TD Bank 1q09 results

TD Bank is the 2nd largest bank in Canada based on total asset, with close to 66,000 employees and 17 million customers worldwide.1q09

Results:
1. Total reveune up 15% vs 1q08

• Good: Gross interest income up 9.7% while net interest income up 53%
• Bad: Other income down 22% mainly due to security gain of $152M turn into loss $205M

2. Reported EPS down 38% vs 1q08 / Adjusted EPS down 7.6%

• Bad: Loan provision up 110% or 86% vs 4q08;
• Good: wholesale banking return to profit from $228M in 4Q08 to $265M in 1q09, due to huge increase both in net interest income & other income

3. Ratio

• Good: Tier 1 Capital up from 9.8% 4q08 to 10.1%
• Good: Net interest margin up from 2.01% to 2.42%
• Fair: Loan impairment to net loans up from 0.5% to 0.76%, still lower than peers & US banks
• Good: Adjusted return on common equity down from 8.6 4q08 % to 13.2%
• Bad: Efficiency ratio up from 65% 4q08 to 72.8%

4. Balance Sheet

• Good: BVPS up from $36.78 4q08 to $41.57
• Good: Total assets up 3.9% to $585B
• Good: Total deposit up 6.9% to $402B, #1 in Canada with 21.2% market shares
• Good: Total notes & debentures down 7.8% to $130B, continue the deleverage process;
• Good: AOCI turn from loss $1.6B to gain $2.2B
• Good: Cash flow from operation up $2.7B vs down $2.4B in 4q08
• Fair: in 1Q09, TD issued add'l common & preferred shares of $1.4B & $0.9B

Risk:

• Uncertain on how worse the Canada's economy will be in 2009 since it is highly driven by USA and oil price;
• GDP is down, unemployment rate is up, house price start falling....all these may trigger the rise of loan impairment;

Comments:

BUY, Fair Value CA$65.60However, given the current market situation, most investors has taken a risk aversion approach. A value investor can take 45% margin of safety and buy it around or below $CA36.08.