TD Bank 2010 Annual Report Download - page 39

TD BANK GROUP ANNUAL REPORT 2010 MANAGEMENT’S DISCUSSION AND ANALYSIS 37
Deposits were $391 billion, an increase of $15 billion, or 4%, primarily
due to a $31 billion increase in personal deposits, primarily driven by
volume increases in the Canadian Personal and Commercial Banking
and U.S. Personal and Commercial Banking segments which were
offset by decreases in business and government and trading deposits
in Wholesale Banking. The translation effect of the weaker Canadian
dollar caused the value of the deposits in U.S. Personal and Commercial
Banking to increase by $2 billion.
Other liabilities decreased $28 billion, or 18%, primarily due to
a decrease in the market value of derivatives in Wholesale Banking
resulting from movements in interest rates and cross currency swaps
and volatility in currency and interest rate markets.
Common shares and preferred shares in total increased $3.6 billion,
due to new share issuances of $2.1 billion and $1.5 billion, respectively.
weaker Canadian dollar caused the value of loans (net of allowance for
loan losses) in U.S. Personal and Commercial Banking to increase by
$1 billion.
Other declined by $38 billion primarily due to a decrease in the market
value of derivatives in Wholesale Banking resulting from movements
in interest rates and cross currency swaps, and volatility in currency
and interest rate markets.
Total liabilities of the Bank were $518 billion as at October 31, 2009,
a decrease of $13 billion, or 2%, compared with October 31, 2008.
The net decrease was largely due to a $26 billion decrease in the
market value of Wholesale Banking derivatives, partially offset by an
increase in deposits. The translation effect of the weaker Canadian
dollar caused the value of liabilities in U.S. Personal and Commercial
Banking to increase by $2 billion.
2009 FINANCIAL RESULTS OVERVIEW
2009 Financial Performance
by Business Line
Canadian Personal and Commercial Banking net income for the
year was a record $2,472 million, an increase of $48 million, or 2%,
from the prior year. Return on invested capital decreased from 29%
last year to 28% in 2009.
Revenue for the year was $9,449 million, an increase of $623 million,
or 7%, compared with last year mainly due to strong net interest
income. The main contributor to revenue growth was solid broad-based
volume growth particularly in personal and business deposits and real
estate secured lending, which was partly offset by margin compression
mainly from deposits.
Compared with last year, real estate secured lending average volume
(including securitizations) grew by $18 billion, or 12%, credit card
lending volume grew by $1 billion, or 15%, and personal deposit
volume grew $15 billion, or 14%. Business deposits grew by $7 billion,
or 16%, and originated gross insurance premiums grew by $247 million,
or 10%. Personal loans grew by $12 billion, or 9%, and business loans
and acceptances grew by $2 billion, or 7%.
Margin on average earning assets decreased by 5 bps to 2.90%
compared with last year due to margin compression primarily from the
low overall level of interest rates.
Provision for credit losses (PCL) for the year was $1,155 million, an
increase of $389 million, or 51%, compared with last year. Personal
banking PCL was $1,065 million, an increase of $347 million, or 48%,
compared with last year, mainly due to higher loss rates on credit cards
and unsecured lines of credit. Business banking PCL was $90 million,
an increase of $42 million, or 88%, compared with the prior year
reflecting the weaker economic conditions. PCL as a percentage of
credit volume was 0.52%, increasing 14 bps from last year.
Non-interest expenses for the year were $4,725 million, an increase
of $203 million, or 4%, compared with last year. Higher employee
compensation, the full year inclusion of the U.S. insurance and credit
card businesses transferred to the segment in the third quarter of
2008, and investment in new branches contributed to the increase in
expenses. The average full-time equivalent (FTE) staffing levels
increased by 558, or 2%, from last year. This increase was due to the
full year inclusion of the U.S. insurance and credit card businesses and
increases in the insurance, business banking, and real estate secured
lending businesses. The efficiency ratio for the year improved to 50.0%
compared with 51.2% last year.
Wealth Management net income for the year was $597 million,
a decrease of $172 million, or 22%, compared with last year. The
decrease was primarily due to lower revenue in mutual funds driven
by lower average assets under management and lower average fees,
net interest margin compression, and lower income from the Bank’s
reported investment in TD Ameritrade. These declines were partially
offset by higher trading volumes in the online brokerage operation,
increased long-term mutual fund sales, and increased revenue from
new issues. The Bank’s reported investment in TD Ameritrade generated
net income for the year of $252 million, a decrease of $37 million, or
13%, compared with the same period last year. The return on invested
capital for the year was 13%, compared with 19% last year.
Global Wealth revenue for the year was $2,205 million, a decrease
of $123 million, or 5%, compared with last year. Asset management
revenue decreased due to lower average assets under management
and lower average fees. Online brokerage revenue declined slightly
due to decreases from lower interest spread revenue which was partially
offset by record trading volumes and higher ownership in Internaxx,
U.K. Advice-based revenue increased primarily due to the full year
inclusion of the U.S. wealth management businesses.
Non-interest expenses were $1,701 million in 2009, an increase
of $86 million, or 5%, compared with last year. The increase in
expenses was mainly due to the full year inclusion of the U.S. wealth
management businesses, higher ownership in Internaxx, U.K., higher
volume-related expenses, and our continued investment in growing
the sales force in advice-based businesses. These expenses were
partially offset by lower variable compensation impacted by business
results and prudent expense management.
Average FTE staffing levels increased by 445, or 7%, compared with
last year. The increase was mainly due to the inclusion of the U.S.
wealth management businesses, the addition of new client-facing
advisors and support staff, and increased processing staff to handle
a higher number of new accounts related to the Tax Free Savings
Account and higher trading volumes. The efficiency ratio for the year
worsened to 77.1% compared to 69.4% in the prior year, primarily
due to the decline in revenue and the inclusion of U.S. wealth manage-
ment businesses.
TD Ameritrade’s contribution to Wealth Management’s net income
was $252 million, down $37 million, or 13%, compared with last year.
TD Ameritrade’s underlying net income decreased US$160 million, or
20%, compared to last year, driven mainly by a 33% decline in asset-
based revenue and a 6% rise in non-interest expenses this year.
However, Wealth Management’s equity share of TD Ameritrade’s net
income declined 13% year-over-year due to lower base earnings and
rising segment allocations. This was partially offset by the positive
translation effect of a weaker Canadian dollar and the increase in the
Bank’s beneficial ownership of TD Ameritrade shares.
Assets under administration of $191 billion as at October 31, 2009
increased by $18 billion, or 10%, compared with October 31, 2008,
primarily due to net new client assets and market increases in the second
half of the year. Assets under management of $171 billion as at Octo-
ber 31, 2009 increased by $1 billion compared with October 31, 2008.
U.S. Personal and Commercial Banking effective the quarter ended
April 30, 2009, the reporting periods of all units within U.S. Personal
and Commercial Banking are now aligned with the Bank. Previously,
the results of TD Banknorth and Commerce were reported on a one
month lag. The results for the year include net income for the period
October 1, 2008 to October 31, 2009, while the results for January
2009 has been excluded from the results of U.S. Personal and Commer-
cial
Banking during the year.