DBRS Confirms TD at AA, R-1 (high)

DBRS has today confirmed the ratings of The Toronto-Dominion Bank (TD or the Bank) and related entities, including TD’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable. The ratings are supported by TD’s leadership position in Canadian personal banking, as well as its low business risk profile and strong capital levels.

The over-riding issues during the last 12 months have been the deterioration of the financial markets and the slowdown in the global economy. To fortify itself against losses, writedowns and anticipated higher credit costs, TD and the rest of the large Canadian banks have been actively growing their capital bases and increasing liquidity. During H1 2009, TD issued $1.380 billion of common shares, $1.520 billion of preferred shares and $1 billion of innovative Tier 1 instruments. Internal capital generation is expected to moderate in 2009. TD exited its structured product business in 2005, ahead of the recent market turmoil. In Q4 2008, TD did incur a loss related to proprietary credit trading due to the volatility in credit markets and the decline in global market liquidity, resulting in a repositioning of this business to focus more on North America.

Despite a weakening Canadian economy, DBRS expects TD’s Canadian Personal and Commercial Banking franchise to provide ongoing earnings stability, given its low business risk profile and strong reputation for being customer-centric. TD has been expanding its retail distribution network, hours of service and improving its customer service index scores, resulting in solid number one and number two market share rankings in personal deposits and lending, respectively, at the end of October 2008. TD has been successful in growing its Canadian retail market shares, including credit cards, property and casualty (P&C) insurance, small business and commercial banking. The large retail operations contribute to a lower business risk profile than some of its peers.

TD has been actively advancing its U.S. retail banking growth strategy since the close of its Commerce acquisition. TD has been executing on its U.S. banking integration plan, including putting in place a new senior management team and successfully re-branding its branches “TD Bank, America’s Most Convenient Bank.” With the adoption of the business strategy of a relentless commitment to customer service, the U.S. bank has been improving service levels. Part of the integration plan will be to realize expense synergies, including through systems conversions.

Longer term, DBRS believes successful integration and execution of its U.S. retail banking strategy will contribute positively to TD’s business franchise as it begins to generate acceptable earnings to the Bank and a platform for potential growth opportunities. The weak U.S. economy will make it more challenging to execute this strategy. So far, DBRS believes TD is on track with the integration of Commerce Bancorp, Inc., which closed on March 31, 2008.

TD’s long-term Deposits & Senior Debt rating, at AA, is composed of its Intrinsic Assessment at AA (low) and its Support Assessment at SA2 (reflecting the expectation of systemic and timely external support by the government of Canada). The SA2 results in a one-notch benefit to the senior debt and deposits and subordinated debt ratings, which benefit from this implied support.

On June 29, 2009, DBRS announced a change to its banking methodology, specifically to bank preferred shares and Tier 1 innovative instruments. The change resulted in a downgrade of these instruments by one notch. Please see the DBRS press release dated June 29, 2009 for details.

Headquartered in Toronto, Canada, The Toronto-Dominion Bank has a full-service banking operation in retail and wholesale banking and in wealth management in Canada as well as retail banking and discount brokerage operations in the United States.

TD has five segments; four operating lines of business and Other. The operating businesses are Canadian Personal and Commercial Banking, U.S. Personal and Commercial Banking, Wealth Management and Wholesale Banking, representing 57%, 17%, 18% and 2% of net income (excluding intangible amortization) in 2008, respectively. In aggregate, the first three lines of business generated approximately 92% of earnings in 2008 (79% in 2007), which is consistent with TD’s objective to minimize earnings volatility through its strategy of achieving a higher proportion of earnings through retail operations. The last segment, Other, contributed 6% of net income.

Canadian Personal and Commercial Banking is one of the largest personal banking operations in Canada, with 11 million customers, serviced through a distribution network with over 1,000 branches. U.S. Personal and Commercial Banking, operating under the brand name “TD Bank, America’s Most Convenient Bank,” consists of legacy TD Banknorth, a U.S. regional bank, with its headquarters in Portland, Maine, and legacy Commerce Bancorp, Inc., concentrated primarily in New York and New Jersey. TD Wealth Management is composed of discount and full-service brokerage operations in Canada and the United States, and discount brokerage service through TD’s 45% investment in TD Ameritrade. TD Securities is primarily a Canadian corporate and investment bank.

The Toronto-Dominion Bank is the second largest Schedule 1 bank in Canada as measured by assets ($575 billion) at Q2 2009.

Notes:
All figures are in Canadian dollars unless otherwise noted.

DBRS ratings also apply to TD Mortgage Corp., TD Pacific Mortgage Corp., and The Canada Trust Company, which are unconditionally guaranteed by The Toronto-Dominion Bank.

The applicable methodologies are Rating Banks in Canada and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessment, which can be found on the DBRS website under Methodologies.

This is a Corporate (Financial Institutions) rating.