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Fundamental View
AS OF 25 Mar 2024Toronto Dominion is rated Aa2/AA-/AA- by Moody’s/S&P/Fitch, but bail-in senior debt for TD is rated A1/A/AA-.
TD’s overall credit profile is stable, supported by diversification by revenue & geography, history of strong risk management & conservative underwriting.
TD still has substantial excess capital above all-in requirements, having built up capital levels in advance of the First Horizon deal that ended up being terminated in 2023.
Business Description
AS OF 25 Mar 2024- Toronto Dominion is the second largest depository institution in Canada with C$1,911 bn in assets as of F1Q24 and a market cap of US$107 bn as of March 21, 2024. The company has C$1,181 bn in total deposits.
- As of 2023, TD ranked 9th in terms of U.S. deposits with approximately US$303.9 bn in deposits and 1,182 branches (SNL). The U.S. footprint is focused on the Atlantic coast including Delaware, New Jersey, New York, Massachusetts, New Hampshire, Connecticut, Maine, Vermont, and Pennsylvania.
Risk & Catalysts
AS OF 25 Mar 2024Toronto Dominion has a strong, largely retail-driven deposit base in both Canada and the U.S., which should mitigate the potential for a liquidity event.
Toronto Dominion has been active in M&A in the U.S., as well as portfolio acquisitions in Canada. In 2023, it completed the acquisition of Cowen, Inc., building out its U.S.-based capital markets business which it has also grown organically in recent years.
The termination of the FHN deal leaves TD with substantial flexibility afforded by the excess capital position (CET1 13.9%) and without a bank deal to integrate in uncertain operating conditions.
We view real estate-related risk in Canada as manageable for TD given low LTV of exposures in vulnerable markets and conservative underwriting.
Key Metrics
AS OF 25 Mar 2024$ mn | FY20 | FY21 | FY22 | FY23 | LTM 1Q24 |
---|---|---|---|---|---|
Revenue | 30,311 | 31,801 | 35,848 | 33,866 | 34,821 |
Net Income | 8,846 | 11,371 | 13,544 | 7,883 | 8,801 |
ROAE | 1.30% | 1.05% | 1.05% | 1.05% | 1.05% |
NIM | 1.72% | 1.56% | 1.69% | 1.75% | 1.73% |
Net Charge-offs / Loans | 0.34% | 0.18% | 0.15% | 0.24% | 0.27% |
Total Assets | 1,289,484 | 1,394,270 | 1,406,122 | 1,407,709 | 1,428,288 |
Unsecured LT Funding | 55,061 | 67,073 | 88,875 | 90,998 | 81,846 |
CET1 Ratio | 13.1% | 15.2% | 16.2% | 14.4% | 13.9% |
CreditSights View
AS OF 26 Mar 2024We maintain our Outperform recommendation for Toronto Dominion. Historically TD has traded as one of the tightest names in the Canadian bank peer group. However, over the past several quarters TD has still traded towards the tighter end of the sector but there has been less relative spread pickup for moving down in quality to names such as BMO, BNS, and CIBC. We therefore believe the best value in the sector in current conditions involves trading up in quality to TD and RBC (which we already rate at Outperform). TD has substantial excess capital as a result of the termination of the deal for First Horizon; CET1 was 13.9% at F1Q24.
Recommendation Reviewed: March 26, 2024
Recommendation Changed: March 08, 2023