TD Bank 2001 Annual Report Download - page 22

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HOW WE PERFORMED IN 2001
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
provincial tax rate reductions. As a result, the after-tax
impact of goodwill and intangible amortization for 2001 was
$629 million, compared to $722 million a year ago.
Beginning in fiscal 2002, we will no longer amortize goodwill
because we are adopting the new accounting standard on
goodwill and other intangible assets.
See Notes to consolidated financial statements page 74, note 21
During the fourth quarter of fiscal 2001, TD Securities
announced a restructuring of its operations, which resulted in
pre-tax restructuring costs of $130 million, primarily related to
employee severance. In fiscal 2001, we also incurred pre-tax
restructuring costs of $54 million related to TD Waterhouse and
$55 million related to the acquisition of Newcrest. Last year we
incurred pre-tax restructuring costs of $475 million related to
the acquisition of Canada Trust.
Salaries and employee benefits increased by $309 million,
accounting for a 5% increase in total operating cash expenses.
Approximately 2% of the 5% increase related to higher
performance-driven compensation tied to TD Securities’ strong
results, and TD Canada Trust contributed 1.4% of the 5%
increase in expenses, reflecting an increase in the number of
employees needed to support the retail branch conversions and
higher business activity at TD Canada Trust. An increase in
salaries and employee benefits at TD Wealth Management was
offset by a decrease in salaries and employee benefits at TD
Waterhouse. The decrease at TD Waterhouse largely reflected a
reduction in full-time equivalent staff to 5,992 from 8,319 a
year ago, evidencing the results of the TD Waterhouse
restructuring initiatives.
Occupancy and equipment costs increased by $189 million
or 3% of the overall 10% increase in total operating cash
expenses compared to a year ago. TD Waterhouse occupancy
and equipment costs increased by $47 million, reflecting its
continued investment in technology in North America and
abroad. The remaining increase in occupancy and equipment
costs was mainly due to a full year’s results for Canada Trust,
compared with nine months in 2000, and growth in business
activity at TD Canada Trust.
An increase in professional and advisory fees as well as
higher capital and business taxes accounted for a further 1% of
the overall increase in expenses. These professional and
advisory fees were mostly from ongoing technology projects in
TD Bank Financial Group.
EFFICIENCY RATIO
The efficiency ratio measures the efficiency of our operations.
It’s calculated by taking expenses (excluding non-cash goodwill
and purchase-related intangible amortization and restructuring
costs) as a percentage of total revenue (excluding special
items). The lower the percentage, the greater the efficiency.
See supplementary information page 35, table 8
In 2001, our year-over-year expense growth of 10% exceeded
the total revenue growth of 5%. As a result, our overall
efficiency ratio on an operating cash basis weakened to 64.5%
from 61.8%.
Because each of our businesses have different target efficiency
ratios, a shift in our business mix affects our consolidated
efficiency ratio. That’s why we believe the efficiency ratio is a
more relevant measure for TD Canada Trust, which achieved an
efficiency ratio of 60% compared to 61% a year ago, after
excluding non-cash items and funding costs for the acquisition
of Canada Trust. Our goal is to have an efficiency ratio of 58%
for TD Canada Trust in 2003 (after integration).
A WORD ABOUT TAXES
Service industries – particularly financial services firms – have
been the most heavily taxed in Canada, and capital taxes have
been a significant element of this taxation. Supplementary table
9 on page 36 lists the various taxes we’ve paid over the past
five years.
This year, the federal, Ontario and Alberta governments
enacted substantial corporate income tax rate reductions to take
effect over a number of years. Other provinces introduced
smaller reductions. As a result, the future tax liability related to
intangible assets was reduced by $290 million and the net
amount of other future tax assets and liabilities was reduced by
$75 million, for a net reduction of $215 million credited to the
provision for income taxes.
Alberta also eliminated the taxation of capital for financial
institutions. Ontario introduced a small reduction while Québec
announced plans to reduce capital tax in the future. If the
corporate tax reductions are maintained, Canadian income tax
rates on service industries will be in line with tax rates on other
Canadian industries.
Our effective tax rate (TEB) on an operating cash basis was
31% in 2001 compared to 39% a year ago. The decrease in the
effective tax rate reflected changes in our business mix, the sale
65
64
63
62
61
60
97 98 99 00 01
OPERATING CASH BASIS EFFICIENCY RATIO
(percent)
7
6
5
4
3
2
NON-INTEREST EXPENSES
(billions of dollars)
97 98 99 00 01