TD Bank 2003 Annual Report Download - page 22

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TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Management’s Discussion and Analysis20
Personal and Commercial Banking
A leader in personal and commercial banking
in Canada with approximately 10 million
personal, small business, insurance and
commercial customers.
Overall business strategy
•Deliver superior service and a premium brand-based
customer experience.
•Leverage premium customer experience to achieve superior
financial results over the long-term through:
– Better customer retention.
– Better customer attraction.
– Increased share of business from current customers.
•Grow under-penetrated businesses at above average
growth rates:
– Commercial banking.
– Small business banking.
– Insurance.
•Maintain a core competency in expense management.
•Disciplined execution of strategy and operational excellence.
Challenges in 2003
•Contraction in net interest margins due to a combination
of rate environment, competitive pricing and customer
preferences.
•Modest decline in personal market share.
•Lower branch revenue from sales of wealth management
products due to instability in equity markets earlier in
the year.
2003 Highlights
•Earnings growth of 15% driven by a three percentage
point spread between revenue and expense growth.
•Completed a series of process re-engineering initiatives to
permanently lower our cost base in order to meet earnings
targets despite declining net interest margins.
•Reduced personal lending credit losses and delinquency
rates through improvements in credit adjudication and
collection processes.
•Achieved a new high in customer satisfaction, as measured
by our Retail Customer Satisfaction Index (CSI).
•Acquired 57 branches and 144,000 customers from
Laurentian Bank on October 31, 2003 adding approximately
$2 billion to both lending and deposit volume.
Business outlook and focus for 2004
Revenue growth is expected to continue to be challenging
given the competitive environment. Accordingly, our focus
for the coming year will be to:
•Improve customer attraction rates and increase share
of business with our current customers:
– Increase focus on growing personal chequing accounts.
– Improve cross-sell rates by building on early successes
with a recently introduced sales-prompt system.
– Grow commercial and small business deposit revenue
at above average rates.
– Grow insurance revenue at double-digit growth rates.
•Continue to keep expense growth below revenue growth:
– Continue to invest in process re-engineering to reduce
errors and lower costs.
– Manage everyday costs by eliminating duplication
and redundancy.
– Achieve expense synergies by using our extensive branch
merger experience to integrate the Laurentian branches
into the TD Canada Trust network.
•Continue to build an enhanced retail risk management
platform with a staged implementation over the next two
years to further lower credit losses and improve pricing
for risk.
•Consider further strategic acquisitions and investments
that will grow our franchise.
Review of financial performance 2003
Personal and Commercial Banking reported strong earnings
growth in 2003 following modest growth in 2002. Cash basis
net income of $1,277 million for 2003 increased by $163 mil-
lion or 15% from the prior year. A three percentage point
spread between revenue and expense growth, lower credit
losses and a lower tax rate combined to improve earnings
significantly year-over-year. Cash basis return on average
invested capital increased to 18.5% from 16.8% last year as
earnings growth exceeded the modest 4% increase in invested
capital. Personal and Commercial Banking continued to drive
growth in shareholder value by generating economic profit of
$639 million during the year, an improvement of $201 million
over last year after a one percentage point reduction in the
rate charged for invested capital.
Total revenue grew 2% in 2003 compared with the prior
year. Solid real estate secured lending and deposit volume
growth, higher transaction-based fees and strong growth in
insurance income were the main contributors to revenue
growth. Revenue growth was reduced by lower net interest
margins, lower branch sales of Wealth Management products
and a contraction in commercial lending volume.