TD Bank 2007 Annual Report Download - page 48

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Management’s Discussion and Analysis44
BALANCE SHEET
Total assets were $393 billion as at October 31, 2006, $28 billion
or 8% higher than October 31, 2005 largely due to a $16 billion
increase in securities, an $8 billion increase in loans, and the
$4.4 billion investment in TD Ameritrade. At October 31, 2006,
total assets comprised primarily loans (net of allowance for credit
losses) of $161 billion, trading assets of $77 billion, investment
securities of $47 billion, and securities purchased under reverse
repurchase agreements of $31 billion. Total average interest-
earning assets were $315 billion, compared with $288 billion in
2005. Total liabilities increased $24 billion driven by a $14 billion
increase in deposits, an $8 billion increase in other liabilities, and
an increase in subordinated notes and debentures of $2 billion.
In addition, at October 31, 2006, total shareholders’ equity
increased $4 billion to $20 billion, up 24% from 2005.
2006 FINANCIAL RESULTS OVERVIEW
2006 Financial Performance
by Business Line
PCL increased by $40 million, or 11%, compared with 2005.
The acquisition of VFC accounted for $18 million of the PCL
increase. Commercial and small business PCL was $21 million for
the year, up $2 million, compared with 2005, on lower business
loan recoveries, and reversals, and higher write-offs. Personal
PCL, excluding VFC, of $374 million was $20 million higher than
2005, mainly due to robust credit card volume growth in 2006
and higher write-offs on personal loans. PCL as a percent of
lending volume was at 0.25%, unchanged from 2005.
Expenses increased by $313 million, or 8%, compared with
2005. The VFC acquisition accounted for $14 million of the
expense growth. Higher employee compensation and invest-
ments in new branches and infrastructure contributed to the
increase in expenses. The VFC acquisition added 148 employees
on an FTE basis to average staffing levels compared with 2005.
Average staffing levels increased by 382 FTEs from 2005 as a
result of the new branch openings and an expanded sales force.
The efficiency ratio for 2006 was 54.8%, a 150bps improve-
ment over 2005.
Wealth Management net income for 2006 was $590 million,
compared with $432 million in 2005, an increase of 37% which
came from the equity share in TD Ameritrade and growth across
the Wealth businesses. The return on invested capital for the
year was 19.5%, compared with 16.4% in 2005.
Revenue decreased by $486 million from 2005 to $2,260 mil-
lion, mainly due to the sale of TD Waterhouse U.S.A. to
Ameritrade, partially offset by stronger results in the domestic
businesses. Domestically, interest revenue grew due to higher
margin balances and client deposits, and improvement in
spreads. Other revenue growth in Canadian Wealth
Management was a result of higher transaction revenue and
higher mutual fund fees due to asset growth. Mutual fund
management fees increased as a result of 17% asset growth
and the shift in portfolio mix to higher earning fund classes,
while growth in assets under administration generated
improved results in private investment advice and financial
planning. Discount brokerage revenue increased as a result of
higher margin volumes and 37% higher trading volumes,
partially offset by a decline in commission per trade.
Canadian Personal and Commercial Banking net income of
$1,966 million for the year increased by $264 million, or 16%,
from 2005. Return on invested capital increased from 23.1% in
2005 to 25.2% in 2006 as earnings growth exceeded the 6%
growth in average invested capital.
Revenue grew by $749 million, or 11%, over 2005, mainly
due to strong net interest income and fee growth. The acquisi-
tion of VFC contributed $47 million to revenue growth. The
main contributors to organic revenue growth were strong,
broad-based volume growth across most products and deposit-
driven margin improvements from the higher interest rate envi-
ronment. Higher transaction-based fees, overall deposit and
credit card account growth, and competitive repricing initiatives
also contributed significantly to revenue growth. The increase in
revenue was partially offset by competitive pricing in real estate
secured lending and commercial deposits products, the impact
of higher interest costs on credit cards and the scheduled wind-
down of a contractual agreement to administer a lending port-
folio on behalf of the Government of British Columbia.
Margin on average earning assets increased from 2.96% in
2005 to 3.04% in 2006. The acquisition of VFC contributed
0.02% to the margin improvement. Margins widened on depos-
its, particularly in the high-yield savings product, as interest
rates increased in the first half of 2006. This growth was mod-
erated somewhat by a customer shift into lower-yield deposit
products. The increased volume of lower margin real estate
secured lending as a proportion of earning assets partially offset
the overall margin improvement.