TD

Business Context and Reporting Period

Company: The Toronto-Dominion Bank (TD Bank Financial Group)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: First Quarter ended January 31, 2006

Overview: TD Bank Financial Group reported strong first-quarter results driven by the closure of the TD Ameritrade transaction and the acquisition of Hudson United Bancorp by TD Banknorth. The Bank serves over 14 million customers across four key segments: Canadian Personal and Commercial Banking, U.S. Personal and Commercial Banking, Wealth Management, and Wholesale Banking.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Surge: Reported net income increased 266% year-over-year, primarily due to a one-time dilution gain of $1.67 billion (after-tax) from the TD Ameritrade transaction. Adjusted net income, which excludes non-recurring items, grew 22% to $835 million.
• Revenue Growth: Total revenues rose 21% to $3.404 billion. Net interest income increased 14% to $1.607 billion, driven by volume growth and the inclusion of TD Banknorth results. Other income increased 29% to $1.797 billion, fueled by higher trading revenues and service charges.
• Expense Management: Non-interest expenses increased 18% to $2.290 billion, largely due to the inclusion of TD Banknorth and a $50 million restructuring charge in Wholesale Banking. Despite higher expenses, the reported efficiency ratio improved significantly to 46.1% from 69.3% due to the massive revenue boost from the Ameritrade gain.
• Balance Sheet Expansion: Total assets grew by $19 billion to $384.4 billion, with $12 billion attributable to the Hudson United acquisition.

Guidance, Outlook, and Risks

• Dividend Increase: The Board declared a quarterly dividend of 44 cents per share, a 5% increase from the previous quarter.
• Strategic Acquisitions:
  • TD Ameritrade: Closed January 24, 2006. TD holds a 32.5% ownership interest. Management intends to increase ownership to 37.5% by January 2007.
  • Hudson United: Acquired by TD Banknorth on January 31, 2006, for $1.9 billion. Results are expected to accelerate revenue growth later in 2006 following systems conversion.
  • VFC Inc.: Announced intention to acquire VFC Inc. for approximately $320 million (subject to regulatory approval).
• Segment Outlook:
  • Wholesale Banking: Management noted that strong trading results in Q1 are not indicative of the full-year run rate.
  • U.S. Banking: Net interest income remains under pressure from short-term rates, though balance sheet restructuring is expected to mitigate this.
• Risks and Contingencies:
  • Enron Litigation: A contingent litigation reserve of approximately $618 million exists for Enron-related claims. A $160 million settlement was agreed upon in 2005; payment will reduce the reserve to approximately $458 million.
  • Market Risk: Value at Risk (VaR) for Wholesale Banking remained within limits, with general market VaR at $8.8 million as of January 31, 2006.

Investor Verification Checklist

• Non-GAAP Reconciliation: Verify the reconciliation between Reported and Adjusted earnings, noting that the reported EPS of $3.20 is heavily skewed by the $1.67 billion Ameritrade gain.
• Adjusted EPS Trend: Confirm the 11% year-over-year growth in Adjusted Diluted EPS ($1.15) as a better indicator of core operational performance.
• Capital Ratios: Review the Tier 1 capital ratio of 11.9% and the impact of the $33 billion increase in risk-weighted assets from acquisitions.
• Enron Reserve: Monitor the status of the $618 million Enron litigation reserve and potential for additional charges.
• Future Acquisitions: Track the progress of the VFC Inc. acquisition and the planned increase in TD Ameritrade ownership.