Tuesday, May 08, 2007

TD Banknorth Q1 2007 Earnings

  
Scotia Capital, 8 May 2007

• Subsequent to the privatization of TD Banknorth which closed April 20, 2007, TD Bank provided investors with TD Banknorth earnings for the three months ended March 31, 2007. Included were comments on the expected impact of these earnings on TD and a breakdown of restructuring charges at the TD Banknorth and TD Bank level.

• TD Banknorth reported first quarter cash operating net income of US$99.0 million versus US$115.6 million a year earlier. Reported net income was US$55.2 million which included the following after-tax items: US$20.9 million in restructuring charges relating to the acquisition of Interchange and expense reductions announced March 23, 2007; US$22.4 million for the amortization of intangible assets; and US$0.5 million loss from discontinued operations.

• This quarter, higher loan losses were largely offset by revenue, loan and deposit growth resulting from the Hudson United (HU) and Interchange acquisitions. Contribution to TD Improves Slightly YOY

• TD Bank indicated that TD Banknorth's contribution this quarter would be C$62 million or C$0.09 per share excluding a C$39 million or C$0.05 per share (after-tax) restructuring charge related to the privatization of TD Banknorth. This compares with an earnings contribution of C$64 million or $0.09 per share in the previous quarter and C$59 million or C$0.08 per share a year earlier.

• Another C$4 million or C$0.01 per share restructuring charge is expected at the Corporate Segment level relating to the transfer of functions from TD Bank USA to TD Banknorth. Net Interest Margin Compression Remains a Challenge

• Net interest margin (NIM) for the quarter declined 6 bp QOQ but increased 6 bp YOY to 3.89%. The sequential decline in NIM was primarily due to competitive deposit and loan pricing, the inverted yield curve and fewer number of days in the quarter.

Loan & Deposit Growth

• Average loans increased 12% to US$26.6 billion from a year earlier mainly due to the HU and Interchange acquisitions. Excluding the effects of the acquisition, average loans declined 1% from a year earlier. On a sequential basis, loan growth was 4% mainly due to the Interchange acquisition which closed January 1, 2007.

• Average deposits increased 16% YOY due to the HU and Interchange acquisitions. Organic deposit growth was flat from a year earlier due to the highly competitive operating environment in the U.S.

Operating Revenue Driven by Acquisitions

• Total operating revenue (excluding securities gains/losses, and losses on derivatives) increased 7% to US$429.9 million versus US$400.3 million a year earlier. Non-interest revenue (excluding securities gains/losses, and losses on derivatives) increased 13% to US$133.5 million from US$118.2 million a year earlier and from US$128.8 million in the previous quarter due to the HU and Interchange acquisitions.

Operating Expenses Remain Flat

• Non-interest expenses (excluding amortization of intangibles and merger and restructuring costs) increased 14% YOY to US$250.7 million from US$219.6 million due to the HU and Interchange acquisitions. Organic non-interest expenses were essentially flat from the previous quarter.

• On March 23, 2007, TD Banknorth announced it plans to cut 400 jobs or 5% of its workforce and close 24 branches over the next several months. The vast majority of branch closures will be former Hudson United Bancorp branches in New Jersey, New York and Pennsylvania. CEO Bharat Masrani said that the cuts will help lower operating expenses by 5% to 8% by 2008.

Loan Loss Provisions Increase

• Loan Loss provisions (LLPs) nearly doubled in the quarter to US$30.0 million or 0.48% of loans from US$15.2 million or 0.26% of loans in the previous quarter primarily due to an increase in net charge-offs and non-performing assets. A year earlier, LLPs were US$6.9 million or 0.13% of loans.

• Total non-performing loans (NPLs) in the first quarter were US$222.5 million or 0.89% of total loans, up significantly from US$131.4 million or 0.57% of total loans in the previous quarter and US$78.6 million or 0.35% of total loans a year earlier.

• Non-performing assets (NPAs) were US$225.2 million or 0.55% of total assets versus US$132.4 million or 0.33% in the previous quarter and US$90.7 million or 0.22% a year earlier. The sequential increase in NPAs was due to a US$79.2 million increase in non-performing assets associated with commercial real estate mortgages due to a slowdown in the U.S. housing market.

Recommendation

• Our 2007 and 2008 earnings estimates for TD are C$5.30 per share and C$5.90 per share, respectively. Our 12-month share price target on TD is $81 representing 15.3x our 2007 cash earnings estimate and 13.7x our 2008 cash earnings estimate.

• Maintain 2-Sector Perform rating on shares of TD Bank.
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Bloomberg, Sean B. Pasternak, 7 May 2007

Toronto-Dominion Bank, Canada's 2nd largest lender, said it expects profit from its U.S. consumer bank to rebound this year after earnings declined in six of the last eight quarters on higher costs for acquisitions and job cuts.

Profit from the TD Bankorth unit will probably rise to about C$108 million ($98 million) in the third quarter and C$123 million in the fourth quarter, Chief Financial Officer Colleen Johnston said on a conference call today. That compares with C$23 million in the second quarter ended April 30.

TD Banknorth's profit fell after demand for loans slowed and costs rose for advertising and takeovers. TD Banknorth said in March that it plans to cut 400 jobs and close as many as 24 branches in New Jersey, New York and other states.

``We are not sitting idly by and hoping the environment changes around us,'' TD Banknorth Chief Executive Officer Bharat Masrani told investors on the call.

Shares of Toronto-Dominion rose 12 cents to C$68.80 at 4:15 p.m. in trading on the Toronto Stock Exchange.

Toronto-Dominion said the second-quarter results include C$39 million in after-tax expenses related to acquisitions and for taking TD Banknorth private. Excluding those expenses, profit was C$62 million, the Toronto-based bank said.

Chief Executive Officer Edmund Clark said he doesn't expect any further costs for job cuts or branch closings in the "foreseeable future."

TD Banknorth became a wholly-owned unit of Toronto-Dominion last month and was delisted from trading after the Canadian bank bought the shares it didn't already own of the Portland, Maine-based company. The bank also said today that TD Banknorth Vice Chairman and Chief Operating Officer Peter Verrill will retire at the end of June.

Toronto-Dominion is scheduled to report second-quarter results on May 24. They also plan to meet investors on June 28 to discuss TD Banknorth's business, as it carries "an unusually large weight in how investors view our stock," Clark said.
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Associated Press, 4 May 2007

TD Banknorth, which announced a restructuring plan little more than a month ago, is moving some jobs from its home state Maine to Canada.

The exact number has yet to be determined, but it is "significantly fewer" than 100, company spokesman Jeff Nathanson said. Officials met with about 65 workers Thursday at the data centre in Lewiston, Me., 60 kilometres north of Portland, to tell them about the plan to transfer some jobs.

Nathanson says the process is in the early stages and the transfers won't take place for another 12 to 16 months.

In late March, TD Banknorth – a subsidiary of Toronto-based TD Financial Group announced it would cut 400 jobs and close or consolidate 24 branches as part of a plan to reduce operating expenses.

The jobs, including about 60 in Maine, represented roughly 5 per cent of the work force.

Nathanson said the shift of jobs from Lewiston makes sense because the data centre in Canada has some excess capacity.

"There's not a wholesale effort to export jobs in Canada... but are there individual areas where it may make sense to do that? Sure, and we'll make the right business decision while respecting the impact on employees," he said.
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