TD Bank 2007 Annual Report Download - page 49

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Management’s Discussion and Analysis 45
Expenses were $1,575 million in 2006, a decrease of
$508 million from 2005, primarily due to the sale of
TD Waterhouse U.S.A. to Ameritrade. This reduction was par-
tially offset by higher trailer payments to sellers of the Bank’s
mutual funds and higher sales force compensation in private
investment advice and financial planning. The efficiency ratio
improved by 6.2% to 69.7% over 2005.
Assets under management of $151 billion at October 31,
2006 increased $21 billion, or 16%, from October 31, 2005
due to market growth and strong sales of mutual funds. The
impact of market growth on assets under management was
approximately 6%. Assets under administration totalled
$161 billion at the end of the year, decreasing $154 billion,
or 49%, from October 31, 2005, mainly due to the sale of
TD Waterhouse U.S.A. to Ameritrade. The decline in assets
under administration was partially offset by significant growth
in domestic assets, mainly due to the addition of new assets in
all businesses combined with market appreciation.
U.S. Personal and Commercial Banking reported net income
of $236 million compared with $158 million in 2005. The
increase was largely the result of a full year of operating results
in 2006, compared to only seven months in 2005 as well as the
acquisition of Hudson by TD Banknorth in January 2006. The
return on invested capital for the year was 4.6% compared to
5.4% in 2005. Adjusted net income was $255 million in 2006,
an increase of $97 million from $158 million in 2005.
Total revenue was $1.8 billion, an increase of $0.8 billion
over the prior year. The increase was primarily due to a full year
of TD Banknorth results and the acquisition of Hudson. The
margin on average earning assets decreased from 4.11% in
2005 to 3.97% in 2006 due to competition for loans and
deposits, a flat yield curve, and low cost deposits comprising
a smaller share of total deposits.
PCL was $40 million, up sharply from the prior year. Write-off
increased during the year as net write-offs in the prior year
were very low.
Expenses were $1.1 billion, an increase of $538 million over
the prior year due to the full year of TD Banknorth results and
the acquisition of Hudson. The average FTE staffing level was
8,483 compared with 7,284 in 2005 mainly due to the acquisi-
tion of Hudson. The efficiency ratio for the year was 61.1%
compared to 54.7% in the prior year with the increase primarily
due to lower revenue as a result of margin compression,
increased advertising spending, and higher merger and
consolidation costs.
Wholesale Banking reported net income was $629 million in
2006, an increase of $207 million from $422 million in 2005.
Adjusted net income was $664 million in 2006, an increase of
$113 million from $551 million in 2005. The return on invested
capital for 2006 was 27.9%, compared with 22.3% in 2005.
Revenue for 2006 was $2,271 million, compared with
$1,988 million in 2005. Investment banking and capital markets
revenue for 2006 was higher than 2005, which included a loss
of $153 million related to the reduction of the estimated value
and exit of certain structured derivatives portfolios. Excluding
the $153 million loss in 2005, investment banking and capital
markets revenue was flat year over year as strong trading
revenue in foreign exchange and significant growth in equity
commissions and merger and acquisitions revenue was offset
by lower interest rate and credit trading and debt and equity
underwriting revenue. Revenue from the equity investment
portfolio increased due to higher security gains. Corporate
banking revenue increased due primarily to growth of the
credit portfolio.
PCL was $68 million in 2006, an increase of $16 million from
$52 million in 2005. PCL in the Wholesale Banking segment
comprise allowances for loan losses and the accrual costs for
credit protection. The change in market value of the credit pro-
tection, in excess of the accrual cost, is reported in the Corporate
segment. The accrual cost of credit protection in Wholesale
Banking in 2006 was $48 million as compared to $52 million in
2005. At October 31, 2006 Wholesale Banking held $2.9 billion
in credit protection against the lending portfolio, a decrease of
$0.3 billion from the end of 2005. Wholesale Banking proac-
tively manages its credit risk through active management of the
credit protection portfolio.
Risk-weighted assets of Wholesale Banking increased by
$1 billion to $34 billion in 2006, primarily related to an increase
in corporate lending exposures.
Expenses for 2006 were $1,312 million, compared with
$1,325 million for 2005. The decrease related primarily to lower
compensation expense, reflecting staff reductions from comple-
tion of the exit of the global structured products businesses and
was partially offset by higher restructuring costs.
Corporate segment reported net income of $1,182 million in
2006, driven primarily by a $1,665 million dilution gain on the
sale of TD Waterhouse U.S.A. to Ameritrade, partially offset by
a $72 million dilution loss related to the acquisition of Hudson
by TD Banknorth. Adjusted net loss was $99 million in 2006,
a decrease of $117 million from $18 million of adjusted net
income in 2005. Also contributing to the results were a general
allowance release of $39 million and a $7 million gain in excess
of accrued costs for the period in CDS hedging the corporate
loan book. These were partially offset by amortization of intan-
gibles of $316 million, an expense of $18 million relating to the
initial set up of the specific allowance for credit card and over-
draft loans that resulted from a change in the provisioning
methodology applied by the Bank, and the negative impact of
scheduled reductions in the income tax rate that resulted in a
decrease of $24 million in future tax assets. Unallocated corpo-
rate expenses, securitization losses and a declining non-core
lending portfolio also impacted 2006 results.