considered
special items given that they were incurred as part of the rationalization of
the existing businesses and not as part of an acquisition which the Bank would
normally consider as a special item.
As explained, operating cash basis results are different from reported
results determined in accordance with GAAP. The term "operating cash basis
results" is not a defined term under GAAP, and therefore may not be comparable
to similar terms used by other issuers. The table below provides a
reconciliation between the Bank's operating cash basis results and its
reported results.
Net Loss
Operating cash basis net loss for the quarter was $146 million, compared
with operating cash basis net income of $316 million for the same quarter last
year. On an operating cash basis, loss per share was $.26, compared with basic
earnings per share of $.46 and diluted earnings per share of $.45 in the same
quarter last year. Operating cash basis return on total common equity was
(6.0)% for the quarter as compared with 9.7% last year. Operating cash basis
return on invested capital was (5.0)% for the quarter compared with 8.4% in
the same quarter a year ago.
