TD Bank 2010 Annual Report Download - page 33

TD BANK GROUP ANNUAL REPORT 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS 31
1
The wealth management and insurance agency businesses in the U.S. were
transferred to other segments effective April 1, 2008. Prior period results were
not restated.
2
For explanations of items of note, see the “Non-GAAP Financial Measures −
Reconciliation of Adjusted to Reported Net Income” table in the “How We
Perform” section of this MD&A.
3
Average deposits and margin on average earning assets exclude the impact
related to the TD Ameritrade insured deposit accounts (IDA). The IDA is described
in Note 34 to the 2010 Consolidated Financial Statements.
BUSINESS HIGHLIGHTS
•
Achieved US$941 million in reported earnings and US$1 billion
in adjusted earnings in a challenging operating environment.
• Highest adjusted earnings since TD entered the U.S. in 2005.
• Gained profitable market share on both loans and deposits
while maintaining strong credit quality.
• Grew loans organically by approximately US$3 billion and
deposits by US$5 billion since last year (US$7 billion and
US$24 billion, including 2010 acquisitions and TD Ameritrade
insured deposit accounts), during a significant economic
downturn.
• Solidified our Maine to Florida footprint by closing the South
Financial acquisition and acquiring the operations of three
Florida banks from the FDIC (“FDIC-assisted transactions”).
• Successfully integrated the FDIC-assisted Florida transactions
during the latter half of 2010. The South Financial Group, Inc.
is expected to be integrated in 2011.
• Continued to lead in customer service and convenience with
44% more store hours than competitors in the Mid-Atlantic
and New England footprint.
• Continued to invest in growing the franchise, adding 32 new
stores in fiscal 2010.
CHALLENGES IN 2010
•
Regulatory and legislative changes have impacted the operat-
ing environment, TD Bank’s product offering and economics.
• Low interest rate environment continues which has limited
earnings growth potential.
•
Weak loan demand due to slow economic recovery and
prolonged weakness in employment.
•
Increased competition has led to pressure on margins.
• Asset quality has stabilized, but PCL remains high due to
high
levels of charge-offs.
INDUSTRY PROFILE
The U.S. banking industry has experienced a significant amount of
consolidation over the past 18 months largely driven by FDIC-assisted
transactions. The personal and business banking environment in the
U.S. is very competitive in all areas of the business. TD Bank is subject
to vigorous competition from other banks and financial institutions,
including savings banks, finance companies, credit unions, and other
providers of financial services. The keys to profitability are attracting
and retaining customer relationships over the long term by owning the
convenience and service space within our operating footprint, effective
risk management, rational product pricing, use of technology to deliver
products and services for customers anytime and anywhere, optimizing
fee-based businesses, and effective control of operating expenses.
OVERALL BUSINESS STRATEGY
The strategy for U.S. Personal and Commercial Banking is to:
• Deliver superior customer service across all channels.
• Focus on organic growth (including building new stores), improved
productivity, and cross-selling initiatives.
• Continue to be recognized as the leader in convenience banking.
• Maintain strong asset quality relative to peers.
• Execute on the acquisitions and related integration and
capture synergies.
(millions of dollars, except as noted) Canadian dollars U.S. dollars
2010 2009 20081 2010 2009 20081
Net interest income $ 3,579 $ 3,607 $ 2,144 $ 3,451 $ 3,093 $ 2,110
Non-interest income 1,180 1,117 853 1,140 960 842
Total revenue 4,759 4,724 2,997 4,591 4,053 2,952
Provision for credit losses – loans 616 698 226 592 601 222
Provision for credit losses – debt securities classified as loans 30 250 – 29 209 –
Provision for credit losses – total 646 948 226 621 810 222
Non-interest expenses − reported 2,910 3,213 1,791 2,805 2,391 1,655
Non-interest expenses − adjusted 2,803 2,785 1,679 2,702 2,390 1,335
Net income – reported 973 633 722 941 541 712
Adjustments for items of note, net of income taxes2
Integration and restructuring charges relating to
U.S. Personal and Commercial Banking acquisition 69 276 84 67 240 82
Net income – adjusted 1,042 909 806 1,008 781 794
Selected volumes and ratios
Return on invested capital 5.8% 4.5% 6.1% 5.8% 4.5% 6.1%
Efficiency ratio – reported 61.1 68.0 59.8 61.1 68.0 59.8
Efficiency ratio – adjusted 58.9 59.0 56.0 58.9 59.0 56.0
Margin on average earning assets (TEB)3 3.49 3.52 3.84 3.49 3.52 3.84
Number of U.S. retail stores 1,269 1,028 1,062 1,269 1,028 1,062
Average number of full-time equivalent staff 19,952 19,594 13,935 19,952 19,594 13,935
U.S. PERSONAL AND COMMERCIAL BANKING
TABLE 18